CHAPTER ONE

INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The road to customer satisfaction is not paved with a large number of unusual demands. Lasting relationships with bank customers are built on some very simple ideas. Banks must strive to provide uncomplicated services and, in so doing, provide a competitive advantage for their institutions. Market share is earned one customer at a time. Given the high percentage of customers who have experienced dissatisfaction with their banks, it is likely that bankers have not "walked the walk" taken by other consumer-driven businesses Monitoring customer satisfaction on an ongoing basis, on the factors we find define customer satisfaction, is a strategic opportunity for banks. This paper provides an assessment of the factors that affect the choice of customers in choosing their bankers. A similar study conducted elsewhere in West Africa of personal banking habits and preferences (see Owusu-Frimpong 1999) shows that the reasons people choose retail banks appear to be based on location, reputation, service and security of funds. There are, however, likely to be some differences in how Ghanaian consumers interpret these variables especially with the rapid transformation of the Ghanaian Banking sector in recent past and especially considering the influx of foreign banks into the industry with the Nigerian Banks being dominant. The foregoing has led to the the Ghanaian banking industry undergoing metamorphosis in terms of adoption of technology and automation. These new generation private sector banks which came into existence in the last ten

The bad news is that consumers frequently tend to lump the overall behavior of the institution of banking together. Thus." In this paper. smart cards or the latest whiz-bang. In order to capture a significant market share. A grasp of these issues will help banks forge long-lasting relationships with . p. A bank. banking institutions must create a distinct and compelling advantage. a savings account is just another savings account. A cliché in consumer research is that it costs an average five to six times more to attract a new customer than to keep an existing one. individual banks have to work hard to distinguish themselves from the competition and forge long-lasting relationships with their customers. Feinberg and Widdows. then. to forge relationships than to understand just what it is that customers want from their "friendly neighborhood bank"? According to a Wall Street Journal article (August 17. 1995: 1996) and attempt to uncover what kind of relationship customers want with their banks and the major factors defining this relationship. 1995.years have gained a substantial market share and government owned banks are losing market share to these new banks. savings and loan. a checking account is just that . A1). and credit union cannot simply open the doors and expect the customers to enter. What better way. derivatives. It is very important for the banks to understand the preferences of the customers to offer the services required both to attract new clients and protect existing client-base from migrating to other banks.another checking account. understanding what the customer wants ranks in importance over "home banking. In the consumer's mind. we follow up with previous work published in the Journal of Retail Banking (Chakravarty.

In the last three years. entry of eight banks from the sub region and Asia. none the less the need to make profit cannot be overemphasized.8 billion as banks inject new capital and retained earnings to meet the minimum capital requirements. 1. the industry’s total shareholders’ funds have more than doubled from GH¢0. The new capital requirements may lead to an improved buffer for risk absorption in the .8 billion to GH¢1.2 STATEMENT OF THE PROBLEM December 2009 marked the year end that all foreign banks (banks with foreign majority ownership) were to meet the new stated capital requirement of GH¢60 million. Of the fourteen foreign banks in the country. and expansion in the branch network. risk management was clearly of primary concern to directors. ten were able to comply with the requirement. The after effects of the global economic crisis continue to reverberate through corporate boardrooms. capital injection by existing banks to meet minimum regulatory capital requirements. As at December 2009 six local banks had met the requirement.their customer base. bringing risk management into sharper focus In the 2009 “What directors Think” survey conducted by PricewaterhouseCoopers and Corporate Board Member magazine. The phenomenal growth in the Banking industry as referred to in this paper arose from. Local banks (banks with local majority ownership) are required to meet the minimum capital of GH¢25 million by December 2010. The purpose of this study was to determine the factors considered important in customer choice of retail bankers to enable retail banks reorganize their activities to achieve their corporate mission and goals.

