Chapter One

1. Introduction
This chapter presents an overview of the entire study. It includes background of the study,
statement of the problem, research questions and objectives of the study, scope and limitation of
the study and significance of the study.

1.1. Background of the study

The survival of any business depends on its customers, and the most important goal of an
organization is to maintain customer loyalty and focus on customer centric approach in their
organizational and marketing strategies (Jain & Singh, 2002). In today’s business many companies
are required to build long-term profitable relationship with customers and to achieve customer
loyalty. Bowen and Chen (2001) argue that having a satisfied customer is not sufficient, because
customer satisfaction needs to have direct impact to customer loyalty.

There is significant pressure on the financial sectors in all over the world; the market place is very
dynamic, vibrant and competitive. The customers are smarter, more informed, and have an access to
many channels and choices which they take little time to exercise. Customer can easily defect to
competitors who promise better offerings at lower prices (Bhardwaj, 2007). Technological
advancement has contributed a great deal in empowering customers by equipping them with the
information they want at their fingertips. This has given customers the liberty to demand better
services, reduced loan rates, higher deposit rates, timely and special customer service and many
more financial offerings possible. Therefore, it’s a challenge to have good customers let alone
having loyal ones to our brand. If what is offered is above the expectations, the customer is highly
satisfied and pleased. (Kotler, 2005) for example, if the real performance of a product or service in
a bank is below the expectations, the result is dissatisfaction, but if it equal or higher, customer
satisfaction is achieved. (Gürbüz, 2008).

Customer relationship management (CRM) is a concept for managing a company’s interactions

with customers, clients, and sales prospects. It involves using technology to organize, automate,
and synchronize business processes in order to enhance profitability, income, and customer
satisfaction and finally loyal customers to the specific brand. “As more and more enterprises
realize the importance of becoming customer centric in today’s competitive economy, they
embrace Customer Relationship Management (CRM) as core business strategy” (Wu, 2008).

Customer loyalty is one of the most important customer metrics in marketing due to the profit
impact of maintaining a loyal customer base (Oliver, 1997), When a consumer develops loyalty
towards a brand develops a favorable attitude towards the brand resulting in commitment. When
the customer becomes emotionally rather than merely intellectually vested in a brand, loyalty to
the brand becomes cemented.
Customer Relationship Management enables prospective new customers to be targeted with
individualized and attractive offers, thus increasing the effect of sales development (Schulze,
2000). Customer Relationship Management makes profitable customer relationships even more
profitable CRM gives a company new opportunities to gain a competitive edge by moving
customers up a loyalty hierarchy from new customers to regular purchasers, then to loyal
supporters of the firm’s goods and services, and finally to advocates who not only buy its products
but re commend them to others (Smith, 2003).

Banking is one of the service industries characterized by high customer contact with individually
customized service solutions where customer satisfaction has been an increasing focus of research
(Molina et al., 2007). The implementation of CRM is widespread (Peppard, 2000) and more
advanced (Ryals and Payne, 2001) in the financial services industry than in other industries.

Scholars showed that CRM components have direct effect on customer loyalty, each were
mentioned in different studies as a significant element. They have suggested that customers’ Trust
has a significant role in building long-term relationship and achieving customer loyalty (Berry,
1983; Kotler & Armstrong, 2010). The ability of the product or service provider to handle conflict
well will also directly influence customer loyalty. Clow & Kurtz (2003) Commitment is another
important determinant of the strength of a customer relationship management, and a useful
construct for measuring the likelihood of customer loyalty and predicting future purchase
frequency (Morgan and Hunt, 1994). The findings of Ndubisi (2007) suggested that the greater the
trust in the bank, the higher the level of the bank’s commitment, the more reliable and timely its
communications and the more satisfactorily it handles conflicts, the more loyal its customers will
tend to be. Effective communication affects customers to stay with a provider of banking services.
Loyalty can be nurtured by providing timely and reliable information.
Awash International Bank S.C. was established in 1995 G.C by 486 founding shareholders with a
paid up capital of Birr 23,123,917. It is the first private bank to be established after the
liberalization of the banking sector after the fall of the Dergue. On February 13, 1995 G.C, it
opened its first branch named Head Office Branch at a building located at Bole.
The name AWASH was selected to be the name of the bank from many alternatives tabled for the
founding shareholders. The bank was named after the river Awash as the name is famous among
the Ethiopian people and it contributes a lot for the development of the country.
Currently there are 21 private banks operating in Ethiopia. The overall standing of the bank in the
private banking industry of the country is second next to Dashen Bank. As noted above the key
success factor for the private banks is to attract and retain customers.
Awash International Bank has 386 branches out of this 118 branches are located in Addis Ababa
and the remaining branches are out line branches. The bank classifies these branches into 5 grades
(Special class, first class, second class, third class and forth class) based on volume of transaction,
variety of services provided, site location, amenities and staff strength, cash holding limits and
other similar considerations. Almost all private banks in Ethiopia provide similar services to their
customers. New products developed by each bank are easily copied by its competitors. With the
joining of new private banks and the huge expansion of the state owned and private banks in the
country the competition is becoming stiffer each year. Therefore to win this competition AIB
needs to apply CRM in its full dimension.
1.1 Statement of the problem
The main goal of customer relationship management is simply better understanding of customer
behavior and enhances loyalty and profits (Zarali, 2009, 247). In Organizations often due to the
reasons including greater continuity of services by them, high importance of maintaining and
strengthening long-term relationships with customers and deeper relationship with customers have
caused the effective factors of customer loyalty to be very important (Jayawardhena et al, 2007,
580-575). The applications of the concept of Customer Relationship Management in various fields,
especially in the service sector is undeniable and cannot be ignored due to the difficulties and risks.
Given the high importance of the implementation of customer relationship management in the
banking industry, which is one of the major tools to compete and sustainable competitive
advantage a proper mechanism should be developed and designed to help reduce the risk of data to
facilitate its management.

