A study of customer perception of CRM initiatives in the Indian Banking Sector Vanisha Oogarah-Hanuman Lecturer Faculty of Law and Management University of Mauritius Sharmila Pudaruth Lecturer Faculty of Law and Management University of Mauritius Vinod Kumar Research Scholar Department of Management Studies School of Management Pondicherry University Victor Anandkumar Reader Department of Management Studies School of Management Pondicherry University ABSTRACT Purpose: To investigate the front-end effectiveness of CRM strategies in the banking sector in India by studying the customer perception of CRM initiatives.
This is an empirical research which is descriptive in nature and relied mainly on primary data collected through a structured questionnaire to study the perception of Indian customers. Findings: Banks operating in India have failed to impress their customers on their CRM efforts. Various CRM initiates and dimensions measured in this study report unfavorable response. This under-performance has occurred in spite of technological developments and new processes in place Practical implications: The findings will have useful implications for Banks operating in India in order to think in line with the customers’ response.
The study emphasizes the importance of retaining profitable customers for a lifetime and the growing importance of CRM in order to better satisfy customers in the Indian Banking Industry. Originality/value: Crucial aspects pertaining to CRM in the Indian banking sector had been under-researched and the aim of the present study is to have a broadened investigation of the CRM initiatives adopted by Indian banks. The study provides a discussion on the concept of CRM in the Indian banking sector and proposes recommendations to assist the banking sector on how to nurture profitable, long-term relationships with the customers
Volume:01, Number:04, August-2011 www. theinternationaljournal. org Page 1 1. Introduction In today’s banking environment, it is becoming difficult to build and maintain strong and lasting relationships with customers. In fact, the challenges of building strong customer relationships have become even greater for banks with the emergence of e-business, diffusion of innovations and agile new competitors in the banking sector. The introduction of Customer Relationship Management has provided banks with a driving philosophy, a reoriented information system and a communication tool that helps to create invaluable and knowledge based relationships.
Therefore, banks are developing a continuing long-term business relationship with customers and they are shifting their focus from market share to mind share of customers. The literature review has focused on the importance of CRM in the banking sector and the importance of maintaining profitable relationships with banking customers, which in turn leads to profitability through customer loyalty. Close relationship with customers will require a strong coordination between IT and marketing departments to provide a long-term retention of selected customers.
Accordingly, this paper will aim to investigate important attributes which customers value as far as customer relationships in the Indian banking sector is concerned. No doubt, considerable literature on CRM is available worldwide but there is limited research throwing light over the importance of CRM in the Indian banking sector. Therefore, the paper reviews pertinent literature on CRM in the banking sector. Then, the methodology employed to collect and analyse data is outlined.
Then the findings are discussed, implications are described and the paper further makes strategic recommendations towards enhancing customer relationships in the Indian banking sector. Directions for future research are also proposed in the arena of customer relationship management and banking sector. 2. The Indian Banking Sector and CRM The economic reforms initiated by the Government of India roughly about a decade ago have changed the landscape of several sectors of the Indian economy . The Indian banking sector is no exception.
The economic reforms have also generated new and powerful customers (huge Indian middle class) and new mix of players (public sector units, private banks, and foreign banks). The emerging competition has generated new expectations from the existing and the new customers. The new rules of competition require recognition of the importance of consumers and the necessity to address the needs through innovative products supported by new technology. Perceptions and expectations of the customers have undergone a sea change, with the innovative and modern banking services offered to the customers.
This necessitates banks to include a customer-oriented approach whereby they build, maintain and manage longstanding relationships with their profitable customers in order to gain sustainable competitive edge. 3. Conceptual background Over the past two decades, the literature has argued that businesses across all sectors will have to change their approach to marketing, which should now be carried out through relationships, networks, and interactions [2, 3, 4, 5, 6, 7].
Such a marketing approach is very Volume:01, Number:04, August-2011 www. theinternationaljournal. rg Page 2 different from the more traditional one based on transactions affecting the Four Ps (product, price, place and promotion). 3. 1. CRM in the Banking sector Customer relationship management (CRM) has been as important to the banking industry at the start of the 21st century as it has been to any other industry. Many banks have used CRM tools to acquire more customers and to improve relationships with them. A key aspect in banks embracing technological platforms and delivery systems is the impact this will have on bank-customer relationships.
Therefore, in order to achieve banking excellence, meeting customer needs and offering innovative products is not sufficient in itself. The balance between relatively high costs of relationships with customers and the need to maintain profit growth needs to be finely tuned, if marketing is not to revert back to a transactional paradigm . Likewise, increased customer expectations have created a competitive climate whereby the quality of the relationship between the customer and the institution has taken a greater significance [9, 10].
The development of effective customer relationships is widely advocated as a key element of marketing strategies in the service sector (Ennew, 1996). Therefore a binding and long-term customer relationship seems to be necessary for many banks to react to the changed conditions and to guarantee the continuity. For many customers, a strong banking relationship is as vital as any other business relationship they maintain. This gives CRM-driven banks an advantage in that customers want the benefits of a solid relationship.
