ARTICLE IN PRESS

Journal of Retailing and Consumer Services 15 (2008) 9–21

www.elsevier.com/locate/jretconser

Acquiring and retaining customers in UK banks: An exploratory study

Jillian Dawes Farquhar, Tracy Panther
Business School, Oxford Brookes University, Oxford OX33 1HX, UK

Abstract

This paper explores how traditional banks1 in the UK are managing customer acquisition (CA) at the same time as the retention of
profitable customers. In spite of the interest of UK banks in retention, new customers often receive more favourable prices and
conditions than existing customers, suggesting that acquisition may dominate. To explore the balance between acquisition and retention
and to discover marketing activities that might support both, semi-structured interviews were conducted with a small sample of senior
bank staff in the UK. Analysis of the interviews, using computer-aided software indicated that banks are indeed trying to manage
acquisition with retention but encountering a range of difficulties as they revisit long-held strategies. The study also suggests seven
activities that might contribute to a better balancing of CA with retention. By seeking expert management opinion through a
qualitatively based study, this research proposes a preliminary framework of marketing activities that support both acquisition and
retention.
r 2007 Elsevier Ltd. All rights reserved.

Keywords: Customer acquisition; Retention; Qualitative study; Services; UK banks

1. Introduction
The UK has one of the most diverse and competitive
banking sectors in the world with both specialist and non-
bank providers offering services such as credit cards,
insurance and loans. This research concentrates on UK
high street providers of financial services, such as the big
four banks, national and large regional building societies
and which the majority of customers continue to patronise.
The level of competition amongst financial service provi-
ders has led to price-dominated strategies that attract new
customers, but which do not appear to strengthen loyalty
in the existing customer base. Financial services, customers
are increasingly prepared to change their provider, or
switch, usually to achieve more favourable prices. It has
been observed that customers usually switch from one high
street provider to another (Miles, 2004; Mintel, 2002a),
rather than a specialist provider or internet-only bank, thus
maintaining the dominance of the traditional high street
provider. In spite of the importance that banks dedicate to
Corresponding author. Tel.: +44 1865 485977; fax: +44 1865 486830.
E-mail address: jfarquhar@brookes.ac.uk (J.D. Farquhar).
1
Banks, in this study also refer to building societies.
acquiring customers, they are aware of the value that can
be derived through the retention of their profitable
customers. Previous research, however, has indicated that
balancing activities directed towards customer acquisition
(CA) and retention has proved challenging with attempts at
retention being undermined by acquisition strategies
(Farquhar, 2005). The aim of this study is to explore how
banks are attempting to balance customer retention (CR)
with CA and to identify marketing activities that support
both CA and CR.
The structure of the paper is as follows: firstly a
background to the study is provided, then there is a brief
description of the research design, the findings are
presented, followed by a discussion and conclusion.
2. Background to the study
Although marketing is concerned with both the CA and
CR (Drucker, 1963), strategies directed at gaining market
share through acquisition have often dominated. CA
contributes to revenue, profit targets and shows growth
in the short-term but, if new customers have to be acquired
constantly to replace those who leave, profitability can be
eroded (Berger et al., 2002). It has been argued that

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 ARTICLE IN PRESS
10 J.D. Farquhar, T. Panther / Journal of Retailing and Consumer Services 15 (2008) 9–21
keeping existing customers is a more effective way of
spending marketing resources (Fornell and Wernerfeldt,
1987), although some new customers will be needed to
replace those who no longer require the company offering
(Fornell, 1992; Johnson and Selnes, 2004). There is
growing consensus that CA and CR are not separate
activities and that one impacts upon the other (Reinartz
et al., 2005; Thomas, 2001). Reinartz et al. (2005)
investigated how to balance acquisition and retention
resources with a view to maximising customer profitability
in a business-to-business goods manufacturer, by calculat-
ing marketing spend across communication channels. They
generate a decision-making model which they acknowledge
has limitations if considered within a business-to-consumer
scenario, such as high street banks. Thomas (2001)
strengthens the link between acquisition and retention by
proposing a model that corrects for the biases occurring
from an analysis of CR without taking account for CA.
The contributions of these writers to marketing manage-
ment literature, as well as the studies into customer equity
and asset management (e.g. Bolton et al., 2004; Hogan
et al., 2002; Reinartz et al., 2005; Venkatesan et al., 2005)
point to a shift in emphasis from product to customer
profitability, at the same time proposing metrics for
assessing customer profitability.
Relationship marketing (RM) is connected with CA and
CR as it is concerned with establishing, developing and
maintaining successful relational exchanges (Berry, 1983).
RM in consumer markets, especially in services, features a
set of activities that aim to maximise the value of a
customer to the organisation with an emphasis on one-to-
one marketing as opposed to mass marketing (Buttle,
1996). Although the relevance of RM has been questioned
for consumer markets (O’Malley and Tynan, 1999) and for
certain types of customers (Li and Nicholls, 2000), RM and
customer relationship management (CRM) have become
features of marketing in the last two decades, facilitated by
the increasing power and precision of information technol-
ogy (Boulding et al., 2005). Although there are significant
benefits for the banks in building relationships with
customers, some customers seem less certain (Harrison,
2000), as they perceive that they gain little from these
relationships (Miles, 2004).
Dall’Olmo Riley and De Chernatony (2000) have stated
a case for convergence between RM and branding and
point out that the rationale for branding as a way of
communicating values is consistent with the creation of the
structural bonds of RM. In a similar vein, Rust et al.
(2004b) have argued that branding must focus on
maximising customer lifetime value, which can be best
effected through brand building around selected customers
segments based, say, on profitability. If companies merely
‘aggrandize’ the brand, then they might be able to achieve
an increase in market share but may be less successful in
building customer value (Rust et al., 2004b). By creating a
brand within a brand (Zeithaml et al., 2001), companies
can begin to differentiate themselves from their competi-
tors (McDonald et al., 2001) based on segmentation. The
rational and emotional dimensions of brands, as identified
by Dall’Olmo Riley and De Chernatony (2000), may play
different roles in acquisition and retention. Customers
acquired in mass-market conditions, for example, may be
responding to rational dimensions such as price and
performance, whereas CR and loyalty may be associated
with the emotional dimensions of the brand.