CRM in banking industry entirely different from other sectors, because banking industry purely
related to financial services, which needs to create the trust among the people, that results in
customer loyalty. It is an industry that has a huge opportunity to engage people in experiences that
build lasting and mutually rewarding relationships (Doherty, 2012). Having CRM software
installed or introducing the strategy does not ensure a successful result. To be successful in
implementation of CRM practices, the financial and banking organizations must define and
develop a business strategy as well as a supporting infrastructure for that strategy (Kwamena,
2013).
The emergence of new banks in the banking industry makes competition intense. However, as the
researcher observes and collect data from the bank branches and the customers complain on the
service in the Ethiopian banking industry, there appears to be limited effort to engage to CRM
practices for securing long-term growth and profitability. For any given service sector, the growth
and survival of companies is highly dependent on how loyal their customers are. Customer loyalty
has been found in the literature to be a competitive tool for many companies; here application of
CRM practices comes as a solution. This is even much more pronounced in today’s highly
globalised, industrialized and competitive markets. Loyalty has been widely researched in the
domain of marketing (Bose & Rao 2011). A relative handful study of Ndubisi (2006) has
specifically examined that CRM such as trust; commitment and conflict handling have a direct
effect on customer retention. The evidence is almost uniformly consistent in indicating that
customers are loyal when the banks relationship marketing is good.
The profitability and sustainability of these banks are important for the expected growth of the
financial sector as well as the growth of the country. As stated earlier to be profitable the bank
must win the competition through creating loyal customers and to become more profitable these
banks must be customer centric and apply full dimensions of CRM in their business activities.

According to the researchers observation there are limited researches that reveal the relationship
between CRM dimensions and banking industry in Ethiopia. Therefore, this study has an attempt
to provide a value conceptual model that explains the theoretical linkages existing between CRM
dimensions and customer loyalty in Awash bank in Addis Ababa.
1.2 Research Questions
The study will seek to answer the following questions
1. How does trust affect customer loyalty in Awash international bank?
2. How does commitment influence customer loyalty in Awash international bank?
3. How does communication influence customer loyalty in Awash international bank?
4. How does competence affect customer loyalty in Awash international bank?
5. How does conflict management affect customer loyalty in Awash international bank?
1.4. Objective of the Study
1.4.1. General Objective
The main objective of the study is to determine the effect of CRM on customer loyalty in Awash
international bank in Yeka sub city.
1.4.2. Specific Objectives
The specific objectives of the study are:
To determine the effect of trust on customer loyalty in Awash international bank.
To examine the influence of commitment on customer loyalty in Awash international
bank.
To examine the influence of communication on customer loyalty in Awash international
bank.
To determine the effect of competence on customer loyalty in Awash international bank in.
To determine the effect of conflict management on customer loyalty in Awash
international bank.
1.5. Significance of the Study
Implementation of CRM in the banks would be the stage for building a good partnership with
customers which consequently leads to services development and improvement. Therefore,
conducting this study on public bank like the case bank is important, because the finding of this
study will be significant to the bank in supporting decisions on using its resources to maintain the
existing customers and attract the new ones by adopting effective customer relationship
management in light of its competitors. The result of this study will offer valuable inputs and
directions for the bank to consolidate its organizational productivity and customer knowledge
management in order to increase its profitability.
The result of this study will also assist the responsible bodies by providing knowledge on how to
identify the needs of their customers in delivering advanced technologies to improve the quality of
their services and increase their profit. Furthermore, the study is believed to benefit both
academicians and other practitioners as a documented study in this area.

1.6. Scope of the Study

This study mainly focused on examining the application of CRM and its effect on customer
loyalty. Even though the concept of customer relationship management is very crucial and need to
be seen at industry level, to conduct the study in depth with limited time, budget, and covid-19
constraint the scope of this study is limited to investigation of the application of CRM and effect
on customer loyalty. The study assesses branches of Awash International Bank that are found only
in east of Yeka sub city in Addis Ababa having higher grade. This limits the area of the study by
discriminating those branches of Awash International Bank found in outlying areas and those in
Addis Ababa.
The researcher believes the sample will representative of the population considering; wide
customer range, technological advancement and adopting CRM activities. The study gives
emphasis on customer relationship management along with its components’ level of effects on
customer loyalty, taking five CRM components i.e. Trust, commitment, conflict handling,
competence and communication as independent variables by applying all on the dependent
variable i.e. customers’ loyalty. The research will use customers of the selected branches of the
bank and branch managers.
1.7. Organization of the Study
The study will consist of five chapters. The first chapter deals with introductory part which
consists of background of the study, back ground of the organization, statement of the problem,
objectives of the study, significance of the study, scope of the study and limitations of the study.
The second chapter deals with review of related theoretical literature, models and empirical
findings; the third chapter deals with research methods and methodology. The fourth chapter
presents the discussions and results from the application of CRM and its effect on customers’
loyalty. Finally, based on the analysis and interpretation, conclusions and recommendations will be
forwarded.
1.8. Definition of terms
Customer Relationship Management: Is an enterprise approach to understanding and
influencing customer behavior through meaningful communications in order to improve customer
acquisition, customer retention, customer loyalty and customer profitability (Swift, 2001).