Common benefits for customers of banks using CRM include wider access with branch locations, Internet and ATMs; access to service and support; discount credit rates and enhanced savings; and other customization opportunities. Attracting new customers should be viewed only as an intermediate step in the marketing process. Developing close relationships with these customers and turning them into loyal ones are equal aspects of marketing. Thus relationship marketing ought to be perceived as attracting, maintaining, and in multi service organizations, enhancing customer relationships [12, 13, 14, 15].
Another important facet of CRM is customer selectivity. As several research studies have shown not all customers are equally profitable for an individual company . 3. 2. Role of Service Providers in the Banking Sector Although CRM has become widely recognized as an important business approach, there is no universally accepted definition of CRM. Swift defined CRM as an ‘enterprise approach to understanding and influencing customer behaviour through meaningful communications in order to improve customer acquisition, customer retention, customer loyalty, and customer profitability’ .
Kincaid viewed CRM as ‘the strategic use of information, processes, technology, and people to manage the customer’s relationship with your company (Marketing, Sales, Services, and Support) across the whole customer life cycle’ . Parvatiyar and Sheth defined CRM as ‘a comprehensive strategy and process of acquiring, retaining, and partnering with selective customers to create superior value for the company and the customer . 3. 3.
Customer Loyalty, Customer Retention and Customer Relationships Customer satisfaction and loyalty are some key elements of business success and profitability. The more satisfied the customer, the more loyal the customer and the more Volume:01, Number:04, August-2011 www. theinternationaljournal. org Page 3 durable the relationship. And the longer this lasts, the more profit the company stands to make and the higher the market share. Getting existing customers to provide referrals should be one of the effective ways to add new business .
A referral from a customer can often open the gates and allow a salesperson access to previously unreachable prospects. Huntley found that when the quality of relationship is high, customers are more willing to recommend the seller’s offerings to colleagues and they purchase more from the seller . Maintaining high-quality relationships with customers appears to increase their willingness to provide referrals . Customer satisfaction and loyalty are highly correlated , but they form two distinct constructs .
Customer satisfaction with a bank relationship is a good basis for loyalty [25, 26], although it does not guarantee it, because even satisfied customers switch banks . One important reason for switching is pricing [28, 29]. Hence, banks have launched customer loyalty programmes that provide economic incentives. Although the effectiveness of loyalty programmes has been questioned [30, 31, 32], research has shown that they have a significant, positive impact on customer retention and share of customer purchases [33, 34].
In a similar vein, Reinartz and Kumar suggest that customers can be grouped according to share-of-wallet and profitable lifetime duration, and that each customer group should be targeted with a specific strategy . By adopting such a customer focused strategy, organisations can maximise the lifetime value of each customer by anticipating needs and offering timely solutions . Likewise, according to Hartfeil, ‘Products are not profitable; customers are, and we analysed our customer base, segment by segment, we found that each required a different strategy to maximize its profitability to the bank .
For instance, every customer (both business and personal) is assigned to a banker at National Australia Bank Ltd whereby bankers are required to actively manage their portfolios according to volume of business, interest margin spread, fee income, profitability, customer retention, and the acquisition of new customers . While ample literature is available on generic CRM today, hardly any information is forthcoming on the gains from CRM initiatives in the Indian banking sector. There is scarce literature on how the customers respond to the CRM measures adopted by the banks.
This research has attempted to study the customer perceptions pertaining to the CRM initiatives adopted by the banks in India. Thus it helps to investigate the front-end effectives of CRM strategies in the banking sector. 4. Research Methodology This is a descriptive study using primary data collected through an experience survey. The data collection instrument used was a 3-part structured questionnaire using a 5-point Likert Scale. Part-1 was pertaining to the relationship building aspect of CRM and it had 19 questions which were framed using the relevant variables identified from literature review.
Part-2 focused specifically on the interaction with the customer service representatives. Part-3 was concerned with customer perceptions on complaint handling and his/her behavioural intentions. Necessary demographic details were also collected to serve as categorizing variables. Prior to data collection, a pilot test was conducted to ensure comprehensiveness, clarity and reliability of the questionnaire. The pretesting of the questionnaire was done among 10 customers randomly, resulting in some minor modifications of the wordings of some survey Volume:01, Number:04, August-2011 www. theinternationaljournal. rg Page 4 items.
The method used to administer the questionnaire was through a personal interview so as to obtain more accurate, reliable and valid information and to make the respondents at ease by maintaining a social rapport with them. The target population to be sampled was the individual customers of the Indian banking sector. Owing to the need for a relatively large sample size while at the same time keeping the research costs down, the sample size of this study amounted to 150 customers and the quota sampling technique was adopted based on the net profit and market share figure as shown in Table-1 below.