7 Final Copy

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED

CHAPTER 1: INTRODUCTION

Today, a customer loss is a customer gain for a competitor. With so many

competitors, companies need to spend as much energy on retaining customers as they

do on acquiring them. Businesses that understand churn and invest accordingly will

need to invest less in placating dissatisfied customers and less in winning new ones to

grow. Businesses that do not will find rivals with better retention machines rapidly

overtaking them. Understanding how and why the churn occasion comes about will be

critical.

1.1 BACKGROUND

The customer market is one of the many different markets that businesses

need to consider. Businesses traditionally employed transaction marketing, i.e.

Marketing through 4Ps: transactions of product, price, promotion, and place.

However, over the past two decades, businesses across all sectors have

increasingly moved towards relationships, networks and interactions. This shift in

business thinking has been necessitated in no small measure by the

commoditization of offerings and the intensification of competition in many

industries, rendering ownership of the customer relationship, the most critical

business success factor. Examples of these types of market dynamics are in long

distance telecommunications as well as the credit card, retail banking, insurance,

food and beverage industries, cellular phone service, cable TV, information

services, and health care, banking service.

This customer-centric realization on the part of key decision makers is

definitely a move in the right direction. Anecdotal data from several industries

indicate the importance that business decision makers now place on customer

retention, loyalty and churn. The CRM approach to marketing has gained much

currency in recent years, seeking to establish closer relationships and interactions

between a business and its most important customers.

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CRM-oriented businesses market their products and services through

relationships and interactions with multiple markets, most notably the customer

market, often taking advantage of IT-based interactivity. This is why relationship

marketing is termed “customer relationship management” when it emphasizes the

customer market in particular. Many researchers consider CRM as a new paradigm in

marketing. The concept of “paradigm” has been defined as “a set of assumptions

about the social world, and about what constitute proper techniques and topics for

inquiry”. Much of the marketing literature has regarded CRM as representing a

paradigm shift in marketing thought. CRM is reshaping the marketing landscape.

Customer Relationship Management has overtaken the market and it is

revolutionizing marketing and reshaping entire business models. As like the

importance of CRM, the role and impact of customer relationship officer is far much

important in organization, his prudential activities can raise the foretaste efficient

image of organization in corporate sector.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED1.2 DEFINITIONS

1.2.1 Who Is a Customer?

Customer can be defined in different ways, for example Sara Gustafson and

Erica Lundgren (2005) described “a customer” as below:

A Customer is the most important person ever in this office . .

. in person or by mail.

A Customer is not dependent on us . . . we are

dependent on him.

A Customer is not an interruption of our work . . . he is the purpose of

it. We are not doing a favor by serving him . . . he is doing us a favor

by giving us the opportunity to do so.

A Customer is not someone to argue or match wits with. Nobody

ever won an argument with a customer.

A Customer is a person who brings us his wants. It is our job to

handle them profitably to him and to ourselves.

1.2.2 Customer Churn

Customer churn is the tendency for customer to move from one competitive

provider to another (Michael Fox and Missy Poje, 2002).

1.2.3 Loyalty

Loyalty has to be defined as an internal intensity of customers towards

sticking with or switching from their current supplier—an inherent value.

Customer loyalty is when a customer remains as a client of original

supplier even if a competitor proposes more advantageous conditions.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED1.2.4 Retention

Retention is the outcome or the event that customers are retained with their

current provider.

1.2.5 Customer Life Time Value

The net presence value of stream of future profits expected over customer's

life time purchases.

1.3 CUSTOMER RELATIONSHIP SERVICE

One person's excellent service may represent barely adequate service to

someone else. What impresses one customer may make absolutely no impression on

another. To complicate matters, what a customer believes to be good service in one

context may be unacceptable in another situation or at another time. Service is

perceptual; it is individualized; and it is situational. So how can you figure out what

customers want from you in terms of service? The kind and level of service that you

must deliver depends on who the customer is, what her expectations are, what

experience she has had with you and other firms, what your strategy is and what role

customer service plays in its delivery—along with a host of other things.

Many managers and executives are uncomfortable with this notion of variable

service delivery; they would much prefer to be able to pin down service and to be able

to standardize it so that it can be consistently delivered. But I don't believe service

should be the same for everyone. In fact, the value of service as a relationship-

building tool is its customizability. Simply out, some customers require and deserve

better service than others. Several studies have examined the importance for a

business of retaining its customers in great depth, with evidence suggesting that

retention leads to increase market share and eventually greater profits. Marketing

tools that businesses can employ for retaining customers may, therefore, provide

for a competitive advantage. For example, tools may contribute to product and

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDservice differentiation, as well as to create barriers for customers switching to other

products and services.

Today’s businesses are facing fierce and aggressive competition while

operating in both domestic and global markets. Most managers and marketers

would of course agree that establishing long-term business relationships is about

development and survival. According to Lewis (1991), the world has never been so

interdependent. All trends point to cooperation as a fundamental, growing force in

business. Marketing is also about how to integrate the customer into the design

of the products/services and how to design a systematic process for the

interaction that will create substance in relationships. In a competitive world,

companies have to work hard to gain any added value. They have to work with their

customers to discover the new ways for running the business more efficiently for

themselves and more effectively for the customers.

Four Levels of Service

Another element that gets in the way of impressive service

delivery is management's very simplistic view of customer service. I can think of

at least four levels of customer service, each of which involves the creation of

progressively more emotional value for customers. To the customer, service involves

more than just the functional delivery of service (the first level, which, in a world

where companies like FedEx have practically perfected technical service

provision, customers take as a given). Customers care how easy you

make it for them to communicate with you. This opens the door to a discussion

of your phone system, your web site and your customer service center—not to

mention whether customers can find someone to serve them in your store.

Increasingly, when you keep them on hold for 20 minutes, don't respond to their email

inquiries and ask them to deal with unknowledgeable and unhelpful staff, they will

walk away.

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At the third level, companies need to understand how customer service is

linked to the people they employ. My experience suggests that customers are most

likely to equate the notion of service with the way they are treated by employees.

Finally, the level of service that customers experience is a powerful influence on how

customers feel emotionally toward a company. Poor service can make a customer feel

neglected, unimportant, frustrated, angry or even humiliated. Surprisingly good

service leads to emotions such as comfort, relief, delight or excitement.

Holistic View

Yet, many companies have a less-than-holistic view of their value proposition.

Customer service must be seen to be an integral part of what we offer the customer. I

recently encountered a major company that has separate marketing, sales and

customer service departments, each of which prepares its own annual plan and sets its

own budgets, without consulting with the others. In that firm, customer service is

defined mainly as the operation of the call center. To the customer, service means

much more.

Customer service is not optional. It's not trivial. And it's not easily

standardized. Don't make the mistake that one Canadian bank made of treating

customer service as a promotion. That bank offered customers $5 if they had

to wait in line more than five minutes in its branches. Customers were

generally not impressed. To them, a wait time of five minutes was not the issue. Of

course, wait time is important—but not nearly as important as being served politely

and efficiently once you reach the counter. Customer service is extremely

complex, much like value, satisfaction and the increasingly popular customer

experience. To apply such concepts effectively, management must appreciate their

complexity. To utilize customer service to increase customer loyalty, to

reinforce the positioning of the brand and to gain a competitive advantage,

companies much have a strategy to guide its development and implementation.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED1.4 CUSTOMER RELATIONSHIP MANAGEMENT

Before we begin to examine the conceptual foundations of CRM, it will be

useful to define what CRM is. A narrow perspective of customer relationship

management is database marketing emphasizing the promotional aspects of marketing

linked to database efforts. Shani and Chalasani1 define relationship marketing as “an

integrated effort to identify, maintain, and build up a network with individual’s

consumers and to continuously strengthen the network for mutual benefit of both

sides, through interactive, individualized and value-added contacts over a period of

time”.

In today’s hyper competitive scenario, more than three quarters of the money

and time spent by companies go towards acquiring and retaining customers.

Customer-centricity has become the buzzword and the ones with clear and relentless

focus on customers, enjoy a better competitive position. This is proved time and

again. Reading the customer demographics and understanding their needs (both

explicit and implicit) is what customer insight is all about. Customer insight is the

basic point or the foundation for building a customer centric organization. Everything

in the value chain revolves around this. This is the raw material. This is more a

conversion process rather, since the end product is Customer Loyalty! Over decades,

many organizations had successfully completed the conversion process and tasted

higher returns, most organizations miserably failed in their efforts.

CRM evolved from business concepts and processes such as relationship

marketing and the increased emphasis on improved customer retention through the

effective management of customer relationships. CRM emphasize that customer

retention affects company profitability in that it is more efficient to maintain an

existing relationship with a customer than create a new one.

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CRM is defined as:

“Customer relationship management (CRM) is a business strategy to acquire

and manage the most valuable customer relationships. CRM requires a

customer-centric business philosophy and culture to support effective

marketing, sales and service processes. CRM applications can enable effective

customer relationship management, provided that an enterprise has the right

leadership, strategy and culture (Brayn).”

1.5 CRM OBJECTIVES IN BANKING SECTOR

The idea of CRM is that it helps businesses use technology and human

resources gain insight into the behavior of customers and the value of those

customers. If it works as hoped, a business can: provide better customer service, make

call centers more efficient, cross sell products more effectively, help sales staff close

deals faster, simplify marketing and sales processes, discover new customers, and

increase customer revenues. It doesn't happen by simply buying software and

installing it.

For CRM to be truly effective an organization must first decide what kind of

customer information it is looking for and it must decide what it intends to do with

that information. For example, many financial institutions keep track of customers'

life stages in order to market appropriate banking products like mortgages or IRAs to

them at the right time to fit their needs. Next, the organization must look into all of

the different ways information about customers comes into a business, where and how

this data is stored and how it is currently used. One company, for instance, may

interact with customers in a myriad of different ways including mail campaigns, Web

sites, brick-and-mortar stores, call centers, mobile sales force staff and marketing and

advertising efforts.

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Company analysts can then comb through the data to obtain a holistic view of

each customer and pinpoint areas where better services are needed. In CRM projects,

following data should be collected to run process engine: 1) Responses to campaigns,

2) Shipping and fulfillment dates, 3)Sales and purchase data, 4) Account information,

5) Web registration data, 6) Service and support records, 7) Demographic data, 8)

Web sales data.

1.6 BANKING AND LOYALTY

During the past decade, the financial service sector has undergone drastic

changes, resulting in a market place which is characterized by intense competition,

little growth in primary demand and increased deregulation. In the new market place,

the occurrence of committed and often inherited relationships between a customer

and his or her bank is becoming increasingly scarce.

Several strategies have been attempted to retain customers. In order to

increase customer loyalty, many banks have introduced innovative products and

services (Meidan, 1996). However, as such innovations are frequently followed by

similar charges; it has been argued that a more viable approach for banks is to

focus on less tangible and less easy-to-imitate determinants of customer loyalty such

as customer evaluative judgments like service quality and satisfaction (Worcester,

1997; Yavas and Shemwell, 1996). Banking has traditionally operated in a relatively

stable environment for decades. However, today the industry is facing a

dramatically aggressive competition in a new deregulated environment. The net

result of the recent competition and legislation is that traditional banks have lost a

substantial proportion of their domestic business to essentially non-bank competition.

Competition will undoubtedly continue to be a more significant factor.

Finding a place in this heating sun becomes vital to the long-range profitability and

ultimate survival of the bank. Banks begin to realize that no bank can offer all

products and be the best/leading bank for.

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A bank has to create the customer relationship that delivers value beyond

the provided by the core product. This involves added tangible and intangible

elements to the core products, thus creating and enhancing the “product surrounding”.

Positioning is an attempt to distinguish the bank from its competitors along real

dimensions in order to be the most preferred bank for a certain market segment or in

other words, if a bank can position itself favorably within a particular marketplace,

relative to competitors, that bank is a competitive one.

Competitiveness means that a bank, in terms of its competitive position, its

management and marketing strategies, its use of information technology, the quality

of its products/services and its ability of managing long term customer

relationship must be increasingly responsive to the market consideration and

customer orientation. The increasing importance of relational marketing in recent

years, particularly in the servicing and manufacturing industries, such as banks,

has been accompanied by a bundle of works on customer loyalty. Several authors

emphasize the positive relationship existing between customer loyalty and business

performance (Beerli et al., 2004; Reichheld and Sasser, 1990). Loyal customers not

only increase the value of the business, but also enable it to maintain the costs lower

than those associated with attracting new customers (Beerli et al., 2004).

1.7 PROBLEM STATEMENT

Service quality offers a sustainable competitive advantage to a bank because it

creates value and also customer satisfaction. However, service quality is reduced

drastically by service breakdowns. The results of service breakdowns are customer

dissatisfaction and possibly customer defection depending on the customer’s trust,

knowledge and the availability of alternative service provider. In the banking sector,

to maintain and having a closer relationship with the entire or existing customers are

very important.

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The maintenance of consumer trust in the retail banking industry is of

considerable importance as it can impact on the likelihood of retaining existing

customers and attaining new ones. Furthermore, trust in a bank can also be more

important to a bank customer than price. So, each bank must make sure that their

services fulfill their customers’ needs and wants.

The focus on this research is to identify the common relationship marketing

underpinnings such as trust, commitment, empathy, values and conflict handling on

customer loyalty in banking sector. This research will also look whether all

dimensions mentioned contribute equally or differentially towards the loyalty of the

customer. My thesis is concerned on mainly issues with most customers complain in

HBL because they acquire service with certain expectations, and, for any number of

reasons, those expectations were not met. CR officers help in this scenario controlling

delays, failures and troubles like problems to the customers of HBL. CRM can fill the

gaps between the HBL and customers, so this is total concern of my thesis that how

and when CR officers can impart their knowledge and role in HBL.

1.8 OBJECTIVES

HBL Customer relationship management circumferences on these objectives those are

important to customer approaches.

To elucidate the customer relation activities in the HBL.

To gauge the impact CRM on the customer relations in the

Bank.

To evaluate the impact of motivated CRO’s on the organizational

effectiveness of the Bank.

To analyze without proper CRM in bank it has negative effect on the

performance of the bank.

Hypothesis

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H0 = Customer relationship officer activities do not have any impact

on organizational effectiveness of HBL.

H1 = Customer relationship officer activities have impact on organizational

effectiveness of HBL.

1.9 SIGNIFICANCE OF STUDY

The project is significant in the way that after studying through all the contents

of research project, the user can effectively judge that how effectively Customer

Relationship is being done in HBL along with important issues, problems and

challenges faced by it. My study can be helpful for business students, HRM related

issues, marketing plans and for other institutions related with customers and

organizations.

1.10 DELIMITATION

Reliance upon secondary sources of information as the data had to be gathered

more from employees’ experiences and observations rather than direct focus on the

customers. I have interviewed many of customers, employees but more significant

and satisfactory answers related to the problems and effectiveness of Customer

Relationships are provided by the employees of different HBL Branches, I visited.

CHAPTER 2: LITERATURE REVIEW

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED2 LITERATURE REVIEW

2.1 CUSTOMER & CUSTOMER RELATIONSHIP

In my opinion the very best athletes shift the momentum of the game at critical

moments, and as spectators this pivot can take our breath away. Nearly any sports fan

can recall a game-changing play that enabled the team to take the upper hand and

demoralize the competition. Businesses today need to be equally agile when

managing their customer relationships. They must be able “to turn on a dime” to

capture new markets and break away from the competition. To attract and retain

customers, high-performance organizations are moving from a transactional view of

their customer to one that measures the value of their relationship as the sum of each

and every experience. Those experiences are defined by an increasingly complex set

of interactions. And the interactions that make up today’s experiences cut across the

enterprise and have varying degrees of significance. But making the pivot and

successfully connecting with your customers can be intimidating.

Banks typically offer numerous products and services via many channels and

with multiple partners, thereby making the prospect of planning, designing and

executing effective customer experiences daunting. While Banks must acknowledge

the importance of the experience when managing the customer relationships, strategic

and operational changes are also required to complete the pivot. The fact is that Banks

are at different stages of maturity when it comes to designing and deploying satisfying

customer experiences. But regardless of where they are in the process, the bar

representing customer expectations has been raised, and the pace of change often

exceeds a company’s ability to respond. Moreover, an organization must look across

industries to understand the types of services their customers are accustomed to,

which they will also be expected to deliver.

Perhaps the most important hurdle to clear, however, is the one a company

sets for itself – its brand promise. Failing to live up to a brand expectation can damage

a company’s shareholder value as it creates a gap between what customers expect and

what they deliver.As the gap widens, customer frustration takes over and results in

disloyalty and churn. Curing this ailment requires a customer-centric approach,

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDincluding developing market focus and positioning, defining distinctive capabilities

and enabling a performance anatomy.

High-performance businesses have remarkable clarity when it comes to setting

strategic direction, especially regarding big decisions. They always seem to be in the

right place at the right time. This occurs as a result of a company’s market focus and

positioning. They know where and how to compete when they set their business

strategy. They also invest in distinctive capabilities which inherently provide direct

value to the customer. They design product functions, features and services with the

customer experience in mind. Often this means working across the enterprise in

addition to multiple channels and business partners.