As part of developing long-term relationships with
customers, organisations are increasingly concerned with
loyal customers who, it has been asserted, contribute to
increased revenues (Reichheld, 1993), make further pur-
chases (Payne, 2000) and generate positive word-of-mouth
(Gremler and Brown, 1999). Dick and Basu (1994) propose
that the loyalty of a customer can be determined by the
strength of the relationship between attitude and behaviour
so that true loyalty only ensues when levels of both relative
attitude and intention to purchase are high. In a study into
service industries, Bloemer et al. (1999) found that service
quality appeared to have a positive effect on service loyalty
but that the relationship between them varied across the
industries. Service quality (Ennew and Binks, 1996;
Ranaweera and Neely, 2001) and customer satisfaction
(Stauss et al., 2001) have both been found to be
instrumental but, in themselves, not sufficient to retain
customers. Oliver’s conclusion (1999) that the relationship
between satisfaction and loyalty can be likened to a seed
that needs supportive conditions to grow into a healthy
plant, has merit in that it draws attention to the range of
variables that are involved in the transformation.
The CA and CR embrace a number of marketing
constructs as the background to the study suggests, with
evidence to support the premise that acquisition and
retention are closely linked if not actually a continuous
process. Research that aims to calculate the economic value
of customers and the marketing resources required, in
particular, the work of Rust et al. (2004a), has begun to
support the linking of these constructs empirically. The aim
of this preliminary study is to explore from a qualitative
aspect, using expert practitioner opinion in the traditional
banking sector, on how CA and CR are being managed
together and to identify marketing activities that support a
harmonious balance.
3. Research design
The data for the study were generated by interviewing
senior banking staff responsible for, or having an interest,
in CA and CR. Purposive sample selection was employed,
in common with most qualitative research (Miles and
Huberman, 1994), with variation sought in the selection of
individual organisations to promote external validity
(Patton, 1990), specifically, the size and type of institution
varied. Selection was limited to UK, national or large
regional high street banks or building societies, as these
traditional institutions continue to dominate UK high
streets and offer the range of financial products that most
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J.D. Farquhar, T. Panther / Journal of Retailing and Consumer Services 15 (2008) 9–21 11

Table 1
Details of participants

Code name Description Principal activity Job title of informant(s) Type of

interview

Edge Hill Mutual Personal banking services Senior executive retail strategy Phone
Naseby Bank Personal banking services Senior research manager Face to face
Bosworth Bank Personal banking services Director of retail operations and head of customer Face to face
understanding
Culloden Regional mutual Home loans and savings Customer contact manager and strategic analyst Face to face
Hastings Bank (former Home loans, but range of personal banking Customer propositions team member Phone
mutual) products
Crecy Regional mutual Home loans and savings Customer development manager Face to face
Waterloo Bank (former Personal banking services Head of CRM development Phone
mutual)
Trafalgar Mutual Home loans and savings Manager, customer excellence Phone
Blenheim Mutual Home loans and savings Withheld Phone
Stamford Bank division Home loans to particular segments Operations leader, mortgage contact centre Face to face
bridge

consumers seek, for example, loans, mortgages and
savings. Recruitment of informants was achieved by
contacting marketing departments of the banks to identify
managers with appropriate expertise. The individuals were
then contacted directly and permission for interviews
sought. The research question involved discussion of
highly confidential material and this, accompanied by
time constraints, resulted in a small selection of informants
in 10 national or large regional high street financial services
retailers (see Table 1) with 12 informants. The sample,
nonetheless, includes some of the major institutions
that dominate the UK high street, for example, two
of the ‘big four’ banks, one very large building society
and a bank that converted from a building society (see
Table 1).
Participants were provided with an outline of the
research and how they might contribute in line with ethical
research protocols. Anonymity of the participating banks
and confidentiality were assured. Questions for the inter-
view guide were derived from the literature designed to
generate longer responses and so included questions such
as: How important is it to attract new business? How do
you attract new business? What are your most recent CR
initiatives? How do you create customer loyalty? Can you
provide an update on customer satisfaction initiatives?
Probe questions were also used to encourage full responses.
This guide contributed towards consistency and, hence,
validity of the data generated in the interviews (Rossman
and Rallis, 1998), but was flexible enough to enable themes
to emerge from the data, thus minimising any predeter-
mined scheme or template (Spiggle, 1994). New issues
raised by the informants (Dall’Olmo Riley and De
Chernatony, 2000) were, for example, ‘m-technology’ and
its role on creating stickiness and converting price-sensitive
customers.
The interviews were conducted either face-to-face or
over the telephone according to informant preference and
availability. All the interviews were audio-taped for
verbatim transcription and lasted on average 1 h. Partici-
pant details have been concealed at the request of
informants, using the names of famous battles alluding to
the highly competitive nature of the retail financial services
sector (see Table 1). Two informants participated in the
interviews in Culloden and Bosworth.
Immediately after each interview, a brief summary of 100
words or so was made as an aide-memoire and to assist in
the analysis. The data were then transcribed into electronic
files and managed within NVivo, qualitative data analysis
software. Using the computer-aided analysis software
(NVivo), the process of data reduction began with the
identification of ‘nodes’, and data passages were coded
accordingly. This ‘open coding’ (Mason, 2002) was
followed by analysis of individual nodes, and patterns of
inter-relationships between nodes, to identify broad
themes within the data. This categorisation resulted in
the arrangement of nodes in ‘tree’ formations. The use of
such software supports theory generation from complex
data sets as it automates coding and retrieval aspects
(Hesse-Biber, 2004), thus facilitating rigorous data exam-
ination. The outcomes of the analysis were studied,
discussed and reviewed by the researchers, during which
the trees from the computer-aided analysis were considered
and evaluated for soundness using the criteria of cred-
ibility, transferability, dependability and confirmability
(Lincoln and Guba, 1985). The iterative process of
analysis, reflection and evaluation finally suggested seven
themes that appeared to capture the data most succinctly.
These themes frame the presentation of findings in the
following sections of the paper.
4. Findings
The findings of the study are organised according to the
seven themes that emerged from the analysis of the data,
derived from the vocabulary of the informants (Strauss,
1987) and are as follows: customer value, branding, creating
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12 J.D. Farquhar, T. Panther / Journal of Retailing and Consumer Services 15 (2008) 9–21
loyalty, maximising information, managing channels, pri-
cing and products and, finally, satisfying customers.