Customer Loyalty can be defined as “deeply held commitment to re-buy or re-patronize a

preferred product/service consistently in the future, thereby causing repetitive same-brand
purchasing despite situational influences in marketing efforts having the potential to cause
switching behavior” (Dowling et al., 2003).
Kotler (2000) defined customer satisfaction as a persons’ feelings of pleasure or disappointment
resulting from comparing a products’ perceived performance or outcome in relation to his/her
expectation.
Trust; as existing when one party has confidence in an exchange partner's reliability and integrity
(Morgan and Hunt (1994) )

Commitment; Refers to the efforts by a bank and its employees to serve customers with the
desired levels of performance. It also reflects the bank’s values, attitudes and beliefs in terms of
the customer orientation and CRM efforts (Padmavathy et al., 2012, p. 260)).

Communication; Communication, especially timely communication, means helping to resolve the

disputes and aligning the conceptions and expectations in order to enhance mutual trust in a
relationship Sin et al. (2002)

Competence; Competence has been defined by perceptions of customers on the amount of skills,
abilities and knowledge needed by the opposite party to effective function/service. Smith and
Barclay, (1996)
 CHAPTER TWO

Review of related literatures

2.2 Theoretical review

2.2.1 Customer Relationship Management (CRM)

Different definitions of customer relationship management are provided by the researchers. Some
consider it as strategy, some consider as technology, some other consider it as information system
(Thompson, 2004, 18). Customer relationship management is a process consisting of monitoring
clients, collecting proper data, management and evaluation of data and finally real advantage of the
extracted data in their interactions (Kim et al, 2010). The main goal of customer relationship
management is simply better understanding of customer behavior and enhances loyalty and profits
(Zarali, 2009). Gul Houng And colleagues (2010), in a study entitled Understanding loyalty and customer
satisfaction, provide a model in which introduce some factors such as reliability, service quality,
perceived value (functional, emotional, social and financial) and costs change as factors affecting
loyalty and customer satisfaction. But these factors do not necessarily affect corporate trademarks.
Rachel Yee et al (2009), in their study examined the relationship between employee loyalty,
service quality, customer satisfaction and customer loyalty, and ultimately, the profitability. This
study was conducted in 210 stores. The results showed that employee loyalty has a positive effect
on Service quality and Service quality on customer satisfaction, customer satisfaction on customer
loyalty and customer loyaltyon organization profitability. Ullah Mudimigh (2009), presents a
framework for Balanced Scorecard of customer relationship to evaluate these systems in Saudi
banks and improve customer satisfaction and loyalty. The overall goal of this research is to
identify the changes needed for adjusting the Balanced Scorecard to measure performance of
customer relationship management. In this study, the indices of the sample and measurement are
explained; so there is not holistic approach because other models have used the balanced
scorecards.
 Consider the following summary from Peelen (2005) supplemented by other sources as
mentioned. CRM is:
 A comprehensive development process
 Customer differentiation
 Data warehousing and mining
 The core business strategy
 Integrated collaboration
 Empowering the customer (Newell, 2003)
 A total company reorientation (Buttle, 2005)
 Customization in products or services (Sharp, 2003)
 Building mutual value (Peele, 2005; Targetbase,2001)
 Building customer equity (Gupta and Lehman, 2005; Shaw, 2001)

Below are the definitions of the components of the customer relationship management.
Trust: is the “cornerstone” of long-term relationships (Jusˇcˇius and Grigaite, 2011). Trust is a
willingness to rely on an exchange partner in whom one has confidence" A betrayal of this trust by
the supplier or service provider could lead to defection (Ndubisi and Wah, 2005). It means taking
mutually agreed words as fact and reducing one’s perception of the likelihood that either party will
act opportunistically (Leung et al,2005).Trust is defined as a belief or conviction about the other
party’s intentions within the relationship. In the context of relationship marketing, trust is defined
as the dimension of a business relationship that determines the level to which each party feels they
can rely on the integrity of the promise offered by the other (Chattananon & Trimetsoontorn,
2009).
Fulfilling promises that have been given is equally important as a means of achieving customer
satisfaction, retaining the customer base, and securing long-term profitability, besides fanning the
fire of trust. Gro¨nroos (1990) believed that the resources of the seller – personnel, technology and
systems – have to be used in such a manner that the customers trust in them, and thereby in the
firm itself, is maintained and strengthened. Trust in organizations comes from customers’ positive
experiences that induce them to continue with the relationship (Vesel and Zabkar, 2010).
Commitment: is another important determinant of the strength of a marketing relationship, and a
useful construct for measuring the likelihood of customer loyalty and predicting future purchase
frequency. In the marketing literature, Moorman et al. (1992) have defined commitment as an
enduring desire to maintain a valued relationship. Hocutt (1998) views commitment as "an
intention to continue a course of action or activity or the desire to maintain a relationship". Studies
in calculative and affective commitment, for example, have in fact demonstrated that buyers base
their commitment on calculations of switching risks as well as on sentiments of allegiance (Barry
et al, 2008). In general, commitment refers to an orientation that specific intentions and behaviors
characterize with the purpose of realizing value for both parties over the long term (Vesel and
Zabkar, 2010).

