Background of study
In UK mainly all the banks tries to offer various types of banking products and services in market but ultimately they are of similar kind and due to which the competition is between prices and quality. In UK the number of the banking organization is very high and this depicts that all the banking organization are at stage of maturity in industry lifecycle. The fight between the banks is regarding market share and due to which they tries to retain a huge number of customers in their business. Changes in prices do not impact on the existing customers as they are not conscious about the pricing. Mainly new customers are conscious about the pricing of products and services. The perception of the customers can be influence by various types of factors. It includes the business strategies, marketing mix, range of products and services, trust of customers, prices, human resources, innovative services and many other products and services as per the need of customers (Hsin-H., Kandampully,. J. and Juwaheer, T.D. (2009). There many studies and researches which are performed on customer retention of banking sector. The current research report will focus on the factors which influence the loyalty of the customers. The report will also focus on the different traits of the customers such as gender, age, class, income, legal entity and other factors of customer loyalty which directly influence the decision making of customers. Study also comprised a case study which is in context of Royal bank of Scotland, one of the famous banking organizations of UK. These will include the strategies of customer loyalty of RBS that how bank achieves customer loyalty and also include the outcome of their strategies.
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In current scenario of this rigid competition in banking industry, one of the leading business strategies which are used by the banks is Customer Retention strategy. Banking organizations are now trying to recognizing those factors which enhance the customer loyalty in market (Palmantier et al., 2007). The reason behind using the customer loyalty is that it is one of the key factors which increase the market share and competitive advantage in this sector. Banking sector is also similar to other sectors where the employees’ wants to recognize the factors which impact on the loyalty of customers, as the costs is very high for attracting the new customers in compare to serve the existing customers of company. Due to which the management of the bank tries to retain their existing customers and strive to improve the loyalty of customers towards bank (Ndubisi, 2007). In order to accomplish the above tasks, a primary research study is done and for this data is accessed from the sample of 100 participants and after which their responses are examined. For collection of data, questionnaire method is used. By using the different statistical tests the outcomes of the study will be clearly explained about the factors which influence and existence of their relationships. One of the major limitations of the research report is limitation of time due to which the sample size which is selected for the study is very small. A small sample size of managers and customers of only one bank is selected which is case study part of report. However other than this, the entire outcomes of this study have some valuable results and this may contribute to some future researches and studies which are based upon its significance.
Banking sector is one of the leading sectors of the UK’s economy as its main aim is not only for promotion of its business by capital provisions and creation of credit in the economy. It also aims to conduct various types of functions which are related to the enhancement of lifestyle of public and for the prosperity of society. Like many other industries of the market, in banking industry also there is tough competition and due to which many private banking organization wants to get maximum number of customers and retain them for longer period of time. In current scenario the customer loyalty is one of the significant concepts in organizations and one of the best examples is banking industry.
Economic recession has created many challenges for the banking industry and one of the main challenges in this industry was to retain the valuable customers of the bank. To overcome form this challenge banks have tried to meet the demand of their customers. Banking sector has bears a stiff and tough completion among the different banks of UK. Products and services in the banking industry are somewhat similar and to fight with the stiff competition in the market, it is essential that banks come with some differential advantage. It is depends upon that what the bank offers to customers with the four P’s marketing, whether it should be in price, product, and place or promotion. Mostly the products and services in which the bank deals are of similar nature and due to which the customers of this industry does not increase at higher rate. Other than this the cost of acquiring the customers of banks is also very high. It leads the banks to create some factors through which they can retain their existing customers for longer term of period in competitive market (Stephan A. Butscher, 2002, 206).
RBS – A Brief Profile
Royal Bank of Scotland is one of the world’s multinational banks which deals in the business of offering retail banking products, financial services, corporate banking, insurance service and also the services related to wealth management. RBS was founded in the year 1727 and also one of the oldest banks of United Kingdom. It also becomes one of the primary financial services groups at international level. In year 2000 the bank has takeover the National Westminster Bank and followed a path of continuous growth at global level. The bank has strong presence in UK and also has offices in many other countries of the world such as Europe, USA, and Asia etc. RBS has become second largest bank in Europe in year 2002 and also has become fifth largest bank in world as per the market capitalization.