4.1. Customer value
It has been argued that the longer an organisation
retains a customer, the greater the profit generated
(Reichheld and Sasser, 1990) but recent research has
indicated that the breadth and depth of the relationship
are possibly more important that its length (Bolton et al.,
2004; Reinartz and Kumar, 2000). Customers can be
segmented according to their profitability (Payne and
Frow, 1999), as described by the Trafalgar informant,
who provided an overview of the bank’s approach to
segmentation in the following extract.
We have a customer segmentation that is based on
customer value, not only now but as customer value in
the future and so on. So, we can identify those
customers that we would like to have most of because
they are profitable now and they are going to be
profitable in the future. The way it’s built, is based on
customers’ value to us overall. There’s another bunch of
customers that really is unlikely we will ever make any
profit out ofy (Trafalgar)
Customers often use a number of financial services
providers for their financial needs, therefore a bank has to
understand its relative share of a customer and then aim to
increase that share. The bank also needs to identify those
customers whose value indicates that they are worth
cultivating and, then, maintain those relationships that
generate the most profit (Hogan et al., 2002). It is in this
way that acquisition and retention begin to become
mutually supportive activities, or elements of a continuous
single process as suggested by Thomas (2001).
UK banks offer free banking as a Bosworth informant
commented, ‘we give away all the transactions for nothing’.
Most banks have customers from whom they derive
varying degrees of profitability which has prompted the
banks to think of offering differentiated service levels and
identifying ‘tiers’ of customers based on their value
(Zeithaml et al., 2001) to the bank. This approach was
being considered by several banks as a means of over-
coming the variability in revenue from different segments
of customers. The Waterloo informant provides an
illustration.
But then in terms of the customers that we’ve labelled
high value, i.e. those that aren’t necessarily high worth,
but they do deliver profit to the business, then we started
to look at them as the next tier, if you like, of customers
that we believe we may need to serve differently to meet
their needs and keep them with us and develop loyalty.
(Waterloo)
Two of the organisations in this study (Crecy and
Trafalgar) operated schemes that rewarded customers
based on the length of time that the customer stayed.
None of the banks operated a scheme that specifically
rewarded high-value customers and, so unlike many
reward schemes in the retail sector, they measure merely
longevity and not necessarily the desired customer beha-
viours that build value. Not all of the banks in the study
differentiated between their profitable and non-profitable
customers in such a way. The Crecy informant was proud
of the strategy of treating all customers equally, but she did
go on to explain that they did offer special products to their
longer serving customers. It is possible that senior manage-
ment has differing opinions about what constitutes
customer profitability (Ryals and Knox, 2005) and,
perhaps, one of the reasons that held back retention was
that it requires a long-term view.
4.2. Branding
The Hastings bank informant described a recent re-
branding initiative that aimed to ‘bring the brand to life in
the minds of the customers’, and which appeared to refer to
the emotional dimensions of the brand (de Chernatony and
Dall’Olmo Riley, 1998). The bank had not involved staff in
the exercise, tending to confirm an observation that there is
little congruence between internal and external brand
perceptions (McDonald et al., 2001). As part of the
branding strategy adopted by Waterloo bank, it aimed to
be the ‘consumer champion’ with the strategy outlined by
the informant as follows:
We want to make sure that our customers are getting a
good deal, transparent, nothing is hidden, so that they
know what they are paying and we provide them with a
good deal. So, I think, what we are trying to be is open
and honest about our interest in customers and what
they get for that interaction. (Waterloo)
There is nothing in this extract that indicates how
Waterloo bank links its segmentation to their brand
strategy. Although it could be argued that all customers
should perceive the bank to be a consumer champion,
customers may have very different views about how a
customer champion may actually translate into practice
for them.
The banks, in this study, that concentrated on mortgages
and savings, where there is limited opportunity for
interaction on a personal level, relied on their brand for
building relationships. Crecy, for example, explained how
the bank tried to ensure that its brand values were evident
throughout the organisation. The Culloden informants
recounted the lack of investment in building the bank’s
brand and how it had become overly reliant on editorial
coverage of its low prices in the press to acquire customers.
To counter its low-price strategy, the bank planned to
increase spending on advertising as part of strengthening
their brand. As these smaller banks pursue new customers
and extend beyond their ‘heartland’ or traditional geo-
graphic marketplace, they encounter non-traditional cus-
tomers who are primarily concerned with obtaining the
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J.D. Farquhar, T. Panther / Journal of Retailing and Consumer Services 15 (2008) 9–21
best price or ‘rate’. Their traditional mutual values do not
fit with the needs and expectations of these customers, as
the Blenheim informant recounts.
Now, we are getting a lot more people who are coming
in, we’ve got a direct lending [arm], we get, for example,
a best buy that we lend all around the country so those
people don’t really have any loyalty or affinity with
us,y. the softer brand stuff and community-type
approach that we have, doesn’t really work very well
with them. (Blenheim)
These new customers or ‘people’ as referred to by this
informant, have not been attracted by the bank’s brand but
purely by its low prices. Customers attracted by low prices
present a challenge to banks if they are attempting to retain
them. It is in this situation that any tension between
acquisition and retention is at its most acute and gives rise
to critical questions about conventional measures of
market share, growth and profitability and their viability
in contemporary strategy development.
For larger banks, a potential hazard for the brand arises
from concentrating on the more profitable but smaller
segments, as the Bosworth informant explained.
We do take into account what happens in the brand as
well, because you know we could well go down to the
really niche set of customers who really make us money,
but a lot of our brand attributes are about being big,
well known, respected in the industry, trustworthy and
that comes from being a big bank. Would we lose some
of those brand attributes and some of those customers
by going down that route of focusing? (Bosworth)
In a similar vein, the Waterloo informant commented on
a possible incompatibility between their mass-market
brand and their attempts to develop a differentiated service
for selected segments such as their high-value customers.
