Customer retention is one of the important strategies which any company or organization must pay attention to (Colgate and Danaher 1996), from private companies to government enterprises, from service sector to financial banking sector (Trubik and Smith, 2000). The relationship between marketing and customer retention also play important role. At first, starting a normal customer, they, then, became an actual customer, loyal customer and finally, supporters (Christopher, Payne, and Ballantyne, 1991)
Normally, the existing client is always better than new customer who contributes in some activities including increase add value, fall costs and encourage world-of-mouth of communication (Gremler and Brown, 1998). For instance, Reichheld and Sasser (1990) proved that average customer value increases 125% if company can improve customer retention about 5%. In addition, they also recommended that profit in company rises with to the length of exist client.
Rust, Zahorik and Keiningham (1995) suggested that the cost of activities retaining existing customer is lower than that of attracting customer activities. For instance, the financial cost for keeping old customer may be less than five times acquiring new customers. In some cases, the bank might lose number of satisfied customers because the customer can retire or move. Thus, high level satisfaction does not mean high level loyal. If a bank has strong customer relationship, customers probably ignore competitor’s activities like advertisement, promotion and discount (Liljiander and Strandvik, 1995). Consequently, the objective of customer retention is to improve the cost of attracting new clients and lead to higher profitability, therefore Reichhed (1996) demonstrated main purpose of any company is minimum defection of profitable client as can as possible.
1.1 Background of Economy and Banking in Vietnam and Singapore
1.1.1 Development of Vietnam Economy
Vietnamis a developingmarket. Since 1986, Vietnamese government undertook open policy with outside trading and until now, Vietnam has many of innovative policies. In long term plans of Vietnam, this country has changed from ahighly centralizedpolicy economy to government oriented market economy. During the period from 18th to 19th century, economy of Vietnam has depicted a dramatic growth. In present period, Vietnam is engaging into global economy and becomes a member of this global house.
In among Asian nations, Vietnam becomes a leader market in agricultural exporter sector. In addition, Vietnam publishes many new policies which attract not only Asian investors but also investors on over the world
In 2010, Vietnam that is evaluated as small Southeast Asian economy has improved economic growth. According to Asian Development Bank, in 2010 the Vietnam economy growth was 6.7% due to the rebound in world trade and depreciation of the Vietnamese dong. This economy is predicted continue to grow to 7% in next one year. In 2010, the nominal GDP reaches $104.6 billion,with nominalGDP per capitaof $1,218. According to a prediction of Goldman-Sachs, Vietnam will become one of the biggest economies in 2025 with GDP of $436 and GDP per capital of 4,357 USD (Asian Development Bank, 2010). On the other hand, the Price Water House Coopers also forecasts that in 2025, Vietnam will witness a fastest growth of one of the new emerging economies with annual growth approximately 10% (Nawaz, 2008)
In conclusion, The Vietnam economy is developing step by step and joints with the global economy. The companies and government enterprises operate effectively and they also pay more attentions either in business development strategies and customer retention strategies. Thus, customer retention strategy is crucial in development and existing of all companies and government enterprise, especially in the now economy.
1.1.2 Retail Banking in Vietnam
From 1976, State Bank of Vietnam was established and it has become unique central bank of the country. State Bank of Vietnam has hold national financial responsibility and also assumed duties for the commercial banks. Since 1988, Vietnam has four important banks consisted of Bank for Foreign Trade of Vietnam (Vietcomebank), Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), Bank of Investment Development of Vietnam (BIDV bank) and Bank for Agricultural Development (Agribank) and now they still are largest own-state banks in Vietnam. In addition, the banking system in Vietnam has presence of Joint Stock Commercial Banks, Foreign Banks and other financial organizations. However, four own-state banks are exceeding in market share nearly 60 percentages about deposit and lending services. Joint Stock Commercial banks occupy approximately 25 percentages and other financial institutions are about 25 percentages (Vietnam Business New, 2010).