The bank was founded in the year 1727 by Royal Charter in Edinburgh and its first branch was opened in Glasgow in 1783 and further the RBS has expanded its large network of branches in Scotland during the period of nineteenth century. The bank has opened its first branch office in London in 1874 and after the year 1920 through its acquisition process they had made key existence in the England. In 1970 RBS has merged with Edinburgh-based National Commercial Bank of Scotland and also includes the former bank of National Bank of Scotland which was established in the 1825. The bank also has acquired Commercial Bank of Scotland which was established in 1810 and this facilitates the bank to acquire forty percent of banking business in Scotland. RBS also increased its presence in England and Wales as they also merged under the banner of Williams & Glyn's Bank.
During the year 1980, RBS has diversified its business by opening an innovative car insurance company and in 1990 the bank has refocus on its core banking business that war retail banking. In year 2000, RBS has created the history in British Banking where the bank has takeover the business of National Westminster Bank. It was one of the biggest acquisitions.
Aim of Study
The main aim of the study is to examine the various factors which contribute towards consumer loyalty. Through developing a relationship model between the customer loyalty and its different groups of customers, they are segmented on the basis of gender, age, income, occupation and demographics.
Objectives of Study
Below some research objectives are framed on the basis of aim of the report
- To identify the different factors which influence the customer loyalty in business of banking
- To make the ranking on the basis of the significance of this factors and up to what extent they play their role in banking sector of UK
- To decide that whether there is any difference between the group of customers in context to perception regarding the factors of customer loyalty
Justification of Study
There various studies and researches which are performed in the field of customer loyalty. The current study is based on justifying the results which are entirely based on the findings and results of the report. It facilitates the researcher to know the strategies and plans used by Royal Bank of Scotland. Further it helps to examine that how the bank meets with the challenges regarding customer loyalty and fulfill the different customer segments of market to remain loyal in banking industry. Research of the study will help to recognize the customer’s perception towards the RBS and loyalty of customers. It also includes the factors which are used by the Royal Bank of Scotland in order to make them loyal. The study includes the various factors which makes the customer loyal towards one specific bank. The findings and results of the study are anticipated to analyze the perception of different groups of customers. It is anticipated that the strategy of the bank that is relationship management mainly lures the young customers of bank and on the other side the cost saving schemes of bank may attract the old customers. It is also expected that customer satisfaction plays significant role for the high income level customers whereas the customers who belong to low level of income may considered as major barrier to switch towards the factors which related to the factors of loyalty. The present study will initially help the management of bank in recognizing the main factors of customer loyalty and the information related to the customers that they become loyal towards the bank. It facilitates them to design the strategies for their business. The report will also assist the RBS in examining the customization of the services which are based upon the perception of different group of customers towards the loyalty. Study will also help to readers to access significant amount of information about the customer loyalty that how it is important for the business and its factors. The current research report will also create the opportunities for the future research and also open a new avenue to introduce more issues for future research.
Another sound rationale behind this study is related to the consumer behavior, as some managers consider the consumer behavior is important for large organizations only. But it is not true that big organizations are affected by consumer behavior as they also have direct and indirect impact on the success and failure of the organizations (M. Joseph Sirgy, 1982). After understanding the factors related to the consumer behavior, the bank will be able to recognize and modify their products and services, so that they can add more values to. It also assist the bank in its effective marketing strategies regarding the customization of products and services. One of the main reasons behind understanding the behavior of customers is to enable the customer to understand about the features of product and to purchase them. Consumer behavior is comprised of the activities which satisfy the desired needs and wants of customers. Customer purchases the product or service due to several reasons. It includes their needs, wants, internal attitudes, decision making, perception and many other factors.
Decision Making Process as Justification of Study
The above facts shows that customer loyalty is directly associated with the customer behavior which attract the customers to again by the product or service from that particular bank. The decision making process of the customers makes direct impact on the loyalty of customers. Below the decision making process of six different steps is detailed (David Ray Anderson, 2012).
- The first stage is recognition of need which occurs due to outcomes of internal and external factors. It may be depends upon the needs and wants of the customers or may triggered due to change in saving and investments.
- After the recognition of need and demand, the customers want different products or service which satisfied their need. There are also other solutions which are available nad fulfilled their desired needs.
- There are various options which are based on different criteria and on the basis of which final decision is made by the customers.
- The fourth step about the product or service which is purchased. At this step if any wrongful information is detailed then ti may affect the entire decision making process of the consumers.
- Finally after the purchasing the product, it utility is measured and on the basis of this its outcomes are compared with the expectations. One of the important parts in this step is the cognitive dissonance which is related with the post purchase analysis.
- In the last step the final decision is made which is linked with loyalty of customer that is to remain with previous service or to switch towards another seller.