life-long customer appear to be over. growing customer demands.. Therefore the quest to conduct an assessment of the factors affecting customers’ choice of bankers becomes very important to enable banks to meet these set objectives. With intensifying competition in the market. and the new oil find will definitely attract foreign investments and lead to buoyant economic activity.sector. 1. In view of the foregoing. The days of the loyal. Improper identification of true determinants of consumers' bank selection decision may result in poor results for marketing efforts. it is evident that pprofitability of banks and growth of client base are interlinked. Management's failure to identify customers' desire is one kind of quality gap (Zeithmal et al. The objectives of this paper are to determine the relative strengths of factors used by consumers in the commercial bank selection process. and new regulations are likely to continue to add complexity to business models of banks and information technology environment. The current economic reforms. improvements in budget deficit. the study seeks to determine the factors bank customers consider important when . Similarly. However. it is very important for the banks to understand "How customers choose their banks?" Then only banks can take proper marketing efforts to increase client base. These complexities may not be easily unraveled. 1990). increased competition. 1.3 OBJECTIVES OF STUDY The objectives of this study are in three-folds. Transient customers are generally willing to move to banks that make their customers feel valued.

the study tests whether customer choice of bankers varies by demographic profiles of the respondents. The study also gauges the knowledge of the customers regarding their perception about their choice to do business with Nigerian Banks in Ghana. 3. If the satisfaction rating of any dealer falls below a cutoff. 2.4 RELEVANCE OF THE STUDY A prominent Japanese car manufacturer goes so far as to measure the satisfaction received by the owners of its cars from their dealers. 1. This will also enable banks improve on their levels of profitability and ultimately this paper will serve as a source of useful information for future research conducted in this area. A bank that provides a competitively satisfying experience to its customers will have won partners . Lastly. the parent company sends out a "customer-satisfaction SWAT team" that stays with the dealer as long as it takes to bring customer satisfaction ratings back up to par. The findings presented in this paper will be useful and provide pertinent information for bank managers in formulating their marketing strategies with a focus on customers’ retention and satisfaction since consumer is sovereign in today’s competitive and capitalistic markets and therefore the bankers must reengineer their view and recognize the predilection and tang of the retail customers. Relationships with customers are forged by making satisfaction a certainty.choosing a bank and how these factors are prioritized according to their importance. or better.

factors relating to the functional quality such as friendliness and helpfulness of personnel. efficiency in correcting mistakes and speed of service and decision making. towards affecting specific customer behaviour variables (satisfaction. The greater liberalization and globalization of world trade will enforce Ghanaian owned banks to address the . accuracy in account transaction management. etc. loyalty. aiming to optimise the interaction.). whether foreign or local. This paper portrays the increasingly competitive environment prevailing in today’s financial market and the rapid advances in customer intelligence technologies which have led retail banks to look for new business and marketing models for realizing intelligence-driven customer transactions and experiences to also reflect why nowadays great attention is paid to all the bank-customer touch-points. The emphasis on foreign or local is mainly due to the growing global nature of the industry. In particular. This study tends to highlight the importance of effective market positioning and the different approaches that a bank can use to occupy competitive position in competitive market place. the objective of this study is to focus on the criteria of bank services or image which customers perceive as important in their selection of a bank. the focus on the choice of a bank. Lastly.for life and will have created disciples who spread the word better than the bank ever could. are the most important determinants of bank selection. The study lead to the conclusions that from the bank's customers point of view.

issue of how customers perceive them in comparison to their foreign competitors. the ability to present a better view of its abstract nature near reality required that adequate income be invested. There were problems in the area with data collection since relevant data were not released on time by the relevant banks. However. The research was also affected by time constraints and other problem. makes it imperative for local banks to also analyse the attributes that shape the overall image of bank amongst its customers. . although effect was made to overcome these challenges for accuracy. Even though customer preferences vary from country to country based on the culture. These developments and the growing number of foreign banks setting up branches in Ghana resulting in increased competition. This image evaluation will eventually determine the choice of bank to patronize. Also. while such data is limited in the Ghanaian context. in a study such as this. 1.5 LIMITATIONS OF THE STUDY This study required ample time for appropriate methodology and statistical technique.0 LITERATURE REVIEW The business literature is flooded with vast array of information on the customer choice of bankers of various countries. CHAPTER TWO 2. in any area where this conduct has failed to address itself adequately it is assured that it will never the less provide input and stipulate research in the future.