In short, in recent years, bank sector becomes key sector in Vietnam economy and motivates the economy develop. In which, deposit and lending services are primary services and
1.1.3 Development of Singapore Economy
Table 1: Gross Domestic Product of Singapore
Year Gross Domestic
($ millions) US Dollar Exchange Per Capita Income
(as% of USA)
2007 224,412 1.42 SGD Dollars 74.61
2008 235,632 1.37 SGD Dollars 73.71
2009 268,900 1.50 SGD Dollars 78.53
2010 309,400 1.32 SGD Dollars 82.13
Sources: International Monetary Fund, 2010.
In 2007, the economic growth rate of Singapore was 7.9% which was higher than establishing 0.2%. The value of GDP in 2007 was SGD 224,412 million and this figure in 2010 was SGD 309,400 million, increased nearly 38% compare 2007. According to International Monetary Fund, Singapore becomes one of the fastest growing economies in the world with the growth rate of 17.9% (International Monetary Fund, 2010).
Singapore is given a nickname “Singapore Model” which has a free market combines with good economic planning. Singapore is a state capital mixed economy with own approximately 60 percentages from the government in most important companies. The strength of Singapore economy is service, education, travel and financial sector. With position of intermediary trade, financial institutions and banks in Singapore become key industry and motivate for the development of the whole country. Thus, how to develop a good customer relationship and retain them for the long time is the purpose of all Singapore banks.
1.1.4 Retail Banking in Singapore
Singapore banking system presents concentration with 3 largest banks namely DevelopmentBankofSingapore (DBS), Overseas Chinese Bank Corporation (OCBC), United Overseas Bank (UOB) which control more than 67% of the market share of Singapore (World Retail Banking Report, 2008). Banking system in Singapore has many applying modern technology in retail banking. The demand of products or services also grows fast because Singapore is a trade country.
In deposit market, DBS, UOB and OCBC also exceed in the market among DBS is the leader with more than 25% market share and serves over 4 million customers under the brand name of DBS and POSB. UOB is the second rival of DBS in term of loan and deposit with occupation of 20% in the Singapore market. It not only provides comprehensive commercial but also personal financial services. Its key markets are Singapore, Malaysia, Thailand, China and Philippine. The last largest banks in Singapore are OCBC which held from 17% to 20% in loan and deposit of market (Wikinvest, 2008)
1.1.5 Comparison Deposit Services between Vietcombank, ACB Bank and Eximbank
Vietcombank was established on April 1st, 1963 as a State-owned Commercial Bank. In 2009, total assets are approximately VND 255.5 trillion and increased to 15.04% compare with 2008. In present, Vietcombank has total 321 branches and transaction offices with expansion network in over 13 cities and provinces. In 2010, Vietcombank continues to improve both internal and external like controlling internal and improving external investment opportunities. Since Vietcombank was listed on Ho Chi Minh Stock Exchange, the information about its business and operation is published gradually. The income before tax in 2010 was VND 5,004 billion and higher than 2009 by nearly 40%. This was lead to increase of ROE by approximately 26%. With wide network on over cities and provinces, Vietcombank can attract a large number of customers with total fund mobilized increased by 17.5% compared 2009. The mobilized funds reached VND 169,457 billion. In high competitive environment, Vietcombank copy with many competitors both in bank and non-bank but the customer deposit still grow of nearly 35% in 2009 which thanks to mobilization program and wide expanded branches (Vietcombank annual report, 2010)
Asia Commercial Joint-Stock Bank (ACB) was established on 04 June 1993. ACB bank is a best managed-bank in attraction of deposit, loan and effective services in Vietnam commercial banking system. By using about 173 brands or sub-brands on whole nation, the ACB plans to use the network as distribution platform for the wide range of products for the retail customer.