In this context, a sound performance anatomy within the organization and

flawless execution are key factors for success. A corporation’s “culture” must breed a

mind-set that creating positive customer experiences is the responsibility of all

employees, especially those on the front line. Equally important is having the

commitment to follow through when times get tough. This means outperforming the

competition, which always requires having an effective coach to call the right plays.

Naming the right coach in today’s environment is an emerging dilemma

requiring attention. Banks have wrestled with similar questions before. Some Banks

will conclude that they need a customer advocate and change agent in the boardroom

– especially if the transformation to customer-centricity is a long-term one. In some

cases this responsibility can be filled by a traditional line of business player; in other

instances a “chief customer officer” may be the answer.

Whatever decision Banks make regarding who should lead the charge, the fact

is that making the pivot to this new CRM mind-set is critical and urgent. Delivering

the customer interactions that produce optimal experiences to produce long-term

relationships is the new mission of CRM executives. Achieving high performance in

any industry will depend on the ability to bring all the dimensions of a company

together to deliver satisfying outcomes.

Now some brief introduction of some CRM and related definitions

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED2.1.1 Customer

The word derives from "custom," meaning "habit"; a customer was someone

who frequented a particular shop, who made it a habit to purchase goods of the sort

the shop sold there rather than elsewhere, and with whom the shopkeeper had to

maintain a relationship to keep his or her "custom," meaning expected purchases in

the future (Hougas).

2.1.2 Customer Relations

The approach of an organization to winning and retaining customers. The most

critical activity of any organization wishing to stay in business is its approach to

dealing with its customers. Putting customers at the center of all activities is seen by

many as an integral part of quality, pricing, and product differentiation (Harry)

2.2 HISTORY OF CRM

Customer Relationship Management (CRM) is one of those magnificent

concepts that swept the business world in the 1990’s with the promise of forever

changing the way businesses small and large interacted with their customer bases. In

the short term, however, it proved to be an unwieldy process that was better in theory

than in practice for a variety of reasons. First among these was that it was simply so

difficult and expensive to track and keep the high volume of records needed

accurately and constantly update them.

In the last several years, however, newer software systems and advanced

tracking features have vastly improved CRM capabilities and the real promise of

CRM is becoming a reality. As the price of newer, more customizable

Internet solutions have hit the marketplace; competition has driven the prices

down so that even relatively small businesses are reaping the benefits of some custom

CRM programs.

2.2.1 In the beginning…

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The 1980’s saw the emergence of database marketing, which was simply a

catch phrase to define the practice of setting up customer service groups to speak

individually to all of a company’s customers. In the case of larger, key clients it was a

valuable tool for keeping the lines of communication open and tailoring service to the

clients needs. In the case of smaller clients, however, it tended to provide

repetitive, survey-like information that cluttered databases and didn’t provide

much insight. As companies began tracking database information, they realized that

the bare bones were all that was needed in most cases: what they buy regularly, what

they spend, what they do.

2.2.2 Advances in the 1990’s

In the 1990’s companies began to improve on Customer

Relationship Management by making it more of a two-way street. Instead of simply

gathering data for their own use, they began giving back to their customers not only in

terms of the obvious goal of improved customer service, but in incentives, gifts and

other perks for customer loyalty. This was the beginning of the now familiar frequent

flyer programs, bonus points on credit cards and a host of other resources that are

based on CRM tracking of customer activity and spending patterns.

2.2.3 True CRM comes of age

Real Customer Relationship Management as it’s thought of today really began

in earnest in the early years of this century. As software companies began releasing

newer, more advanced solutions that were customizable across industries, it

became feasible to really use the information in a dynamic way. Instead of

feeding information into a static database for future reference, CRM became a way to

continuously update understanding of customer needs and behavior.

Branching of information, sub-folders, and custom tailored features enabled

companies to break down information into smaller subsets so that they could evaluate

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDnot only concrete statistics, but information on the motivation and reactions of

customers. The Internet provided a huge boon to the development of these huge

databases by enabling offsite information storage, where before companies had

difficulty supporting the enormous amounts of information. The Internet

provided new possibilities and CRM took off as providers began moving

toward Internet solutions. With the increased fluidity of these programs came a less

rigid relationship between sales, customer service and marketing.

CRM enabled the development of new strategies for more cooperative work

between these different divisions through shared information and

understanding, leading to increased customer satisfaction from order to end product.

Today, CRM is still utilized most frequently by companies that rely heavily on two

distinct features: customer service or technology. The three sectors of business that

rely most heavily on CRM -- and use it to great advantage -- are financial services, a

variety of high tech corporations and the telecommunications industry. The financial

services industry in particular tracks the level of client satisfaction and what

customers are looking for in terms of changes and personalized features. They also

track changes in investment habits and spending patterns as the economy shifts.

Software specific to the industry can give financial service providers truly impressive

feedback in these areas.

In recent years however, several factors have contributed to the rapid

development and evolution of CRM. These include: -

1. The growing de-intermediation process in many industries due to the advent

of sophisticated computer and telecommunication technologies that allow

producers to directly interact with end-customers. For example, in many

industries such as airlines, banks insurance, software or household

appliances and even consumables, the de-intermediation process is

fast changing the nature of marketing and consequently making relationship

marketing more popular. Databases and direct marketing tools give them the

means to individualize their marketing efforts.

2. Advances in information technology, networking and manufacturing

technology have helped companies to quickly match competition. As a result

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product quality and cost are no longer significant competitive advantages.

3. The growth in service economy. Since services are typically produced and

delivered at the same institution, it minimizes the role of the middlemen.

4. The total quality movement. Another force driving the adoption of CRM has

been the total quality movement. When companies embraced TQM it

became necessary to involve customers and suppliers in

implementing the program at all levels of the value chain. This

needed close working relationships with the customers. Thus several

companies such as Motorola, IBM, General Motors, Xerox, Ford, Toyota, etc

formed partnering relations with suppliers and customers to practice TQM.

Other programs such as JIT and MRP also made use of interdependent

relationships between suppliers and customers.

5. Customer expectations are changing almost on a daily basis. Newly

Empowered customers who choose how to communicate with the companies

across various available channels. Also nowadays consumers expect a high

degree of personalization.

6. Emerging real time, interactive channels including e-mail, ATMs and call

centre that must be synchronized with customer’s non-electronic

activities. The speed of business change, requiring flexibility and rapid

adoption to technologies.

7. Hyper competition. In the current era of hyper competition, marketers are

forced to be more concerned with customer retention and customer loyalty.

8. Retaining customers is less expensive. As several researches have

found out retaining customers is less expensive and more sustainable

competitive advantage than acquiring new ones.

9. Few suppliers. On the supply side it pays more to develop closer relationships

with a few suppliers than to develop more vendors.

2.3 CRM PROGRAMS

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Today, many businesses such as banks, insurance companies, and other

service providers realize the importance of Customer Relationship Management

(CRM) and its potential to help them acquire new customers retain existing ones and

maximize their lifetime value. At this point, close relationship with customers will

require a strong coordination between IT and marketing departments to provide a

long-term retention of selected customers. This paper deals with the role of Customer

Relationship Management in banking sector and the need for Customer Relationship

Management to increase customer value by using some analytical methods in CRM

applications.

CRM is a sound business strategy to identify the bank’s most profitable

customers and prospects, and devotes time and attention to expanding account

relationships with those customers through individualized marketing, reprising,

discretionary decision making, and customized service-all delivered through the

various sales channels that the bank uses. Under this case study, a campaign

management in a bank is conducted using data mining tasks such as dependency

analysis, cluster profile analysis, concept description, deviation detection, and data

visualization. Crucial business decisions with this campaign are made by extracting

valid, previously unknown and ultimately comprehensible and actionable knowledge

from large databases.

The model developed here answers what the different customer segments are,

who more likely to respond to a given offer is, which customers are the bank likely to

lose, who most likely to default on credit cards is, what the risk associated with this

loan applicant is. Finally, a cluster profile analysis is used for revealing the distinct

characteristics of each cluster, and for modeling product propensity, which should be

implemented in order to increase the sales.

2.3.1 Customer Relationship Management

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In literature, many definitions were given to describe CRM. The main

difference among these definitions is technological and relationship aspects of CRM.

Some authors from marketing background emphasize technological side of CRM

while the others considers IT perspective of CRM. From marketing aspect, CRM is

defined by [Couldwell 1998] as “.. a combination of business process and technology

that seeks to understand a company’s customers from the perspective of who they are,

what they do, and what they are like”. Technological definition of CRM was given as

“.. the market place of the future is undergoing a technology-driven metamorphosis”

[Peppers and Rogers 1995]. Consequently, IT and marketing departments must work

closely to implement CRM efficiently. Meanwhile, implementation of CRM in

banking sector was considered by [Mihelis et al. 2001]. They focused on the

evaluation of the critical satisfaction dimensions and the determination of customer

groups with distinctive preferences and expectations in the private bank sector.

The methodological approach is based on the principles of multi-criteria

modeling and preference disaggregation modeling used for data analysis and

interpretation. [Yli-Renko et al. 2001] have focused on the management of the

exchange relationships and the implications of such management for the performance

and development of technology-based firms and their customers. Spesifically the

customer relationships of new technology-based firms has been studied. [Cook and

Hababou, 2001] was interested in total sales activities, both volume-related and non-

volume related. They also developed a modification of the standard data envelope

analysis (DEA) structure using goal programming concepts that yields both a sales

and service measures. [Beckett-Camarata et al. 1998] have noted that managing

relationships with their customers (especially with employees, channel partners and

strategic alliance partners) was critical to the firm’s long-term success.

It was also emphasized that customer relationship management based on social

exchange and equity significantly assists the firm in developing collaborative,

cooperative and profitable long-term relationships. [Yuan and Chang 2001] have

presented a mixed-initiative synthesized learning approach for better understanding of

customers and the provision of clues for improving customer relationships based on

different sources of web customer data. They have also hierarchically segmented data

sources into clusters, automatically labeled the features of the clusters, discovered the

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDcharacteristics of normal, defected and possibly defected clusters of customers, and

provided clues for gaining customer retention. [Peppers 2000] has also presented a

framework, which is based on incorporating e-business activities, channel

management, relationship management and back-office/front-office integration within

a customer centric strategy. He has developed four concepts, namely Enterprise,

Channel management, Relationships and Management of the total enterprise, in the

context of a CRM initiative. [Ryals and Knox 2001] have identified the three main

issues that can enable the development of Customer Relationship Management in the

service sector; the organizational issues of culture and communication, management

metrics and cross-functional integration- especially between marketing and

information technology.

2.3.2 CRM Objectives in Banking Sector

The idea of CRM is that it helps businesses use technology and human

resources gain insight into the behavior of customers and the value of those

customers. If it works as hoped, a business can: provide better customer service, make

call centers more efficient, cross sell products more effectively, help sales staff close

deals faster, simplify marketing and sales processes, discover new customers, and

increase customer revenues. It doesn't happen by simply buying software and

installing it. For CRM to be truly effective, an organization must first decide what

kind of customer information it is looking for and it must decide what it intends to do

with that information. For example, many financial institutions keep track of

customers' life stages in order to market appropriate banking products like mortgages

or IRAs to them at the right time to fit their needs.

Next, the organization must look into all of the different ways information

about customers comes into a business, where and how this data is stored and how it

is currently used. One company, for instance, may interact with customers in a myriad

of different ways including mail campaigns, Web sites, brick-and-mortar stores, call

centers, mobile sales force staff and marketing and advertising efforts. Solid CRM

systems link up each of these points. This collected data flows between operational

systems (like sales and inventory systems) and analytical systems that can help sort

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDthrough these records for patterns. Company analysts can then comb through the data

to obtain a holistic view of each customer and pinpoint areas where better services are

needed. In CRM projects, following data should be collected to run process engine:

1) Responses to campaigns, 2) Shipping and fulfillment dates, 3)Sales and purchase

data, 4) Account information, 5) Web registration data, 6) Service and support

records, 7) Demographic data, 8) Web sales data.

2.3.3 A Model Design for CRM At Habib Bank Ltd.

Habib Bank, one of the leading banks in Pakistan was looking at new ways to

enhance its customer potential and service quality. Electronic means of banking have

proved a success in acquiring new customer groups until the end of 2009. After then,

a strategic decision was made to re-engineer their core business process in order to

enhance the bank’s performance by developing strategic lines. Strategic lines were

given in order to meet the needs of large Pakistani and multinational corporate

customers, to expand commercial banking business, to focus expansion in retail

banking and small business banking, to use different delivery channels while growing,

and to enhance operating efficiency though investments in technology and human

resources To support this strategy Habib Bank has implemented a number of projects

since 1992 regarding branch organization, processes and information systems.

The administration burden in the branches has been greatly reduced and

centralized as much as possible in order to leave a larger room to marketing and sales.

The BPR projects have been followed by rationalizing and modernizing the

operational systems and subsequently by the introduction of innovative channels:

internet banking, call center and self-servicing. In parallel, usage of technology for

internal communication: intranet, e-mail, workflow and management reporting have

become widespread.

2.3.3.1 CRM Development

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To be prepared to the changing economic conditions and, in particular, to a

rapidly decreasing inflation rate scenario Habib Bank has started timely to focus on

developing a customer relationship management (CRM) system. The total number of

customers is presently around two millions. The importance for the bank of managing

the relationships with their customers has been the drive of the joint projects that have

been developed with IBM in the last three years. During the projects a number of

crucial technological and architecture choices have been made to implement the entire

process. Realizing the importance of customer information availability the first of

these projects has focused on the problem of routinely collecting and cleansing data.

The project has been undertaken by the bank with the spirit that has characterized the

whole CRM development. The project has promoted a massive involvement of the

branches, namely of the portfolio managers and campaigns have been launched for

popularizing among branch staff the importance of gathering and maintaining reliable

customer data.

Another set of methods have been tested for customer not included in

portfolios (pool customers), such as mailing or distributing questionnaires in the

branches or using automatic teller machines (ATM) and the call center. Methods for

data checking and testing have been developed to be routinely employed by the bank's

staff. Results obtained are very good: for portfolio customers data available are

respectively 98% for the commercial ones and 85% for the retail ones. For pool

customers availability goes down to 65%: this is a well-known phenomenon due to

the loose relationship with the latter customers.

2.3.3.2 Data Warehouse and Data Mining

The Data warehouse is the core of any decision support system and hence of

the CRM. In implementing its Data Warehouse Habib Bank has selected an

incremental approach, where the development of information systems is integrated

with the business strategy. Instead of developing a complete design of a corporate

Data Warehouse before implementing it, the bank has decided to develop a portion of

the Data Warehouse to be used for customer relationship management and for the

production of accurate and consistent management reports. Here we are not concerned

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDwith the latter goal, but are concentrating on the former. The Data Warehouse has

been designed according to the IBM BDW (Banking Data Warehouse) model, which

has been developed as a consequence of the collaboration between IBM and many

banking customers. The model is currently being used by 400 banks worldwide. The

Habib Bank Data Warehouse is regularly populated both from operational systems

and from intermediate sources obtained by partial preprocessing of the same raw data.

Figure 1. The process of Relational Marketing

It includes customers' demographic data, product ownership data and

transaction data or, more generally product usage data as well as risk and profitability

data. Most data are monthly averages and today's historical depth is 36 months

starting from 1/1/2005 to 12/31/2008. As new data are produced they are placed

temporarily in a intermediate, from which they are preprocessed and transferred to the

warehouse. The importance of the Data Warehouse stems from the analysis of Figure

1. As a result of strategic decisions customer analysis is carried out by using data

continuously updated as well the analytical methods and tools to be described later on.

The CRM group analyzes results obtained and designs action plans, such as

campaigns, promotions, special marketing initiatives, etc. Plans developed are then

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDimplemented by means of the several channels used by the bank to reach customers.

Evaluation or results completes the cycle. The results become an integral part of the

description of the bank-customer relationship in the warehouse. The learning cycle is

thus complete and results obtained can be reused in future analyses and in future

marketing plans. It is easy to understand that the Data Warehouse cannot actually be

built 'once for all' but is a kind of living structure continuously enriched and updated

as the Relational Marketing activity developers.

OLAP (On Line Application Programming) analyses are developed by means

of Business Object in its web version. CRM analysts use this tool to issue complex

SQL queries on the Data Warehouse or on the Analytical Datamart and carry out

mono and bivariate statistics on the whole customers' population or on selected

groups. Figure 2 shows general structure of Relational Marketing Activity.

Figure 2.The Relational Marketing process is supported by a computing infrastructure

where many software packages are integrated with the bank's information system.

Data Mining analyses are not carried out directly on the Data Warehouse, but

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDon the Analytical Datamart by means of the software package IBM Intelligent Miner

[Cabena et.al. 1999], using as a computing and data server the same mainframe where

the Data Warehouse resides. Habib Bank believes these tools and methodologies are a

powerful competitive weapon and are investing heavily in the human resources

needed to develop these analyses.

