FACTORS INFLUENCING CUSTOMER’S LOYALTY IN THE NIGERIAN BANKING INDUSTRY
ABSTRACT
The study empirically examines the main factors influencing customer’s loyalty in the Nigerian banking industry. Perceived quality, customer satisfaction, customer trust and customer commitment within the context of the banking industry in Nigeria has been regarded as the major bedrocks for stimulating customer’s loyalty and hence, sustainable industry performance and the economy at large. Using primary data collected from 70 respondents, the simple percentage and Ordinary Least Squares method were employed in estimating the specified model.
The results from the empirical analysis reveal that Customer satisfaction has a significant positive impact on customer’s loyalty in the Nigerian banking industry. Ccustomer’s commitment also has a significant positive impact on loyalty. While trust has a rather weak pervasive relationship with the level of customer’s loyalty, perceived quality (PERQ) has no impact on customer’s loyalty in the Nigerian banking industry over the period under review.
The study however recommends among others that more efforts should be made by the bank operators to increase and sustain the level of customer satisfaction in banks operating in Nigeria so as to maintain and stabilize this positive impact. Also, effort should be made by the operators of commercial banks and their regulators to deepen and widened the degree of customer’s commitment to the various products offered by their banks in order to be able to keep and sustain their continuous loyalty to the banks amidst fierce competitions in the Nigerian banking industry.
TABLE OF CONTENT
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study
1.2 Statement of the Research Problem
1.3 Research Questions
1.4 Objective of the Study
1.5 Hypotheses of the Study
1.6 Significance of the Study
1.7 Scope of the Study
1.8 Limitation of the Study
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
2.2 The Concept of Customer Loyalty
2.3 Corporate Image and Customer Satisfaction
and Loyalty
2.4 Some Factors Influencing Customers Loyalty
in The Nigerian Banking Industry
2.5 Customer Loyalty, Relationship Banking and
Consumer Behaviour
2.6 The Empirical Literature
CHAPTER THREE: METHODOLOGY OF THE STUDY
3.1 Introduction
3.2 Research Design
3.3 Population, Sample and Sampling Procedure
3.4 Instrumentation and Administration of
Instrument
3.5 Model Specification
3.6 Validation and Reliability of Instrument
3.7 Method of Data Analysis
CHAPTER FOUR: EMPIRICAL ANALYSIS
4.1 Introduction
4.2 Background Information
4.3 Regression Analysis
CHAPTER FIVE: SUMMARY, RECOMMENDATIONS AND CONCLUSION
5.1 Summary
5.2 Recommendations
5.3 Conclusion
Bibliography
Appendix
CHAPTER ONE
1.1 INTRODUCTION
Customer loyalty is an integral factor in the success of any firm and therefore a great deal of professionalism is required of the provider with an ever-increasing competition. It is no longer enough to satisfy customers. You must delight them in order to be assured of their consistent loyalty. A lot has been done to build a stronger customer focused culture through training programs which have been tailored to meet every customers need and ensure satisfaction within the Nigerian banking sector in the last two decades (Kimando and Njogu, 2012).
The banking sector performs its activities economically and socially in a country. Service managers of such service factory are more concerned about their quality of service and client satisfaction (Olorunniwo, Hsu and Udo (2006). The financial system as well as financial sector of Nigeria is dominated by commercial banks. The banking system 23 privately owned commercial banks including some specialized development banks. The Central Bank of Nigeria is the supreme authority of financial sector, which regulates all banks and non-bank financial institutions. In Nigeria, commercial banks provide some products and service to their clients (CBN, 2012). Banking services include mobile banking, SME banking, internet banking, SMS banking, credit card, ATM services, foreign currency account, locker service, and loan and advances (term loan, car loan, education loan, housing loan, micro group credit, micro credit enterprise, etc.). They also offer corporate banking, loan syndication, real-time online banking for corporate clients. Service quality, service charges, perceived value and customer satisfaction are the key sources of success in any service factory (Olorunniwo et al, 2006). Issues that affect service quality and customer satisfaction have operational and marketing orientations. To understand the dimensions of service quality and for measurement of customer satisfaction it is important to know under which typology commercial banks are belong. In this regard, the classification given by Schmenner (1986) is important. Schmenner divided services into four quadrants based on labor intensity and customer interaction. Labor intensity is the ratio of labor cost to the machinery and equipment value. On the other hand, customer interaction is defines as, the joint measure of customer contact and customization of services. Under this categorization, commercial banking services belong to mass service category. In commercial banking sector, there are high labor intensity and low customization of services. Mass service also includes retailing, wholesaling, schools, traditional long-distance ground trucking. Another three quadrants of services are: service factory (airlines, hotels, trucking, resorts and recreation), service shop (hospital, restaurant, auto and their services), and professional service (accounting firms, audit firms, medical clinics, law firms).
The improvement of service quality, perceived value, and satisfaction ensure customer loyalty (Kuo et al., 2009; Lai et al., 2009; Wu and Liang, 2009). Since the studies regarding service quality, perceived value, and customer satisfaction issues in banking industry is limited and there is no available measurement scales for service quality and customer satisfaction, especially in Nigeria context, this study provides efforts to propose the measurement scales for factors affecting customer satisfaction and customer loyalty in the Nigerian banking sector.