In 2009 the ACB capital raised VND 1,458 billion by conversion of bonds and issuance of bonus shares from a capital enrichment fund. After the capital increase, the circulation of bank is approximately 781,413,755 common shares. At the end of 2009, ACB became one of the largest joint stock banks in Vietnam with charter capital of VND 7,814 billion.
The development goal in profitability and growth is fulfilled by ACB sbank; therefore ACB achieved six award of “Best bank of Vietnam” in 2009 from six prestigious international financial magazines: Asiamoney, FinanceAsia, Euromoney, Global Finance, The Asset and The Banker. The lending and deposit market share of the bank also increased by 2.49% and 0.84%, respectively, over the figure at the beginning of the year (ACB Annual Report, 2009)
Table 2: Profitability of the ACB Bank 2009
Items 2009 2008 2007 2006
Pre-tax profit/ Average equity (ROE) 31.8% 2.1% 36.7% 2.6%
Pre-tax profit/ Average total assets (ROA) 53.8% 3.3% 46.8% 2.0%
Source: ACB Annual Report, 2009.
For the profitability, the pre-tax profit was reported about VND 2,838 billion which is higher than 5% the plan while the others profitability rations was reasonable. The average number of ROA remained over 2% and ROE ration around 31.8% which was higher than the long term commitment. Similarly, the figure of revenue was also increasingly diversified. As of the end of 2009, the income of credit activities, services and money market (gold, foreign currency and pre-tax profit) were also grow dramatically approximately 20%, 26% and 37% respectively.
In the present, the number of employees of ACB is nearly 7,000 but in 2009, ACB reduced the numbers of staff-company by 5% because of restructuring organization. Company staff decrease due to the transfer and streamlining of jobs, while the business scale of the bank increased by 45% to nearly 80% in respect to key areas. ACB bank completed this human resources program to target increase productivity and working result, evaluate exactly the employee ability in work place.
Vietnam Export Import Commercial bank (Eximbank) is established on May 24, 1989 under the name of VIETNAM EXPORT IMPORT BANK and being one of the first joint-stock commercial banks of Vietnam. Nowadays, it is one of the biggest commercial joint stock banks by owner’s equity in Vietnam. It presents in nationwide network in almost cities and provinces of Vietnam from Ho Chi Minh, Ha Noi and more than 124 branches in other cities. In addition, it also build solid banking relationship with over 735 banks in 72 countries worldwide like United State, England, France and etc (Eximbank annual report, 2010).
Eximbank is always aware that customers’ trust and support is the most important for its success. Therefore, customers’ satisfaction is focused all time on all services and products of bank and this becomes a target for Eximbank to be creative, innovative and dynamic. Eximbank always to enhance services quality as well as services style. With the its slogan “Behind your success”, Eximbank try to do the best thing for customers and considers customers’ success as that of its own.
Nowadays, in harsh competitive environment, the maintenance and retention of customers is not simple and easy at all. However, in last year, 2010, Eximbank gained nearly 86 thousand new customers, increasing total figure of customers having transaction relationship with the bank to 308,000 people, higher than 39% compare with 2009 (Eximbank annual report, 2010).
Eximbank was rewarded and arranged by many famous national and foreign organizations like Association of Development Financing Institutions in Asia and the Pacific (ADFIAP), JP Morgan Chase Bank) about its qualities and services. Like many other banks, Eximbank offers many different products and services; especially it was evaluated highly by deposit services. In many years ago, eximbank was named “The Best Bank in Vietnam in Deposit services” by the The Banker Magazine.