The Analytical Datamart is derived from the Data Warehouse through the following

steps:

1) Raw data processing: data selection, data extraction, and data verification

and rectification

2) Data modelling and variable preprocessing: variable selection, new

variable creation, variable statistics, variable discretization.

The above processing, based on traditional data analysis, is strictly dependent

on the investigated process; new variable creation, for instance, is intended to

aggregate information contained in the raw data into more expressive variables. A

simple example is the number of credit transaction on current account, that contains

much of the information contained in the individual transactions, but is easier to

analyze and represent. Variable discretization, based on the distribution of the original

variables, is intended to generate categorical variables that better express the physical

reality of the problem under investigation. The Analytical Datamart is customer

centric and contains the following data:

1. demographic (age, sex, cultural level, marital status, etc.)

2. ownership of bank's product/services

3. product/services usage (balance, transactions, etc.)

4. global variables : profit, cost, risk, assets, liabilities

5. relationship with the bank: segment, portfolio, etc.

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Figure 3. The marketing campaign process and the software supporting it.

2.3.3.3 Marketing Campaigns

After analyzing strategic and analytical CRM we concentrate here on the

equally important operational aspects. Marketing Campaigns is the first method that

Habib Bank has used to test the above described analyses and techniques. The overall

campaign process is reported in Figure 3 that shows that propensity determination and

targeting are the first step of the whole activity. A number of experimental campaigns

have been designed and carried out to test the soundness of the approach before

attempting a large scale roll-out. Experimental campaigns have addressed about 900

customers selected within six branch offices in Lahore. An education process has

been started by meeting sales forces in the branch offices, by distribution of an

explanation booklet and by publishing on the Intranet a note explaining the whole

process. System interfaces have been modified in order to track the customers under

promotion, as well as to enable salespeople in the branch office to complete the sales

on promoted customers as well as to record the fact that the sale was a consequence of

the promotion. The bank has so far used for promotion two channels: the salespeople

in the branches and the call center. Each channel was used in four different

campaigns.

2.3.4 One-to-One Marketing

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Meeting and satisfying each customer’s need uniquely and individually. In the

mass markets individualized information on customers is now possible at

low costs due to the rapid development in the information technology and due

to availability of scalable data warehouses and data mining products. By using online

information and databases on individual customer interactions, marketers aim to

fulfill the unique needs of each mass-market customer. Information on

individual customers is utilized to develop frequency marketing, interactive

marketing, and after marketing programs in order to develop relationship

with high-yielding customers. In the context of business-to-business markets,

individual marketing has been in place of quite sometime. Known as Key

Account Management Program, here marketers appoint customer teams to

husband the company resources according to individual customer needs.

2.3.5 Continuity Marketing Programs

Take the shape of membership and loyalty card programs where customers are

often rewarded for their member and loyalty relationships with the marketers. The

basic premise of continuity marketing programs is to retain customers and

increase loyalty through long-term special services that has a potential to

increase mutual value through learning about each other.

2.3.6 Partnering Programs

The third type of CRM programs is partnering relationships between customer

and marketers to serve end user needs. In the mass markets, two types of partnering

programs are most common: co-branding and affinity partnering.

2.3.7 Missing Process of CRM

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Traditionally customer relationship management (CRM) revolves around the

three functions of selling, marketing and support. Various process models

have been built around how these functions are integrated and operated in a

customer oriented enterprise. There is however a fourth critical function that is

lacking in most CRM models. The fourth function that often is the source of

a competitive edge is that of innovation. Companies must continually reinvent

themselves to deliver an improved and often a totally new value offering to their

customer base.

CRM must provide the customer intelligence that feeds information back into

the enterprise’s knowledge management processes where it can trigger new

innovation processes. When CRM is integrated into the innovation process,

significant value can be derived from faster time to market cycle times and with new

processes and services. Marketing automation must ensure that the innovation

processes are actually market driven. A market driven innovation process must

include both strategies that are focused on satisfying customer requirements as well as

strategies focused at redefining customer requirements. Sales automation should be

integrated with the innovation process by ensuring that all sales channels are prepared

and ready to take new processes and services to market before competitive forces can

react.

Customer service automation must be designed to empower the customer with

the option of assisting with the design of the value offering. Redefining CRM around

innovation, sales, marketing and service can identify new competitive opportunities

for an enterprise. The remaining question is whether companies are prepared to take

the initiative and expand the definition of customer relationship management to

include the process of innovation.

The pressure to deliver results within the traditional definition of

CRM already overwhelms companies. The dialog must start rather earlier than later

because the competitive window of traditional CRM is decreasing and customer

demands for a more innovative and responsive enterprise will increase.

2.4 ARCHITECTURE OF CRM

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There are three parts of application architecture of CRM:

1. Operational - automation to the basic business processes (marketing, sales,

service).

2. Analytical - support to analyze customer behavior, implements business

intelligence alike technology.

3. Collaborative - ensures the contact with customers (phone, email, fax, web,

sms, post, in person).

2.4.1 Operational CRM

Operational CRM means supporting the "front office" business

processes, which include customer contact (sales, marketing and service).

Tasks resulting from these processes are forwarded to resources responsible for

them, as well as the information necessary for carrying out the tasks and interfaces to

back-end applications are being provided and activities with customers are being

documented for further reference.

Operational CRM provides the following benefits:

Delivers personalized and efficient marketing, sales, and service through

multi-channel collaboration.

Enables a 360-degree view of your customer while you are interacting with

them.

Sales people and service engineers can access complete history of

all customer interaction with your company, regardless of the touch point.

The operational part of CRM typically involves three general areas of business:

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1. Sales force automation (SFA)

SFA automates some of the company's critical sales and sales force

management functions, for example, lead/account management, contact management,

quote management, forecasting, sales administration, keeping track of customer

preferences, buying habits, and demographics, as well as performance management.

SFA tools are designed to improve field sales productivity. Key infrastructure

requirements of SFA are mobile synchronization and integrated product

configuration.

2. Customer service and support (CSS)

CSS automates some service requests, complaints, product returns, and

information requests. Traditional internal help desk and traditional inbound call-center

support for customer inquiries are now evolved into the "customer interaction center"

(CIC), using multiple channels (Web, phone/fax, face-to-face, kiosk, etc). Key

infrastructure requirements of CSS include computer telephony integration (CTI)

which provides high volume processing capability, and reliability.

3. Enterprise marketing automation (EMA)

EMA provides information about the business environment, including

competitors, industry trends, and macro-environmental variables. It is the

execution side of campaign and lead management. The intent of EMA

applications is to improve marketing campaign efficiencies. Functions include

demographic analysis, variable segmentation, and predictive modeling occurs on the

analytical (Business Intelligence) side. Integrated CRM software is often also known

as "front office solutions." This is because they deal directly with the customer.

Many call centers use CRM software to store all of their customer's

details. When a customer calls, the system can be used to retrieve and

store information relevant to the customer. By serving the customer quickly and

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDefficiently, and also keeping all information of a customer in one place, a company

aims to make cost savings, and also encourage new customers. CRM solutions can

also be used to allow customers to perform their own service via a variety of

communication channels. For example, you might be able to check your bank balance

via your WAP phone without ever having to talk to a person, saving money for the

company, and saving your time.

2.4.2 Analytical CRM

In analytical CRM, data gathered within operational CRM and/or other

sources are analyzed to segment customers or to identify potential to enhance client

relationship. Customer analysis typically can lead to targeted campaigns to increase

share of customer's wallet. Examples of

1. Campaigns directed towards customers are:

Acquisition: Cross-sell, up-sell

Retention: Retaining customers who leave due to maturity or attrition.

Information: Providing timely and regular information to customers.

Modification: Altering details of the transactional nature of the customers'

relationship.

2. Analysis typically covers but is not limited to:

Decision support: Dashboards, reporting, metrics, performance etc.

Predictive modeling of customer attributes

Strategy and research.

3. Analysis of Customer data may relate to one or more of the following

analyses:

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Contact channel optimization

Contact Optimization

Customer Acquisition / Reactivation / Retention

Customer Segmentation

Customer Satisfaction Measurement / Increase

Sales Coverage Optimization

Fraud Detection and analysis

Financial Forecasts

Pricing Optimization

Product Development

Program Evaluation

Risk Assessment and Management

Data collection and analysis is viewed as a continuing and iterative process.

Ideally, business decisions are refined over time, based on feedback from

earlier analysis and decisions. Therefore, most successful analytical CRM

projects take advantage of a data warehouse to provide suitable data. Business

Intelligence is a related discipline offering some more functionality as

separate application software.

2.4.3 Collaborative CRM

Collaborative CRM facilitates interactions with customers through all

channels (personal, letter, fax, phone, web, e-mail) and supports co-ordination of

employee teams and channels. It is a solution that brings people, processes and data

together so companies can better serve and retain their customers. The

data/activities can be structured, unstructured, conversational and/or

transactional in nature.

Collaborative CRM provides the following benefits:

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Enables efficient productive customer interactions across all communications

channels

Enables web collaboration to reduce customer service costs

Integrates call centers enabling multi-channel personal customer interaction

Integrates view of the customer while interaction at the transaction level.

2.5 TOOLS OF CRM

2.5.1 Customer Database

A good customer information system should consist of a regular flow of

information, systematic collection of information that is properly evaluated and

compared against different points in time, and it has sufficient depth to

understand the customer and accurately anticipate their behavioral patterns in

future. The customer database helps the company to plan, implement, and monitor

customer contact. Customer relationships are increasingly sustained by

information systems. Companies are increasingly adding data from a variety of

sources to their databases. Customer data strategy should focus on processes to

manage customer acquisition, retention, and development.

2.5.2 Call Centre

A call centre is a centralized office used for the purpose of receiving and

transmitting a large volume of requests by telephone. A call centre is operated by a

company to administer incoming product support or information inquiries from

consumers. Outgoing calls for telemarketing, clientele, and debt collection are also

made. In addition to a call centre, collective handling of letters, faxes, and e-mails at

one location is known as a contact centre.

A call centre is often operated through an extensive open workspace, with

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDwork stations that include a computer, a telephone set/headset connected to a telecom

switch, and one or more supervisor stations. It can be independently operated or

networked with additional centres, often linked to a corporate computer

network, including mainframes, microcomputers and LANs.

Increasingly, the voice and data pathways into the centre are

linked through a set of new technologies called computer telephony integration

(CTI). Most major businesses use call centres to interact with their customers.

Examples include utility companies, mail order catalogue firms, and customer

support for computer hardware and software. Some businesses even service

internal functions through call centres. Examples of this include help desks and sales

support.

2.5.3 Systems Integration

CRM solutions are front office automation solutions, ERP is back

office automation solution. An ERP helps in automating business functions of

production, finance, inventory, order fulfillment and human resource giving an

integrated view of business, where as CRM automates the relationship with customer

covering contact and opportunity management , marketing and product knowledge,

sales force management, sales forecasting, customer order processing and fulfillment,

delivery, installation, pre-sale and post-sale services and complaint handling

by providing an integrated view of the customer. It is necessary that the two systems

integrate with each other and complement information as well as business workflow.

Therefore, CRM and ERP are complementary. This integration of CRM

with ERP helps companies to provide faster customer service through an

enabled network, which can direct all customer queries and issues through

appropriate channels to the right place for speedy resolution. This will help the

company in tracking and correcting the product problems reported by

customers by feeding this information into the R&D operations via ERP.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED2.5.4 Data Mining for CRM

Data mining is an important enabler for CRM. Advances in data

storage and processing technologies have made it possible today to store very large

amounts of data in what are called data warehouses and then use data mining tools to

extract relevant information. Data mining helps in the process of understanding a

customer by providing the necessary information and facilitates informed decision-

making.

2.6 CRM AS OBLIGATION

2.6.1 Why CRM is necessary?

Several companies are turning to customer-relationship management systems

and strategies to gain a better understanding of their customer's wants and needs.

Used in association with data warehousing, data mining, call centres and other

intelligence-based applications, CRM "allows companies to gather and access

information about customers' buying histories, preferences, complaints, and other data

so they can better anticipate what customers will want. The goal is to instil greater

customer loyalty."

Other benefits include:

Faster response to customer inquiries.

Increased efficiency through automation.

Deeper understanding of customers.

Increased marketing and selling opportunities.

Identifying the most profitable customers.

2.6.2 Customer’s Bond

According to Berry and Parasuraman’s (1991) conception of customers-seller

bond has three levels:

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Level 1 Financial bond, which refers to a bond that is tied by price;

Level 2 Social bond, which refers to a bond that is formed upon a

friendship between a customer and service staff; and

Level 3 Structural bond, which refers to a bond that is formed as a result of

joint investment by both the seller and the buyer. In addition to price,

users of services are assumed to consider their friendships with

the service staff as an important influence on their decisions to

remain with a service provider, to repurchase the same service or to

purchase additional services.

When applied to the context of the retail banking industry, Berry and

Parasuraman’s (1991) construct of customer-service provider bond implies that a

strong customer-bank bond takes place under three conditions: first, when the

price is the key attraction to the customer; second, when bank representatives

have the opportunity to build friendships with the customer and the customer wants to

have a friendship; and third, when both parties make beneficial joint investment

and benefit from it. However, a cash rich and time-poor customer tends to value low

price less than convenience, privacy and the freedom in doing banking chores.

Additionally, a self-service machine has made the social relationship between

customers and bank service representatives less important or even unnecessary.

2.6.3 Loyalty

In this part we can have a look on customer loyalty. Asker (1991) discussed

the role of loyalty in the brand equity process and specifically noted that brand

loyalty leads to certain advantages, such as reduced marketing costs, more new

customers, and greater trade leverage. In increasingly competitive markets, being able

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDto build consumer loyalty is seen as the key factor in winning market share and

developing a sustainable competitive advantage. Oliver (1999) defines brand loyalty

as “a deeply held commitment to re-buy or repertoire a preferred product/service

consistently in the future, thereby causing repetitive same-brand or same brand-set

purchasing, despite situational influences and marketing efforts have the potential

to cause switching behavior.” This emphasizes the two different aspects of loyalty

described in prior studies-behavioral and attitudinal.

Chaudhuri and Holbrook (2002) suggested that behavioral or purchase

loyalty consisted of repeated purchases of the brand, whereas attitudinal loyalty

included a degree of disposition commitment in terms of some unique value

associated with the brand. Thus, customer loyalty here was considered bi-

dimensional, including both attitudinal commitment and behavioral re-purchase

intention. Based on prior studies (Lin and Wang, 2006), customer loyalty was defined

as the customer’s favorable attitude toward a brand, resulting in repeat purchasing

behavior. Based on the Delone and McLean (1992, 2003) IS success model,

user/customer satisfaction may be assumed to be the determinant of the net benefit or

individual impact (e.g., customer loyalty).

Consumer satisfaction is believed to mediate consumer learning due to prior

experience and to explain key post purchase behaviors, such as complaining, word of

mouth, repurchase intention, and product usage (Oliver, 1980. Westbrook, R.P.

Oliver, 1991.) Anderson and Srinivasan suggested that “a dissatisfied customer is

more likely to search for information on alternatives and more likely to yield to

competitor overtures than a satisfied customer”. In addition, a past research has

indicated that satisfaction is a reliable predictor of re-purchase intentions (Wang,

T.-I. Tang, J.-T.D. Tang, 2001).

Interactions between a retail bank customer and his/her bank can be grouped into

three types:

(1) Customer-bank’s technologies interactions, in the case of using self-

service machines and online services;

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED(2) Customer-service representative interactions, in the case of obtaining personal

services such as over the counter services and personal advices; and

(3) Hybrid interactions or a combination of (1) and (2). Type (3) interaction

occurs when both a service representative and a customer are involved in

producing, delivering and consuming a particular banking service with the

use of banking technologies and physical infrastructure, for example, a

service representative helps a customer navigate through the bank’s

computer system and resolve a particular problem over the telephone or

in person at bank branches.

Price, in Berry and Paraguayan’s (1991) conception of customer bond, is

the first level bond that binds customers with service providers. However, price

is only one of the many components of a bank’s service offering. A bank

customer, for instance, will unlikely is bonded to a bank that has had an unreliable

ATM network even though it pays the highest interest rates on deposits. In

other instances, a retail bank customer who values cash accessibility the most may

not be concerned with the quality of social relationship or the quality of the bank’s

corporate image; what he/she wants is an ATM network that works and does not run

out of cash. It is the quality of the bank’s basic products, for example, the quality of

the cash accessibility provided by an ATM network that forms the primary bond and

not the price or social relationship per se. In their study of consumer experience of

using self-service technologies, Meuter et al. (2000) found that the highest levels

of customer complaint resulted from technology and process failures.

Primary bond may be measured in terms of the utility, reliability, and overall

value of the particular basic product. The concept “relationship quality” has been

debated widely. Undoubtedly, relationship quality is pertinent to customers in the

context of relational purchases such as in the purchase of legal advice. In the context

of selling retail banking products, relationship quality encapsulates the quality of a

number of interrelated secondary or augmented services on top of the basic

products such as the level of helpfulness of service representatives in explaining

the benefits of a pension plan.

