RETENTION STRATEGY AND CUSTOMER LOYALTY AMONG BANKS IN NIGERIA

77

RETENTION STRATEGY AND CUSTOMER LOYALTY AMONG BANKS IN NIGERIA

Background Of The Study

 

The banking industry in Nigeria has been characterized by many problems (such as liquidation, distress, fraud, political interference, and lopsided ethnical ownership base) that have badly affected the loyalty of customers (see Ebhodaghe, 1996; Okoduwa. 1996; Uche and the Ehikwe, 2001). Prior to the adoption of a comprehensive economic reform programme (deregulation) under the Structural Adjustment programme (SAP) of 1986, Nigeria’s financial system could simply have been described as repressed and highly regulated. Some of the regulations, though occasionally desirable, had no doubt contributed to the strains in the financial system, which, in turn, has serious implication on customer loyalty. Banks were subjected to substantial restrictions on their products and activities. These restrictions, had, to a reasonable extent, limited some banks’ ability to adapt to changing market conditions and become truly customer-focused.

 

The advent of Structural Adjustment porgramme (SAP) opened the floodgate of banking license, that between 1985 and 1993 licensed banks operating in Nigeria rose from 41 to 120 (Central Bank Of Nigeria, 1995). Most of these banks were not customer-focused but more of currency exchange centers and they survived simply by buying and selling foreign exchange and by depending largely on government finds deposited with them (Uche, 1996). Accordingly, Ebun (2001: 16) in Ugwuanyim (2005:31) observed:

‘’This is what most of the banks do: collect foreign  exchange  from  the CBN, sell at black market price and come round to declare bogus profit, buy stateof artcar, finance frivolous projects and refuse to invest in the critical sector of the economy’’

 

The banks later intensified the marketing of services only when government removed most distortions in the foreign exchange market, which made currency trading difficult. Also government removed its funds with the banks. As a result

 

of these, presently there is high competion among banking firms in Nigeria for consumer patronage that building customer loyalty is key strategic option.

 

Today, the deregulation process (for example the 25 billion Naira new capital base of banks) has tremendously increased the tempo of activities in the banking sub-sector in that deregulation of the sector has brought about greater potential for increased competition; hence leading to efficiency and effectiveness. Also, current deregulation has forced banks from being mere currency exchange centers towards becoming truly market-driven. Uche (1999) sustaining the view of Gilmore (1997), argued that the key success factor for banks in a highly competitive, complex, deregulated, and dynamic environment of the banking industry is not be product-driven; but to be customer-oriented. Accordingly, Gilmore (1997) in Beerli. Martin and Quintana (2002) observed that the traditional product-oriented bank is becoming increasingly customer-oriented in accordance with the basic principles of relational marketing, which focuses on customer loyalty as its main goal.

Customer loyalty is critical to the conduct of business in today’s competitive marketplace, and banks are no exception. Commercial banks in Nigeria, according to Ehigie (2006) have, thus, embarked on different management strategies as ways to promote customer loyalty (see Ehigie, 2006: 494) citing Bahia and Nantel, 2000; Jamal and Naser, 2002), especially in the context where government has withdraw most its funds from the commercial banks; hence the banks are inclined towards private sector funds. Increasingly, commercial banks are evolving several strategies geared towards retaining customers, particularly by introducing innovative products and services (Ebun 2001).

Although customer loyalty is increasing being recognized as a key determinant of long-term profitability and success, banks are also recognizing the enormous profit potential of extending their branch network to campuses of tertiary institutions across Nigeria. Little wonder the clustering of branch of banks in various campuses of tertiary institutions in Nigeria. The banks seems to be of the view that if students, being tomorrow’s political leader’s, corporate chieftains, business magnates, etc are captured earlier, satisfied, and retained, the chances of their (banks) long-term profits and success are increased. Better still, the banks seems to be of the view that situating branches at campuses will

further consolidate their customer base or increase their chances of increased profit. This clearly underscores the need for mangers of banks to build and sustain loyalty among its student customers by identifying and promoting those factors that determine their loyalty towards a bank.