Service charges. study of the scenario in the other countries may throw some light to us on the subject. time required for loan approval and friendly tellers were identified as the top 5 determinants of bank selection decision. 16 & 17 respectively. Improper identification of true determinants of consumers' bank selection decision may result in poor results for marketing efforts. Management's failure to identify customers' desire is one kind of quality gap (Zeithmal et al. closeness to home were ranked 12. 1990). closeness to work.. Focusing customer attention . IT penetration etc.. affordability. With intensifying competition in the market. It was found that Bank customers tend to be loyal provided they are satisfied with its service and stick on to the same bank for five to seven years on an average and they change over only when they move to a new home in an area outside their bank's network. the reputation of the bank. it is very important for the banks to understand "How customers choose their banks?" Then only banks can take proper marketing efforts to increase client base.demography. Effective advertising was considered as least important (Rank 22) while ATM availability. (Huber et al. 1998) Khazeh and Decker (1992) analyzed the determinants of consumers' bank selection decision thro a survey conducted among 1198 of business school alumni of Salisbury state university in Maryland using a questionnaire containing 22 factors that were identified to influence the banking decision. interest rates on loans.. Profitability of banks and growth of client base are interlinked.

factors relating to the functional quality such as friendliness and helpfulness of personnel. are the most important determinants of bank selection. A survey of customer perceptions of competing banks and their attributes are essential in providing the bank manager with usual representation of customers' view on banks attributes and position in market place. Thwaites and Vere (1995) studied the student buying behavior of banking services and concluded that students are not convinced about the concept of financial supermarket and were more inclined to shop around for the best offer.on low ranking factors may do little to attract new customers and on retaining the existing one. The study highlights the fact that a well integrated application of technology and staff helps to build customer loyalties by creating deeper and fuller customer relationships. They were also found conducting business with more than one institution and were not particularly loyal. efficiency in correcting mistakes and speed of service and decision making. The results also indicated that the performance of the contact personnel. word-of-mouth and technological based services might also compensate for an overall low score of factors such as full service provider. price and advertising had a minor effect on bank selection. accuracy in account transaction management. . Results implied that convenience of location. A study conducted by Zineldin (1996) in Sweden highlights the importance of effective market positioning and has examined the concept of bank positioning and different approaches that a bank can use to occupy competitive position in competitive market place. The study lead to the conclusions that from the bank's customers point of view.

the minimum waiting time in the branches and a simplified applications form for all accounts a bank offers. which business firms consider prior to establishing a banking relationship.Edris and Almahmeed (1997) conducted a study at Kuwait and concluded that the true determinants of bank selection decision made by business customers are more likely to be a function of both perceived importance of bank attributes and the difference among banks in a given region with regard to each of these attributes. (1998) conducted a survey of CEOs of business firms and banks to find out how well banking industry in Australia understands the need of their business clients. the efficiency of banking operations and the fact that banks have knowledge of their specific business. Nielson et al. delivery channels and customer relations gain importance in bank choice process as there were a lot of problems in those areas. Ulengin (1998) indicated that customer in Turkey was more interested in the functional quality of financial services rather than the technical quality dimension. the continuous information flow from the bank. The substantive conclusions of this study are that. . on an average. the off site ATMs.. Significant differences were found for six factors. Business firms were found to place far more importance on the banks willingness to accommodate their credit needs. The study further concluded that as there were no big differences among financial products offered by banks and the quality of financial products offered by banks are much beyond expectations of the customers. respondents of the survey prefer the extended customer loyalty programs.