Generally, Vietcombank, Eximbank and ACB bank are large banks in Vietnam and achieve a lot of success in business process, especially in deposit service. Vietcombank is always leader market in deposit market. Cietcombank has wide network with more than hundred brand and sub-brand, good preside and strong brand name, therefore it can attract a large number of customers on the whole nation. According to Vietcombank annual report, the figure of deposit services of bank continues to increase over three years and usually doubled compare with ACB bank and more than five times compare with Eximbank. The total deposit of Vietcombank in 2008 was VND 157,067 billion and increased to VND 182,597 billion. Following ACB bank, which stood at VND 112,954 billion in 2008 was double than 2008. Finally, Eximbank is smaller than Vietcombank and ACB bank in customer deposit. The customer service in 2008 of the Eximbank was only VND 30,877 billion and rose to 52% in next two years (Vietcombank, ACB and Eximbank annual report, 2010)
1.1.6 Comparison between Deposit Services in DBS bank, UOB bank and OCBC bank
Development Bank of Singapore (DBS bank) is one of the largest commercial bank in Singapore and in Southeast Asia with the total asset about SGD$256 billion (2009). The market of DBS is 16 various countries, especially in Asia with private sectors such as retail banking, commercial banking and investment banking. The private customers are mostly from Singapore, Hong Kong, China, India, Indonesia, Malaysia, The Philippines, and Thailand. Two largest markets to DBS bank are Singapore and Hong Kong which occupies around 57% and 22% respectively in its profit. The revenue of DBS in 2009 was S$6.6 billion, higher than 9% compare with 2008. Input of DBS mostly from consumer and commercial deposit. In the present, The DBS bank has 80 branches and 930 Automatic Technology Machines (ATMs), it operates in Singapore under branch name DBS and POSB bank.
In second largest market, Hong Kong, DBS offers wide network of more than 50 branches and over 70 ATMs. Beside loan and deposit, mortgage and credit card also develop in this country. DBS also expand thank to acquiring and merge some banks from many various banks. For instance, in 2008, DBS acquires Bowa bank in Taiwan and opens more than 40 outlets in Taiwan. Furthermore, DBS is the first bank to incorporate in China which owns 13 branches in largest population country (DBS Annual Report, 2010)
The second largest bank is United Overseas bank (UOB bank) was established on 6 August, 1935. It presents in 19 countries and over 500 offices and main areas like Asia, Western Europe and North America.
The key products and services such as personal ﬁnancial services, private banking, commercial and corporate banking, investment banking, corporate ﬁnance, capital market activities, treasury services, futures broking, asset management, venture capital management, insurance and stock broking services. UOB offers wide range of product and service via expand network of branches, office and subsidiaries. UOB has strength in credit card and home loan, especially in small and medium firms.
UOB receives many awards and was ranged by many famous organizations like Moody’s Investors Service, Aa1 for the long term deposit and prime 1 for the short term deposit. In addition, UOB also focuses on community like children education and the art (UOB Annual Report, 2010)
The last one in Singapore is Oversea Chinese Bank Corporate (OCBC bank) which was established on 31 October 1932. OCBC operates in banking and finance sector with offering financial services and financial solution in consumer banking, business banking, international banking, global treasury and investment management.
In the present, the OCBC has a wide network of over 370 branches and presence in over 15 different countries such as Singapore, Malaysia, Indonesia, Vietnam, China, Hong Kong SAR, Brunei, Japan, Australia, UK and USA. More than 250 branches and offices present in Indonesia under brand name of OCBC bank. The key customers are individual, private and publish corporate.
The current asset of OCBC bank is S$151 billion in 2010, following to DBS bank in term of total value of asset. Like DBS, UOB also want to expand its network by acquiring small bank and financial organization in various countries. For example, in 2001, the OCBC bank acquires Keppel Capital Holdings Ltd and in next one year, in 2002, OCBC Bank and Keppel Tat Lee Bank were operationally and legally integrated (OCBC Annual Report, 2010)
Generally, DBS, UOB and OCBC are top banks in Singapore and many neighbor countries such as Malaysia, Indonesia, China, India and etc. Even though in recent years, the Asian countries have some difficulties in financial crisis but Singapore financial market develops, especial in deposit market.