Statement Of Problem

The marketing of banking services in Nigeria has greatly affected different economic, social and political factors (Uche and Ehikwe, 2001). The banking service system in Nigeria has been epitomized with failures, which have led to the industry witnessing collapse of banking firms in the country, thereby threatening the fate of customers on its services. With inflation in the country, bank depositors could only receive negative returns in their deposits, thus discouraging bank depositors and making the less regulated finance companies more attractive to the market. Okoduwa (1995) reported that out of 120 commercial and merchant banks in Nigeria before 1994, 50 became liquidated. But in 1998 alone, 26 banks were liquidated (Uche, 1996). Bank financial reports show that in 1993 a total of N55.1 billion assets was lost (Ebhodaghe, 1996). Bank customers started losing fate in bank services in Nigeria and started patronizing capital market. Presently the introduction of recapitalization in the banking sector has led to merger and acquisition and customers’ loyalty is, again threatened. This is because there was a widespread fear that consolidation may result to depositors losing some (if not all) of their deposit, especially among depositors of banks that failed to meet with the 25 billion naira capital base mark.

 

This makes research on customer loyalty significant in the Nigeria banking industry. Evidence abound (e.g Duncan and Elliot, 2002; Kish 2001) showing links between customer loyalty and organizational profitability, implying that any organization with loyal customers has considerable competitive advantage. Therefore, the first problem that has instigated this study is the lost of fate in some bank services by bank customers reflected in the observed high rate of switching from one bank to the other, which has impaired some banks profitability potential arising from competitive advantage accruable from customer’s bank loyalty. The question this particular problem seems to ask is: why are people switching from one bank to the other; why are they not remaining with a particular bank? Thus, what are the factors that could enhance bank loyalty, particularly among student customers?

In the context of increasing sophistication of consumer behavior, customer loyalty is fast being recognized as key determinant of long-term profitability and success in the banking sub-sector (see Divett, 2003; Mittel and Lassar, 2003; Kotler and Armstrong, 2001). Despite this recognition, past studies appear to have paid scanty attention to this. In the effect, research attention was given mostly to customer attraction. Thus little attention was given on how firms can retain their customers or consumers (these terms are used interchangeably in this work, regardless of their inherent difference in literature). Worst still, most literature on customer loyalty did not specifically focus on the determination of loyalty among student customers of banks. Put more sharply, little or no attention has been accorded customer loyalty among students.

Where customer loyalty has attracted research attention, research into customer loyalty has focused primarily on product-related or brand loyalty, whereas loyalty to service organizations has remained under exposed (Gremler and Brown, 1996:172; Bloomer, Ruytler, and Peters, 1998:277). Even where research attention is focused on customer loyalty in service organizations, knowledge gab still yawn specifically in bank loyalty determinants among students in tertiary institutions in developing economies.

Therefore, the second problem that has instigated this study is this knowledge gap (see Agbonifoh and Yomre, 1999:94 and ICAN, 2006:16), which the researcher will seek to fill through this study. That is, although so much is known (or research abound in marketing literature) about determinants of customer loyalty generally, but not enough is known about the determinants or factors that enhances the loyalty of students in tertiary institutions to a bank, particularly in the context (or milieu) of developing economies like Nigeria

Put more pointedly, a twin situation or problem prompted this study. They are:

  1. This study is instigated by the lost of fate in some bank services by bank customers reflected in the observed high rate of switching from one bank to the other, which has impaired some banks profitability potential arising from competitive advantage accruable from

customers’ bank loyalty. The question this particular problem seems to ask is: why are people switching from one bank to the other; why are they not remaining with a particular bank? Thus, what are the factors that will make them remain with a bank? This is the problem of observed high bank switch. It becomes imperative to identify factors that could enhance bank loyalty, particularly among student customers.

  1. Although so much is known (or research abound in marketing) about determinants of customer loyalty, but not enough is known about the determinants or factors that enhances the loyalty of students in tertiary institutions to a bank, particularly in the context (or milieu) of developing economies like Nigeria.

Objectives of the Study

  1. identify factors that promote customer retention in banking industry
  2. determine what constitute quality service in banking industry
  3. determine the impact of customer retention on organizational performance
  4. establish the relationship between customer satisfaction and customer retention

Research Questions

  1. what are the factors that promote customer retention in banking industry?
  2. what constitute quality service in banking industry?
  3. What are the impact of customer retention on organizational performance?
  4. What are the relationship between customer satisfaction and customer retention?
______________________________________