The comments of these informants can be related to the
arguments of Rust et al. (2004b), who claim that
aggrandising the brand is not consistent with serving those
smaller segments that may optimise customer value. There
is evidence though of branding to particular segments as
Culloden has developed a part of the business that deals
directly with business via intermediaries. This part of the
business has its own brand with outwardly no relationship
to the parent bank. Stamford Bridge has reconfigured
much of its activities so that the bulk of its business is with
intermediaries that deal with those customers who have
poorer credit ratings.
4.3. Creating loyalty
This third theme arises from how informants spoke of
customer loyalty with regard to CA and CR. The extensive
research into customer loyalty has discussed behavioural
and attitudinal components of the construct (Dick and
Basu, 1994; Oliver, 1999). The informants were aware of
the importance of engaging their customers’ favourable
13
attitudes, as the Naseby informant observes in the
following extract.
People go around with various barometers, thermo-
meters in their head which are warmed towards the
various organisations that they do business with.[-
y].and there are certain moments that can reduce that
substantially and I think that keeping an eye on those
moments reduce that level of stickiness, adherence,
warmth, whatever you want to call it, are things I think
to look at. (Naseby)
The term ‘stickiness’ appears to refer to a favourable
attitude or affective commitment on the part of the
customer, which is thought to be an antecedent of retention
and customer share development (Verhoef, 2003). When
affective commitment is accompanied by an understanding
of customer satisfaction, in particular, of ‘satisfiers and
dissatisfiers’ (Johnston, 1995), it is instrumental in building
loyalty or, at least, not weakening ‘warmth’. The Bosworth
and Naseby informants used the same term to refer to
products, service enhancements which they saw as ‘soft’ exit
barriers or the psychological costs that customers incur
when switching. Where relatively high exit barriers exist, for
example, with cheque accounts, customers who are less than
satisfied might make a decision to stay with the provider
rather than incur these costs (Ranaweera and Prabhu,
2002). Emotional barriers to switching can be combined in
different ‘mixes’ for different customer segments with
cognitive barriers such as search costs, transaction costs,
learning costs, loyal customer discounts and customer habit
(Fornell, 1992), all of which might discourage customers
who are ‘time poor’ from switching. Banks could choose to
lower exit barriers for less profitable customers in the hope
that they might switch to a competitor, who then incurs the
costs of servicing this customer.
Financial services, like most services, are low in search
qualities, therefore, word-of-mouth plays a critical role in
of the decision-making of others (Gremler and Brown,
1999), such as potential bank customers. To encourage
positive word-of-mouth, banks try to encourage ‘net
promoters’ (Reichheld, 2003), in other words existing
customers, to become advocates to enable them to increase
their customer base. Trafalgar was aware of the value of
advocacy as the informant explained.
The measure we particularly like to look at in a
customer satisfaction survey is how many customers
will recommend us to a friend and that’s the thing we
always want to be high. (Trafalgar)
Banks also aim to build relationships with their
customers, many of whom are generally receptive to such
overtures (Alexander and Colgate, 2000). There are
customers who prefer a transactional arrangement as the
Crecy informant has discovered.
Some customers are not interested, they come in buy a
product and they are not interested in that relationship.
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14 J.D. Farquhar, T. Panther / Journal of Retailing and Consumer Services 15 (2008) 9–21
Other customers are interested in that relationship and
customers are our insurance, so loyalty is very im-
portant to us and, I think, that’s why we feel quite
strongly about demonstrating within our brand and
that, hopefully, will generate loyalty and a relationship
rather than just a good price. Anyone can give a good
price, can’t they at the end of the day? (Crecy)
In this extract, the informant hopes that loyalty will
supersede competitive pricing in decision-making and there
is some support for her wish as loyal customers tend to be
less price sensitive (Reichheld, 1996). The management of
relationships varied amongst the informant banks, for
example, Hastings saw relationships much more in terms of
information and information management, and Edge Hill
tended to think of meaningful relationships as improved
opportunities for selling. Whatever the nature of the
relationship, the longer it lasts, the more likely it is that
the customer will be retained. Appropriate mailings and
loyalty programmes can be of assistance (Verhoef, 2003) in
prolonging a relationship. Trafalgar described the recent
introduction of an ‘optimiser’ into their systems that
directed mailings to customers in terms of frequency and
scale. One of the Culloden informants reported that the
bank had increased its direct mailings significantly in the
last year although apparently with less precision. The
Stamford Bridge informant was somewhat cynical about
the existence of customer loyalty.
In terms of the affinity or the loyalty and I guess that’s
actually going back to the earlier question about what’s
happened to loyalty, well, perhaps it doesn’t really exist
per se, because there isn’t really that loyalty, there’s not
that connection, they’re not engaged to [the bank].
(Stamford Bridge).
The rest of the informants, however, considered loyalty
not only to exist but to be a most desirable outcome of
their marketing activities. Crecy, in particular, referred to
the ‘behavioural set’ that the bank tried to instil into the
staff as part of their branding strategy and which she
thought was a successful contribution to their consumer
champion brand. The efforts to create loyalty on the part
of Bosworth and Trafalgar were carefully calculated taking
account of the value of the customer to the bank.
4.4. Maximising information
Customer data on consumption and purchasing beha-
viours underpin retention (Ahmad and Buttle, 2001)
therefore systems that provide these data and track
customers form an essential facet of processing the
customer from acquisition onwards. The Hastings infor-
mant provides a picture of the information that his bank
obtains that supports retention.
y. we spend money, time and effort getting people to
come into the bank and it’s a lot cheaper and quicker to
keep them there than it is to recruit new customers. So
we would, we look to understand, so we have continual
research studies that talk to customers that are across a
range of satisfaction levels, a range of life stages and
look to understand their attitudes towards financial
services, what constitutes good service in and outside
financial services and their attitudes specifically to-
wardsy (Hastings)
Of note in the above extract is the benchmarking of good
service against outside the financial services sector, an
indication that banks consider that lessons can be learnt
from other companies in other sectors. Culloden has used
in-house data for trials to measure the size of mortgage
with the age of the customer so that they can improve their
understanding of their customer base. Bosworth and
Naseby had well developed systems for measurement and
prediction commensurate with being a large bank. It was
an informant in a smaller bank, however, who related a
rather more sophisticated use of their data on retained
customers as follows.