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The quality of social interactions and ultimately the relationship that we

proposed are a secondary bond that augments the primary bond. Secondary bond

may be measured in terms of friendly-typed behaviors such as the trustworthiness,

friendliness, empathy, familiarity, caring, politeness, responsiveness, and

understanding of service staff. Previous studies (Bitner et al., 1990; Ostrom and

Iacobucci, 1995; Hurley, 1998; Keaveney, 1995) already indicated that friendly

behavior improved service outcome. In the twenty-first century, the quality of

banking service infrastructure that we recognize is pivotal for two reasons. A

high quality service infrastructure, firstly, would enable customers to have

problem-free interactions with their bank’s service technologies. Secondly, it would

help service representatives to deliver a higher level of relationship quality by

improving social interactions.

A fast and efficient computer-based information system is necessary in order

to make a service representative appear responsive and helpful, for example in

searching for and providing instantaneous and accurate information that any bank

customer might want to know. Moreover, an up-to-date and an in-depth

knowledge of customers will also assist service representatives to customize services,

for example, a personal insurance policy that suits the customer’s income, age,

responsibility and risks. An efficient, reliable and easy to use information system

would also facilitate and encourage a higher and faster rate of customer adoption

and repeated use of self-service technologies. Quality of service infrastructure as

another category of bond that supplements the primary bond.

Secondary bond, therefore, may also be measured in terms of the level of user

friendliness and the convenience of the bank’s service infrastructure to retail bank

customers. He recognized relationship quality and the quality of service

infrastructure as two elements of the secondary bond. Satisfied, happy and loyal

customers are likely to find their relationship with their bank enjoyable. They would

feel gratified and even honored. While some bank customers prefer to have

expeditious self-service banking services, there are others who prefer to have social

interactions.

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The latter customers don’t mind waiting in the queue and spending their time

talking with service representatives – they see social interactions as sources of

satisfaction. Dealing with even small pockets of dissatisfaction is a necessary part of

creating an organizational culture attuned to please customers. (Stephanie Coyles

&Timothy C. Gokey, 2005) According to Fornell (1992) extensive literature

suggests that market share and customer satisfaction leads to profitability but is not

certain that market share and customer satisfaction have a positive connection. Fornell

(1992) states that “loyal customers are not necessarily satisfied customers, but

satisfied customers tend to be loyal customers”

2.6.4 The Difference between Loyalty and Retention

I would like to explain the two important terms: Loyalty and Retention. In a

recent survey of business executives these two terms are used synonymously.

However, to be able to gain useful insight into switching conduct of customers, it is

essential to establish the distinction between the two. As it was mentioned in the

previous chapter loyalty has to be defined as an internal intensity of customers

towards sticking with or switching from their current supplier—an inherent value.

Loyalty cannot be bought.

Retention is the outcome or the event that customers are retained or stayed

with their current provider. Retention can be bought with the appropriate incentives

or stimuli. Retention occurs due to the combined effect of two forces: the internal

loyalty intensity of a customer and the external incentives or stimuli that they are

subjected to in the form of product attributes, pecuniary switching costs, price,

advertising, communications, and customer care. “Increasing the loyalty” of a

customer, actually means that the retentiveness of the customer is increased. Loyalty

is internal to the customer; it can only be changed by a shift in the customer’s own

value system.

The second drawback, absolutely critical to business decision-making, is the

fact that the “complete satisfaction” approach ignores the inefficacy of the

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDunderlying economics of achieving completely satisfied customers. Although

completely satisfying customers is an admirable goal, it is not investment-

justified in the case of every customer and could even bankrupt the provider, which is

not desirable for anyone. Instead, a mutually beneficial “win-win” relationship

between provider and customer has to be achieved that takes into account, in

addition to the traditional revenue and cost measures, the differential cost of acquiring

and retaining each customer (or group) on the basis of their internal loyalty intensity.

2.6.4.1 Internal loyalty

Loyalty does not connote desirable versus undesirable behavior; it simply

indicates the internal intensity of customers towards switching from their current

provider. This intensity, ranging from “loyalist” to “habitual switcher,” can be

attributed to customers’ internal “make-up,” which can be captured in a composite

profile defined by certain attributes. In the case of consumers these attributes

belong to socioeconomic, demographic, values, tradition, lifestyle and related

categories, as shown in Figure1

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For example, customers may be “loyal” to their current provider (i.e., not

switch) simply because they are “too lazy,” which means their comfort-related

switching cost is high. Similarly, others may not switch because of the high

psychological costs or risks they associate with dealing with an unknown entity.

Whatever the source of their action or inaction may be, it is sufficient to say

that each customer has a different inherent orientation towards switching from

their current situation. It is necessary to mention two important corollaries to the

above.

One is that the individual’s attitude towards change need not apply uniformly

over all facets of their life; it is entirely possible for a person to seek variety and

stability in varying degrees in different aspects of his or her life. This means

that a consumer can, for example, have “loyalist” intensity for toothpaste but

“switcher” intensity for household appliances. Similarly, businesses also have

different loyalty intensities, depending on the item. The other corollary is that the

internal intensity, although generally constant in the short term, may change over

time due to life experiences for consumers and market experiences for businesses,

particularly catastrophic ones.

For these reasons it is essential to perform the customer segmentation on a

dynamic basis as frequently as is economically justifiable. Given the inherent loyalty

intensity of customers, their actions; however, can be influenced through external

stimuli or incentives, such as product attributes, price, and pecuniary costs of

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDswitching, communications, and relationship management including customer care.

And, while the internal loyalty intensity of customers cannot be impacted, external

stimuli are within the locus of control of the provider. These are the instruments,

which the provider can manipulate to achieve the desired action from the customer.

2.6.4.2 Customer Loyalty Objectives

The development of customer loyalty is one of the most important

issues organization face today. Creating loyal customers has become more and more

important. This is due to the fact that competition is increasing, as never before,

which has a great impact on many companies. To deal with this high concentrated

market, businesses are attempting not only to attract and satisfy customers but also

to create a long-term relationship with these customers (Gremler and Brown, 1996).

Creating satisfied and loyal customers is a critical matter for many corporations

survival.

Organizations’ goal with creating customer loyalty is mainly to increase

their profits, since loyal customers have direct value on a company’s profitability.

Several other benefits can be derived from loyal customers. Seen from the

organizational perspective, loyal customers lead to increased revenues for the

organization result in predictable sales and profit streams, and are also more likely

to purchase additional goods and services (Gremler and Brown, 1999). To precisely

assess the value of customer loyalty, there is the need to look beyond the direct value

it has on the organization. That is to say beyond the direct revenue streams and add in

the overall benefits related with it. For instance, loyal customers are also more likely

to talk about the brand and recommend it to their friends and relatives, which will

generate new businesses.

Many researchers ( Rust and Zahorik 1993; Rust, Zahorik and Keiningham

1995; Loveman 1998) that encompass share of wallet and customer duration in

personal retail banking have come from studies attempting to trace the chain of

effects from service quality programs upon customer satisfaction, customer loyalty

and customer profitability, that is, the so-called service-profit chain (Heskett, Jones,

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDLoveman, Sasser and Schlesinger 1994). Results have been mixed but seem to suggest

that quality improvements help both customer acquisition and customer retention.

New customers are attracted by positive endorsements from existing customers

about quality products. Existing customers are encouraged to remain (resulting in

higher retention and lower customer churn rates for the bank) and devote a greater

share of wallet to their main bank. Reichheld (1992, 1996) has mentioned small

increases in retention rates result in measurable effects on profitability.

Maximization of customer loyalty is a priority for most industries. It is often

stated that industries like banks need to operate on a long-term “cradle-to-grave”

customer management strategy where youthful customers are recognized as being

unprofitable in their earlier years but becoming profitable as they move on

through the family lifecycle (Ron Garland, 2002). Concomitantly, customers can

become “entangled” with their main bank to such an extent that the perceived cost

of defection outweighs the benefits of shifting banking business to a new provider.

Hallowell (1996), has identified that there is a relationship between customer

loyalty and profitability and suggests that some customers can never be satisfied

while it is unprofitable to try to satisfy others.

2.6.4.3 Loyalty Programs and Its Benefits

Customer Loyalty Programs have developed remarkably in the era of

customer retention in recent years. This is due to recent advances in information

technology. They have been considered by many organizations and many of them

have adapted customer loyalty programs. According to Yi and Jeon (2003) loyalty

programs are introduced to build customer loyalty. Dowling and Hammond (2003)

stated that customer loyalty programs offer rewards to customers in form of

relationships and financial rewards. Customer loyalty programs have also been

willingly embraced by customers; this is due to the benefits associated with it

(O’Malley, 1998).

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The importance of benefits for enticing customers into these loyalty

programs and according to YI and Jeon (2003) the goal of customer loyalty

programs is to create a high level of customer retention. Gilbert referred to O’Malley

(1998) states that the basic idea of a loyalty scheme is to reward customers’ repeat

purchasing and encourage loyalty by providing targets at which various benefits can

be achieved. The longer a customer stays with an organization the more profit the

customer generates (Reichheld and Sasser, 1990). This is an outcome of a number of

factors relating to the time the customer spends with the organization, and

includes:

The effects of the higher initial costs of introducing and attracting a new

customer; increase in the value of purchases; increase in the number of purchases; the

customer's better understanding of the organization and vice versa; and the last one

positive word-of-mouth It was recognized by Colgate et al. (1996) and by

Storbacka et al. (1994) that reduction in defection can contribute to increases in

profits far more than increases in the market share.

The profits of organizations can increase by 100 percent through retaining 5

percent more of their customers (Reichheld and Sasser, 1990; O'Malley, 1998).

Moreover, seen from a customer perspective, loyalty scheme can be a way to

decrease price sensitivity, increase brand loyalty, reduce the willingness to

consider alternative brands, encourage word-of-mouth support and endorsement,

attract a larger group of customers and increase the amount product bought (Uncle et

al., 2003). Customer loyalty programs are assumed to create value for the customer

and it is due to this value that customer loyalty programs promote loyalty.

On the other hand, the degree to which customer loyalty programs offer value

to customers is uncertain, mostly because customers are not equal and value will

represent different things to different people and will also be different in different

context (O’Malley, 1998). In order to make the value of customer loyalty programs

work properly and succeed, an organization needs to understand the needs and desires

of their customers. The value an organization delivers to its customers needs to be

competitive in five dimensions. Seen from a customer perspective, the

dimensions are: cash value (as a percentage of the proportion spends), aspiration

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDvalue (how much this reward motivates a customer), relevance (the extent to

which the reward is achieved), and convenience (ease of participation of the

scheme), choice (the variety of rewards offered) (O’Brien and Jones, 1995). Even

though a small number of schemes today offer all dimensions of value, it is obvious

that companies which want to play the rewards game should be sure that their

value measures up to customers’ alternatives (O’Brien and Jones, 1995).

This is most significant when customer loyalty programs are mainly used as a

differentiation. Due to the popularity and benefits derived from customer loyalty

programs many corporations have adapted these schemes. Customer loyalty

programs can and do build customer loyalty and corporations now realize how

important loyalty is for their profitability.

One of the main reasons of creating loyalty programs is to increase revenues,

which can be done by either increasing purchase and usage levels and also by

increasing the range of products bought. However, there are other reasons for

creating loyalty programs including: to generate information, to reward loyal

customers, to manipulate consumer behavior and as a defensive measure toward

competitors (O’Malley, 1998).

Getting information about customers, who they are and their purchasing

behavior is a very important input for an organization. This information will

contribute to a better understanding of the customer and corporations can use this

knowledge to improve targeting, creating offers and shift merchandise. Furthermore,

this knowledge can also be employed to reward loyal customers and also to motivate

customers to try new products, manipulate consumer behavior.

Apart from the benefits that longevity of customers brings, research findings

also suggest that the costs of customer retention activities are less than the costs of

acquiring new customers. Rust and Zahorik (1993) identify the financial

implications of customer retention, citing US Office of Consumer Affairs research

that estimates that attracting new customers may be five times as costly as keeping

existing customers.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDSome of the most important benefits are as below:

Benefits for Company.

1) Less costly to retain customers than to attract new customers.

2) Generating profits

3) Decrease in marketing costs

4) Positive word of mouth

Benefits for Customers.

1) Functional benefits

2) Time savings

3) Convenience Economic benefits

4) Risk reduction

5) Social benefits

6) Relationships

a. Pleasant

b. Comfortable

7) Trust

2.6.4.4 Involvement of the Customer

In order to implement the loyalty programs, we have to focus on the

involvement of the customer. The interaction between customers and service

providers is an important determinant of perceptions of service quality (Zenithal et

al., 1988). In some instances, this interaction will be largely of a transactional nature

but more commonly interaction occurs within the context of an ongoing service

relationship. Indeed, services marketing places considerable emphasis on the

development and management of relationships with customers as a means of

enhancing the quality of service delivery (Berry, 1983; Christopher et al., 1991;

Eiglier and Langeard, 1977). Those relationships are seen as being of particular

importance in situations in which the service is long term in nature, when

customers are heavily dependent on credence qualities in service evaluation and

where perceived risk in high (Zeithaml, 1981)

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Furthermore, building effective and successful relationships can contribute

significantly to customer satisfaction, loyalty, retention and thus to improved

performance (Reichheld and Sasser, 1993; Rust and Zahorik, 1993). These all

reduce the churn process. Without customer involvement the provision of many

services cannot occur, but the way in which customers participate in the service

delivery process can have important implications for both the customer and the

service provider (Farquahar, 2004; Christine T. Ennew & Martin R. Binks1996).

Customers who are willing to participate in service delivery may expect to receive a

better quality of service for a variety of reasons. These reasons can be as follow:

First, customer participation should mean that the provider has a clear

understanding of their needs and circumstances.

Second, participative customers may also be more aware of the constraints on

the service provider in terms of what can and cannot be delivered. Accordingly,

such customers are likely to form more realistic expectations about service

quality and as a consequence the gaps between expectations and performance may be

smaller.

Finally, it is possible that the willingness of consumers to participate actively

in the provision of a service can provide the organization with an opportunity to

enhance service productivity (Lovelock and Young, 1977) by harnessing the

contribution of customers.

Ford (1990) suggests that customers will and can only be expected to

participate in a relationship if they anticipate that there will be benefits from that

relationship. The ole of the relationship in reducing perceived risk has already been

mentioned but other benefits might be anticipated including enhanced service

quality as a result of the delivery of a service which more closely meets

customer needs and the formation of more realistic expectations.

More generally, the quality of the interaction between buyer and supplier and

the degree of customer participation in the relationship has been identified as

possible antecedents of customer satisfaction (Solomon et al., 1985). Certainly, there

is preliminary evidence to suggest a positive relationship between good consumer

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDbehavior and relationship satisfaction (Anderson et al., 1994). While good

consumer behavior is not necessarily equivalent to relationship participation, it

would be suspected that the two are closely associated.

Conceptually, the existence of this association can be justified in two ways.

First, greater customer participation should enable an industry for example a bank to

deliver a service which is a much better match to customers’ needs. Second,

greater participation should result in customers forming more realistic expectations of

the service the industry can deliver.

There are three important elements of a customer’s interaction with a subscription

business to consider and understand:

Customer Experience

What measurable service experience is the customer exposed to?

Customer Perception

How does the customer claim to value the experience?

Customer Behavior

How does the customer actually behave after his experience?

Understanding these three areas in depth and how they relate to one

another is essential to improve those elements of customer experience that will

translate into loyalty and satisfaction. Fortunately, for most large companies, the

answers are within reach. IT systems capture large operational data sets at the

customer level, and businesses can learn to condense critical information about churn

from this data.

Customer loyalty is used for individuals who remain clients of their

original supplier even if a competitor proposes more advantageous conditions. Loyal

customers are the most profitable ones. They are free marketing channels in terms of

the benefits received by companies from word-of-mouth. These customers are the

most liked. Miguel A.P.M. Lejeune in 2001 mentioned in his research that Churn

management consist of developing the techniques that enable firms to keep their

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDprofitable customers and it aims at increasing customer loyalty.

Traditionally companies devoted more resources to acquire new customers but

today most companies apply a combination of both offensive and defensive strategies.

The objective of the defensive strategy is to minimize the customers’ switching and

customer retention by protecting the brand and its market from competitors and

having highly satisfied and loyal customers.

2.6.4.5 Is It Proper To Retain Any Customer?

A critical fact that should be kept in mind is that, although, it may be possible

to acquire or retain any customer; it is not economically desirable to do so for

every customer. In fact, the cost of retention of customers is inversely related to

their inherent loyalty intensity (i.e., the higher the loyalty intensity, the lower the

retention costs, and vice versa). Also acquisition costs are positively correlated to

loyalty intensity: it costs more to acquire a customer whose tendency is to stick with

its current provider than one with a greater propensity to switch.

