FACTORS INFLUENCING CUSTOMER LOYALTY IN THE NIGERIAN BANKING INDUSTRY
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1.1. Background of the study
Nigerian banks in the face of increasing competition are currently facing enormous challenges which have made survival increasingly difficult. To survive and be successful providers of financial services, it is extremely important that the present environment should go with a new management order which will offer the customer satisfaction and make better business performance. It is evident that today customers have increasingly become so enlightened and aware of their importance that ignoring them in search for competitive advantage can be suicidal for banks. Therefore banks must brace up to the challenges in a bid to provide an effective customer service.
Banking operations in Nigeria started in 1892 when African Banking Corporation opened it’s first branch in Lagos to finance the shipping business of Elder Dumpster and Company which was operating steamship services between Liverpool and the West African coast. The Bank of British West Africa took over the activities of the African Banking Corporation in 1893 (now First Bank of Nigeria Plc). In 1917, Barclays Bank (now Union Bank of Nigeria Plc) was established. Shortly year, many more Banks were established, some of which are the British and French Bank (now United Bank for Africa Plc) established in 1949, the Industrial and Commercial Bank established in 1929, National Bank of Nigeria Plc established in 1933, the Agbonmagbe Ban (now Wema Bank) established in 1945, Nigeria Penny Bank established in 1940, Nigeria Farmer and Co-operative Bank Plc established in 1947 and so on. (Okoh, S. E. and Unugbro, A. O. 2003).
The 1930’s and 1940’s witnessed some bank failures which led to the setting up of the Patron’s Commission of 1948 which formed the bedrock of the Banking Ordinance of 1952. Even since then, commercial banks dominated the financial system and constituted the largest group in the financial sector. On the attainment of independence in 1960, there were twelve (12) banks with a total of 160 offices. There was a rapid growth in the 70’s and by 1977, there were 19 banks with 492 branches. By 1987, the number of commercial banks had grown to 48 with 1714 branches. (Nwankwo, 1991).
Since independence banking industry has grown tremendously and serves the greater proportion of the general public. With the liberalization of bank license in 1980, a more competitive environment and efficiency in the banking system was promoted. The federal government budget of 1986 which introduced economic recovery was subsequently articulated into the Structural Adjustment Programme (SAP) was a deliberate response to distortion which has been prevalent in the Nigerian economy since the “oil boom” of the 70’s. The reform process of this programme led to the introduction of measure and instruments to deregulate the practice of banking. With this, new banking techniques and range of products offered to enhance economics efficiency and effective resources allocation introduced through service driven competition resulted in product introduction and adoption. With regard to the above development, individual banks have to carve a niche themselves and decide the kind of customer, prices of their product/services appropriating as well as promote such services in various ways that the target will be aware of what is in offer. This concept of customer service must be given priority since the era of arm chair banking is over (Anyafo, 1998).
1.2 Statement of the problem
The relevance of the customer in every business organization cannot be overemphasized having known that the customer is the lifeblood of every business survival. One of the major problem faced by the banking industry is the problem of effective customer services, when once this problem is tackled then the banking industry will flow effectively.
1.3 Objectives of the study
The main objective of the study is to determine the factors influencing customer loyalty in the Nigeria banking industry. However for the successful completion of the study, the following sub objectives were put forward by the researcher:
(i)To examine the factors that influence customer loyalty in the banking industry.
(ii)To determine the types of customers that patronizes the banks.
(iii)To evaluate how the locations affects the customers patronage.
(iv)To determine the various products and services offered by the banks.
1.4 Research question
For the successful completion of the study, the following research questions were formulated:
(i)What are the ways of examining the factors that influence customer loyalty in the banking industry?
(ii)How can the types of customers that patronizes the banks be examined?
(iii)How can how the locations affects the customers patronage be evaluated?.
(iv)What are the means of determining the various products and services offered by the banks?
1.5 Significance of the study
The importance of this study to the financial institutions, investors, individual and valuers cannot be over emphasized. It is perceived that at the completion of the study, the findings will be of great importance to the management of banks as the study gives them an insight to the factors that influences customer loyalty in the banking industry. It will also enlighten the public on the topic and provide further literature in the field of auditing and investigation. Also the research work will be handy and it will add to our knowledge generally.