by looking at our database in this way, we can identify
that business that we can do in a very efficient and
cheaper manner because it’s to people that we already
have and then work out against our financial plans what
gap that gives us and, therefore, how much acquisition
we have to do. (Trafalgar)
This was the only example in the interviews of an
indication that retention can actually drive acquisition
(Thomas, 2001) through an analysis of in-house data that
determined acquisition targets. This informant was parti-
cularly proud of the recent improvements made to the
bank’s information capabilities which he thought were
further enhanced by numerate marketing staff. Several
informants spoke about the importance of gaining a
‘customer view’, which refers to the ability of the
information systems to look at a customer across the
product ranges. In support of building strong relationships
with customers, there has been huge investment in CRM
technologies and data warehouses. In the following extract,
the Edge Hill informant describes how the bank’s system
provides information across all the channels used by a
customer.
ywe call it an integrated customer relationship
management system, that uses things like prompts, uses
things like contact history, uses things like a single
customer view, so we understand all of their [customers’]
holdings, all of their contacts across all channels. (Edge
Hill)
Waterloo was working towards this capability, which
surprisingly lacked in spite of the size of the bank. It is
possible that because of the bank’s concentration on a
‘volume’ strategy, its structure, information and brand are
all tilted towards acquisition. There was considerable
variety among the participating banks in the way informa-
tion was managed and the level of decision-making that
 ARTICLE IN PRESS
J.D. Farquhar, T. Panther / Journal of Retailing and Consumer Services 15 (2008) 9–21
rested upon it. Although the larger banks managed
significant amounts of data, there was variety in the way
that the data were analysed and perhaps most significantly,
the role of analysis in strategy formulation, as Trafalgar
bank shows.
4.5. Managing channels
The bank branch continues for many customers to be the
focus of their banking activities, in spite of the burgeoning
of alternative channels and encouragement from the banks
to shift their business to virtual channels (Mintel, 2002b).
Both the Hastings and the Edge Hill informants referred to
certain segments that will trade off the attractive rates that
are available via virtual channels against the personal
contact available in the branch. The introduction of
alternatives has merely encouraged customers to use a
variety of channels, as this informant remarked.
Our most valuable customers, a lot of them do interact
through a number of different channels and it was quite
a surprise to me, I think, when we started to get that
analysis, [y] and one kind of expected that a lot of
customers would interact with us through the branch
network only and make a few phone calls, but actually
we’ve got quite a high number of customers who do
interact with us concurrently through separate channels.
(Waterloo)
The Edge Hill informant commented on how the ‘grey
surfers’ were so satisfied with internet banking that they
had become firm advocates of this particular channel and
by association with the provider. Customers are influenced
in their choice of channel by the nature of the product they
are purchasing or consuming (Howcroft et al., 2003), so
efforts to migrate or shift customers to lower-cost channels
may be counterproductive (Nunes and Cespedes, 2003)
if banks fail to recognise customer need for choice.
This Bosworth informant recognised the power of channels
in CR.
y in terms of trying to retain and attract customers that
the channel is actually becoming much, much more a
tool with which you create stickiness or not. y I was in
Finland last week looking at it over there, and that’s M
technology, mobile technologies, mobile phones. [y]
they create stickiness by what they call push and pull
text messages. [which becomes] just another big hurdle
to get over, when you transfer that account because I
quite like that text message. (Bosworth)
Daily texting of account details is a new service that the
bank has decided to offer its customers, copying the idea
from another bank. The texts are unsolicited (push) but
create an exit barrier (pull). As this bank demonstrates, this
service is easily replicated which could undermine its
effectiveness as an exit barrier as any of its UK competitors
can introduce it.
15
The independent intermediary, or broker, in retail
financial services is a well-established channel through
which customers have traditionally purchased a range of
financial products. Stamford Bridge, for example, has a
close relationship with an on-line broker. As part of a
major change in customer targeting, they have closed many
of their branches and are now aiming to serve customers
who have lower credit ratings. The informant’s views on
loyalty mentioned above may have been influenced by this
major change. From a retention perspective, the inter-
mediary is usually considered to create customer churn and
inhibit loyalty as any relationship that might exist between
the bank and the customer is mediated by the broker. The
Hastings informant summarised this scenario, underlining
the product/channel relationship.
[Channels are] very product sensitive, such examples,
bank accounts, the vast majority are through branches.
Mortgages are a completely different equation, as are
some other investments [y] The branch is an important
channel but when we talk about how customers can do
business with us, I think, I focus a lot on the us and
therefore I’d remove the whole introducers (intermedi-
aries) from that equation because I think the customer
has the relationship with the introducer at the moment.
(Hastings)
His assertion that the intermediary weakens any
relationship between bank and customer is supported by
the Edge Hill informant, who describes such relationships
as ‘skinny’. In spite of this view, Edge Hill plans to increase
the amount of business via intermediaries, which indicates
a drive to acquire customers. Although this bank reckons
that it is ‘fairly new to retention’, there may be a belief that
the bank can convert customers acquired via this route into
loyal customers. In contrast to Edge Hill, Waterloo bank is
planning to reduce the number of customers they acquire
via intermediaries, further underlining the shift in emphasis
in this bank away from the previous volume-based
strategy. The Edge Hill informant summarised the channel
strategy that he hopes might provide a competitive
advantage for the bank.
The way we want to deal with people in a multi-channel
business so [is] for instance, if you walked into a branch
on Monday morning and asked for a quote for a
personal loan, you know, Tuesday you phone up the call
centre, wouldn’t it be nice if we knew that you got a
quote Monday morning in the branch and, indeed,
wouldn’t it be clever when you logged on to your
internet on Wednesday, we would put a quote there for
you to pick up and maybe, we offered you a call back
from the call centre? So it is a sort of joined-up
experience for the customer across all channels. That’s
very much what we are shaping and trying to keep
leading edge. (Edge Hill)
Such is the competitive nature of mortgage provision,
that Blenheim and Culloden have both created subsidiary
 ARTICLE IN PRESS
16 J.D. Farquhar, T. Panther / Journal of Retailing and Consumer Services 15 (2008) 9–21
arms, as mentioned in the branding section that deals
exclusively with customers introduced by intermediaries.
Stamford Bridge has reduced its branch network to
concentrate on this segment but Culloden maintains its
existing network and appears to be an illustration of an
acquisition versus a retention approach. Culloden is aiming
to gain new customers by extending its intermediary
business, like Edge Hill. On the other hand, Stamford
Bridge is targeting a segment with the aim of generating
revenue from these customers by charging them higher
rates as they present a higher risk to the bank.