Acquisition and retention costs include the carefully attributed costs

associated with advertising, other communications, promotions and incentives in

the form of price discounts, cash and/or other goods and services, frequent user and

© Adnan Rasheed51

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDaffinity programs, and customer contact. Now after reviewing the literature of

banking, the loyalty of the customer, its programs and benefits, it is time to have a

look at the different factors which affect this concept

2.6.4.6 Perceived Quality

A concept which is very closely related with satisfaction and loyalty is

perceived quality, and the differences between these have not always been very

clearly defined. They have been used on occasion in an indistinct manner. In an

attempt to clarify the distinction between satisfaction and perceived quality,

Anderson et al. (1994) consider that satisfaction requires previous consumption

experience and depends on price, whereas quality can be perceived without previous

consumption experience and does not normally depend on price. However in

circumstances where there is little available information or where quality evaluation

is difficult, price can be an indicator of quality.

In this sense, Spreng and Mackoy (1996), starting from Oliver’s (1997,

1999) conceptual model of service quality and service satisfaction, concluded that

these constructs are distinct and have different antecedents.Service quality has been

found to have a profound input on customer satisfaction and loyalty as a whole and is

defined as the result of the comparison that customers make between their

expectations about a service and their perception of the way the service has been

performed (Parasuraman et al., referred to in Caruana, 2002). According to Caruana

(2002), service quality is split up into two terms, first the technical quality, which

refers to what is delivered to the customer and functional quality, which concerns the

end result of the process which was transferred to the customer.

Furthermore, service quality concerns two aspects, psychological and

behavioral, which include the accessibility to the provider, the way service providers

perform their tasks, the content of their sayings and the way the service is done. The

perception of service quality is based on the customer’s assessment of three

dimensions of service encounters, which are the customer-employee interaction, the

service environment, and the service outcome. Even though there is no consensus

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDabout conceptualizing and measuring service quality. Assumed service quality to be

“the consumer's judgment about the overall excellence or superiority of a service”.

In order to have a better understanding about service quality, they also

mentioned that the attributes of service quality are as follow: services are

intangible; services are heterogeneous, meaning that their performance often

varies with respect to the provider and the customer; services cannot be placed in a

time capsule and thus be tested and retested over time; and the production of

services is likely to be inseparable from their consumption. Because of the

attributes of services, the evaluation of service quality is more difficult than the

evaluation of product quality. Also, the evaluation may be connected with the service

delivery process, along with output. In general, service quality is seen as a critical

factors for profitability, and thereby a firm’s success. Two underlying processes

generally explain the contribution of service quality to profitability.

First, service quality is regarded as one of the few means for service

differentiation and competitive advantage that attracts new customers and

contributes to the market share (Venetis and Ghauri, 2000).

Second, service quality enhances customers' inclination to buy again, to buy

more, to buy other services, to become less price-sensitive and to tell others about

their favorable experiences (Venetis and Ghauri, 2000). For example, Bloemer et al.

(1998) have pointed out that there is a positive relationship between service quality

and repurchase intention, recommendation, and resistance to better alternatives.

All these – repurchase intention, recommendation and resistance to better

alternatives – are behavioral intentions and constitute customer loyalty. Service

quality has a positive effect on the bottom-line performance of a firm and thereby on

the competitive advantages that could be gained from an improvement in the quality

of service offering, so the perceived service exceeds the service level desired by

customers (Caruana, 2002; Chumpitaz, 2004). Here perceived value which is very

close in meaning to service quality is brought; in this thesis they are considered the

same.

© Adnan Rasheed53


Recently, “both managers and marketing scientists have begun focusing on

the hitherto ignored role of customer value as a key strategic variable to help explain

repeat purchase behavior, brand loyalty and relationship commitment”. Perceived

value is often assumed to involve a consumer’s assessment of the ratio of perceived

benefits to perceived costs (zeithaml, 1988).

The literature relating to service management has argued that customer

satisfaction is the result of a customer’s perception of value received

(Hallowel,1996).Perceived value is considered a construct that captures any benefit-

sacrifice discrepancy in the same way that disconfirmation does for variations

between expectations and perceived performance. As it is explained perceived service

quality and perceived value has approximately same meaning.

2.6.4.7 Customer Satisfaction

Customer satisfaction is another antecedent of customer loyalty. In the

highly competitive business world of today, customer satisfaction can be seen as the

substantial of success, as customer satisfaction can lead to customer retention and

therefore to profitability for an organization (Jamal and Kamal, 2002). Satisfaction

is a consumer’s post-purchase evaluation and affective response to the overall

product or service experience. It is considered a strong predictor for behavioral

variables such as repurchase intentions, word-of-mouth recommendations and loyalty.

Jamal et al., (2002) described customer satisfaction generally as the full meeting of

one’s expectations. Furthermore, Jamal and Kamal (2002) describes customer

satisfaction as a feeling or attitude of a customer towards a product or service after it

has been used. Egan (2004) puts the definitions of several authors together and

describes customer satisfaction as a psychological process of evaluating perceived

performance outcomes based on predetermined expectations.

Lin (2003) defines customer satisfaction as the outcome of a cognitive

and affective evaluation of the comparison between expected and actually perceived

performance, which is based on how customers appraise delivery of goods or services.

A perceived performance, which is less than the expected, leads to an unsatisfied

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDcustomer. Perceived performance that exceeds expectations, on the other hand,

leads to a satisfied customer. The expectations of a customer are built from

past buying experience, advice from friends and counterparts, marketers’ and

competitors’ information and promises.

2.6.4.8 Switching Cost

Another brand loyalty antecedent is known as switching costs, which can

be defined as the technical, financial or psychological factors which make it

difficult or expensive for a customer to change brand (Selnes, 1993). Porter (1998)

defines switching costs as one-time costs facing the buyer when switching from

one supplier's product to another's. In addition to objectively measurable monetary

costs, switching costs may also pertain to the time and psychological effort

involved in facing the uncertainty of dealing with a new service provider (Bloemer et

al., 1998). Hence, switching costs are partly consumer-specific. For this reason, a

switching cost can be seen as a cost that deters customers from demanding a

rival firm's brand (Aydin and Ozer, 2005).

Jackson (1985) describes the switching cost as the sum of economic,

psychological and physical costs. The economic or financial switching cost is a sunk

cost which appears when the customer changes his/her brand, for example the costs of

closing an account with one bank and opening another with a competitor, the cost of

changing one's long-distance telephone service (Klemperer, 1987) or the costs of

changing one's GSM operator. Procedural switching costs stem from the process of

customers' purchase decision making and their implementation of the decision.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDThe buying process contains the following phases:

1. Need recognition

2. Information search

3. Evaluation of alternatives

4. Purchase decision

5. Post-purchase behavior

The customer perceives high risk regarding a brand he/she has never used

(Aydin and Ozer, 2005; Sharma and Patterson, 2000). Especially in services,

where customers prefer a rival service provider, risk exists because service

quality cannot be evaluated before purchasing (Aydin and Ozer, 2005; Sharma et al .,

1997).

A customer who has collected information in order to decrease his anxiety

about a wrong purchasing decision will use all previous purchase experiences. This is

called “post-purchase cognitive dissonance”. In this process, if the customer

were to switch brand, he/she would compare the switched brand and the previous

brand. Therefore, the better the switched brand's performance, the higher the

alternative's uncertainty. Hence, customers who want to decrease cognitive

dissonance prefer the brands that they have used before (Klemperer, 1995).

Markets with switching costs are generally characterized by consumer lock-

in, where it is observed that consumers repeatedly purchase the same brand even

after competing brands have become cheaper. One important consequence of having

consumer lock-in is the ability of firms to charge prices above marginal costs (Aydin

and Ozer, 2005; Shy, 2002).

In the case of a market having switching costs, when customers select from a

number of functionally identical brands, they display brand loyalty and go on buying

the same brand (Klemperer, 1987). In short, ex ante homogeneous products

may, after purchase, be differentiated ex post by switching costs (Klemperer,

1987). Moreover, if customers are sensitive to a product's attributes, such as quality,

© Adnan Rasheed56

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDuncertainty will decrease price sensitivity: in other words, the customer behaves

loyally. For these reasons, switching cost is a factor that directly influences

customers' sensitivity to price level, and so influences customer loyalty (Aydin and

Ozer, 2005) referred to (Jones et al., 2002; Bloemer et al., 1998; Burnham et

al., 2003; Lee et al., 2001).

2.6.4.9 Habit

It is a fact of life that the force of habit still dictates many behavioral

intentions, when people have gained experience. A prior research has indicated that

habitual behavior leads to the continuation of the same type of behavior. Once a

behavior has become a habit, or a well-practiced behavior, it becomes automatic

and is carried out without conscious decision. According to Lin and Wang (2006),

about 40–60% of the customers purchase from the same store is through the force of

habit. They visit the websites out of habit rather than through a conscious

evaluation of the perceived benefits and costs offered. Indeed, when habit is well-

entrenched, people tend to ignore external information or rational strategies. Such an

effect is a central element in Triandis (Triandis, 1971) theory of attitude and attitude

change: that behavioral intentions are the products of attitude, social norms, and

the effects caused by habit.

Prior studies comparing the Theory of Reasoned Action and related theories

using habit as an antecedent of behavioral intentions have found that habit can

directly affect behavioral intentions more than attitude and social norms (Trafimow,

2000; Verplanken, Aarts,-Knippenberg, Moonen, 1998) .It is mentioned that habit

alone can explain a large proportion of the variance in the continued use of a service.

Applying these findings to loyalty suggests that customers’ intentions of repeat

purchases on a specific place, (one they have habitually used in the past), will

increase, due directly to the habit of visiting that specific place.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED2.6.4.10 Choosing

In the relationship existing between the different factors and loyalty, the

degree of elaboration which is followed in the decision-making process can have a

moderating influence. Elaboration is a construct based on the information processing

theory (Petty and Cacioppo, 1997) and is determined by the motivation and the

ability of a consumer to elaborate on the brand choice (Bloemer and Ruyter,

1998). Motivation can be operationalised by bank choice involvement and ability

can be operationalised by bank choice deliberation. (Beerli,Quintana,Martin, 2004).

Despite the fact that motivation and the ability of a consumer to elaborate on

the choice can be high if the consumer does not perceive differences among brands,

the degree of elaboration in the decision-making process may be low. Therefore

the perceived distinction between different brands is important.

Therefore, loyalty is a concept that goes beyond simple purchase

repetition behavior since it is a variable which basically consists of one dimension

related to behavior and another related to attitude where commitment is the

essential feature (Day, 1969; Jacoby and Kyner, 1973).

Beerli et al. (2004) referred to Jacoby and Chestnut (1978), Solomon

(1992) and Dick and Basu (1994), mentioned the combination of these two

components enables us to distinguish two types of customer loyalty concepts:

1. The loyalty based on inertia, where a brand is bought out of habit merely

because this takes less effort and the consumer will not hesitate to switch to

another brand if there is some convenient reason to do so; and

2. The true brand loyalty, which is a form of repeat purchasing behavior

reflecting a conscious decision to continue buying the same brand, and it must

be accompanied by an underlying positive attitude and a high degree of

commitment toward the brand.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED2.7 HOW TO IMPLEMENT CRM

The implementation of a customer relationship management (CRM) solution

is best treated as a six-stage process, moving from collecting information about your

customers and processing it to using that information to improve your marketing and

the customer experience.

Stage One - Collecting Information

The priority should be to capture the information you need to identify your

customers and categorize their behavior. Those businesses with a website and online

customer service have an advantage as customers can enter and maintain their own

details when they buy.

Stage Two - Storing Information

The most effective way to store and manage your customer information is in a

relational database centralized customer database that will allow you to run all your

systems from the same source, ensuring that everyone uses up-to-date information.

Stage Three - Accessing Information

With information collected and stored centrally, the next stage is

to make this information available to staff in the most useful format.

Stage Four - Analyzing Customer Behavior

Using data mining tools in spreadsheet programs, which analyze data to

identify patterns or relationships, you can begin to profile customers and develop

sales strategies.

Stage Five - Marketing More Effectively

Many businesses find that a small percentage of their customers generate a

high percentage of their profits. Using CRM to gain a better understanding of your

customers' needs, desires and self-perception, you can reward and target your most

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDvaluable customers.

Stage Six - Enhancing the Customer Experience

Just as a small group of customers are the most profitable, a small number of

complaining customers often take up a disproportionate amount of staff

time. If their problems can be identified and resolved quickly, your staff will

have more time for other customers.

2.7.1 Types for Implementing CRM

The final way to implement CRM is to find a full-service vendor of customer-

service solutions, which might include phone assistance, e-mail handling, real-time

chat and even creation of acknowledge base for your site. If you outsource your CRM,

then you won't need any customer service infrastructure, including customer-

service representatives; however, you will need to make sure that your

marketing teams can access the business-intelligence components.

2.7.1.1 Purchasing or Licensing Software

Owning the software and running it on your own servers is ideal if you have

highly customized enterprise resource planning, or ERP, or order-management

system, or OMS, software. If you have third-party software for your back-office

processes (accounting, ERP, OMS, etc.) and your front-end systems (content

management, merchandising, checkout, personalization engine), then you should be

able to find CRM software that works with at least some of your systems without

extensive customization. It's unavoidable that you will have to do some

customization, but, by working with vendors that have partnerships and interfaces

with your existing vendors and their software — or with vendors that have

partnerships with the ASPs that host your existing solutions — you can keep

customization to a minimum. Customization is not only expensive when you first

install third-party software, but it's also expensive every time you try to apply a patch

or an upgrade.

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The advantages of purchasing or licensing the software and implementing

it on your own servers are that you have complete control over the software and over

the data. There aren't any of the privacy issues that might arise from having your data

residing with a third party. If you already have a customer-service department with

trained associates, and you don't expect rapid growth or you believe you're equipped

to handle rapid growth — then there's no point in paying to train CSRs elsewhere.

2.7.1.2 CRM Via ASP

Only recently have CRM services become available via an ASP. There are two

kinds of ASPs providing CRM solutions. With one type, of which ShopTok is one

example, the ASP hosts its own CRM software. The other type hosts a best-of-breed

third-party solution. The disadvantage of the second type is that when something isn't

working with the software, you don't always know whether the problem rests with the

ASP or with the software, and you can't necessarily get it fixed. With ASPs that host

their own software, the vendor hears your requirements for new features and your

complaints about existing functionality.

When you work with an ASP, the first thing you'll want to know is the degree

to which you can customize the interface and the software so that your other business

software will talk to your CRM software. After all, your CSRs need to know what a

customer has purchased to handle inquiries from that customer, requiring integration

between the order-management system and the CRM system. If the customer database

doesn’t talk to the CRM system, then you're marketing department can’t segment

customers based on purchases and use the analytical tools frequently built into CRM

software to make intelligent decisions on what kind of promotions to make to attract

the highest-value customers.

There are several advantages to either kind of ASP described above. First, the

cost of getting started is usually low — certainly much lower than the cost of

implementing software on your own servers. Second, the implementation time

is usually short. Finally, no additional infrastructure or support are required

from your IT department. However, some ASPs will tell you that they'll implement

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDwhatever CRM software you'd like (at your expense, of course), in which case you

don't get to take advantage of speed, reduced cost, or experienced tech support. Rather

than choosing the software and the ASP separately, let the software dictate the ASP

you select.

2.7.1.3 Outsourcing Customer Service

While you can outsource customer service, which is one

component of CRM, you can't outsource business intelligence, which is the

strategic component of CRM. If you don’t need to integrate with existing systems, or

you only need limited integration, then the fastest route to take is to outsource your

customer service to a full-service provider who will give you Web access to the

business-intelligence tools. Most full-service customer-service providers will work

with the best-of-breed CRM vendors and offer you a choice of CRM systems with

which to manage your customers. Some are also willing to purchase and install the

CRM software of your choice on their servers, but be aware that this will

eliminate the advantage of a quick implementation, lower entry costs and CSRs

who already know the software.

The cost associated with outsourcing CRM is usually a significant startup cost

for developing your materials, their training materials and your knowledge base, then

a monthly fee based either on the number of hours of CSR you want available or on

the number of calls/messages they receive for your site. The pay-as-you-go model

can be very attractive to smaller merchants.

2.7.2 Critical Success Factors for Implementation of CRM Systems

Critical success factors have been defined as the elements that make a project

a success, and as the ‘events and conditions in a few key areas which absolutely must

go right for the business to succeed’. These include trust, effective communication,

and top management support. For this to occur, proper measurement tools and metrics

must be utilized to effectively control the project.

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The key CSF for CRM projects are:

2.7.2.1 Key Stakeholder Support

Support from all stakeholders in the organization, including top

management and all management levels, employees, government, suppliers,

strategic partners, and investors. Includes the timely reporting of the project status

with accurate information.

2.7.2.2 Sufficient Resources

Resources of money, equipment and expertise available with appropriate

support structures in place. Includes time and budget allocations for training.

2.7.2.3 Clearly Defined Objective

A clearly defined mission with a set of defined goals and objectives

communicated to all stakeholders through clearly defined communication channels,

with alignment of project and corporate goals. This is managed through a detailed

project plan.