They are followed by the availability of self bank facilities. The respondents considered overall quality of service more than twice as important as recommendations by parents/friends. full range of services and provide a personal banking relationship. services and after service satisfaction. (1998) concluded that the most important bank selections criteria are convenience. availability of students privileges and recommendations by friends and parents specifically. The findings indicated that the most important criteria affecting undergraduates' bank selection decisions are higher interest rate for saving. quality of service (attention to the customer. facilities. long operating hours. which were . Their research on bank customers of Greece showed that bank selection criteria like location-convenience. banks felt it was more important for them to offer competitive prices. quality of products and services. convenient location and overall quality of service. personalized service. interest rates and fees. Devlin (2002) analysed the customer choice criteria in retail banking market in the UK on the potential variations in the importance of various choice criteria. charges on services provided by banks. Mylonakis et al. Phuong and Har (2000) under took a study of bank selection decisions in Singapore using the Analytical Hierarchy process through a study of banking preferences of college students. no queues) seen to influence the bank selection and factors like Advertising did not seem to influence bank customers at all. low interest rate on loans. branch environment. education and personnel contacts.. bank reputations.On the other hand.

service recovery and products used. 17 items were selected to measure service quality and switching intentions such as service quality dimensions (e. Studying and understanding customer defection/ switching process is equally important as studying customers bank selection process as losing clients can have negative effect in bank's market share and profit. getting it right at the first time) service features (e. competitive interest rates). rate of return and low fees in their choice. It was found that lower knowledgeable groups were particularly influenced by extrinsic criteria of location of the branch and recommendations that they receive. Even though such extrinsic factors were found to influence higher financial knowledgeable groups also. higher knowledgeable groups were found more likely to take account of intrinsic attributes such as service features. .g.classified as either intrinsic or extrinsic. Intrinsic attributes were defined as those specific to a particular service rather than generalisable across services like price and service specific features. corporate brand and relationship factors. service problems. Levesque and McDougall (1996) investigated the major determinants of customer satisfaction and future intentions to switch in the retail banking sector. Extrinsic attributes were those factors that are not specific to a particular service and can be generalized across offering like service quality factors. with respect to customer financial knowledge. It was found that service problem and the bank's service recovery ability have a major impact on customer satisfaction and intentions to switch.g.

interest rates and credit availability) as the most important factors in bank selection decisions. recommendation and relationships were important choice criteria when choosing a main bank. (2003) compared the bank selection decisions of the small business market across UK and Egypt and the results advocated various similarities and provides evidence to suggest that brand plays major role in the bank selection decisions of the small businesses at both UK and Egypt . More specifically both Egyptian and UK small business customers consider financial items (fees.. Aish et al. which influenced customers to switch banks. offering an incentive was also significantly more . This finding is important in our context of study because. were service failures. a client may switch to another bank because his present banker may not provide a service. Results showed that relatively rudimentary factors such as location. Though the same criteria were found to be strongly influential in choosing the secondary bank.Colgate and Hedge (2001) studied the process of defection in Australia and New Zealand through a mail survey. pricing problems and denied services. which the customer thinks most important. They further add that customers tend to complain more often about services failure prior to exiting firm and customers may be staying silent about the problems that are most important in their decision to exit the firm.The study reinforces the opinion that technical quality (quality of service itself) is more important than functional quality (quality of the service provider) in bank selection decisions. The study indicated three main problem areas. Devlin and Gerrard (2005) studied the relative importance of various choice criteria for main and secondary banks.

. The services market is becoming ever more competitive. proprietary technology and the features of individual customers. 1998). switching barriers. Service exception was found to be significantly more important for main bank as were low fees and over draft charges. customer satisfaction and loyalty programmes (Gummerson. Several authors (Bloemer and Lemmink. namely customer retention (Patterson and Spreng. The relationship between these two key constructs is considered to be far more complex than it might first seem (Fournier and Mick. 2000) and. . environment. Indeed. 1998). however. upon other factors such as the level of competition. thus greatly influencing customer repurchase intention (Morgan and Hunt. 1999). including value chain analysis. Satisfaction has a significant impact on customer loyalty (Sharma and Patterson. as price competition intensifies and the shifting of loyalty becomes an acceptable practice. Sharma and Patterson. that the link between customer satisfaction and customer retention is reliant. product or service. Bloemer and Kasper. Many industries have already experienced a rearrangement of marketing budgets in order to devote more resources to defensive marketing. etc. the impact of satisfaction on commitment and retention varies in relation to the industry. 2000) highlighted. as a direct antecedent. leads to commitment in business relationships (Burnham et al. Several initiatives have been undertaken to improve retention. 1994). 1995. to some extent. 1992. 2003).important in prompting the choice of secondary bank.