The study indicates that channels affect the structure of
the business through the creation of specialist divisions that
can support or, conversely, undermine opportunities for
creating bonds or ‘stickiness’ depending upon the channel.
The intermediary allows the bank to reach a wider
audience with lowered costs by delegating the personal
selling aspect to the broker but in so doing, the provider
loses the opportunity to build a relationship with the
customer. The differing views amongst informants on the
use of the intermediary may be indicative of the wider
tensions that exist between CA and CR. There was sharply
divided opinion on the use of the intermediary.
4.6. Pricing and products
The informants talked extensively about products,
pricing and the related practice of cross-selling. The
Naseby informant believed that having most of the
customer’s ‘wherewithal’, or ‘share of wallet’, created an
exit barrier, because the greater the number of products
that a customer had with a bank, the stronger the
relationship is considered. His notion of a strong relation-
ship appears to correspond with the broad relationship as
defined by Bolton et al. (2004), who also refer to relation-
ship length and depth. As the data suggest, the structure of
some of these banks does not facilitate broadening a
relationship in this way. The Waterloo informant explained
how the bank’s structure and accounting systems inhibited
a complete understanding of an individual customer’s
holdings.
Our profit and loss in the business is still product-led, so
that is quite a challenge that profit and loss is siloed,
particularly [for] those customers that have more than
one relationship with us. y If you look at the
customer’s whole relationship, you find that they are
very valuable because they have a large mortgage with
you and some savings, for instance. (Waterloo)
Along with talking about a ‘whole relationship’, this
informant also mentions that customers have ‘more than
one relationship’ with the bank, where it appears that
‘relationship’ was synonymous with ‘product’. If the bank
cannot generate a ‘customer view’ for analysis and
evaluation, then the ability of strengthening the relation-
ship is severely limited. The Hastings and Blenheim
informants both spoke of the challenges of differentiating
their offerings from their competitors. Although differ-
entiation can be achieved through customising offerings to
generate value for customers (Anderson et al., 1997), there
seemed to be little indication of this approach in this study.
Instead, some of the banks relied almost completely on
price as a means of attracting customers, but the draw-
backs of relying on price are becoming increasingly evident.
A Culloden informant described how low prices had
created customer churn as customers switched to another
low-priced offering at the end of the product’s term.
I guess, historically, us, combined with lots of other
people, have very much focused on price as a way of
attracting customers in, which has its own problems
obviously, which is where the whole retention issue
comes in, really, because all the vast majority of
customers want to do is just find another of the cheaper
products, which is a big issue for us. (Culloden)
Crecy and Stamford Bridge described how they were
using flexible pricing to retain customers, perhaps realising
the scope for offering flexible pricing that could include
non-economic benefits to existing customers (Ahmad and
Buttle, 2001). The following extract captures the thinking
on pricing by the informants in the study.
I think the interesting sort of angle on this is when you
work out whether it costs you more to keep pricing
yourself at the top of this market or just to be
reasonably competitive and good service for existing
customers. (Bosworth)
Although price plays a significant role in CA, it becomes
less important after the relationship has been developed
(Bolton et al., 2004); there seems the potential for banks to
engage in a thorough re-appraisal of pricing which could
address the discontent of existing customers (Miles, 2004).
The cheque account was also a major concern for the
informants, even if they did not actually offer it as part of
their product range (e.g. Blenheim, Trafalgar). Naseby
described the cheque account as being the ‘bridgehead’ for
cross-selling and Blenheim spoke of it as a ‘dream for
customer information’, as the opportunities for cross-
selling and the exit barriers created by this account can
offset its costs. The Waterloo informant set out the value of
this account for her bank as follows:
A [cheque] account is a key acquisition for other products
for us too. We target cheque accounts and we pay a good
rate of interest, a very low margin for us in order that we
can cross sell other products on the back of it. That’s
certainly been a strategic decision. y Customers see that
there is a barrier to moving it. We have sold on the back
of current accounts what they do buy next and how they
buy it and over what time period. (Waterloo)
This bank views the cheque account not only as the
‘bridgehead for cross-selling’, but also as an exit barrier
and indeed this may work for customers who have a strong
relationship with the bank, that is, they have a number of
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products. Is it a similar situation for customers who just
have this single product with the bank? Waterloo may be
falling into a similar situation as Culloden by providing a
‘loss leader’, without necessarily gaining the advantages of
selling a number of other products to offset the costs. The
Trafalgar informant said that his bank’s decision not to
offer a cheque account is continuously under review, as the
bank was fully aware of its advantages in terms of
customer information and retention. Although cross-sell-
ing is, for UK banks, a prime motivation for retention, the
Stamford Bridge informant cited in-house research that
showed that if a mistake was made in one product area, the
customer could take all of his business elsewhere, and this
point was backed up by the Waterloo informant. Cross-
selling has driven banking strategies for some years
(Harrison, 2000), but there is still limited evidence in
support of its contribution to profitability and which may
continue to encourage banks towards CA.
4.7. Satisfying customers
The Naseby informant confirmed the importance of
customer satisfaction to banks and its role in a number of
ways in retaining customers.
yorganisations are obviously committed to serving
their customers as well as they possibly can and that
obviously has to be a retention tool but, I think, it is all
about not one single retention tool or acquisition tool
being the universal panacea, it has to be a combination
of lots of things. (Naseby)
Trafalgar bank has acknowledged that customer satis-
faction provides a basis for defending customers with the
establishment of a customer service excellence team. The
team ‘runs across the bank’ with the aim of improving
service on a continuous basis. Customers derive satisfac-
tion from both the service encounter and the qualities of
the offering (Rese, 2003), therefore, Bosworth gains a fuller
picture of customer satisfaction by merging the bank’s sales
data with its satisfaction measures. All the informants
spoke of satisfaction measures, but there was an explicit
commitment to satisfaction in building loyalty and retain-
ing customers by Crecy, Hastings, Bosworth, Naseby and
Trafalgar. The informants realised that there are moderat-
ing influences between satisfaction and retention. Bosworth
demonstrates the extent of their satisfaction research which
concentrates on loyalty rather than retention itself.
