BCOM CA

PROJECT

JANUARY / 12

CRM IN
BANKS
EFFECTS OF CUSTOMER RELATIONSHIP MANAGEMENT IN
BANKS

Prepared by:
AADITHYAN CS
RUKHSANA A
INTRODUCTION
In the dynamic landscape of the banking industry, one key element that has
become increasingly crucial is Customer Relationship Management (CRM). The
modern banking sector is not merely about transactions and financial services;
it has evolved into a realm where understanding, engaging, and retaining
customers play a pivotal role in ensuring long-term success. Customer
Relationship Management, as the name suggests, is a strategic approach
adopted by banks to effectively manage and nurture relationships with their
customers.

The impact of CRM in the banking sector cannot be overstated, as it

transcends traditional banking functions and focuses on building enduring
connections with customers. As banks navigate through the intricacies of a
competitive market, CRM emerges as a powerful tool that facilitates
personalized interactions, anticipates customer needs, and fosters loyalty.
This proactive approach is fundamental to sustaining a robust customer base
and staying ahead in an ever-evolving financial landscape.

Through several years in field of administration and management it has been

found that Customer Relationship Management (CRM) has been a well-liked
and widely accepted practice to maximize customer equity. This system is
predominantly useful to commercial banks along with its influences in various
other sectors in industries. CRM involves the building up and managing of
flourishing relationships with advantageous and gain-giving customers. CRM
initiatives often lead to improved customer satisfaction and apparent
business conductance as customer potentials like profits are maximized. In
essence, this paper examines the efficiency of CRM efforts in the commercial
banks of India. Since long time, marketing has played a crucial role in building a
customer centric organization. Obviously we better know and we accept that
companies are customer driven and customers are a central point for any
marketing initiatives. Therefore delivering customer satisfaction is of primary
importance. Various research done in past reveals that a satisfied customer is
more loyal and hence facilitates a stable form of economic performance to the
company. A stable customer base indicates a company’s ability to of CRM
implementation on customer satisfaction and business conductance.
Therefore, the aim of this research is to examine influence of CRM
implementation on customer satisfaction and apparent business conductance
in commercial banks in India.

This project looks closely at how Customer Relationship Management (CRM)

affects banks. We want to understand how CRM changes the way banks work
and connect with their customers. Whether it's making customers happier or
helping banks run smoother, CRM is like the secret ingredient. We're going to
explore this to see how important CRM is for banks and what it means for both
banks and their customers.
STATEMENT OF PROBLEM
In the fast-changing world of banking, there are some big challenges. Banks
want to know how to keep customers happy, handle new technologies, and
compete with other financial services. The old way of doing things isn't
working so well anymore.

We're looking into a helpful tool called Customer Relationship Management

(CRM) to see if it can solve these challenges. CRM is like a handy assistant for
banks. It's supposed to make customers happier and more likely to stick with
the bank. But, there are some problems.

Firstly, banks need to make sure using CRM doesn't put customer information
at risk. It's like having a cool tool, but you want to be sure it's safe to use.

Another challenge is getting everyone in the bank on the same page about
using CRM. It's like introducing a new gadget – some people might love it, but
others might be unsure or resistant to change. So, even if CRM is great, it won't
work if not everyone in the bank is using it.

This project is about figuring out how well CRM can help banks with these
problems. We're asking customers questions to find out if CRM makes a
difference. By studying this, we hope to learn how important CRM is for banks
and the people who trust them with their money. It's like checking out a new
tool and seeing if it can make banking better for everyone.

OBJECTIVES OF STUDY

Evaluate customer satisfaction levels with the bank's services.

See if Customer Relationship Management (CRM) makes customers more
loyal.
Find out if CRM helps the bank meet customer needs and preferences.
Examine the impact of CRM on improving overall customer experience.

SIGNIFICANCE OF THE STUDY

This study is like a flashlight helping banks find better ways to make customers
happy. Imagine if banks could understand exactly what customers like and
want. That's what we're exploring – how a tool called Customer Relationship
Management (CRM) can make banking better for everyone.