DBS and POSB are leader market in term of deposit services. In 2007, the total of customer deposit in DBS and POSB was about S$153,572 million and increase to 20% in 2009. Following to UOB, which stand at S$106,967 million (2007) and increase to S$121,502 million (2009). Similarly, the figure of customer services of OCBC bank also increased dramatically from S$88,788 million and achieve at S$100,633 million (DBS, UOB and OCBC Annual Report, 2010)
1.2 STATEMENT OF PROBLEMS
In strongly competitive environment of banking sector, every bank attempts to attract more customers under various forms, especially in deposit services because it is considered a input material for all bank’s operation in Vietnam and Singapore. However, it is facing with some problems in process of deposit-taker.
Firstly, in global market, the competitions in battles are more intense between banks with each other and with non-banks financial organization (Hull, 2002). Secondly, the primary demand on deposit services is decreasing because people tend to invest other profitable sectors such as stock, real estimated or gold, etc. Thirdly, increase deregulation from government’s policies is also trouble to banks. Therefore, how to maintain stable capital input ensure bank’s business operation is private objective. In this research, researcher tries to find the key determinants of customer retention in banking sector between Vietnam and Singapore in order to help this industry to have overall look for keeping loyal customer.
1.3 RESEARCH OBJECTIVES
Based on mention problems, this paper tries to find some solutions for these problems through solving following purposes
- Firstly, analyze the influence of competitive advantage, customer satisfaction, customer value, corporate image and switching barrier on customer retention.
- Secondly, evaluate relationship between customer’s behavior intention and customer retention.
- Thirdly, evaluate relationship between customer loyalty and customer retention.
- Fourth, recommend on increase customer retention strategies.
1.4 SIGNIFICANCE OF RESEARCH
Customer retention strategy is the goal of many successful banks. Retaining customers means bank can earn more profit from its business. Moreover, based on this study result, the managers can understand customer’s need, want and expectation. Bank can know clearly what factor influence on customer’s decision whether they stay or leave current bank. Hence, bank managers can make suitable strategies to improve its weakness and keep customers. Generally, in scope of this study, it may help the bank managers operate more efficiently. This study not only benefit for bank manager but also for the researcher. Through this study, researcher knows clearly about bank’s operation and customer’s thinking via specific product or service. That is valuable experience for future studies.
1.5 RESEARCH QUESTIONS
In order to solve mention purposes, some detail questions need to build such as
- RQ1: Does competitive advantage influence the customer retention in banking sector of Vietnam and Singapore?
- RQ2: Does customer satisfaction influence the customer retention in banking sector of Vietnam and Singapore?
- RQ3: Does customer value influence the customer retention in banking sector of Vietnam and Singapore?
- RQ4: Does corporate image influence the customer retention in banking sector of Vietnam and Singapore?
- RQ5: Does switching barrier influence the customer retention in banking sector of Vietnam and Singapore?
1.6 RESEARCH HYPOTHESES
Based on above questions, the following hypotheses are therefore proposed
- H1: Perceived competitive advantage has a positive effect on customer retention.
- H2: Higher levels of customer satisfaction lead to higher levels of customer retention.
- H3: Higher levels of customer value lead to higher levels of customer retention
- H5: Higher levels of switching barrier lead to higher levels of customer retention.
1.7 ORGANIZATION OF DISSERTATION
This chapter presented an introduction to the research study. The purpose of this chapter provides an overview of this research, its significance and the background information of retail banking and customer retention. This chapter is used to direct the path for following chapters
Chapter 2 states the literature review of the previous researches. An overview of development of retail banking in Vietnam and Singapore is discussed. Moreover, general of deposit services and success element in customer retention strategies are also reviewed.
Chapter 3 depicts the research design used for this study. This related with description and justification of quantitative techniques, sampling and data collection.
Chapter 4 examines the finding of this study. This study will analyze the survey and interview data and compare with the established literature review. Finally, result will be concluded through insight analyzing and build a new model.
Chapter 5 summaries and concludes for the whole dissertation. Then, recommendations are given.
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