2.7.2.4 Managing Change

Project changes are implemented through a formally defined process

with appropriate approvals sought. Any scope changes are mutually agreed and

documented, with appropriate analysis of resource requirements

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED2.7.3 Challenges of CRM Implementation

Organizations face a number of key challenges in implementing CRM systems.

These include:

Methodology Driven By End Users

IT personnel do not have knowledge or authority to influence corporate

decision makers

Lack of Executive Sponsorship

CRM projects are mostly driven by a functional head, such as a VP or

sales/marketing, and rarely produce an enterprise view of customers.

Lack of Customer Centric Culture

An acceptable return on investment will no be achieved if the organization

does not have a strong customer centric culture.

Inappropriate Design Approach

CRM is designed to model a single functional view not an enterprise wide

customer view, resulting in failure

Over Automation

Focus on functionality and process design leads to highly automated business

functions Lack of network infrastructure Inadequate IT infrastructure and networking

facilities prevent the CRM from being implemented enterprise wide. As can be seen

from the challenges faced, it is important for organizations to realize that a CRM

system implementation will only succeed when it is supported by a

customer focused organizational culture. The CRM system will be the main driver

for a paradigm shift, becoming an enabler for communication between the

organization and its customers, and within the organization itself.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED2.8 KEY CRM PRINCIPLES

Differentiate Customers

All customers are not equal; recognize and reward best customers

disproportionately.

Understanding each customer becomes particularly important. And the same

customers’ reaction to a cellular company operator may be quite different as

compared to a car dealer.

Besides for the same product or the service not all customers can be treated

alike and CRM needs to differentiate between a high value customer and a low value

customer.

What CRM needs to understand while differentiating customers is?

Sensitivities, Tastes, Preferences and Personalities

Lifestyle and age

Culture Background and education

Physical and psychological characteristics

Differentiating Offerings

Low value customer requiring high value customer offerings.

Low value customer with potential to become high value in near future.

High value customer requiring high value service.

High value customer requiring low value service.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDKeeping Existing Customers

Grading customers from very satisfied to very disappoint should help the

organisation in improving its customer satisfaction levels and scores. As the

satisfaction level for each customer improves, so shall the customer retention with the

organisation.

Maximizing Life Time Value

Exploit up-selling and cross-selling potential. By identifying life stage and life

event trigger points by customer, marketers can maximize share of purchase potential.

Thus the single adults shall require a new car stereo and as he grows into a married

couple his needs grow into appliances.

Increase Loyalty

Loyal customers are more profitable. Any company will like its mindshare

status to improve from being a suspect to being an advocate. Company has to invest in

terms of its product and service offerings to its customers. It has to innovate and meet

the very needs of its clients/customers so that they remain as advocates on the loyalty

curve. Referral sales invariably are low cost high margin sales (Kotler).

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED2.9 CRM RELATED CONCEPTS

2.9.1 Knowledge Management

Knowledge Management (KM) refers to a range of practices used by

organizations to identify, create, represent, and distribute knowledge for reuse and

learning across the organization. Knowledge Management programs are typically tied

to organizational objectives and are intended to lead to the achievement of specific

business outcomes such as improved performance, competitive advantage, or higher

levels of innovation.

2.9.2 Regain Management

“The cost of acquiring a new customer is 9 to 12 times that of holding on to an

existing customer.” - Philip Kotler

Goal of customer regain management is to reinitiate valuable customer

relationships, which have been already terminated. Regain management has to detect

such ‘lost’ customers, select valuable relationships and attempt to regain them in an

effective and efficient way, for which a systematic process is necessary. Addition to

this process structure, there is an information base needed, which enables the

exchange of collected information along the customer regain process.

2.9.3 CRM in Supply Chain Management (SCM)

Supply Chain Management (SCM) is a business system of enterprise

strategies, business processes and information technologies for improving the

planning, execution and collaboration of material flows, information flows, financial

flows and workforce flows in the supply chain. SCM is supported by modular

software applications that integrate activities across organizations, from demand

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDforecasting, product planning, parts purchasing, inventory control, manufacturing and

product assembly to product distribution.

In the context of SCM, where alliances and partnerships are keys to success,

CRM plays an important role in building long-term relationships. The success of

relationships depends upon sharing of savings from the supply chain, which may be

reinvested to further enhance its efficiency, and sustain the competitive advantage

(Leegther).

Goals of SCM

to reduce inventory cost,

to increase sales

to improve the coordination and the collaboration with suppliers,

manufacturers and distributors.

2.9.4 CRM-ERP Integration

ERP’s foundation (which evolved from either manufacturing-based

manufacturing resources planning (MRP) applications and its later

incarnation, MRPII applications), it is based on creating internally stable

business functions and predictable process control. The concept of ERP was the

integration of all back-office functions so that the basic problems

responsible for interruptions and breaks in the processes were smoothed out and the

incompatibilities of the best of processes were smoothened and the incompatibilities

of the best-of-breed applications were eliminated or reduced. This doesn’t work with

CRM, which is external. How can you be in command of the processes when they are

based on your customers’ behaviour?

Conceptually, one important reason for CRM is real-time response to the

constantly liquid-shifting of customer demands, which is not controlled internally at

all. It also means the psychology of the front office is quite different from the

psychology of the back-office. The simplest option is to hire a systems

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDintegrator to come in and integrate the systems. However, the obvious

hazard here is that they are not only dealing with ERP and CRM

applications they may not know much about, they are also dealing with your legacy

systems, which they know nothing about. But integrating all of that is what you could

hire the ERP vendor for and implements the ERP vendor’s CRM solution. But

many of the solutions remain vaporware or poorly integrated. The third solution

is what many companies are increasingly turning to Enterprise Application Integration

(EAI).

EAI applications, previously known as middleware, can be the

most cost-effective way of integrating the back and front offices. EAI’s

purpose is mainly to integrate data between disparate applications that don’t

natively speak with each other.

2.9.5 e-CRM

In simple terms, eCRM provides to companies a means to conduct interactive,

personalized and relevant communication with customers across both electronic and

traditional channels. It utilizes a complete view of the customer to make

decisions about messaging, offers, and channel delivery. It synchronizes

communications across disjointed customer-facing systems. It focuses on

understanding how the economics of customer relationships affect the business.

Advocates of eCRM recognize that a comprehensive understanding of

customer activities, personalization, relevance, permission, timeliness and metrics is a

means to an end optimizing the value of your most important asset: your customers.

For Fortune 500 companies, evolving to eCRM requires process and organizational

changes, a suite of integrated applications and a non-trivial technical architecture to

support both the eCRM process and the enterprise applications that automate

the process. Mid-size companies may benefit from less sophisticated and easier-

it-implement (and affordable), hosted solutions offered through Application Service

Providers. But regardless of the size of the firm, you have no choice but to evolve to

eCRM quickly.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED2.9.6 e-CRM v/s CRM: The Differences

Being able to take care of your customer via the Internet, or, customers being

able to take care of themselves online: That’s the difference between CRM and

eCRM. It implies a myriad of issues, questions, approaches, technologies, and

architecture that are different from client/server-based CRM. Many of them are issues

general to the Internet. Others are issues related to the creation of applications for the

Internet. The third group is related directly to eCRM and its actual value to business.

Companies agree that eCRM is critical to their business, but unfortunately

very few understands exactly what it is or how to evolve from their existing database

marketing practices to an eCRM solution.

2.9.7 Basic Requirements of eCRM or Six “E” of eCRM

2.9.7.1 Electronic Channels

New electronic channels such as the Web and personalized eMessaging have

become the medium for fast, interactive and economic customer communications,

challenging companies to keep pace with this increased velocity.

2.9.7.2 Enterprise

Through eCRM, a company gains the means to touch and shape a customer’s

experience across the entire organization, reaching beyond just the bounds of

marketing to sales, services and corner offices – whose occupants need to understand

and assess customer behaviour. An eCRM strategy relies heavily on the construction

and maintenance of a data warehouse that provides a consolidated, detailed view of

individual customer behaviour and communication history.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED2.9.7.3 Empowerment

In this new age, eCRM strategies must be structured to accommodate

customers who now have the power to decide when and how to communicate with the

company and through which channel, which ability to opt for or out of. Consumers

decide which firms earn the privilege to “talk” with them.

2.9.7.4 Economics

Too many companies execute communication strategies with little

effort or ability to understand the economics of customer relationships and

channel delivery choices. Yet customer economics drives smart asset allocation

decisions, directing resources and efforts at individuals likely to provide the greatest

return on customer communication initiatives.

2.9.7.5 Evaluation

Understanding customer economics relies on a company’s ability to

attribute customer behavior to marketing programs. A company should evaluate

customer interactions along with various customer touch point channels and compare

anticipated ROI against returns, through customer analytic reporting. Evaluation of

results allows companies to continuously refine and improve efforts to optimize

relationships between companies and their customers.

2.9.7.6 External Information

The use of consumer-sanctioned external information can be employed to

further understand customer needs. This information can be gained from sources such

as third-party information networks and Webpage profiler applications, under the

condition that companies adhere to strict consumer opt-in rules and privacy concerns.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED2.9.8 The Need to Adopt e-CRM

Companies need to take firm initiatives on the eCRM frontier to

Optimize the value of interactive relationship.

Enable the business to extend its personalized messaging to the Web

and e-mail.

Co-ordinate marketing activities across all customer channels.

Leverage customer information for more effective eMarketing and

eBusiness.

Focus business on improving customer relationship and

earning a greater share of each customer’s business through

consistent measurement, assessment and “actionable” customer-contact

strategies.

© Adnan Rasheed72


CHAPTER 3: RESEARCH METHADOLOGY

3 METHODOLOGY

In this chapter, the outline of the methodology that is used in the research and

the theoretical basis behind the approach and their definitions will be explained.

After mentioning the research purpose, according to research process onion, the first

layer raises the question of the research philosophy. The second layer considers

the subject of the research approach that flows from our research philosophy. Thirdly,

the research strategy will be examined and the fourth layer is about time horizons

which are applied to the research. In the fifth layer data collection method will be

identified, and then the validity and reliability of the research will be explained.

3.1 Research Approach

The research approach is deductive when a theory and the hypothesis (or

hypotheses) are developed and a research strategy is designed to test the hypothesis,

or it is inductive when the data is collected and the theory is developed as a result

of the data analysis. The deductive approach owes more to positivism and inductive

approach more to phenomenology, although it is believed that such labeling is

potentially misleading and of no practical value.

This research is deductive because first the hypotheses are developed and then

the research strategy is designed.

3.2 Research Strategy

Research strategy is a general plan of how to answer the research

questions that have been set. What matters is that the strategy that is appropriate

for the research question(s) and objectives be chosen (Saunders et al.,

2000).Saunders explained that the research strategy is employed as follow:

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED3.2.1 Experiment

Experiment is classic form of research that owes much to natural sciences and

also social sciences, particularly psychology. It involves the definition of theoretical

hypothesis, selection of samples and allocation of them to different experimental

conditions, introduction of planned changes, measurement on some variables and

control of other variables.

3.2.2 Survey

Survey method is very popular and common business strategy research.

Surveys allow the collection of a large amount of data from a sizeable population in a

highly economical way. Based mostly on the questionnaires, the data are standardized

and allow easy comparison. It is also easily understood. But much time is spent

in designing and piloting the questionnaire. After that on analyzing the results even

with the aid of an appropriate computer package the disadvantage is that by the survey

method the data collected may not be as wide ranging as those collected by

qualitative research methods.

There can be limited number of questions. Another threat is that the

questionnaires might be answered not completely by the respondents. There are also

other data collection devices that belong to the survey category such as structure

observations and structured interviews where standardized questions are asked

from all interviewees. Questions “what” and “how” tend to be more the concern of

the survey method.

3.2.3 Case Study

Case study is the development of detailed, intensive knowledge about a single

case, or a small number of related cases. This strategy is of particular interest when

the purpose is to gain a rich understanding of the context of the research and the

processes being enacted. Case study can be a very worthwhile way of exploring a

theory. The case study approach has considerable ability to generate answers to the

questions “why” as well as “what” and “how”.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED3.2.4 Grounded Theory

Grounded theory is often thought of the best example of the inductive

approach. It is better to think of it as a combination of induction and deduction.

In grounded theory data collection starts without the formation of an initial

theoretical framework. Theory is developed from the data generated by series of

observations. These data lead to the generation of predictions that are then tested in

further observations.

3.2.5 Ethnography

Ethnography is to interpret the social world the research subjects inhabit in

the way they are interpreted. This is obviously a research process that is very time

consuming and take place over an extended period of time.

3.2.6 Action Research

Action research is the part of the organization within which the research

and the changing process are takes place. So action research differs from other

forms of applied research because of its explicit focus on action, in particular

promoting change within the organization.

In this research, survey method is employed to have an analysis on the model

of customer loyalty in banking industry of Pakistan. In order to find the factors

and also the relationship between these factors, a questionnaire is designed. For doing

so the factors of models which were mentioned in the literature review are used.

Because one of those models is for e-commerce industry, I had to check the

factors to see whether they are appropriate for banking in Pakistan or not. So I had a

discussion with some experts in banking industry to show them the factors which

were going to be used in the new model.

After the discussion all of the considered factors were accepted. after

finalizing the factors the questionnaire of those researches were combined

together, then among those questions some had little changes, some were

eliminated, some were added and the rest were not changed. Then a complete

translated questionnaire was ready.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED3.3 Time Horizon

It is believes that most research projects undertaken for academic courses

are necessarily time constrained. When planning for the research there are two options

in the time perspective:

3.3.1 Cross Sectional

Cross –sectional, a study in which a group(s) of individuals are composed into

one large sample and studied at only a single point of time.

3.3.2 Longitudinal

Longitudinal, a study in which an individual or a group of individuals is

observed over a period of time.

In this research cross –sectional study is performed.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED3.4 Data Collection Method

The gathering of data may range from a simple observation at one

location to a grandiose survey of multinational corporations at sites in different parts

of the world. The method of research can determine how the data are collected.

Questionnaires, standardized tests, observational forms, laboratory notes, and

instrument calibration logs are among the devices used to recover raw data (cooper

and Schindler, 2003).

3.4.1 Sampling

If we collect and analyze data from every possible case or group member, this

will be termed a census. However, for many research questions and objectives like

this research it will be impossible to collect or analyze all the data available owing to

the restriction of time, money and often access. Sampling techniques provide a range

of methods that enable us to reduce the amount of data that is needed to be collected

by considering only the data from a sub-group rather than all possible case elements

(Saunders et al., 2000).

As in this study there are many constraints on budget and time for surveying

the entire population and it is impracticable to survey the entire population, sampling

provides a valid alternative to the census (Saunders et al., 2000).

3.4.1.1 Population

A population consists of all elements-individuals, items, or objects-whose

characteristics are being studied. The population that is being studied is also

called the target population (Mann, 1995).The population in this research consists

of the bank customers.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED3.4.1.2 Sampling Frame

The sampling frame for any probability sample is a complete list of all cases in

the population from which your sample will be drawn (Saunders et al., 2000). As the

research questions in this study concern bank customers, so the sampling frame is a

complete list of all banking customers in Pakistan.

3.4.1.3 Suitable Sample Size

Determining sample size is a very important issue because samples that

are too large may waste time, resources and money, while samples that are too small

may lead to inaccurate results. According to (Saunders et al., 2000) researchers

normally work to a 95 percent level of certainty. This means that if your sample were

selected 100 times, at least 95 of these samples would be certain to represent the

characteristics of the population. The margin of errors describes the precision of

the estimation of the population.

For most business and management researches, researchers are content to

estimate the population’s characteristics to within plus or minus 3-5 percent of its true

values. This means that if 45 percent of the sample is in certain category, the

estimation for total population within the same category will be somewhere between

42 and 48 percent.

According to (Cooper and Schindler, 2003) the formula for calculating the

sample size is as below:

(+,-) 0.05 = desired interval range within which the population proportion

is expected (subjective decision)

1.96(σρ) = 95 percent confidence level for estimating the interval within

which the population proportion is expected (subjective decision)

σρ = 0.0255= standard error for the proportion (0.05/1.96)

pq = measure of sample dispersion(used here as an estimate of the

population dispersion).

© Adnan Rasheed78


n=pq /σ2ρ

In this research, after running the 30 questionnaires, a sample size was calculated.

And the result shows 280 questionnaires.

N= 0.24*0.76 /0.0255 2 =280

In order to have an accurate model I ran 400 questionnaires, and I got 392 back. From

this number, 388 were completely useful. So again at the end of he research I

tested the above formula to see whether the sample size was enough or not. The

result shows that by 295 questionnaires would be enough, but as I mentioned above I

had more questionnaires.

n= 0.26*0.74 / 0.02552 = 295

3.4.1.4 Response Rate

While employing all probability samples, it is very important to consider the

response rate. According to (Saunders et al.,2000), response rates in business surveys

are usually as low as 15-20 percent for postal surveys and also response rate of

between 50 to92 percent for questionnaire surveys and of 73 to 99 percent for

telephone interviews. Therefore I asked the customer in my sample population to fill

the questionnaires.