Think about it like this: if banks use CRM well, they can offer services that fit
customers like a comfy glove. This not only keeps customers smiling but also
makes them want to stick with the bank for the long haul.
By figuring this out, we're not just helping banks; we're making your banking
experience better too. It's like finding the best recipe for your favorite dish –
the more banks understand what you like, the better they can serve you.

So, this study isn't just about banks and their tools; it's about making sure you
get the best out of your banking experience. It's like a win-win – banks get
better at serving you, and you get a smoother, more enjoyable time with your
money matters.

SCOPE OF THE STUDY

This study focuses on examining the impact of Customer Relationship

Management (CRM) in the banking industry, specifically within the context of
customer satisfaction, retention, and operational efficiency. The scope
encompasses the evaluation of CRM practices in traditional and digital
banking settings. While the study primarily targets banks, the insights gained
may also be applicable to other sectors looking to enhance customer
relationships through CRM strategies. The research delves into challenges
faced by banks in CRM implementation, providing a comprehensive overview
of its scope and relevance in contemporary financial services.
LITERATURE REVIEW

The integration of Customer Relationship Management (CRM) systems in the

banking sector has been a transformative force, reshaping how financial
institutions engage with customers, manage relationships, and drive business
growth. This literature review delves into the various dimensions of CRM in
banks, exploring its effects on customer satisfaction, operational efficiency,
and overall competitiveness.

Dr.Sanjay Kanti Das in his article “bank customer’s

perceptions towards crm practices: influence of demographic factors”
highlighted that the lack of understanding on Customer Relationship
Management (CRM) is always a concern among the service providers especially
banks. Banks have their own way of managing their relationships with the
customers. However, the perception of
customers on CRM practices among banks should also
be taken into consideration. This is important as providing services to customers
are their core business.

Hair et al. (2006) defined CRM as a combination of strategic,

process, organisational and technological change, which helps in better
management of the company as detailed customer information is available.

Kotler and Keller (2006) define CRM as the method of managing detailed
information about individual customer’s touch-point in order to maximise
customer loyalty. By customer touch point author means any occasion on which a
customer comes across a brand or product from actual experience to personal to
casual observation. CRM allows companies to maintain customer database,
identify the most valuable customers and provide customised products and
services to increase customer loyalty. It assists in reducing the costs of serving
these customers and also helps in acquiring new customers

Padmavathy et al. (2012) developed a multi-item scale for measuring CRM

effectiveness in Indian retail banks and examined its relationship with customer
satisfaction, loyalty and cross-buying. The result of factor analysis shows five
dimensions
for CRME and found to positively affect customer satisfaction and loyalty and
both customer satisfaction and loyalty-influenced cross-buying. Ramachandra
and Sekar (2014) considered the core dimensions of CRM to find its impact on
customer satisfaction, loyalty and cross-buying, in private sector banks in
Tiruchiralpalli. The studies revealed that implementation of CRM improve
business performance.
Ogbadu and Usman (2012) in his study examine the imperatives of CRM in Nigeria
banking industry. The study involved survey of four selected banks with 600
respondents including customers and personnel’s of selected banks. The study
revealed that CRM contributed to customer loyalty and increase bank profit. So
and Speece (2000) in their in-depth interviews of 42 account managers of Hong
Kong commercial banks revealed
that, both social and business activities were effective in building long term
relationship with customers.