Relationship between Customer Needs & Loyalty
The needs and expectations of the customers depict about the level of customer satisfaction and customer loyalty is directly linked with the satisfaction level of customers. Below the needs and expectations of the customers are detailed.
- Basic Needs: They are basic needs of the customers and if they are not satisfied they will creates dissatisfaction as the basic in nature.
- Expected Needs: It is one of the significant part of customer need and it is measured on every purchase as they had expected and also aware about their needs
- Excitement Needs: They are unconsciousness and are lifted by the organization. if they satisfy the need of customers then it increase the profits and makes the customers more loyal towards the bank.
Main Concepts identification and discussion
Customer loyalty can be defined as a process which is utilized for creation of a competitive advantage (Gable, M. Fiorito, S.S .&Topoal, m.T (2008), 32-49). Here, the process of Customer loyalty and retention begins when first time service if provided by bank to its clients. It continues until and unless the consumers have a relationship with bank. Creation of consumer loyalty has been found to exceed the organizational values that begin from increasing profit followed by managing the relationships. Here, there is requirement to have a clear cut understanding about every stage of customer life cycle in order to provide success to banks in a longer period of time. These stages are inclusive of targeting, acquisition, followed by developing relationship so as to aid towards process of consumer loyalty. There is a presence of two crucial factors that play a supportive role towards technological advancement as well as a creation of healthy culture (Bartikowski, B. Walsh, G. & Beatty, S, .Journal of Business research). An overall improvement in consumer loyalty may cause an increase in profits for the bank. It is when consumer stays with the bank for longer duration then there is a creation of trust between consumer and company. This discards the matching of prices with competitors. Hence, the loyalty of consumers is all about pleasing them, followed by provision of good service quality and responding to feedback in the best possible manner.
Different consumers exhibit different kinds of behaviour on the basis of age, income, demand, and purchasing power. These behaviour can be regarded as unpredictable and have been attributed towards making choice to purchase heterogeneous products as well as service offering. Here, the concept of quality stands differently for different people. In this regard, there is a presence of five different factors that can be attributed towards building up consumer behaviour.
Individual traits and characteristics are there to decide on buying habits of individual so as to be influenced by lifestyle, age, income as well as occupation. These have been found to vary from one to other individual. They are further based on characteristics such as age, income, interest as well as environment.
Psychological factors have been found to begin at motivation followed by ending towards attitudes. Here, the motivational factors can be considered as a major basis towards developing the perception of clients while carrying out the entire process of motivation (Wen-Chin Tsao, 2010, 1800-1812).
Social environment in inclusive of families as well as group of friends that play a pivotal role towards influencing the buying patterns exhibited by consumers while making any purchase decision. These are inclusive of neighbours, friends among others. The groups have been found to put a direct influence on fashions and behaviours exhibited by individuals in terms of buying. In this regard, the social environment has been found to begin with family so as to set a pattern for social, emotional and other values to be obeyed by them.
Culture has been found to pose a direct impact on the buying behaviour exhibited by consumers. This is inclusive of the ideas, fashion as well as value statement made by consumer to communicate the variables with others.
Why Customer Loyalty is advantageous
Attracting a new customer in banking organization is a expensive task and also requires huge time. But on comparing the new customer for bank, retaining the existing customers of bank is more beneficial for the business. Banking organization does not need to invest a huge amount towards the awareness of existing customers of their business. The customers who are loyal towards the bank will minimize the problem for bank and also helps the business in planning of program related to the relationship management. On the basis of the above merits banks tries to use some new strategies so that they can make their customers loyal regarding the products and services offered by them (Molina et al., 2007, 253-271). The benefits of the loyal customers are that it increases the business of company, to delight the customers, and to increase the profitability of the banks.
Sources of building customer Loyalty
- A team of trained and skilled human resources
- Programs of relationship management
- Tendency of the company towards knowledge management
- Prevention of customers attrition
- Investment in field of customer analysis
Importance of Customer Loyalty
Loyal customers are those customers of the bank has very greater chances to become loyal regarding the chain of referral. It is very important for the organization in terms of profitability. Loyalty of the customers not only affects on the profits of the company but also affects on the other side of income statement. It reduces the costs which are related to the services which are offered to the loyal customers. Considering on the issues and demands of the loyal customers they are very limited and the feedbacks given by them helps the banks to enhance their products and services in market. But is very difficult to measure the customer loyalty in context to economic terms but considering on the literature reviews, it depicts that it is advantageous in all the terms.