Communication: is defined as “the consumer’s perception of the extent to which a retailer

interacts with its regular customers in a warm and personal way”. Such an interaction is reflected
in the feelings of familiarity and friendship, personal knowledge, and the use of the client’s family
name and/or first name on the sales spot (Naoui and Zaiem, 2010). Also communication is defined
as the formal as well as informal exchanging and sharing of meaningful and timely information
between buyers and sellers (Sin et al, 2002). Communication refers to the ability to provide timely
and trustworthy information. Today, there is a new view of communications as an interactive
dialogue between the company and its customers, which takes place during the pre-selling, selling,
consuming and post consuming stages (Anderson and Narus, 1990).Communication in relationship
marketing means keeping in touch with valued customers, providing timely and trustworthy
information on service and service changes, and communicating proactively if a delivery problem
occurs. It is the communicator’s task in the early stages to build awareness, develop consumer
preference (by promoting value, performance and other features), convince interested buyers, and
encourage them to make the purchase decision.

Communications also tell dissatisfied customers what the organization is doing to rectify the
causes of dissatisfaction. When there is effective communication between an organization and its
customers, a better relationship will result and customers will be more loyal (Ndubisi, 2007).
Bidirectional communication leads to a strong relationship satisfying both parties, which in turn
leads to increased loyalty. Communication should be proactive rather than just reactive (Boedeker,
1997) and it has three sub constructs. These are the frequency, relevance and timeliness of
communication from the organization to the customer (Macmillan et al, 2005).
Competence: Heene and Sanchez (1997) define competence as an ability to sustain the coordinated
deployment of assets (anything tangible or intangible the firm can use in its processes for creating,
producing, and/or offering its products to a market)in a way that helps a firm achieve its goals. On
the other hand Smith and Barclays (1996) defined competence as the perception of customers on
the amount of skill, abilities and knowledge needed by the opposite party to effective
function/service.

Conflict handling: Conflict, which has been defined as “tension and frustration between two or
more social entities that arise from the incompatibility of actual and desired responses”, is an
opportunity for the company to show its engagement towards its client through its efforts to
resolve the conflict and its willingness to openly discuss reasons and possible satisfactory solutions
(Naoui and Zaiem, 2010). Dwyer et al. (1987) defined conflict handling as a supplier’s ability to
avoid potential conflicts, solve manifest conflicts before they create problems, and discuss
solutions openly when problems do arise. How well this is done will determine whether the
outcome is loyalty, "exit" or "voice". Frequency and bi-directionality communications has the
strongest effects on interpersonal conflict and that communication should be meaningful,
supportive and appropriate to be more effective (Meunier FitzHugh & Piercy, 2010)
In Organizations often due to the reasons including greater continuity of services by them, high
importance of maintaining and strengthening long-term relationships with customers and deeper
relationships with customers have caused the effective factors of customer loyalty to be very
important (Jayawardhena et al, 2007). Customer relationship management includes the following aspects:

1. Focus on key customers: It includes the intense focus of organization on key customers,
providing superior service and added value for customers by providing customization that is
composed of parts including customer-oriented marketing, customer lifetime value, customization,
and interactive marketing (Lee, 2000). In relation-based marketing companies and customers play
a role in different aspects of design manufacturing and product and service? And this causes a
strong relationship between the company and the customer (Sin et al, 2005).
2. Organizing the business process: Processes of customer relationship management requires a
change in the organization and the business process structure For this purpose, organizational
structure, organizational commitment and human resource management are important (Agarwal,
2004). An issue that should be considered is commitment in the organization. For this purpose it is
necessary to have instruments required in sales, marketing and technical expertise of other
resources. Success in attracting and retaining customers depends on the commitment of resources
to identify and meet the needs of key customers (Nicampa, 2001).
3. Knowledge Management: The main reason of a company from the perspective of knowledge
management is the transfer and application of knowledge. Knowledge can be gained by
understanding customer experiences and information. Main aspects of knowledge management
include knowledge creation, sharing knowledge and accountability. Knowledge about major
customers is essential to the success of customer relationship management and can lead to the
development of a learning relationship with customers, and significantly increase the
competitiveness of the organization. Customer information can be received via interactive
communication. Business intelligence tools such as data mining and data warehouse enables
companies to use the Customer data into strategic business intelligence (Stefanou et al, 2003).
4. Using up-dated technology: Computer Technologies are used in developing computerized
communications and technology aligned with business objectives. The use of customer
relationship management software enables companies to customize services to provide a higher
quality and lower cost. It also leads employees to work better with customer contact points
(Zinledin et al, 2005).
2.2.2 Benefits of CRM
Early CRM researchers had hypothesized that CRM`s benefits varied by industry as the processes
and technologies associated with CRM were tailored to specific industry structures (Rust, Lemon,
Zeithaml, 2001). However, findings in a recent cross cultural, multi-industry study of CRM done
by Reinartz et al. (2004) support the notion that desired CRM benefits do not vary greatly across
industries or countries, as had earlier been thought. This later finding lends support to the idea that
core benefits associated with CRM initiatives exist across contexts. The identified seven core
benefits were;
1) Improved ability to target profitable customers;
2) Integrated offerings across channels;
3) Improved sales force efficiency and effectiveness;
4) Individualized marketing messages;
5) Customized products and services;
6) Improved customer service efficiency and effectiveness; and
7) Improved pricing.
Though other studies have not presented the benefits of CRM in such a way, most importantly the
results coincided with the core benefits identified by Reinartz and his friends in 2004. CRM
enables an organization to gain better information on customers’ values, behaviors, needs and
preferences and helps it gain a competitive edge over its competitors. It makes it possible to
identify customers’ potentials, uncover the profiles of key customers, anticipate their needs, predict
their behavior, win back lost customers, create personalized marketing plans for each segment,
develop new products and services, design communication tools and distribution channels, or
identify new market opportunities based on customers’ preferences and history (Tokman, Davis,
and Lemon, 2007;Thomas, Blattberg, and Fox, 2004;Peppers, Rogers, and Dorf, 1999;Day, 2000).

