Customer Relationship Management Practices Among Banks

The objective of this paper is to propose a framework on the Customer Relationship Management (CRM) practices among banks. The conceptual framework is design based on two marketing theories:

(i) Relationship Marketing Theory, and

(ii) Customer Relationship Management Theory.

In this study, the concept of CRM is based on six important dimensions. These dimensions are:

(i) customer acquisition,

(ii) customer response,

(iii) customer knowledge,

(iv) customer information system,

(v) customer value evaluation, and

(vi) customer information system.

Review of the past literatures will be done to enable us to establish the theory and finally propose the conceptual framework to be used in this study.

Keywords: Customer Relationship Management (CRM), Relationship Marketing Theory, Customer Relationship Management Theory, conceptual framework

1.0 Introduction

Customer Relationship Management (CRM) begins with the concept relationship marketing introduced by Berry in 1983 to attract and to maintain the relationships between customers and organizations. Discussion about relationship marketing begins in the 1960s where the authors studied on consumers’ brand loyalty and store loyalty. Later, in the late 1970s researchers focus on industrial marketing and marketing channel to develop a framework and the theories are based on two groups of relationships; as buyer and seller (Moller and Halinen, 2000). The evolutions of marketing philosophy in the relationship between customers and organizations change the term relationship marketing to Customer Relationship Management (CRM).

Many researchers defined the phrase CRM in different ways. Brown (2000, pp.8) defined;

CRM as a process of acquiring retaining and growing profitable customers and business strategy that aims to understand, anticipate, manages the needs of an organization’s current and potential customers.

According to Ryals and Payne (2001), CRM is a management approach that use information technology (IT) to build a long term relationship with their customers and at the same time channel more profits to the organizations. Chen and Ching (2004) described CRM as a long term relationship that use customer database to identify which customer can give more profits to the organizations. Mylonakis (2009) recognized CRM as an innovative process to create a long term relationship with customers in order to get trust from customers towards organizations. Therefore, CRM is a comprehensive strategy and process which focus to establish, maintain and enhance relationship with customers and to create value for the organizations (Jham and Kalem, 2008).

CRM had been applied in areas such as banking, retail, insurance, communication and education. How far the practices of CRM in the banking sector which focus on providing service to their customers are yet to be seen? Banking sector is a customer oriented services where customer is the main focus. Therefore research is needed in this sector to understand more on customers’ need and their attitude so as to build a long term relationship with banks.

Based on previous studies, the study on the relationship between customers and banks in Malaysia is still lacking comparing the others country as well as Europe, United Kingdom, United State, and Australia (Jham and Kaleem, 2008). In this respect, researcher will study on CRM practices among banks from customers’ perspectives focusing in Kuala Terengganu which is situated on the East Coast of Peninsular Malaysia.

The objective of the study is to investigate the Customer Relationship Management practices among banks from the customers’ perspectives. Specifically the objectives are:

To examine CRM practices among banks from the customers’ perspectives.

To determine which CRM dimensions are most important in banking sector.

To identify whether there are gender differences in the perception of CRM practices.

There are three research questions to be answered in this study as follows:

What is customer perception on CRM practices among banks?

What are the most important CRM dimensions in banking sector?

Are there any significant differences in terms of gender towards CRM practices?

The paper is organized as follows; Section Two will highlight the literatures pertinent to the study followed by two theories of important in CRM. The next section will focus on the proposed conceptual framework and methods to achieve the objectives and finally, Section Five concludes.

2.0 Literature Review

In this section, review of the literature pertaining to Customer Relationship Management (CRM) will be highlighted for this purpose.

2.1 Customer Relationship Management

To understand more in CRM, we need to understand three components which formed the banking customer, relationship, and management (Peppers and Rogers, 2004). Park and Kim (2003) defined customer as a customer whose identification and contact information exist within the firm.

Mylonakis (2009) had done a research in Greek Bank to understand the marketing philosophy of CRM. This research includes the elements of banks relationships orientation, customer acquisition and retention, customers’ perception of banks and management of customer knowledge. Results from the interview with customers’ bank show that they were closing their current account with the banks because of the relationship problem with those banks. Stewart (1998) determined four major problems that customers faced namely charges and their implementation; facilities and their availability; provision of information and confidentiality; and services issues relate how customers are treated.

According to Stewart (1998), customers received negative response from banks pertaining to waiving charges, standard procedures and keeping quiet. Though employees are important to have good attitudes, managers also need to have these characteristics as formulate plans benchmark, set the target, and improve the companies’ performances time by time which they can complete to each others to show they are capable to have relationship with customers (Lu and Shang, 2007).

In banks, service quality is also very important. Service quality can be defined as the degree of excellent services provided by organizations towards their customers. Service quality to the banks covered four dimensions are empathy, reliability, assurance, and tangibles (Dutta and Dutta, 2009). Research on service quality had found that there was a gap between service quality expectations and perceptions of the customers. The most important dimensions in service quality are empathy dimension followed by reliability dimension, assurance dimension, and tangibles dimension with public banks on the first, private banks on the second and the last was foreign banks.