Molin et al. (2007) in the study examine the relational benefits on

customer satisfaction in retail banking. They surveyed 204 bank customers and
concluded that confidence benefits have a direct, positive effect on customer
satisfaction, however,
special treatment benefits and social benefits did not have any significant effects
on satisfaction in a retail banking environment

Krasnikov et al. (2009) in the study examines the impact of CRM

implementation on firm cost and profit efficiency using a large sample of US
commercial banks. Stochastic frontier analysis was used to estimate cost and
profit efficiencies and
hierarchical linear modelling was employed to measure the effect of
CRMimplementation on cost and profit efficiencies. They find that CRM
implementationresults in a decline in cost efficiency but an increase in profit
efficiency

McQuilken (2005) examined the relationship between satisfaction and loyalty

within Australian banking industry for two distinct customer segments, retirees
and university students. A higher satisfaction level with relationship activities was
found to enhance customer loyalty for the bank. Relationship marketing facilitate
better understanding of customers’ need and helps in building loyal customers
and also results in cost reduction,
as cost of attracting and serving one new customer is more than the cost of
serving one loyal customer. A firm cut the expenditure on marketing, distribution
and logistics costs and thereby gain low-cost competitive advantage and service
differentiation

Krasnikov et al. (2009) in the study examines the impact of CRM

implementation on firm cost and profit efficiency using a large sample of US
commercial banks. Stochastic frontier analysis was used to estimate cost and
profit efficiencies and hierarchical linear modelling was employed to measure the
effect of CRM
implementation on cost and profit efficiencies. They find that CRM
implementation results in a decline in cost efficiency but an increase in profit
efficiency
Valmohammadi and Beladpas (2014) in their study suggested
that bank should aim at improving the communication with customers, acquire
information regarding the customers’ needs and resolve their disputes during
service failure. This will improve service quality and lead to increased profitability.
Banks that
communicate efficiently and reliably with customers and handle their conflicts
proficiently, will build trust and quality relationship, resulting in loyal customer

Beckford (2002) is of the opinion that though customer relationship management

is important for all businesses but for service firms it has become even more
important. Customers focus more on the elements of services and interaction
with the service provider because in services there is no tangible product which
customers can experience. Thus, for customers interaction with the service
provider provides the experience. In banking industry, customer relationship
management factors need to be considered that have impact on the banking
service quality (Beckford, 2002, p. 12). This is more so important in case of
Pakistan, where economy is dominated by the services sector. Therefore, in
increased dynamic and competitive business environment, organizations
need to focus on new business styles, policies and practices especially related to
customers.

Picton and Broderick (2005) study on CRM also focus on the importance of CRM
factors that has major impact on firm profitability. According to the authors,
through CRM positive communication about organization and long lasting
relationship between customers and firms can be established. A lot of studies are
conducted on different dimensions of CRM. For example, Gordon (2002) study
was on process, technology, people and knowledge. Parvatiyar and Sheth (2001)
also focused on process, technology, people and knowledge and pointed out that
if not managed properly, these factors affect organizational performance and long
term growth negatively. Similarly Sin (2005) highlighted that long term customer-
firm relationship can be managed through technology, knowledge management
and customer focus

Furness (2001) in his study state that many businesses such as banks, insurance
companies and other service providers understand the importance of customer
relationship management and its potential to help them acquire new customers
and maximize their lifetime value . Thus, CRM is a policy towards attracting and
retaining organizational customers. Customer relationship management in the
banking sector involves understanding the customer’s changing needs and
developing services to satisfy these needs by building long term relationship with
the customers. By emphasizing on customer relationship management, the
banking industry can protect its market share, increase its service quality and
boost growth.
 Shergill and Li (2005) in their study highlight that good response
can be measured by the speed and quality of information that is provided to the
customers. When timely action is taken on customer’s problem and accurate
information is provided to them than there trust develops, building good
relationship between customers and company

Marx, Van Rooyen, Bosch and Reynders (1998), efficiency is about

performing the tasks and activities correctly. In banking industry, efficiency and
quality matters a lot, because for customers the first thing that matters is the
quality of the services provided by their bank. This quality of service is dependent
on services being efficient. The adoption of new technologies to provide services
has increased the efficiency and quality of employees. These systems are set in a
way that they are speedier, more accurate and error free

Kumar & Rajesh (2009) reveals that any bank that wishes to either grow in size of
its banking operation or improve its profitability must consider the challenges
affecting its customer relationship. The challenge before the banks is not only to
obtain updated information for each customer, but also to use the information to
determine the best time to offer the most relevant product