2.2.3 Customer Loyalty

The most popular definition of loyalty goes to Yakubi and Kenz that define loyalty as a prejudice
to behavioral response over time in which the person prefers a particular brand than other brands
and made decisions as a mental commitment (Mc Mullan and Gilmore, 2008). Loyalty is one of
the key concepts in the field of marketing management that plays an important role in creating
long-term benefits for the organization because loyal customers do not require extensive
promotion efforts (Kalati, et al, 2008). Customer loyalty is important in different aspects. Loyal
customers help the organization in determining the expected increase in sales and profit. In
addition, customers who are familiar with the brand are likely to recommend it to their friends and
relatives and affect the feedback and evaluation cycle of the product and these issues are critical in
today's business environment (Allamehand Noktedan, 2009).

Loyalty is a strong commitment to repurchase a product or service in the future, so that the same
brand or product is purchased despite the marketing efforts and potential competitors (Birelyet al,
2004). Larson and Susana (2004) believe that: loyalty is creating customer commitment to doing
business with a particular organization and procurement of goods and services (Larson and Susana,
2004, 48). Asail (1992) defines loyalty as a behavior on the brand. This led to the constant
purchase of that brand (Wang et al, 2004). Loyalty is the psychological processes that evaluate
different alternatives on multiple criteria (Birely et al, 2004,). Another definition of loyalty is also
provided which includes the concept of commitment by the customer: "Loyalty is a deep
commitment to purchase a product or service again in the future that means buying one brand
again despite environmental influences and marketing efforts of competitors to change behavior
(Taylor et al, 2004). Customer loyalty can be seen as a customer commitment to deal with a
particular Þ rm, and buy their products and services. 1995). Loyalty requires a positive attitude of
the consumer towards a company and its services; retention, on the other side, can also exist with a
negative attitude towards a company (Bruhn, 2009). Customer loyalty is related to a service
provider’s ability to maintain its customers’ loyalty and persuade them to recommend its services
to potential customers (Zeithaml, Berry and Parasuraman, 1996).

Interaction of attitude and behavior such that the behavior (loyalty) is determined by the strength
of relationship between relative attitude and repeat patronage. Extending this, the loyalty
dimensions or concepts are to include behavioral, attitudinal and cognitive processes. The
attitudinal dimensions of loyalty were to include attributes such as word-or-mouth, complaining
behavior and purchase intention. The behavioral loyalty measures include attributes such as brand
allegiance, price elasticity, share of category (number of times a brand is purchased in a given
period) and price until switching. The cognitive loyalty component includes attributes like
preference to the service organization, the belief that the service organization provides best offer
and suiting customer needs.
Dick and Basu (1994) Customer loyalty is one of the most important customer metrics in
marketing due to the profit impact of maintaining a loyal customer base (Oliver 1997). The
literature points out that customer loyalty leads to firm profitability because customer loyalty
positively influences firm product-marketplace performance and financial performance and creates
shareholder wealth.

2.2.3 The effect of Customer Satisfaction on Customer Loyalty

Customer satisfaction is a judgment of the service brand’s capability to provide “a pleasurable
level of consumption related fulfillment, including levels of under or over fulfillment” (Oliver,
1997, p. 13). Customers are satisfied if the performance meets or exceeds their expectations prior
to consumption. Likewise, they are dissatisfied if the brand does not meet their expectations.
According to Garbarino & Johnson, 1999, customer satisfaction is considered as one of the most
important factors contributing for customer loyalty. If customers evaluate the brand as being one
that meets and even exceeds their expectation, it is presumed they are satisfied with the brand.
Once they are satisfied with the brand, they will prefer it for their subsequent travel.
Customer satisfaction is further assumed to positively influence customers’ commitment to their
relationship with the airline brand. A high level of satisfaction resulting from the interaction with
the airline brand provides repeated positive reinforcement, thereby creating positive emotional
commitment bonds with the brand (Hennig-Thurau & Klee, 1997, p. 753).

