CHAPTER ONE
1.1 Background To The Study
Creating loyal customers
is at the heart of every business (Keller and Kotler, 2012). Customers
are central to all marketing activities all over the world. Success and
in turn profit is not unthinkable without customers. Moreover, companies
incur millions of dollars to attract customers and make them loyal.
With the intense competition and increasing globalization of the
financial markets, building customer loyalty has become a critical
strategy for most financial institutions. The banking industry must
develop strong relationships with their customers in order to compete
successfully in the competitive retail banking environment. Morgan and
Hunt (1994), conceptualized relationship marketing as, ‟all marketing
activities directed toward establishing, developing, and maintaining
successful relational exchanges‟. On the other hand, Mudie et al,
(2006), defined Relationship marketing as a philosophy of doing
business, strategic orientation that focuses on keeping and improving
current customers rather than acquiring new customers‟‟. This definition
encompasses the planned action of a given organization to focus on
building relationship with the existing customers than acquiring new
ones. However, it is not to mean that a company which adopts
relationship marketing strategy doesn‘t want to acquire customers. This
new philosophy of marketing idea was first seen on marketing literature
on 1983 (Parvatiyar and Sheth, 2000). After its idea of conception by
berry in 1983, relationship marketing got the attention of several
researchers. However, still now the field is growing in attention and
underpinnings which can contribute for relationship building. Beginners
may think it as only retention marketing. However, its goal is far from
retention marketing (Mudie et al, 2006).
Well managed
organizations work hard to develop relationships with desirable
customers and to grow the volumes of business that they conduct. Several
studies are revealing the importance of relationship marketing than
traditional or transactional marketing, because it may cost a firm five
to six times as much to attract a new customer as it does to retain an
existing one. In addition, common wisdom suggests that long-term
customers have the strongest and highest-paying relationships
(Palmatier, 2008). and a few studies also raised empathy, and gratitude
as building blocks of relationship marketing
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1.2 Statement of the Problem
As the financial marketplace becomes
more dynamic and competitive, banks also need to focus on retaining
existing clients through effective relationship marketing. In this
context, the benefits of long-term retention of existing customers, such
as increased profitability, reduced costs in relation to the individual
customer and word of mouth referrals from satisfied customers, become
important (Gilmore, 2003). Retaining customers requires careful and
creative work and planning which satisfies customers. Service becomes
more efficient when employees learn about what customers expect and how
best to meet customer needs (Clow and Kurtz, 2003). Although, zero
defections should be the goal of all organizations, in reality, it
probably will not be achieved. Clow and Kurtz, (2003) stated that banks
profitability is closely related with customer‘s retention. They also
claimed that, customer defection costs companies millions of dollars
each year in lost revenue. In addition to lost revenue, defectors
normally spread negative word of mouth communication which can influence
other customers to purchase elsewhere. The longer a bank can retain a
customer, the greater revenue and cost savings from that customer.
Customer loyalty is an important factor that contributes to an
organization’s earning and profits. Loyal customers normally establish
stable relationship with an organization compared to non loyal
customers. Customer loyalty can contribute to an increase in a firm‘s
revenue, reduce customer defection rate and develop new business through
positive word of mouth advertising (Zeithaml and Bitner, 2003). Thus,
at the end of the day, the bank‘s assets are not only primarily
registered on the balance sheet, but also related to the fact that
customers have been successfully retained.
In recent years, there has been a
refocusing of marketing away from customer acquisition to that of
customer retention. If the company is intended to benefit from retaining
customers, customers also seek benefit from giving their loyalty to the
company (Mudie and Pirrie, 2006). To achieve all the above mentioned
goals of customer loyalty, firms devised a new strategy known as
relationship marketing (Mudie et al, 2006).Therefor the problem
confronting the research is to determine the influence of relationship
marketing on bank customers’ loyalty
1.3 Objectives of the Study
To determine the influence of relationship marketing on bank customers loyalty
1.4 Research Questions
What is relationship marketing?
What is the influence of relationship marketing on bank customers’ loyalty?
1.5 Significance of the Study
The study elucidate on the influence of relationship marketing on bank customers loyalty
1.6 Research Hypothesis
Ho The influence of relationship marketing on bank customers’ loyalty is low
Hi The influence of relationship marketing on bank customers loyalty is high
1.7 Scope of the Study
The study focuses on the influence of relationship marketing on bank customer’s loyalty
1.8 Limitations of the Study
The study was confronted by some constraints including logistics and geographical factor.
1.9 Definition of Terms
Morgan and Hunt (1994), conceptualized
relationship marketing as, ‟all marketing activities directed toward
establishing, developing, and maintaining successful relational