A good standard of measuring the quality of a relationship is loyalty (Reichheld, 1996; 2001). True loyalty is based on a partnership, which is based on mutual interest and shared goals. Loyalty ensures that the relationship is retained during the best of times as well as the worst. “For loyalty, it is not only how satisfied you keep your customers, but how many satisfied customers you keep” (Reichheld, 2001). One of the objectives of the relationship banking strategy has been to establish a high level of customer loyalty. Customer loyalty results in numerous benefits, which include increased profits and customer retention (Abratt& Russell, 1999; Iniesta& Sánchez, 2002; Bennett & Durkin, 2002). Cognisance should also be taken of the perception of some customers that banks are seen to be all the same, with the one being as good or bad as the other (Cheese, 1994). Defection is low, but might be the result of customer inertia rather than true customer loyalty. The effort for a customer to transfer the relationship to another bank is often seen as being too cumbersome, when compared with the benefits of making a transfer. Where there is no close relationship such relationships will always be in danger when more attractive alternatives are presented to customers. On the other hand, customers who value the banking relationship over the long term and do not seek to exploit the bank are most desirable (Gibbs, 1985).
1.2 STATEMENT OF THE RESEACH PROBLEM
The Relationship between banking services and customer loyalty as exemplified by retail banking is a valuable enabling strategy that promotes competitiveness and provides sustainable success. The utilization of relationship banking as a business strategy to increase customer retention, create customer loyalty and ultimately increase long-term profits is a relative young tactic, originating in the 1980s and gathering pace during the 1990s. The correct application of relationship banking could impact on the bottom line of banks favourably. Hence the positioning of this study to investigate the effect of the relationship banking offering on customer loyalty, and its use in realizing customer loyalty and long-term value from relationship banking initiatives in the Nigerian context.
In the past two decades, the banking sector has undergone drastic changes, resulting in a market place which is characterized by intense competition, little growth in primary demand and increased deregulation. The Nigeria Government has privatized and consolidated a number of banks from 89 to about 23 banks, which further increases the competition and complexity among the banks. Finding a place in this stiff competitive environment becomes vital to the long-range profitability and ultimate survival of the bank. This can be done both by maintenance or having new ones. This study is an attempt to find the main determinants of the customer loyalty in the Nigerian banking industry in order to help this key industry to have a wider look for supporting their customers and finally having more loyal ones.
More specifically therefore, the study seeks to find answers to the following research questions:
1.3 RESEARCH QUESTIONS
(i) What factors influence the customer loyalty in the Nigerian banking sector?
(ii) Does customer satisfaction influence the loyalty of the customer in the Nigerian banking sector?
(iii) Does perceived quality influence the loyalty of the customer in the Nigerian banking sector?
(iv) What is the relationship between trust and customer loyalty in the Nigerian banking sector?
(v) Does commitment influence the loyalty of the customer in the Nigerian banking sector?
1.4 OBJECTIVE OF THE STUDY
The main objective of this study is to determine the factors influencing customers loyalty in the Nigerian banking industry. Other specific objectives are to:
(i) determine whether satisfaction influence the loyalty of customer in the Nigerian banking sector.
(ii) determine whether perceived quality influence the loyalty of the customer in the Nigerian banking sector.
(iii) determine the relationship between trust and customer loyalty in the Nigerian banking sector.
(iv) determine whether commitment influence the loyalty of the customer in the Nigerian banking sector.
1.5 HYPOTHESES OF THE STUDY
The following hypotheses will be tested in the course of the study:
(i) satisfaction does not influence the loyalty of customer in the Nigerian banking sector.
(ii) there is no relationship between perceived quality and customer loyalty in the Nigerian banking sector.
(iii) there is no relationship between trust and customer loyalty in the Nigerian banking sector.
(iv) there is no positive relationship between commitment and
customer loyalty in the Nigerian banking sector.
1.6 SIGNIFICANCE OF THE STUDY
The study is significant base on the fact that customer loyalty is an integral factor in the success of any firm (banks inclusive) and therefore a great deal of professionalism is required of the provider with an ever-increasing competition(Kimando and Njogu, 2012; Kim, 2004; Eshghiet al., 2007; Heskett and Sasser, 2010). It is no longer enough to satisfy customers. You must delight them. A lot has been done to build a stronger customer focused culture through training programs which have been tailored to meet every customers need and ensure satisfaction.
Hence, this study will help the management of commercial banks in Nigeria in identifying areas which they need to improve in order to improve quality of service to its customers. It will assist them to know how, when and where to put more resources in order to improve on the services that will assures continuous customer’s loyalty. It will also help customer care department to point out areas of weakness and improve on them so as to offer quality customer service. The study also exposes the researcher to a wider knowledge on how to carry out other similar studies in the future.
Finally, the study will provide a veritable data base for researchers, academia, students of finance, management sciences and allied disciplines who will like to carry out further study in the same area or similar areas.
1.7 SCOPE OF THE STUDY
However, as it is not possible to investigate all the banks in Nigeria, a sample of oneleading bank (First Bank Nigeria plc) operating in Edo State, particularly Benin metropolis and its customers will be administer the questionnaires in order to solicit for their responses.
1.8 LIMITATION OF THE STUDY
The limitations envisage in this study has to do with the accuracy of the data used as well as the sources of data. Since the data is a primary source, there is the fear of bias from the respondence with respect to accurate information. In some cases, some bank’s customers may not be willing to reveal some information they felt are personal to them; while on the other hand some bank’s staff will refuse bluntly because according to them such information are considered to be a classified one. However, effort will be made to minimize errors and thus assure the reliability of results obtained.