Those who didn’t want to participate mentioned the lack of time was the

reason. The response rate in this research performing the above method of data

gathering was calculated as 97 percent and this is because the questionnaires were

given one by one and face to face.

According to (Saunders et al., 2000) the actual sample size of this

research is calculated by this formula:

N=n*100/ (response rate)

© Adnan Rasheed79


N=280*100/97 =288

This means by spreading 288 questionnaires, I could have the minimum

sample size which is 280, but as I mentioned previously, I had 400

questionnaires and got 392 filled, among them some were useless, and 388 were

gained completely useful.

3.4.1.5 Sampling Technique

According to (Saunders et al., 2000), sampling techniques can be divided into

two types:

a) Probability or Representing Sampling

The chance or probability of each case being selected from the known

population and this is usually equal for all cases. It is most commonly associated

with survey-based researches where you need to make interfaces from your

sample about a population who answer your research questions or meet your

objectives.

b) Non-Probability or Judgmental Sampling

The probability of each case being selected from the total population is not

known and it is impossible to answer research questions or to address the objectives

that require making statistical inferences about the characteristics of the population.

Then the first 4 banks which have the most market shares in the banking industry of

Pakistan similar to Beerli et al. (2004) were chosen. This choosing was because of

the time and money limitations .Then for each bank, the same number of branches

was chosen randomly. Then the same number of questionnaires was given to the

respondents at the main door of each branch.

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IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED3.4.2 Collecting Primary Data Using Questionnaire

It is noted that the greatest use of questionnaires is made by the survey

strategy. Questionnaires can therefore be used for descriptive research, such as that

undertaken using attitude and opinion questionnaires and questionnaires of

organizational practices will enable you to identify and describe the variability in

different phenomena.

3.4.2.1 Questionnaire Design

Because of the reasons mentioned above I used a self-administered

questionnaire method for collecting the primary data. More importantly replicated a

study that had been done in Taiwan by (Lin and Wang, 2006) and in Spain by

(Beerli, Martin, Quintana, 2004)’s questionnaire. Hence in this research I combine

those two questionnaires and added some more to them.

First the duplicated questions were omitted. Then because of the different

environment between the banking industry of Pakistan and other countries, questions

had to be checked to see whether they needed localization changes or not. Some

of the questions were edited for this reason. And a few questions were added to some

of the factors. After that they were translated accurately to Farsi for being simple

to be understood by the respondent.

(Salant and Dillman, 1994) argue that, to achieve a response rate as high

as possible, you need to explain clearly and concisely why you want the respondent

to complete the survey on the first page. Regarding this issue a covering letter was

provided for the first page.

The questions in the questionnaire tried to find the factors of customer loyalty

in Pakistan. The above opinions were measured by requesting respondents to

indicate, on a five-point Likert-type scales, anchored on “1 = to a very little extent”

through “5 = to a very great extent”, their agreement or disagreement with a

series of statements that characterize the factors for loyalty model of the customers

in banking industry in Pakistan.

© Adnan Rasheed81


Likert scales were developed in 1932 as the familiar five-point bipolar

response format most people are familiar with today. These scales always ask people

to what extent they agree or disagree with something, approve or disapprove

something and believe something to be true or false. There's really no wrong way to

do a Likert scale, the most important thing is to at least have five response categories

(Likert, 1932).The questionnaire also contained some personal questions to reach

to some contextual sense of the answers collected such as name, age, position, etc.

3.4.2.2 Pilot Testing

According to (Saunders et al., 2000) the purpose of the pilot test is to

refine the questionnaire so that respondents will have no problems in answering

the questions and there will be no problems in recording the data. For small-scale

questionnaires, it is unlikely to have sufficient time or financial resources for

such testing. However, it is still important to have the questionnaire pilot tested.

For most questionnaires the minimum number for a pilot is 10 (Fink, 1995).

Although these questionnaires were used before but because of the little

changes that have been done I needed to have a pilot test. The pilot test was done in

three stages. The first stage was done by some banking experts to see whether the

factors of this model are proper in this environment or not. All of them agreed with

the factors except the factor “trust” which was in the m-commerce model, and the

reason is because of the different nature of these two industries.

For this reason, I ran a short questionnaire to see whether this factor could

have influence on the loyalty or not. The questionnaire with its analysis results are

shown in appendix B. approximately all of the respondents mentioned that they trust

the banks in Pakistan and by having this result and the experts’ comments this factor

wasn’t used.

The next stage was done for becoming sure of the simplicity of the

questionnaire. So 20 questionnaires were given to the customers of the bank to see

whether the questions were understandable or not. In this phase I was beside

each customer during the filling process and I took notes of all of their

© Adnan Rasheed82

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDcomments. After doing the pilot test some little editing was done. The last phase

of the pilot test was done by 30 customers to see whether every thing was ok

with the questionnaire or not. Fortunately I got the positive answer.

3.4.2.3 Some Approaches to Gain Access

Feasibility is an important determinant of what is chosen for research and how

to undertake the research (Saunders et al., 2000). Access is a problematic area. “The

reality of undertaking a research project may be to consider where you are likely able

to gain access and develop a topic to fit the nature of that access.” Several strategies

can be used to gain access. The strategies that he mentions are:

Allowing yourself sufficient time

Using existing contacts and developing new ones

Providing a clear account of purpose and the type of access required

Overcoming organizational or individual concerns about the granting of access

Identifying possible benefits to the organization or individual in granting

you access

Using a suitable language

Facilitating ease of reply when requesting the access

Developing your access on an incremental basis

Establishing your credibility with intended participation

In this research a lot of time was spent on gaining access.

© Adnan Rasheed83

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED3.5 The Credibility of the Research Finding

According to (Saunders et al., 2000) reducing the possibility of getting the

wrong answer means that attention has to be paid to two particular points in the

research design:

3.5.1 Reliability

3.5.2 Validity

3.5.1 Reliability

This is about the results of each investigation, which have to be reliable. If

nothing changes in a population between two investigations for the same purpose, it is

reliable. (Robson, 1993) asserts that there may be four threats to reliability:

3.5.1.1 Subject Error

Subject error has to do with the time the interview is carried out. It is of great

importance to select a neutral time and date.

3.5.1.2 Subject bias

Subject bias is a great problem in organizations where the management is of

an authoritarian character and the interviewee(s) might say what the manager

wants them to say, not what they feel.

3.5.1.3 Observer Error

Observer error can be lessened with a high degree of structure to the

interview schedule.

3.5.1.4 Observer bias

Observer bias is a question about how the interviewer interprets the data

received.

© Adnan Rasheed84


As we dispensed the questionnaires during the exhibitions we really did not

face the subject error. For reducing the subject bias, we tried to make the respondents

certain that their answers would be considered confidential. Since the questionnaire

was designed as a survey format, we did not face the observer error or the observer

bias. A minimum (Cronbach, 1951)’s Alpha value of 0.7 indicates reliability of

the questionnaire.

3.5.2 Validity

Validity is concerned with whether the findings are really about what they

appear to be about (Saunders et al., 2000). There are three tests for validity:

3.5.2.1Construct validity

Construct validity, establishing correct operational measures for the

concepts being studied.

3.5.2.2 Internal validity

Internal validity, (for explanatory and causal studies only, not for

descriptive or exploratory studies) establishing a causal relationship, whereby

certain conditions are shown to lead to other conditions.

3.5.2.3 External validity

External validity, establishing the domain to which a study’s findings can be

generalized.

If a question can be misunderstood, the information is said to be of low

validity. In order to avoid low validity, we piloted the questionnaire after translating it

into Farsi. In addition, meetings were arranged in a semi-interview environment and

questionnaires were given to the respondents face-to-face, so that if they faced any

difficulties while filling out the questionnaire, the ambiguity could be explained.

By doing so, the validity was increased.

© Adnan Rasheed85


CHAPTER 4: DATA ANALYSIS

4 Data Analysis & Interpretations

The empirical data collected have a lot of problems in analysis, its viability,

handing, missing scenarios and its outliners are aspects that relates with its

interpretations. My data is mainly constituted on the questionnaires and interview’s

answers. I selected the most valid data through inferential & descriptive statistics

methods.

Data Analysis

Gender

Frequency Percentage (%)

Male 143 71.5

Female 57 28.5

Total 200 100.0

Result shows that out of 200 respondents 143(71.5%) were male while 57(28.5%)

were females.

Profession


Government employee 30 15.0

Businessman 135 67.5

Private company employee 35 17.5

Total 200 100.0

Above table shows that out of 200 respondents 30(15.0%) were government

employees, 135(67.5%) were businessmen and 35(17.5%) were working in the private

companies.

© Adnan Rasheed86

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDSalary


Rs.10000-20000 38 19.0

Rs.21000-30000 28 14.0

Rs.31000-40000 59 29.5

Rs.41000-50000 20 10.0

Above Rs.50000 55 27.5

Total 200 100.0

It is depicted from table that 38(19.0%) respondents were earning between Rs.10000-

20000, 28(14.0%) between Rs.21000-30000, 59(29.5%) between Rs.31000-40000,

20(10.0) between 41000-50000 and 55(27.5%) were earning more than Rs.50000 per

month.

Bank Preference


Askari Bank 4 2.0

Allied Bank 2 1.0

United Bank 1 0.5

MCB Bank 4 2.0

National Bank 2 1.0

HBL 165 82.5

Bank Alfalah 6 3.0

ABN AMRO Bank 9 4.5

Standard Chartered Bank 5 2.5

HSBC 2 1.0

Total 200 100.0

© Adnan Rasheed87

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDOut of 200 respondents 4(2.0%) preferred Askari bank for deposits, 2(1.0%) preferred

Allied Bank, 1(0.5%) preferred United Bank, 4(2.0%) preferred MCB Bank, 2(1.0%)

preferred National Bank, 165(82.5%) preferred Habib Bank Limited, 6(3.0%)

preferred Bank Alfalah, 9(45%) preferred ABN AMRO Bank, 5(2.5%) preferred

Standard Chartered and 2(1.0%) preferred HSBC for deposits.

HBL & Satisfaction


Yes 135 67.5

No 65 32.5

Total 200 100.0

Result shows that out of 200 respondents 135(67.5%) were satisfied with the services

provided by Habib Bank Limited and 65(32.5%) did not satisfy.

Necessity of CRO


Yes 170 85.0

No 30 15.0

Total 200 100.0

Out of 200 respondents 170(85.0%) said that there should be customer relation officer

in the bank while 30(15.0%) said no.

© Adnan Rasheed88

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDBehavior of CROs (Customer Relation Officers) & Satisfaction


Yes 155 77.5

No 45 22.5

Total 200 100.0

Above table shows that out of 200 respondents 155(77.5%) were satisfied with the

behavior of Customer Relation Officers and 45(22.5%) were not satisfied.

Behavior of CROs & impact on the business of the bank


Yes 195 97.5

No 5 2.5

Total 200 100.0

Result shows that 195(97.5%) respondents said that behaviour of customer relation

officers impacts on the business of the bank while only 5(2.5%) replied in negative.

Good salary package enhances the performance of the CROs


Yes 170 85.0

No 30 15.0

Total 200 100.0

It is depicted from above table that out of 200 respondents 170(85.0%) said that good

salary package enhances the performance of the customer relation officers while

30(15.0%) said no.

© Adnan Rasheed89

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDCROs activities can enhance the customer satisfaction and loyalty


Yes 173 86.5

No 27 13.5

Total 200 100.0

Result shows that 173(86.5%) respondents were agreed that customer relation officers

activities can enhance the customer satisfaction and loyalty while 27(13.5%) were not

agreed with it.

Data Analysis & Interpretations

In this chapter the results of the statistical analysis will be presented.

The statistical analysis has been done by SPSS software and for the modeling part,

has been done by LISREL software. Then some suggestions will be given according

to the results.

4.1 General Information

In the questionnaire, we asked for some general information from the

customers. The result shows that the most active customers are the ones between 20

and 35 and are university graduated. Also the results show that most of them

have official occupations. This could be because of their education.

© Adnan Rasheed90

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED4.2 Analysis of Factors

4.2.1 Quality

As it was mentioned in the second chapter, quality is one of the most

important factors which have a main role on making a customer loyal or churner. In

the banking industry, the product is equal to the service. It means that a customer

perceives a service which in the customer’s view can be the same as a product of

another industry. In the previous models the authors considered quality as only one

factor. So in this research also at first the quality of the service in banking industry is

considered as just one category.

After the questionnaires were given to the respondents and I got the

filled ones back, by analyzing them in SPSS software I noticed that there could be

two categories for quality. Then by having the correlation between the questions it

seemed that it could be divided in to two separate groups. By focusing on the

common attributes of each group it became clear that we could break up the service

quality in the banking industry into two parts and name them: tangible quality(in

which the perceived quality can be seen) and intangible quality(in which the

perceived quality can’t be seen).

Here are the whole quality questions:

Tangible perceived quality

1. The received interest from the bank is effective to continue my work with this bank.

2. Advertisement in broadcasts or relatives is effective for me to use the services of this bank.

3. This bank’s facilities are attractive and modern. (Such as telephone banking, internet…)

4. This bank’s employees are tidy in appearance

5. Materials associated with the services are visually clean, tidy, intact, and enough. (Such as pen, chair…)

© Adnan Rasheed91

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED6. This bank informed me of its side services from the beginning.

7. The opening hours of the bank are convenient to me.

8. My needs and interests are considered in the bank’s services.

9. I use this bank because all of its services are available in the branch.

Intangible perceived quality

1. This bank insists on providing the services error-free.

2. Employees of this bank solve your problems when they promise to do so

3. This bank provides its services at the time it promises to do so

4. The bank employees are fast enough in providing the services.

5. Employees of this bank are always willing to help you o overcome the problems.

6. Employees of this bank are aware of when exactly services will be performed

7. The behavior of employees of this bank instills confidence in customers

8. Employees of this bank are constantly courteous to you

9. Employees of the bank pay special attention to you.

The Cronbach’s alpha, which was gained from these questions after

running the questionnaires, were 0.92 which was a very high one. This means that the

questions were reliable and also valid. But by having a deeper look at them and

considering the situation in Pakistani environment, and also having the factor

analysis, these questions could be separated into two groups. Questions 1 to 9 are

in tangible group and the others are in intangible group. Again after separation,

Cronbach’s alpha was tested. This time the result of the first category was 0.84 and

the result of the second was 0.90. They show that the division is done correctly.

© Adnan Rasheed92

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED4.2.2 Satisfaction

Satisfaction in banking industry means that the product or service which is

offered to the customer makes him/her satisfied and meets his/her expectations. This

means that the customers feel good to have the service from that bank another time. In

the competitive environment which the competitors are trying to have the other’s

customers, this antecedent can be vital. By this, the company can gain more profit.

The direct monetary profit and the indirect one which can be for example advertising

by word-of-mouth process or etc can be the means of profit gaining.

This factor in this research is measured by four questions that are brought in

table 7, and the test for reliability of these questions was done. The result of

Cronbach’s alpha is 0.78 which is a good one and shows that the questions were

chosen properly and they are reliable.

1. This bank doesn’t meet my needs.

2. The bank I work with is far from my expectations of an ideal bank.

3. According to my experiences, I’m satisfied with this bank.

4. In comparison to other banks, I consider this bank and its services successful.

The factor analysis for this part was done and the result shows that

these 4 questions are correlated for banking industry in Pakistan. It means that all of

these questions are trying to show one thing, which is satisfaction in the banking

industry. The table below shows the mean and the variance of the questions

which are answered by the customer.

It seems that most of the customers answer higher than average. The

respondents felt particularly strong about the 3rd question because it has the highest

mean in the survey and less highly rated question is the second one, with the average

mean of 2.98. In the table the average of the mean and variances are shown.

© Adnan Rasheed93

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED4.2.3 Switching Cost

As it was mentioned in chapter 2, switching cost means the price

(internal or external) which a customer should pay for moving from one company

or brand and choosing another. According to what has been said in the previous

researches, there are some barriers for the customer in defection time, so they

don’t feel that it is simple to move.

This factor in this research is measured by three questions, which are mentioned in the

table.

1. To change to another bank involves investing time in searching for

information about other banks

2. To change to another bank involves much effort in deciding which other bank

to use

3. To change to another bank involves a risk in choosing another bank which

might turn out not to satisfy me

These questions were analyzed by SPSS software and Cronbach's alpha 0.71

was gained, which is a completely reliable result. Then again factor analysis was done

for these questions and the result shows that the questions are trying to identify the

switching cost factor. As the following table is showing, the mean and std.

Deviation are showing that the questions were understandable for the customers, and

all of the respondents had approximately a common understanding.

By paying attention to these points, managers can understand that finding

information about the services of the new banks is the most time and energy

consuming activity for customers and they don’t feel easy to do this. So by

simplifying these activities they can gain more customers. Also the average of the

variance and the mean scale in table is showing that the questions have a common

concept in the customers’ point of view.