2.2.4 Customer loyalty in the service provider organizations

Customers remain loyal, not because of promotions and marketing programs, but because of the
value they receive (Payne et al., 1995). Key findings of Gee et al (2008) indicates that
organizations must understand what drives both value and delight for their customers and adopting
a customer centric vision enables an organization understand their customers, deliver customer
delight and drive for loyalty. They also pointed out different customers have different requirements
and were delighted in different ways and appropriate monitoring of customers is important to
ensure that customer defections are not masked by customer acquisitions. This is essential for the
sustainable growth of an organization. Analysis of defecting customers allows an organization to
profile at risk customers where appropriate preventive measures can be put in place to reduce
customer defection (Gee et al., 2008).
According to Huseyin et al (2005) findings, it is more expensive to find and attract a new customer
than it is to retain an existing one and banks need to redefine their corporate image to one that
emphasizes service quality by introduction standards for service excellence to make loyal. The
study conducted by Huseyin et al (2005) has shown that customers are looking for banks that keep
their promises, instill confidence in the customer about the way they handle transactions, provide
prompt service and have employees that are competent and always willing to help the customer.
They also argued that due to the highly interactive nature of the employee-customer relationship,
including input from employees on what constitutes service excellence were beneficial for banks
and need to reassess what customers expect from them in terms of products and services and thus,
provide client specific services is very important.
As Balakrishnan and Els (2008) states service initiates aimed at customer relationship management
often look at four areas such as satisfaction, retention, loyalty and lifetime profitability. They also
suggest a fundamental criterion for the success of customer initiative schemes is making sure that
customer perceived value is met or better still, whether it is exceeded and organizations should
evaluate future service schemes with respect to cost and results. They also pointed out that in a
competitive environment where the customer has myriad choices and few switching costs, loyalty
could from the organization point of view decrease costs and increase revenues.

2.2.5 CRM and customer loyalty

Today the most important thing to do about the reduced customer satisfaction is the customer-
centered practices adapted to each customer’s needs and values. By treating different customers in
different manners, firms can achieve customer loyalty (Tarhan, 2004: 77). Customer loyalty is the
long and uninterrupted retention of the relationship by offering service that meets and even goes
beyond the customer needs (Acuner, 2001: 89).
Customer loyalty is defined with consideration paid to the amount of buying for a given trademark.
The level of loyalty is measured by the watching of the frequency of buying (Javalgi and Moberg,
1997: 165). With the increase in the amount of accessible information in recent years, the
conscious level of customers has improved continually. Today’s customers are aware of the power
they have on the market and that every activity is realized for them. It is now easier to reach the
products and services. Before choosing a given trademark, consumers look at the price, newness,
accessibility of the product and the additional services offered. As the alternatives increased,
consumers’ loyalty to the products and services decreased (Tekinay, 2002: 129). Today firms have
entered into an effort to present at a lower cost than their rivals the products and services that can
meet the customer wishes and expectations fully, so that they can render customers more loyal.

2.2.6 CRM and Banking Industry

Banking is one of the service industries characterized by high customer contact with individually
customized service solutions where customer satisfaction has been an increasing focus of research
(Molina et al., 2007). Despite substantial investments in CRM applications, there is a lack of
research demonstrating the benefits of such investments (Mithas et al., 2005). According to Mithas
et al., (2005) CRM applications are likely to have an effect on customer satisfaction for at least
three reasons. First, CRM applications enable firms to customize their offerings for each customer.
By accumulating information across customer interactions and processing this information to
discover hidden patterns, CRM applications help firms customize their offerings to suit the
individual tastes of their customers. Customized offerings enhance the perceived quality of
products and services from a customer’s viewpoint. Because first, quality is a determinant of
customer satisfaction, it follows that CRM applications indirectly affect customer.
Globalization and technology improvements have exposed companies to a situation with tough
competition. In this new era companies are focusing on managing customer relationships in order
to efficiently maximize revenues. Today marketing is not just developing, delivering and selling, it
is moving towards developing and maintaining long term relationships with customers.
Relationship marketing is becoming important in financial services. Managers really need to look
at areas where opportunities lie, because industry consolidation, virtual delivery channels and the
ability to move money around with a click of a mouse are making it easier for customers to leave
one bank for another. In this situation CRM (Customer Relationship Management) is an
opportunity that banks can avail to rise above minor advantages by developing actual relationships
with their customers.
CRM in banking industry entirely different from other sectors, because banking industry purely
related to financial services, which needs to create the trust among the people.
Establishing customer care support during on and off official hours, making timely information
about interest payments, maturity of time deposit, issuing credit and debit ATM card, creating
awareness regarding online and e-banking, adopting mobile request etc. are required to keep
regular relationship with customers.
Customer relationship management in financial services industry is a cyclical process which starts
with definition of customer actions (Panda T, 2003). Panda T described customer expectations are
difficult to manage but are often the cause of dissonance which results in loss
of existing customer base. So understanding of customer expectations with regard to service
delivery levels and product quality is essential for establishing a long term symbolic value
relationship.
CRM, which is becoming a topic of increasing importance in marketing, is concerned with using
information technology in implementing relationship marketing strategies ( Ryals L, et al, 2001).
Customer service is the primary end of any bank. A customer always wants something and expects
that the bank should come up to the level to fulfill those needs. Again, the more you provide, still
more the consumer needs. Service quality is about meeting customer needs and requirements, and
how well the service level delivered matches customer expectations.
2.2.7 Benefits of CRM strategy in Banking Industry

Benefits of CRM can be categorized into three groups namely: Benefits for customers, benefits for
employees and benefits for banks. It brings Coordinated and professional approach to customer
contact, Up-to-date customer information, Banks can offer more personalized services. Customers
feel empowered if they have greater access to products and services. For example, 24 hours
banking. Targeted product and service offerings can be timed to coincide with customer events and
requirements e.g., Education Loans and Tourism Loans. Develop better communication channels.
Collect vital data, like customer details and order history create detailed profiles such as customer
preferences Deliver instant, company-wide access to customer histories Identify new selling
opportunities.