2000).However. .. 2003). 2003).. have a moderating effect on the satisfaction –commitment link (Sharma and Patterson. Relational switching costs. customer commitment cannot be dependent only on satisfaction (Burnham et al. which consist in personal relationship loss and brand relationship costs and involve psychological or emotional discomfort due to loss of identity and breaking of bonds (Burnham et al.

All the questions are in form of multiple choice questions and there can be more than one answer for most of them.0 RESEARCH METHODOLOGY Research Instrument Previously. age.  The comments and suggestions were open-ended questions so that the respondent could elaborate upon his thoughts. The final questionnaires were hand-delivered to the customer’s as they entered the banks. Structured questionnaire was prepared for use in the survey based on literature review and objective of the study.CHAPTER THREE 3. industry and monthly earnings with the view to capture the demographic influence on bank choice. Following facts were kept in mind while preparing the questionnaires:   The questionnaire was produced and brought about in an easy language. Only those who directly operate a bank account were requested to complete the questionnaires. Part B captured the respondents banking habits and preferences and asked about their preference of a local bank to a foreign bank to conduct their personal financial transaction. permission was sought and gained from the respective bank managers to conduct the study at the bank’s entrance. sex. Part A of the questionnaire captured demographic characteristics viz. The questionnaires were designed to reduce any form of writing to its minimum and were typed and presented to respondents in an arranged manner. The questionnaires were constructed and pre-tested to correct errors. educational qualification. Part B also sought . marital status. This is to make the job feasible for both the respondents and the researcher. occupation.

1 – representing the “very important” while 5 representing “Not at all important”. Lastly. The weighted average scores of all responses were calculated and the scores on importance were ranked and tabulated. This section was designed to generate data in order to rank the importance of selection factors by bank customers. The responses were captured in a scale of 1 to 5. The sample for this study was selected from among bank customers. The questionnaires listed the important factors identified as the influencing factors on decision making and satisfaction levels of the clients from various studies referred in the literature survey and captured the respondents’ perceived importance of the factors viz. a viz. the performance of the bank on each of the factors. six main banks which have extensive branch network were selected for the survey of which a total of 60 questionnaires were distributed equally among the banks. . Sampling method used: This study was conducted in the Greater Accra region of Ghana. To get a representative cross-section of the population. Part D captures the bank choice decisions and the satisfaction level with current bank.to explore significance of the perception about doing business with “Nigerian” owned banks in Ghana. Of the 26 banks currently operating in Ghana. 12 are local banks and 14 are foreign banks. Part C captures bank the services offered by the main / prime bank and services used from main bank and secondary banks.

Trained research agents collecting the data assured the respondents of the confidentiality of their responses and their names were not solicited. 2001). 1992-93. after screening only 54 were useable for analysis purposes. 2000. A total of 56 were received which accounted for 93. Huu and Karr. Garrard and Cunningham. Such response rate was considered sufficient for statistical reliability and generalisability (Tabachnick and Fidell. However. Ten (10) respondents were chosen at random from each bank to complete the questionnaires then and there at the bank’s premises. the questionnaires were collected from the respondents in stages from the “agents” appointed to administer the data collection. . or at their own free time at home. 2001) and most satisfactory especially when compared with earlier research works on bank selection decision (Khazeh and Decker.33% return rate. Within a one-month period.

0 ANALYSIS .CHAPTER FOUR 4.

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