Factors of customer loyalty bin banking
There are different opportunities through which the loyalty can be avail in banks and it also increases the effectiveness and competence. This can be done in transaction facility at bank window, ATM facilities, online service, call, customer care and many other services like actions taken by the bank on demand of customers. There are also many other factors such as accessing the reviews and feedback from the customers, questionnaire to improve the services in bank. The feedback taken from banks will help to analyze in banks (S Kim, 2011).
In banking the quality of the service is one of the important factor and these days organization focuses more on enhancing the quality of service. It is generally done through the offering of exceptional services, using of advance technology and other processes. It also includes the huge investments in implementation of these factors but minimizes the number of complaints and negative feedbacks.
Customer Loyalty vs. Satisfaction
Customer loyalty is the part of the customer satisfaction only and it is accomplished by serving the needs and demands of the customers in context to the products which are offered by the organization. Customer loyalty is the process through which business offers the exceptional services and also includes the differentiation feature. Banks can achieve this standards by offering the services and environment which supports customer loyalty (Yi- Shun Wang, Shun Cheng Wu., 2011, 350-359). The other criteria for setting the customer loyalty are through the customer satisfaction in different segments of people. Banks have to more conscious about the expectations of the customers and in accordance to which they have to offer the facilities and services to them. In present scenario the bank also offer the services which are related to the hone delivery of products and services of banks.
Loyal customers are those customers who do not influence from the less pricing and they trust on the services of the banks and also suggest the other people to take these services. bUt in contrary to these satisfied customer may switch to the other organization for achieving high level of satisfaction. Due to which the customer loyalty is one of the important part in business as it comes from the world of mouth and also retain the customers for longer period of time.
Saving Customer from Inconveniences
Customers expect better services from their banks. Banks have to give delightful services to the customers by providing convenience to its customer at utmost ease. Because convenience brings smile on the face of consumer which means it is highly satisfied with the service. Convenience to the consumer can be provided by saving the customer time, specious branches, convenient and ample parking facilities, best scheme to finance its short term needs, building customer relationship by informing them about their account details and any other important information through phone call or email. To provide customer convenience RBS appointed qualified and technical staff to deal with the customer in the best manner.
Consistency in systems and services
Consistency always have significant role in building good brand image in the minds of the customers. Consistency in the activities can be maintained by following predefined standard of operations and unification of funds transfer and other processes which ensure the consistency in the management system. Though, Relationship Management plays crucial role to deal with consistency in bank services.
Clarity of Services
It is said that the roles and responsibilities and accountability in the organization should be clearly defined so that no miscommunication or errors can be happened. Clarity is the most peculiar aspect of any organization and if it is related with the Banks then it is must require that all the information and should be in written form so that no confusion can be arise. Clarity makes the clear picture about the services the banks offering, person responsible and accountable for the particular service and the way grievance are resolved in the banks. In order to ensure clarity of service the customer’s services procedures should be clearly in terms the customer will be communicated for any assistance or information or cross selling. For example through telemarketing, phone calls recording, help lines, written correspondence etc.
Contact with Customers
The other method to build customer loyalty is the regular contacts with customers whenever required. Customer should be contacted at the reasonable time periods say once in a month or once in a quarter for promotions or for other events.
Competitive advantage- Customer Loyalty
Differentiation and low cost leadership are the two factors through which company attain its competitive advantage in present environment. The factor differentiation is featured with the improvement in features of product or service, promotion of brand. For retaining the customers for long term period, leadership of low cost is also used. This fact is very significant in banking industry where the product or services offered are similar and generally offered at similar price (Kevin ZhengZhow, 2009, 1063-1070). Banks that offers their service beyond the expectations of customers adds the value to the core competency of the company. When the competitive advantage is serve through the ways of customers than it retains the customers, as these days customers not only buy the product or services but they also rely on extra services or benefits which are offered with the product or service.
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Perception of Customer about Quality
Quality prospect and value orientation are the two concerns on which the customers focused as they have various alternatives available to them. The decision making of the customers is based on attributes of the product, their performance, the past performance of the product in market and also the convenience and easiness offered while purchasing. Banking organizations offered these features through the online banking service, internet, e-banking services so that customers can perceive the quality of the products and services.
Further possible researches
In the current research the focus is made on examining the factors which contributes towards the customer loyalty in banking industry of UK and for this Royal Bank of Scotland was chosen as a case study. During this study some research questions were evolved which will be helpful in further researches:
- An empirical study on needs and wants of customers which leads towards customer loyalty
- Whether managing the customer’s feedback is the major source of customer loyalty or not
- Contribution of employees in formation of customer loyalty
- Link between the organization’s experience curve and customer loyalty
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