Banks have to maintain CRM practices that provide value beyond the core
product and this involves both tangible and intangible elements associated with
the core products. Hanley (2008) have described different dimensions of
efficiency of banking services which helps to increase the quality of service
provided to customers. These dimensions include confidentiality of personal
information of clients, ethical behaviour, and variety of services and security of
funds. Organizations focusing on these dimensions help enhance quality of
services and customer satisfaction

Parasuraman et al. (1985) observed that high quality service gives credibility to
the field force and advertising word-of-mouth communications, enhances
customers’ perception of value, and boosts the morale and loyalty of employees
and customers alike

Puccinelli (1999) looks the banking and financial services industry as entering a
new era where personal attention is decreasing because the institutions are using
technology to replace human contact in many application areas. Over the last few
decades, technical evolution has highly affected the banking industry

Sherif ( 2002). In today’s competitive banking industry, customers have to make a

choice among various service providers by making a trade-off between
relationships and economies, trust and products, or service and efficiency
Mudie and Cottam (2010), in similar vein also point out that service quality is
closely associated with the customer relationship management. They further
argue that improving service quality through better service encounter process,
service design process, service productivity and culture of the firm, will help in
customer retention . Similar views have also been expressed by Gronroos in his
study

Kennedy (2004) in his study also highlighted the relationship between CRM
practices and service quality of any organization. He point out that CRM helps in
understanding the needs of clients resulting in changes in the service delivery
process according to the customer needs. He further argues that the key objective
of CRM policies and plans is to have better results by satisfying and retaining
important and profitable customers

Greenberg and Baron (2000) in their study suggested that customer and firm
relationship is influenced by the knowledge of employees about the services that
are provided by their organization. In case of banks, customers are more
conscious about the information regarding different services and procedures.
Therefore, it becomes imperative for the employees not only to understand but
also to have complete and accurate information about different products and
services). Similar view point has also been expressed by Thompson and Mchugh
(2002) that a service firm will be more competitive if its employee’s hidden and
inherent knowledge is more. Therefore, to increase the firm’s effectiveness and
growth more focus should be on human resources

Lu and Shang (2007) in their study argued that the most effective CRM practice
that influences the service quality is response towards customers. When an
organization listens to the customer’s problems, complaints and provides them
satisfied response for their problems than it can build satisfied and loyal
customers for the organization

Ryals,( 2005)The major CRM practices are collaboration, customization and

customer prospecting as well as key account management practices.
Customization is the most popular and used practice, the reason is that today’s
customer is dynamic and each financial product has to be tailored to his/her
requirements at any given time. Thus customer intimacy has to be the focal point
of any growing financial organization. In the same way there has to be an
interactive customer management to enhance customer retention (Mbizi and
Muzividzi, 2013). So managers should try to acquire customers that have the
greatest potential as
long as the costs of acquiring such customers do not outweigh the benefits
REFERENCES
Dr .SANJAY- KANTI DAS Head Department of
Commerce. Lumding College Lumding Nagaon
Assam- 782447.

Hair, J.F., Black, B., Babin, B., Anderson, R.E. and Tatham, R.L. (2006) Multivariate
Data Analysis, 6th ed., Pearson Prentice Hall, Englewood Cliffs, NJ

Kotler, P. and Keller, K.L. (2006) Marketing Management, 12th ed., Pearson
Prentice Hall, Upper
Saddle River New Jersey, USA

Padmavathy, C., Balaj, M. and Sivakumar, V. (2012) ‘Measuring effectiveness of

customer relationship management in Indian retail banks’, International Journal of
Bank Marketing,
Vol. 30, No. 4, pp.246–266

Ramachandra, R. and Sekar, D.S. (2014) ‘A study on customer relationship

management (CRM)
effectiveness in private banks, Tiruchirappalli’, International Journal of
Management, Vol. 5,
No. 12, pp.12–23