2.2.8 The Payne’s model of CRM

In line with implementing and evaluating the effect of CRM practices, a number of comprehensive
CRM models have been developed. Yet there is no agreement regarding a common framework for
the implementation and appraisal on how effective is the CRM practices. The IDIC, the QCi, the
CRM Value Chain, the Payne’s five-process, and the Gartner Competency models being the top
five popular CRM models, this study will introduce and refer to the Payne’s five-process model
which was developed by Payne (2005).
Payne and Frow (2005) uses interaction research and a combination of literature review and field
communication with executives to arrive at a strategic multi-functional process oriented CRM
framework consisting of five generic processes including strategy development process; value
creation process; multichannel integration process; information management process, and
performance assessment process. The process begins from developing business and customer
strategy (strategy development) and concluded with performance monitoring through qualitative
and quantitative measurement and key performance indicator. Data are collected throughout these
four processes. The notion that competitive advantage stems from the creation of value for the
customer and for the company is key to the success of CRM
In general, according to Payne’s model, the first two processes represent strategic CRM, the
multichannel integration process represents operational CRM, and the information management
process is analytical CRM. This study, while focusing on operational and analytical
CRM related activities, mainly concentrate on multichannel integration and information
management processes.
Malik and Wood-Harper (2009) tried to identify the problems and challenges in the banking sector
of Pakistan using CRM. Bohling et al., (2006) concluded that linking CRM strategy and
implementation more tightly with the overall marketing strategy of a business will lead to greater
CRM implementation effect.
2.3. Empirical Review
Apart from the theoretical backgrounds, various empirical research outputs confirm that CRM has
proven benefits in the real business arena. A research paper by Mohammed J. Tarokh and
Mahmuod Majidi entitled “Application of CRM in Airline Industry” supported that CRM systems
should be used by major airlines to promote customer with better offers that compromise cost-
effect market needs. In another study entitled “Effects of Relationship Marketing on Customer
Loyalty by Peyman Jesri, Freyedon Ahmadi and Motreza Fatehipoor (2013) it was proved based
on the results that there exist relation between components of relationship marketing (trust,
commitment, communication, competence and conflict handling) and customer loyalty?
In a research paper by Ehsan Ahadmotlaghi and Dr. Prafulla Pawar (2012) entitled “Analysis of
CRM Program Practiced by Passengers’ Airline Industry of India and Its Impact on Customer
Satisfaction and loyalty”, the writers have tried to identify main CRM factors that influence
customer satisfaction on loyalty and tried to analyze the relationship between these factors and two
parameters of satisfaction and loyalty.

They conducted the test on 900 passenger of the airline collecting the data through questioner and
concluded that application of CRM program in passenger’s airline industry affects customer
satisfaction and directly influences satisfaction level among customers. And CRM causes higher
loyalty of passengers and makes barrier in front of customer switch. Customization of service,
communicational efforts by the airline having trust in the airline, commitment of airline to
promised service offer and better service quality are main factors influencing customer satisfaction
and loyalty.
This conclusion supports the hypothesis that CRM practice of airlines has impact on customer
loyalty. On another study by Cherinet Boke (2015) entitled “The Effect of relationship marketing
on customers’ loyalty” tried to investigate the influence of relationship marketing underpinnings
on customers’ loyalty and the finding revealed that there is a strong and significant correlation
between relationship marketing and customer loyalty. The sample for the aforementioned study is
taken from Zemen Bank in Addis Ababa.
Many scholars identified a number of underpinnings of relationship marketing; the major ones are
listed below:

 Trust (Macintosh and Lockshin,1997; Sirdeshmukh et al, 2002; Veloutsou et al., 2002;
Knemeyer et al., 2003; Beetles and Harris, 2010 ),
 Commitment (Morgan and Hunt, 1994; Beetles and Harris, 2010),
 Competence (Smith and Barclay, 1997; Metawa and Almossawi, 1998; Hunt et al, 2006),
 Equity (Kavali et al, 1999),
 Benevolence (Ndubisi and Wah, 2005),
 Reciprocity (Sin et al., 2002)
 Empathy (Ndubisi, 2004),
 Conflict handling (Ndubisi and Madu, 2009; Gilaninia et al, 2011), and
 Communication (Morgan and Hunt, 1994; Ndubisi and Wah,2005; Knemeyer and
Murphy, 2005; Tian et al., 2008.

2.4. Conceptual Framework

The conceptual framework of the study was based on the model presented in a previous study by
Ndubisi and Wah in 2005. It highlights the effect of relationship marketing underpinnings on
customer loyalty.

Trust

Commitment
Customer Loyalty

Communicati
oooooooooo
Competency Dependent variable

Conflict
Handling
 Independent Variables
Figure, Conceptual framework

According to the framework in figure, components of customer relationship management

constitutes of the independent variables while customer loyalty is the dependent variable.
Components of customer relationship management; trust, commitment, communication,
competency and conflict handling will affect customer loyalty.
 CHAPTER THREE

METHODOLOGY OF THE STUDY

3.1. Introduction

This chapter provides discussions of the research methodology used in this study. It discusses the
research design especially with respect to the choice of the design. It also discusses sample design,
the population of the study, sampling techniques, and data collection methods as well as data
analysis which will be employed in the study.