We look at customer satisfaction at different levels, so
that we can try to understand how customers interact
with the organisation at different levels and how they
interact over time and how that then contributes to their
loyalty, and obviously then to retention. So, whilst we
don’t overtly talk about retention, we do understand
what drives satisfaction amongst our customers and
what enables them to become loyal customers and
subsequent customers thereafter. (Bosworth).
17
This informant distinguishes between retention and
loyalty, indicating perhaps an awareness of the pitfalls of
‘blind’ retention, where profitability is not assured. The
bank also looks at satisfaction not only from the
perspective of relationship length but also relationship
depth by referring to ‘subsequent’ custom, that is future
purchases, although satisfaction is more likely to influence
the first of these relationship dimensions rather than the
latter (Bolton et al., 2004). Of course, ultimately a satisfied
customer is more predisposed to make additional pur-
chases as the Crecy informant comments.
I think one of the reasons customer satisfaction has been
quite important to us is that we do want to develop a
loyal base of customers and you want them to buy more
products off us. (Crecy).
This informant makes an explicit connection between
satisfaction and loyalty, and indeed if these banks are
now looking to create loyalty rather than merely retain
as the Bosworth informant hinted at above, then satisfac-
tion is a pre-requisite or antecedent as the literature
suggests.
The seven themes that have emerged from an analysis of
the data have not only provided a means for discussing the
findings but also form the basis for a framework for
managing the balance between CA and CR which is
discussed further in the following section.
5. Discussion
The informants expressed awareness that acquisition-
driven strategies alone were inconsistent with environmen-
tal conditions and had driven change or, were in the
process of driving change within their banks which
involved, for example, re-branding, restructuring and the
creation of new channels. The findings illustrate a number
of different approaches to managing CA with CR.
Trafalgar, for example, has developed an ability to identify
the profit potential of acquired customers through a
rigorous examination of its customer information. Blen-
heim, on the other hand, is just beginning to appreciate
that some of its newly acquired customers exhibit different
characteristics from its traditional base. It is revising its
strategies so that there is a closer ‘fit’ between the bank and
its new operating environment. Managing CA with CR
seems, on the basis of this research, to require a number of
keystones to be in place, for example, maximising
information that informs strategic decision-making. It is
unlikely that there is a ‘once size fits all’ for managing CA
with CR effectively even within a single sector such as
banking, but the seven aspects of CA and CR that have
emerged from this study, we argue, provide an initial basis
for strategy development.
The aspect of customer value, as described in this
research, marks a shift away from mass acquisition
strategies to a more considered approach that involved a
rigorous sifting and separating of customers (Trafalgar,
 ARTICLE IN PRESS
18 J.D. Farquhar, T. Panther / Journal of Retailing and Consumer Services 15 (2008) 9–21
Waterloo). It was anticipated by the informants that
profitability would be derived either by gaining new
customers from new segments (Blenheim) or by identifying
customers who have potential value (e.g. Bosworth) and
offering them differentiated service levels (Waterloo).
Several informants indicated that through careful analysis
and the setting of targets for both CA and CR that they
were trying to avoid or reduce indiscriminate CR, which
does not necessarily contribute to profitability. The out-
come of these analyses is that customers, who do not
generate acceptable levels of profit, will ‘not be marketed
to’ (Trafalgar). These customers may, in due course, defect
to a competitor bank, which will then incur the costs of
servicing these customers.
Within the aspect of branding, the informants indicated
that efforts were directed at building a mass-market brand
(Waterloo and Bosworth). This finding runs counter to the
strategy of branding to smaller and more profitable
segments as advocated by Rust et al. (2004b). The larger
banks consider that their brand is linked to the size of the
bank, its status with other stakeholders (Bosworth) which
includes, perhaps, their presence both physical and
psychological in the marketplace. Some UK banks have
also tried the strategy of sub-branding in the past but it was
not a success. Since banks now realise that profit is
often derived from small segments, it may be an opportune
time to revisit a brand within a brand strategy. Some of
the informants thought that by championing the consumer
(Crecy, Waterloo), the brand would reach both new and
existing customers. If a number of banks are ‘championing
the consumer’, none of them is going to be able to adopt
the differentiated position that they all seek (Hastings).
A particular benefit of branding is its ability to commu-
nicate organisational values to staff and banks in the
sample displayed quite different approaches. Hastings
bank, exceptionally, had excluded staff from the bank’s
re-branding exercise, thereby missing an opportunity to
engage staff with the very values that it was seeking to
communicate to its customers. Trafalgar, on the other
hand, had incorporated the brand in its developmental
initiatives for staff. The Crecy informant referred to the
‘behavioural set’ that the bank aimed to inculcate in its
staff that formed part of the bank’s brand, particularly
with a view of creating loyalty.
The fourth aspect that emerges from this study is
maximising information. Edge Hill used its integrated
system of information across its multiple channels to create
customer satisfaction and competitive advantage; Bos-
worth measured satisfaction at various levels to predict
customer behaviour and Waterloo considered its lack of a
‘single customer view’ as a significant disadvantage in CR.
From an acquisition perspective, Trafalgar drew up its
plans for CA after an extensive analysis of its information
on retention. We find, in this study, that information, the
analysis of the information and how it used at strategic
levels has provided a smaller bank with a holistic approach
to CA and CR (Trafalgar). Setting acquisition targets and
profiles based on their existing customer base minimises
this bank’s churn and lowers its costs.
As Edge Hill bank demonstrates, information across
channels supports the next aspect in the study of managing
channels. Data are collected on customer ‘touches’, that is
any points of contact between the bank and the customer
(Edge Hill) which allows the bank to develop a picture of
how an individual customer interacts with the bank. An
informant from Bosworth claimed that the daily texting of
account details to its customers created ‘stickiness’ or an
exit barrier, but it seems unlikely, as argued earlier, that a
single barrier will prevent switching. Higher exit barriers
may be created if banks can combine emotional barriers
with cognitive measures such as search costs, transaction
costs, learning costs, loyal customer discounts and custo-
mer habit (Fornell, 1992). The role of the intermediary
provoked a mixed response amongst the informants with
Edge Hill expanding the intermediary network and the
Hastings informant decrying the practice. Customers,
‘introduced’ via an intermediary, to the bank may be
harder to retain as they are attracted by low rates. In some
cases these low rates are made available by the bank only
to those customers using intermediaries (Stamford Bridge).