CRM should be involved every department in banking organizations to increase banks’ performance. Liang, et.al (2009) investigated CRM performance in the bank from three departments; department of loans, department of deposit and department of card credit. To examine the relationship between each department of deposit and department with their customers is important thing. The findings showed that department of loan has a good CRM performance with the word of mouth communication and positive image that relates to symbolic benefits and satisfaction. Department of deposit had shown an online system and infrastructure which strongly influence customer satisfaction. Customers in department of credit card were likely to be treating as high quality experiential benefits.

There are two things to utilize the relationship marketing paradigm when looking at bank customer retailer financial relationship (Colgate and Alexander, 1998). Firstly, relationship marketing must be valuable and viable both to customers and organizations. Second, relationship between customers and banks will increase the importance of retailers to maintain and enhance the overall relationships that currently exist with the customers. In addition, customers likely interact with the banks which satisfy their need by offering services and products. However, there are a large number of customers who satisfy with the banks but they felt that banks are not interested to satisfy their needs from customers’ perceptions (Mylonakis, 2009).

According to Longfellow and Celuch (1992) the involvement of customer showed the results that high involvement of customers to the banks will give positive perceptions towards employees’ skill, service provided, and operating hours. Most customers who involved with the bank in Midwestern City were older, favorable and less education compare to the findings of Mylonakis (2009) shown most customers in Greek Bank were younger, high education and income above the average.

2.2 How relationship exists?

Colgate and Alexander (1998) claimed that we cannot define a relationship but our partner will know whether the relationship exists or not. Relationship exists when customers have interaction with the organizations. Two characteristics should exist in the relationship as has to be mutually perceived and has a special status that goes beyond customers contact. Elements in relationship should be interdependence, long term orientation, commitment and trust (Damkuviene and Virvilaite, 2007). To be strong relationship, brand loyalty significantly influence customer behavior followed functional value as purchasing and word of mouth has directly effect to behavior (Wang, Lo, and others, 2004).

Relationship concepts can be defined into two perspectives. Firstly, relationship is only type of interactions or repeated actions, transactions and episodes and second, relationship as a meaningful emotional bond with an organization (Damkuviene and Virvilaite, 2007). According to Mylonakis (2009), to more understanding the relationship, the managers should understand more their customers in terms of needs, behavior, satisfy and perception towards the services and products where customers are important assets to them. Managers should identify the marketing segmentation as one of the process to build and maintain a long relationship between bank and customers. To build a long relationship with the customers need to have these characteristics as trust, commitment and satisfaction (Mylonakis, 2009; Stewart, 1998).

3.0 Theories Related to Customer Relationship Management

The relationship marketing theory is based on market and network (Moller and Halinen, 2000) while customer relationship management (CRM) is based on the justice theory to explain the customer involvement as these elements influenced satisfaction, loyalty and trust involve in this theory (Wetsch, 2005). From these theories, we will come out with a framework adopted from previous empirical works.

3.1 Relationship Marketing Theory

There are three types of relationship marketing as database marketing, interaction marketing and network marketing. Database marketing as internal marketing is the use of IT to increase customer loyalty, profits and customer satisfaction. Interaction marketing as external marketing assets for example employees uses to develop and facilitate relationships. According to Moller and Halinen (2000), there two basic of relationship marketing (RM) theory called market based and network based where four source of relationship marketing identified as marketing channel, business marketing (interaction & networks), services marketing and database marketing & direct marketing. RM theory is base on exchange characteristics and exchange context.

3.2 Customer Relationship Management Theory

According to Westch (2005), Customer Relationship Management (CRM) theory is a combination of relationship marketing and customer centric where justice theory had applied in CRM theory. Justice theory involves the elements of trust, satisfaction, and loyalty where these elements should have in the relationship between customers and organizations. There are three types of justice theory called distributive justice, interactional justice and procedural justice. Distributive justice means the perception an individual holds the fairness of outcome. Second types of justice theory is interactional justice is perceived fairness of the interpersonal interaction in decision process and the third types is procedural justice is a fairness of the process.

3.3 A Conceptual Framework

A conceptual framework in this study is based on Lu and Shang (2007) who identify six CRM dimensions making up 30 CRM attributes under customer acquisition, customer response, customer knowledge, customer information system, customer value evaluation, and customer information process. In this study, we are going to use the six CRM dimensions to apply in banking sector. Figure 1 show a conceptual framework of CRM practices among banks from the customers’ perspectives.

CRM DIMENSION

Customer Acquisition (7 items)

Customer Response (4 items)

Customer Knowledge (5 items)

Customer Information System (4 items)

Customer Value Evaluation (2 items)

Customer Information Process (3 items)

Customer Relationship Management Practices

Figure 1: A Conceptual Framework of CRM Practices

These six CRM dimensions cue described below:

Dimension 1 (Customer Acquisition):

The bank has flexible measures for customers’ urgent requirements; the bank has different marketing mix for target customers; the bank would use customer information to develop a new market; the bank would apply customer information to marketing planning; the bank provides a variety of service items and information; the bank provides sales rebates for customers; and the bank provides solitary services to meet customers’ requirement.