© Adnan Rasheed94

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED4.2.4 Choosing

This factor is trying to find the importance of customer choosing power. When

a customer decides to choose a company for getting some sort of services, for

example a bank to have the financial services, if the selection of that target

company is done by considering some factors, then being loyal to that company in

the future is more possible and probable.

At the beginning, four questions were designed to estimate the factor, but by

having the factor analysis for the results of the pilot test, the forth question was

eliminated. After elimination the analysis was done again and the gained Cronbach’s

alpha for this factor for the remained 3 questions is 0.71. Also factor analysis has

been done for the questions and the result shows that they are trying to represent one

factor.

The result of mean and Std. Deviation of the questions are as below.

1. Before choosing a bank I consider its advantages and disadvantages.

2. The decision which I make for choosing a bank for the first time is very

important

3. Before choosing a bank, I compare it with other banks.

As it is shown in the results of the table 14, the highest mean and the lowest

std. Deviation are for the first question, and this shows it is important for a

customer to consider the advantages of the service provider. And also the average of

the means and the variance of the questions of the choosing factor are as below. All

of the components of both tables prove that these questions are completely

understandable and bring a common idea to the respondents.

© Adnan Rasheed95

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED4.2.5 Habit

As it was mentioned and explained in chapter 2, habit is an important factor

which 40-60% of the customers purchase the services because of habitual behavior. In

banking industry, habit can be made because of different things which are asked

among the below questions.

1. I use this bank because my family also uses it.

2. I use this bank because I am admitted as a member of this bank by my office

or family

3. I use this bank because it is near my office or home.

4. I use this bank because it has many branches.

5. I use this bank because this is the first bank which I used its services.

6. I’m used to using of the services of this bank.

After doing the analysis on the result of the pilot test, the questions were reduced

from 8 to 6 main ones, and the other two questions were not representing the habit

factor. In this part the Cronbach’s alpha which was gained from the respondents’

answers is 0.73 and it shows the reliability of the questions. Also by having the

factor analysis on the answers, the results prove that the questions are attempting to

find this factor. The table shows the results of mean and Std. Deviation of the

questions which are related to the concept of habit. Also the average of the mean and

variance in the next table proves that the questions are designed correctly and have the

same meaning for the customers. Among the above questions, the third question

has the highest meaningful result and the first one has the lowest score. Also the

sixth question has the lowest std. deviation and the second has the highest. Also as a

result, the distance between the branch and the office or home is the most important

for the customer, so it can be an important point to be considered by the

managers.

© Adnan Rasheed96

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED4.2.6 Loyalty

All of the factors which are mentioned above are designed to identify the

customer’s loyalty in banking industry in order to create a model in the Pakistani

industry. To do so, in addition to the elements which were designed and discussed

above, some questions are trying to show the loyalty factor directly. Table is showing

them.

1. I would always recommend my bank to the others.

2. It would be difficult to change my beliefs about this bank.

3. I would always use this bank’s services.

4. I am a loyal customer to this bank.

5. I do not like to change to another bank because this bank sees my needs.

6. Even if close friends recommended another bank, my preference for this

bank would not change.

7. My intention to use the services of this bank would not be changed.

The results show that highest mean value for the loyalty questions is for the

first one; this can help the managers to understand that a loyal person would

automatically advertise the services, and it could be an indirect profit program for the

banks. Also the results show that the questions have the same meaning for the

respondents.

© Adnan Rasheed97

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED4.3 Factors Relationship And Suggestions

After defining the questions and the factors in the software, the

relationships between them have been extracted out and explained as below: The

analysis shows that satisfaction has a link with loyalty. This link is very strong, and it

shows that if the bank managers want to make the customers loyal, they should have

some special strategies to satisfy the customer. When a customer is satisfied with

the received services or the products of a bank, he/she doesn’t want to take the

risk of changing or moving to other competitors.

For this reason, managers should always consider the needs of the customers.

It can be the current needs or the ones which could be desired in the future. This

means that the managers should have a team which can estimate the future

requirements by having the fast movement in the world and technology, specially in

the developing countries like Pakistan, this movement could be a little faster, so the

research team of the banks should consider the environment and by having the focus

on the culture requirements estimate the future needs of the customer. Also the

managers should consider the competitive environment, and should think out of

the box to offer the best and to satisfy the customers.

The next link which is going to be explained is habit. Habit also has a

relationship with loyalty. The t-value of the analysis for this relationship is more than

2, and this shows that this relation ship exists. When a customer stays with a

bank to have some sort of services, it can have two reasons. First this customer

is really satisfied with the current services and the next reason could be the

habitual behavior. It means that some sort of reasons is related to the factor

Habit. Some of the most important habitual reasons are measured in this

research like the family influence, or the distance which can make a customer

find the habit of using a special bank services. In finding the loyal customer, this

category also can be considered. But it is not as serious as the satisfied customers.

Because if the cause of the habitual behavior, like the distance or other

reasons, change the customer would stop the habit.

© Adnan Rasheed98


The customer managers should find this category and to minimize the risk

of defecting of these customers, they can find a way to change this group of

customers to satisfied ones. By doing this, the number of loyal customers is not

changed at the moment but the number of satisfied ones and also the number of

future loyal customers is changed. The next link which is valid, and its t-value is

greater than 2 is the link between switching cost and loyalty. By analyzing the

answers of the three questions of this part, the relationship between the loyalty of the

customer and the switching cost can be explained as below:

When a customer is not sure about the new bank which might be chosen, it

makes him/her not move simply and suddenly. He or she thinks that should spend

more time in order to be able to make a good decision. This process makes the

customer stay more with the current bank, because he/she considers the risk of not

being satisfied with the new bank and tries to think more about switching. By doing

so, staying with the bank for a longer time is more possible than choosing a new one

carelessly.

The next factor that has a valid relationship with loyalty is choosing. In this

factor when a customer tries to find a new bank for having financial transactions, he

or she tries to compare the different banks with each other. And at last the best

one will be found (almost it is in his/her point of view), so because of the effort that

the customer puts for selecting the bank, he/she would be more satisfied with the

services of the new bank. In long time, this can make a long-term relationship, and

the customer who tries to compare the banks and select the proper one would be more

satisfied and loyal. By this explanation, the link between choosing and satisfaction

becomes clear. So the managers of the banks can give this permission to the

banking industry’s customers to have some sort of clear information about the

services and also about the bank itself.

Choosing can have a big role in making a new customer a loyal one. The next

factors which are going to be discussed are the quality factors. As I mentioned in

the previous parts, in the main model, the researchers analyze the quality as one

factor. But by having a deeper look at this element, I found that it could be separated

into two factors, and I decided to measure them separately and find each one’s

© Adnan Rasheed99

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDrelation with loyalty. The first category is about tangible qualities. This means

the feasible perceived quality in the branches or wherever the customer has the

services, fore example, the beauty or the neatness of the materials, has influence on

the loyalty of the customer. It is important for the customer to have the financial

services in a tidy way. Also the other element that affects this factor is the

advertisements and the interest for the customers’ investments. Intangible factor is

about the infeasible quality .It also can be named as behavioral quality, like the

respectfulness of the bank’s staffs. This factor has also an important relationship

with the loyalty of the customer. Both of these factors got the valid t-value in the

analysis, but in comparison the tangible quality has a greater coefficient with loyalty.

This shows that the viable perceived quality has a greater role in making a customer

loyal or defector.

The bank managers should focus their strategies on offering the financial

services with considering these two factors. The mentioned elements can make the

current customer a loyal one. Also these two factors have influence on the

satisfaction of the customer. It means that by providing a better service, banks can

make their customers more satisfied. At the next step, they can make them loyal. As

the analysis shows, these two factors have influence on loyalty and satisfaction.

Quality factors have also influence on switching cost. It means that when a

customer receives a good quality (tangible or intangible),his/her expectations of

the banking services increase, so at the switching time, he wants to get more in the

other new banks, and this makes the movement not simple.

Quality factors have relationship with choosing. When a bank is offering the

financial services in a qualified way, and the customer perceived quality (tangible

or intangible) is high, at choosing time, he/she wants to compare the new bank’s

services with perceived one. This can also influence the new customers’ choosing

decisions. This is because of the effectiveness of word of mouth; new customers

will come toward to have their financial services in the mentioned bank. Also

managers can advertise on the customer perceived quality by having some

researches on it and representing the results to the public. Also quality factors have

relationship with habit. This is because when a customer gets a good service quality,

this remains in his mind and when needed he is likely to go the same place again.

© Adnan Rasheed100


CHAPTER 5: CONCLUSION

5 Conclusion

Habib Bank Limited (HBL) is considered first commercial bank of Pakistan.

HBL has grown its branch network and become the largest private sector bank with

over 1450 branches across the country and a customer base exceeding five million

relationships.

Study was conducted to know the impact of customer relation officer activities

on the performance of bank and for this purpose Habib Bank Limited was selected.

HBL is very conscious about its customers and very much importance is given by

bank to its valuable clients. Bank also follows customer relation management because

role of Customer Relationship Management in banking sector is most important and it

enhances the business and performance of the bank.

Customer Relationship Management helps to acquire new customers and

maximizes the business of the bank. Through close relationship with customers, bank

obtains more customers. Habib Bank has customer relation officers who play an

important role in the bank and it impact on the performance of bank as well as its

business.

The aim of this chapter is to provide an overall conclusion regarding the

findings of this study. Based on the previous chapters this final chapter will provide

answers to our research questions. In order to do so, the research questions in

chapter one, will be answered in this final chapter. Lastly the conclusion will be

presented as well as a modified model for the customer loyalty in banking industry

of Pakistan. Some further studies will be mentioned at the last part.

© Adnan Rasheed101

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITED5.1 Answering the Research Questions And The Hypothesis

As it was mentioned in the previous part, the analysis of the data shows

the different links which have been explained previously. In the introduction

chapter some research questions were mentioned and I bring them again here:

Can a model for customer loyalty in banking industry of Pakistan be

specified?

What factors influence the customer loyalty in banking industry in Pakistan?

What are the relationships between the factors?

In order to answer to the research questions I, defined some more detailed

questions which are as below:

Does customer satisfaction influence the loyalty of the customer?

Does customer habit influence the loyalty of the customer?

Does switching cost influence the loyalty of the customer?

Does service quality influence the loyalty of the customer?

Does choosing influence the loyalty of the customer?

According to the result of the analysis of the model, all of the research

questions can be answered. A model for banking industry in Pakistan is made. And

the factors which influence the loyalty factor in this model are Satisfaction,

Choosing, Switching cost, Habit, Tangible quality and Intangible quality.Some of

the factors also influence the others. The relations were explained completely in

previous parts. So the relationships of the factors are shown in figure.

© Adnan Rasheed102


During the research, one hypothesis which was about the quality changed into

two hypotheses. The final hypotheses which were considered in the research are as

below:

H1: Choosing influences the loyalty

H2: Satisfaction influences the loyalty

H3: Switching cost influences the loyalty

H4: Habit influences the loyalty

H5: Perceived tangible service quality influences the loyalty

H6: Perceived intangible service quality influences the loyalty

According to the above explanation, the hypotheses of the research are all

approved (explained in previous parts). Also some more hypotheses were found in the

analysis and explained in the previous part. They are as below:

© Adnan Rasheed103


H7: Tangible quality influences satisfaction

H8: Intangible quality influences satisfaction

H9: Tangible quality influences choosing

H10: Intangible quality influences choosing

H11: Tangible quality influences switching cost

H12: Intangible quality influences switching cost

H13: Tangible quality influences habit

H14: Intangible quality influences habit

H15: Choosing influences satisfaction

Final Model

The numbers in the figure 10 show the coefficient of each factor and the ones

in the parentheses are t-values which are gained from the LISREL analysis of

the model and there are some relationships between the factors. Here a short

explanation according to what has been said in previous chapter and the numbers in

the figure10 is brought. As we can see, among the factors that have links with

loyalty, satisfaction coefficient is the highest of all. This means that satisfaction

is more important for the managers to be considered in order to make their

customers loyal. In comparison, (Beerli, Martin and Quintana, 2004) the

coefficient of the satisfaction in the perceived model (0.56) in Pakistan is less than

the one which is chosen as the resource model (0.83). This means that the satisfaction

factor in Pakistan has less influence on loyalty than Spain. This could be because of

the differences in the environment and also culture. It could be also because of the

influence of the added factors on the model. But the switching cost in Pakistan (0.24)

has more influence than what is mentioned in the original model (0.18). This could

be because of the reasons mentioned above.

© Adnan Rasheed104


The perceived quality in the original model has no direct influence on

loyalty, while in the perceived model in Pakistan, both tangible and intangible

perceived qualities have influence on loyalty. (Tangible =0.33 and intangible =0.27).

The influence of tangible and intangible quality on the satisfaction factor in the

perceived model in Pakistan is 0.81 for tangible and 0.73 for intangible quality. Both

of them are greater than 0.23 which was mentioned in the source model. (Beerli,

Martin, Quintana, 2004). This shows that the perceived quality in Pakistan has a

major role to make the customer satisfied and in the next step loyal.

Choosing has influence on loyalty in Pakistan (0.20). In the main model,

(Beerli et al2004) this factor wasn’t mention in the final model and the authors

rejected the hypothesis of the relationship of choosing with other factors in their

model, but in this model this relations are exist. Tangible and intangible

perceived qualities also have influence on choosing factor. When a customer

decides to change his/her bank, the perceived quality of the previous bank

influences his comparison and decision. Also choosing factor has influence on

satisfaction (0.43) .When the customer spends time to compare the different banks

and find the best one based on his /her requirements, he or she would be more

satisfied with the chosen bank.

These perceived quality factors also have influence on habit. It is obvious

that giving good service to the customers, this can make the customer a habitual one.

Also the perceived quality factors have relation with switching cost and this is

because of the increase in the expectations of the customer for having services. A

point which should be mentioned is that in most of the different links between both

groups of quality with satisfaction, switching cost, habit and loyalty, the influence of

tangible quality is higher. This can be a point that helps managers to focus

more on tangible quality, for increasing the number of loyal customers

According to (Lin and Wang, 2006), the habit in the perceived loyalty model

has less influence (0.17) than the model of loyalty in m-commerce industry in

Taiwan (0.35). This could be because of the difference in the industries. The main

model of Beerli et al. (2004) is also tested with the gathered data in order to have a

comparison with the new provided model. The GFI (goodness of fit) parameter of the

© Adnan Rasheed105

IMPACTS & EFFECTIVENESS OF CUSTOMER RELATIONSHIP (Case Study of HBL)HABIB BANK LIMITEDmain model is 0.80 and the GFI of the new model is 0.91. This shows that the added

factors to the previous model are done properly and in addition to the statistical

result which was mentioned previously in order to show the validity of the model,

this parameter also shows that the provided model is valid and it is improved in

comparison to the previous model. If the managers of the banks want to have more

loyal customers they can consider the points which the analysis of the loyalty model

shows.

5.3 Propose Conclusion

Previous chapters tried to find the factors and their links with customer loyalty

in banking industry in the Pakistani environment. As a conclusion this research

found Habit, Choosing, Switching cost, Tangible Quality, Intangible Quality and

Satisfaction ,as the factors which have influence on loyalty .Also these factors

have relationships with each other which were explained totally previously. And

also the factors which are added to the main model (Beerli, 2004) improve the fitness

of the model.

5.4 Contribution

This research has been done to find the customer loyalty factors and their

relations in order to present a model for customer loyalty in banking industry. And it

has been done in Pakistanian environment. This research tries to present the factors

which influence in this environment for banking industry. And different factors

and also different relations were found in this study. As it was mentioned

previously in this research, loyal customers have different benefits for the

industries. Having more profit is the simplest one to mention. Banking industry

is not excluded, so managers can consider these findings in the strategies which are

took for the bank. Also the managers can focus on some factors only.

© Adnan Rasheed106


According to the main strategy of the bank, they can choose some factors

of the presented model and by considering the relations between them they can

make their sub-strategies. Also it might differ from one bank to another and it could

be because of each bank’s goal. It is hoped that this study could help the banking

industry to make a better condition in order to have a win-win situation.

5.5 Limitations

This research has some limitations, which are time and money. Although

this sample size is proved by the cooper’s formula and it is a valid sample size, but if

the time allowed this research could be done in a bigger sample size which needs

time and money. But all of the attempts were used not to allow the limitations to have

influence on the results.

5.6 Further Research

These days the loyalty concept has great importance and its different aspects

can be studied in different situations. This research tries to investigate more factors

which have links with the customer loyalty in banking industry in comparison to the

previous researches. Also different relations were found during this study. It is

hoped that the findings could stimulate further research in other parts of the world;

especially in the other developing countries .If this happens, the model can be

presented in a wider area not only in Pakistan.

The other people who are interested in modeling could analyze, find and test

more factors according to their environment, or also the same factors in other

industries. The above points can be categorized as “the internal loyalty model

further researches”. Also a research which is about the factors that influence the

“loyalty model” can also be done in order to find the external points which could

differ from one environment to another, in case of existence.

© Adnan Rasheed107


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