These new customers are therefore price-sensitive and have
quite different expectations from customers who use other
channels, such as the branch, where the branding is
stronger (Blenheim, Culloden). The banks may find that
attempts to retain these new customers or create loyalty,
who are not susceptible to their values, are not an effective
use of resources. Once more there is an argument for
‘tiering’ customers according to their value to the bank
(Zeithaml et al., 2001).
Price and product form part of the classical marketing
mix and, in this research, these two elements are combined
in the single aspect of pricing and products. Of particular
interest here, was a recognition that low pricing has
contributed to customer switching, prompting a reconsi-
deration of low pricing as an acquisition tactic (Culloden).
The cheque account product played a valuable role in
retention, in the sense, that it provides a basis on which to
cross-sell (Waterloo) and is a good example of a tool that
supports both CA and CR. This aspect of pricing and
products epitomises the situation that many banks face, in
that they want to attract customers to open cheque
accounts and yet, move away from low pricing as an
acquisition strategy. It is only through organisational
restructuring to enable a customer view (Waterloo),
accurate measurement (Bosworth) and careful customer
selection (Trafalgar) that banks are going to be able to
respond to the tensions exhibited in this aspect. It is
possible that the importance of price may diminish as a
means of attracting customers but, in the meantime, banks
are competing in a marketplace that is sensitised to
competitive deals and may have to adopt a long-term view.
In spite of the somewhat ambivalent role of customer
satisfaction in creating loyalty as argued by Oliver (1999)
for example, the data indicate that banks recognise some
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J.D. Farquhar, T. Panther / Journal of Retailing and Consumer Services 15 (2008) 9–21
Table 2
Preliminary mapping of aspects of customer acquisition and retention
Acquisition
Aims at a mass market where customer value may be hard to predict.
Challenges to be faced in converting customers to profitability
Being ‘big’, well known and respected in the industry. Consumer
champion
New customers influenced by positive word-of-mouth from existing
customers
Use data on retention to set acquisition targets
Customer has relationship with ‘introducer’ not with the bank.
Attracts new customers who may not loyal
Emphasis on price as a way of attracting customers in. Attractive rates
to gain current account customers. Problems with differentiating
products
Organisational commitment to customer satisfaction. Service
excellence. Individual incidences of customer satisfaction
connection between the two. Bosworth measures satisfac-
tion levels with the specific intent of improving customer
loyalty and Trafalgar’s ‘customer excellence’ initiative was
established with a similar objective. In order for banks to
understand the relationship between customer satisfaction
and loyalty, they also need to distinguish between
customers who merely seek a transaction and those who
could be retained in a relationship. A satisfactory service
encounter may require far fewer resources than a sustained
strategy built on cumulative customer satisfaction. Cumu-
lative satisfaction with a particular channel has the
potential to create loyalty as indicated by Edge Hill’s grey
surfer segment.
The seven aspects, as discussed above, are drawn from
an analysis of the findings from this exploratory study,
which underpin managing CR with CA. In Table 2, we
map each aspect onto both CA and CR with supporting
evidence drawn from the interview data.
6. Conclusions
This exploratory study set out to investigate how a
selection of UK traditional banks attempts to balance CA
with CR and to uncover marketing activities that might
support this balance. The aim was to provide an alternative
perspective to the models of customer asset and customer
equity literature (e.g. Bolton et al., 2004; Hogan et al.,
2002; Reinartz et al., 2005; Venkatesan et al., 2005) by
developing a qualitatively derived framework of marketing
activities that support both the acquisition and retention.
19
Aspects Retention
managing the
balance
Customer value Segmentation based on customer value, existing and
potential. Levels of service matched to value of customer
Branding Honesty and openness with customers. Softer brand and
community-type approach. Branding to selected
markets/segments
Creating loyalty Identify those customers who are interested in a
relationship. Encourage positive word-of-mouth
Maximising Single customer view, tracking customers touches.
information Identifying customers to reduce level of marketing/
communication Continuous research on attitudes,
satisfaction, life stage
Managing Creating ‘stickiness’, multiple barriers to exit. Means of
channels a satisfying customer experience either across channels
or with a particular channel
Pricing and Cheque account is a platform for cross-selling and
products increase bank’s and increase bank’s share of customer.
Aim to increase number of customer ‘holdings’, offer
flexible pricing, differentiated or customised products
Satisfying Aim to create cumulative customer satisfaction.
customers Measure and study how interactions contribute to
satisfaction and then to loyalty, factoring product
satisfaction. Combining satisfaction with other retention
‘tools’
The analysis of the ten semi-structured interviews with
twelve expert informants suggested seven marketing-
related activities that provide insight into managing
acquisition with retention.
This exploratory research also yields a research agenda
in terms of testing the framework (see Table 2) as a whole
as well as exploring its individual aspects. Considering the
framework as a whole, the aspects uncovered by the
research and their descriptions form the basis for a survey
of the retail banking industry within the UK, from which
an instrument can be developed to enable a wider range of
experts to be consulted. The individual aspects of the
framework also present avenues for further investigation.
Branding, for example, as practised by some of the
institutions, would appear to be associated with values
that are not necessarily consistent with the direction that
banks want to go in, for example, being ‘big’ and yet
targeting clearly defined segments. Further research into
branding within an acquisition and retention framework
may be able to provide insight into how branding can be
reconsidered so that it unifies a range of stakeholders
including staff. The pricing and products aspect of this
study suggests avenues for research, in particular how it
can be linked more strongly with cross-selling efforts
(see Table 2). Within the managing channels aspect, the use
of the ‘introducer’ revealed diverging strategies which do
not complement CR and instead appear to create customer
‘churn’.
The small number of informants, although representing
a range of traditional banks in the UK, is a limitation to
 ARTICLE IN PRESS
20 J.D. Farquhar, T. Panther / Journal of Retailing and Consumer Services 15 (2008) 9–21
the study. However, the findings as reviewed above prompt
a number of avenues for further research into marketing
activities that support managing CA with retention.
Acknowledgments
This research was funded by the pro-vice chancellor of
Oxford Brookes University.
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