3.2. Research Design

Research design is a framework through which a research processes is conducted to explain the
social phenomena under investigations (Kothari, 2004). Accordingly, the researcher will employee
descriptive and explanatory research design with which to describe and explained the effect of
CRM on Customer loyalty together with contribution of each component to customers’ satisfaction
and loyalty to the brand is clearly examined. In other words, descriptive research deals with
questions that look to explain what things are like and describe relationships but do not predict
relationships between variables or the direction of the relationship. The study will be employed
Survey research method which provides a quantitative or numeric description of trends, attitudes,
or opinions of a population by studying a sample of that population.

The researcher must be able to define clearly what she/he wants to measure and must find adequate
methods for measuring it. It aims to depict the state of affairs as it exists and to describe some
aspects of phenomenon. This research will try to measure and identify the applications of customer
relationship management and its effect on customer loyalty in the case of Awash international
bank. The goal is to measure and describe what really exists in Awash international bank
customers mind in perceiving the service and the practice of CRM. Moreover, the study will
evaluate and measure the relationship between the overall customer satisfaction and loyalty with
the practice of customer relationship management. In order for the researcher to gain different
perspectives and draw attention to the customer relationship management that has effect on
customer satisfaction and loyalty, descriptive research method will be employed in this study. The
researcher will use both quantitative and qualitative approaches but the study will employee more
of quantitative study method to answer the research questions and use some qualitative information
to know the current conditions of the company with regard to customer relationship management
and customer loyalty.

3.3. Sampling Design

3.3.1. Target Population

Population refers to the total of items about which information is desired (Kothari, 2004). The
target population for this study comprises Awash international bank customers in Yeka sub-city
east district and branch managers. The target populations of this research will be 4000, these
customers will be identified for these frequently use the services provided by the Awash
international bank and have saving books.

3.3.2. Sample Size and Sampling Technique

Sampling is a procedure that uses a small number of units of a given population as a basis for
drawing conclusions about the whole populations (Albaum, 1997). A sampling frame is a list of
individuals in the population (Mooi and Sarstedt 2011). The most important aspect of sampling is
that the sample selected is representative of the population with representative it means that the
characteristics of the sample closely match those of the population (Mooi and Sarstedt 2011).

The study will use non probability sampling technique from non-probability convenient random
sampling will be used. Convenience sampling inherently is a non-probability sample method.
Zikmund (2003) demonstrated that convenience sampling is referred to as sampling by obtaining
units or people who were most conveniently available. Convenience sampling also called
accidental or opportunity sampling is a technique in which a sample is drawn from that part of the
population that is close to hand, readily available, or convenient.
The study include any person who appears in the banks premises to get financial service, though
the intention of this research is to assess the effect of CRM from customer perspective and its
effect on customer loyalty it is impractical to assess the evaluation of all customers. Therefore, it is
necessary to survey a sample of the population as an alternative in order to formulate predictions
about the entire population. The researcher will use the following formula to determine the sample
respondents from the total customers where N is the total population, small n is sample size and e
is the margin of error. The total population of the selected branches of awash bank (Gurdshola,
Lamberet, kotebie and CMC) is 127514 customers.

By using the above formula the sample size is found to be 399.

3.4. Data Collection Instrument

In this study to answer the research questions and meet the objectives of the study, data will be
collected from primary sources. Primary sources of data will be collected directly from the
aforementioned respondents through questionnaires, structured interview and observation converse
with the A wash bank customers and all branch managers of the bank in Yeka sub-city.
Structured questionnaires: - It is containing both open and closed-ended question items.

Structured Interviews: - will conduct with the all branch managers of the bank in Yeka sub-city.

3.5. Procedures of Data Collection

Five steps will be taken to conduct the survey:
Step 1: The questionnaire and the interview questions will be formulated.
Step 2: The respondents will be selected using random sampling method.
Step 3: Appointment will be arranged with respondents for interview and the purpose of the
interview will be communicated.
Step 4: The questionnaires will be distributed and the interview will be done; the interview lasted
for a little more than an hour.
 Step 5: The data collected from questionnaires and interview will be coded and proceed for data
analysis.

3.6. Units of Data Analysis

The unit of analysis in this study is at bank industry levels which are represented by individual
respondents who are customers for the company dealing with the service provided by Awash
international bank at Yeka sub-city.

3.7. Methods of Data Analysis

The study will employe SPSS package version 24 for the analysis of collected data, also are
utilized for the use descriptive statistics mainly involving mean and standard deviation in the data
analysis. The mean simply put is the average of the sum of all values (Salking, 2009, p.2) which is
representative of a distribution with several discrete or continuous variables that cannot be
employed wholly. Standard deviation seeks to measure the average amount of variability in a set of
scores (Salking, 2009, p.37) between values and measures. The researcher will use this program
for the purpose of correlation and regression analysis to determine the relationship between
dependent and independent variables, and to what extent the independent variables measure the
dependent variables.

3.8 Work Plan

Time period
Activity Janua February 2021 March 2021 May 2021 June Rema
ry. 2018 rk
2021
Week Week Week Week Week
3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
Proposal Writing X x x
Review of x x X x
Related
Literature
Data collection X x x
tool dev’t
Data Collection x x x x x
Research Report x x x x x
Writing
Submission of x
Draft Report
Submission of x x
Final Report

3.9. Budget plan

Serial No. Particular Rate Cost In Birr

1 Stationary materials Overall 700.00

2 Transportation Overall 600.00

3 Telephone cost(Mobile Card) Overall 300.00

4 Secretarial service Overall 300.00

5 Others Overall 250.00

Total 2,150.00
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