Ogbadu, D.E. and Usman, A. (2012) ‘Imperatives of customer relationship

management in Nigeria
banking industry’, Kuwait Chapter of Arabian Journal of Business and
Management Review,
Vol. 2, No. 1, pp.59–72

Molin, A., Martin-Consuegr, D. and Esteban, A. (2007) ‘Relational benefits and

customer
satisfaction in retail banking’, International Journal of Bank Marketing, Vol. 25, No.
4,
pp.253–271

Krasnikov, A., Jayachandran, S. and Kumar, V. (2009) ‘The impact of customer

relationship
management implentation on cost and profit efficiencies: evidence from the US
commercial
banking industry’, Journal of Marketing, Vol. 73, No. 6, pp.61–76.
McQuilken, L. (2005) ‘An empirical investigation of customer satisfaction and
loyalty across two divergent bank segments’, Journal of Financial Services
Marketing, Vol. 9,
No. 4, pp.344–359.

Valmohammadi, C. and Beladpas, M. (2014) ‘Customer relationship management

and service
quality, a survey within the banking sector’, Industrial and Commercial Training,
Vol. 46,
No. 2, pp.77–83

Beckford, J. (2002). Quality (2nd edition). London: Rutledge

Pickton, D., & Broderick, A. (2005). Integrated marketing communications. Harlow:

FT Prentice Hall. Financial Times , Parvatiyar, A., & Sheth, J. N. (2001). Customer
relationship management: Emerging
Practice, process and discipline. Journal of Economic and Social Research, 3(2),
1-34.

Furness, P. (2001). Techniques for Customer Modeling in CRM. Journal of Financial

Services Marketing, 5(4), 293-307

Shergill, G.S., & Li, B., (2005). Internet Banking an Empirical Investigation of
Customer’s behavior for Online Banking in New Zealand. Journal of Retailing,
64(1), 35 - 47

Marx, S., van Rooyen, D.C., Bosch, J.K. & Reynders, H.J.J. (1998). Business
Management (2nd edition). Pretoria: J.L. van Schaik Publishers

Kumar M. Ashok & Rajesh R. (2009). Whether today’s customers are satisfied? – A
study with Banks. Indian Journal of Marketing, XXXIX(9), 45-53

Hanley, S. & Leahy, R. (2008).The effectiveness of relationship marketing

strategies in
department stores. International Journal of Business Management, 3(10), 133-
140

Parasuraman, A., Zeithaml. V.A., & Berry, L.L. (1985) A conceptual model of service
quality and its implications for future research. Journal of Marketing, 49, 41-50
Puccinelli, B. (1999) Bank delivery, service channels require more personal
attention. Bank Systems & Technology, 36-48

Sherif, K. (2002). Assessing the introduction of electronic banking in Egypt using

the technology acceptance model. Hershey, PA, USA: Idea Group Inc

Mudie, P., & Cottam, A. (2010). Management and marketing of services. Rutledge

Kennedy, M. (2004).Using Customer Relationship Management to increase profits.

Strategic Finance, 85(9), 5-37.

Greenberg, J. & Baron, R.A. (2000).Behavior in Organizations (7th edition). Upper

Saddle River, New Jersey: Prentice-Hall

Thompson, P. & Mchugh, D. (2002). Work Organisations. New York: Palgrave

Lu, C. S., & Shang, K. C. (2007). An evaluation of customer relationship

management in
freight forwarder services. In Proceedings of the 13th Asia Pacific Management
Conference, Melbourne, Australia (pp. 1096-1105).

Ryals, L. (2005). Making customer relationship management work: The

measurement and profitable management of customer relationships. Journal of
Marketing, 69(4), 252-261. Mbizi, R. & Muzividzi D. (2013). Customer relationship
management (CRM) practices in financial sector: Role and implications to
commercial bank performance in Zimbabwe. Research Journal of Finance and
Accounting, 4(8), pp. 96- 103.