1.6 Scope and limitation of the study
The scope of the study is to determine the factors influencing customer loyalty in the Nigeria banking industry and the study was carried out within the Benin-Banking environment with specific inference to Union Bank plc, First Bank plc, Guaranty Trust Bank plc and Oceanic Bank plc. The above mentioned banks represent two old generation banks and two new generation banks in the banking industry.
However, the study has some constrained and limitations which are:
(a)Availability of research material: The research material available to the researcher is insufficient, thereby limiting the study.
(b)Time: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
(c)Finance: The finance available for the research work does not allow for wider coverage as resources are very limited as the researcher has other academic bills to cover.
1.7 Definition of terms
It is a circumstance, fact or influence that contributes to a result.
Influencing is a necessary skill for anyone in business, whether a person is a manager or a salesperson. The ability to bring others to your way of thinking without force or coercion is important in business.
The customer-centric marketing encourages firms to seek individual customer’s needs and wants. This trend will ultimately lead to firm’s increasing marketing productivity and market diversity in household and business markets. Customer loyalty is an important objective for strategic marketing planning and it represents an important basis for developing a sustainable competitive advantage.
A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets. Due to their importance in the financial stability of a country, banks are highly regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of capital standards known as the Basel Accords.
Designing and delivering superior customer value is the key to successful business strategy in the 21st century. Value reigns supreme in today’s marketplace and market space; customers will not pay more than a goods or service is worth. Customers are increasingly searching for and demanding value in products and services. Cohen et al. (2007) argued that customer value is more viable element than customer satisfaction because it includes not only the usual benefits that most banks focus on but also a consideration of the price that the customer pays. According to Day (1994), “Perceived Customer Value = Perceived benefits – Perceived cost”. The core concept of the definition is benefits versus sacrifice. Roig et al. (2006) pointed out that the benefits component would include the perceived quality of the service and a series of psychological benefits.
Herbig and Milewicz (1993) have defined reputation as an estimation of the consistency over time of an attribute of an entity. An organization can therefore have numerous reputations (i.e. price, product quality and innovativeness reputations) and/or global reputation. According to Casalo et al. (2008), reputation must be understood as referring not only to the website but also the entire organization. The website is simply the main communication channel between consumer and organization. A more positive reputation tends to develop sales and market share and to establish greater customer loyalty.
Gefen (2003) defined habit is what an individual usually does when there is a behavioral preference in the present. Most habitual behavior arises and proceeds efficiently, effortlessly and unconsciously and habit can predict customers future behavior of customers’ repeat purchase from the same store through force of habit. Gefen (2003) found that habit alone can explain a large proportion of the variance in the continued use of a website. When habit is well entrenched, people tend to ignore external information or rational strategy.
Chiou (2004) found that perceived trust had direct and positive impacts upon the loyalty of customers. Trust has been defined as the willingness to rely on an exchange partner in whom one has confidence. Trust causes dedication because it reduces the costs of negotiating agreements and lessens customers’ fear of opportunistic behaviour by the service provider. In social psychology trust is considered to consist of two elements: trust in the partner’s honesty and trust in the partner’s benevolence.
The concept of service quality is linked to the concepts of perceptions and expectations. Service quality perceived by the customers is the result of comparing the expectations about the service they are going to receive and their perceptions of the retail baking’s actions. If perceptions exceed expectations, the service provided by the retail banks will be considered excellent. According to Zeithaml et al. (1998), the existence of a relationship between service quality and Customer retention at a higher level indicates that service quality has an impact on individual consumer behavior where superior service quality leads to favorable behavioral intentions and while unfavorable behavioral intentions are a consequence of inferior service quality.
The satisfaction is yet another important trait which must be taken in to account when shaping the overall loyalty of the customers towards their service providers. In banks, the customers ask themselves about the level of the services and decide about the lack of importance given to them and decide about repurchase behavior after using the services. Dissatisfaction usually occurs when the pricing issues are not suiting the needs of the customers. In banking industry also, the interest rates on loans and charges on the usage of online services such as ATM machines and the processing fee is a major bone of contention between the bank and it’s customers. If the customer thinks that the charges are more than the needs he churns. The customer initially tries to compromise with the bank but at a certain point he decides to defect. Nowadays, it has become too easy to open an account in any other bank so the switching cost is also minimal. These all factors help customers to switch from the current bank. The response of customer plays a pivot role in the overall satisfaction graph of the provider. If a customer is satisfied, the loyalty injects automatically and the customer remains with the current providers for a long period of time.
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