Dimension 2 (Customer Response):

The bank uses phone calls, e-mails, and personnel visits to communicate with customers; the bank rapidly responds to customers’ problems, suggestions, and complaints; the bank would initiatively understand customers’ service requirements and expectations; and the bank has good reputation, therefore, customers would initiatively enquire about bank’s services.

Dimension 3 (Customer Knowledge):

The bank is knowledgeable about how to obtain main customers; the bank understands main customers’ service requirements; the bank has fruitful capabilities to obtain new customers; I often introduce other customers to purchase bank’s product and services; and I often insist on using bank’s services and product.

Dimension 4 (Customer Information System):

The bank is capable of using their computer system to categorize targeted markets; the bank’s computer system is capable of organizing classifying interactions between sale representatives and customers; the bank has a computer system sufficient to handle customers’ information; and the bank has a management system to check transactions and customer relationships.

Dimension 5 (Customer Value Evaluation):

The bank would analyze individual customer’s profit contribution; and the bank would analyze customer types and behaviors to identify customer value.

Dimension 6 (Customer Information Process):

The bank’s computer system is capable of storing, searching and analyzing customers’ data; the bank’s computer system is capable recording customers’ purchases and services; and the bank has location advantages.

4. Data and Methodology

This study is descriptive study with the purpose to investigate the CRM practices among banks from customer perspectives. The sample in this study consisted of customers’ of banks located in Kuala Terengganu. Customer was randomly selected using the convenience sampling method which was easier to get the data. The questionnaire was adapted from Lu and Shang (2007). However, we selected only 25 items instead of 30 items suggested by Lu and Shang (2007) to suit our study. These items were measured using a five-point, Likert Scale with following anchors; 1=strongly disagree, 2=Disagree, 3=Neutral, 4=Agree, and 5=strongly agree.

The questionnaire design divided into two sections which section A contents six CRM dimensions with 25 items and section B involved demographic profile of respondents’ contents 5 questions. The specific items were:

Questions 1.1-1.7 contained to the bank has flexible measures for customers’ urgent requirements; the bank has different marketing mix for target customers; the bank would use customer information to develop a new market; the bank would apply customer information to marketing planning; the bank provides a variety of services items and information; the bank provides sales rebates for customers; and the bank provides solitary services to meet customers’ requirement.

Questions 1.8-1.11 referred to the bank uses phone calls, e-mails, and personnel visits to communicate with customers; the bank rapidly responds to customers’ problems, suggestions, and complaints; the bank would initiatively understand customers’ service requirements and expectations; and the bank has good reputation, therefore customer would initiatively enquire about bank’s services.

Questions 1.12-1.13 comprised to the bank would analyze individual customer’s profit contribution; and the bank would analyze customer types and behaviors to identify customer value.

Questions 1.14-1.18 consisted to the bank is knowledgeable about how to obtain main customers; the bank understands main customers’ service requirements; the bank has fruitful capabilities to obtain new customers; I often introduce other customers to purchase bank’s product and services; and I often insist on using bank’s services and products.

Questions 1.19-1.22 contained to the bank is capable of using their computer system to categorize targeted markets; the bank’s computer system is capable of organizing and classifying interactions between sales representatives and customers; the bank has a computer system sufficient to handle customer’s information; and the bank has a management system to check transaction and customer relationships.

Questions 1.23-1.25 referred to the bank’s computer system is capable of storing, searching and analyzing customers’ data; the bank’s computer system is capable recording customers’ purchase and services; and the bank has location advantages.

Section B involved the gender; age; education level; employment and current bank that respondents most preferable.

The statistical package SPSS version 12.0 will be used for data analysis in terms of factor analysis, Cronbach’s Alpha, one sample t-test, and Chi-Square test. A frequency distribution was used to describe the sample. Cronbach’s Alpha was established to determined reliability of the instrument used in the study. Mean and standard deviation will compute to examine CRM practices among banks. Correlation will be used to determine which CRM dimensions are most important in banking sector. Finally, chi-square was applied to the data set to test to identify whether CRM practices among banks differ between male and female.

5. Conclusion

The main objective in this study is to investigate the Customer Relationship Management (CRM) practices among banks from customers’ perspectives and to examine CRM practices among banks from the customers’ perspectives. Another objective was to determine which six CRM dimensions are most important in banking sector and to identify whether there are gender differences in the perception of CRM practices among banks. There are three research questions to be answers are (i) What is customer perception on CRM practices among banks? (ii) What are the most important CRM dimensions in banking sector? (iii) Are there any significant differences in terms of gender towards CRM practices among banks?

From the theory, we design a conceptual framework of CRM practices among banks from customers’ perspectives. These six CRM dimensions are customer acquisition, customer response, customer knowledge, customer information system, customer value evaluation and customer information process. There are two theories called Relationship Marketing Theory and Customer Relationship Management Theory in this study. Customers bank are been our respondents by using convenience sampling which more accessible and easier to collect data. The method use in this study is questionnaire survey with 25 items in section A: CRM dimension and Section B include five questions about demographic profile.

This proposed conceptual framework of CRM practices among banks and questionnaire will be tested using 20 respondents in different characteristics as a pilot to test validity and reliability of instrument used.

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