ATTRACTING AND RETAINING CUSTOMERS IN

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ATTRACTING AND RETAINING CUSTOMERS IN SOUTH AFRICA'S BANKING SECTOR

BY AJIBOLA OLAKUNLE ANANI

Submitted in partial fulfilment of the requirements for the degree

Magister in Business Administration

at the Business School in the Faculty of Business and Economic Sciences

of the Nelson Mandela Metropolitan University

Supervisor: Professor Mad?le Tait October 2010

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DECLARATION I, Ajibola Olakunle Anani, hereby declare that:

The content of this dissertation represents my own original work; All sources used or referred to have been documented and referenced; and This dissertation has not been previously submitted for assessment in full or

partial fulfillment of the requirements for an equivalent or higher qualification at any other recognised education institution. The opinions expressed and conclusions arrived at, are those of the researcher and not necessarily those of the Nelson Mandela Metropolitan University.

_________________________ Ajibola Oakunle Anani October 2010

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ACKNOWLEDGEMENTS

I extend my grateful thanks to all of those individuals who contributed to the successful completion of this study. This study would not have been completed on schedule without their guidance, encouragement and motivation. I would like to acknowledge those who assisted in making this study a reality.

First and foremost, I would like to praise and thank God Almighty for giving me good health, strength, wisdom, knowledge, understanding and courage to pursue this goal and carry on. Without his grace, this would not have been possible.

Heartfelt thanks to my family. My parents, Pastor and Mrs. M.O Anani, brothers and sisters Mobolaji, Bukola, Abiola, Afolabi and Ifeoluwa Anani for their continued love and support. Your encouragement, financial and emotional support has been motivational under trying circumstances. Special thanks to my elder brother, Mobolaji Anani for recommending the NMMU Business School and continuously advising, encouraging and motivating me during the course of my MBA study.

A special vote of thanks to my supervisor, Professor Mad?le Tait for her professional and constructive guidance through the duration of my project. I also thank her for sharing her knowledge and expertise. Without her guidance my research efforts would probably not have succeeded.

Much appreciation is extended to the librarians at the Business School, Second Avenue and South Campus for their assistance in using the library materials for this study. A big thanks to Desiree Ntshinga, the Senior Librarian at the Second Avenue campus for patiently helping me source for materials that could help me in my project.

Finally, special thanks goes to my friends and well wishers, Akeelah, Joe, Kay, Nande, Nono, Selena, Tasha, Tarryn and Xola for making Port Elizabeth a fun place to be.

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ABSTRACT

The business environment and the economy of the society today are continuously witnessing the impact of globalisation. Telecommunication advancement and transportation has greatly made the impact of globalisation to be felt. Globalisation though argued to have its merits and its demerits have resulted in fierce competition amongst businesses. The banking industry is not isolated from these competitions.

Any business wishing to survive and stay profitable in the recent world must be able to compete in the global economy. Hence, for any bank to sustain itself and remain profitable it must be able to withstand the competition in the environment it operates. To be able to compete in the banking industry means delivering better services to customers than competitors.

This study presents how the South African banks can satisfy their customers and remain profitable in the face of competition. The South African banking industry consists of local and foreign banks and these banks compete for customers in the environment in which they are located. Increase in different branches by different banks has made the competition even fierce.

In other to suggest recommendations for the South African banks to satisfy their customers and become profitable, the researcher identified some problem areas that need to be improved upon. These include customer loyalty, relationship banking and electronic banking. These variables were researched to understand how they affect the banks and the customers and where tested using both a qualitative and a quantitative analysis to ascertain if the customers were satisfied with the banks approach of managing these variables.

The results indicated that the customers were satisfied to a lesser extent. Any bank wishing to satisfy its customers and remain profitable in other to compete in the industry needs to satisfy the customer to a large extent. Therefore, recommendations where suggested based on the empirical results to help improve the banking industrys ways of attracting and retaining customers. The former will lead to customer satisfaction which again will lead to increased profitability.

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TABLE OF CONTENTS

DECLARATION ACKNOWLEDGEMENTS ABSTRACT TABLE OF CONTENTS LIST OF FIGURES LIST OF TABLES LIST OF ANNEXURES

CHAPTER ONE: OVERVIEW OF THE STUDY 1.1 INTRODUCTION 1.2 PROBLEM STATEMENT 1.3 RESEARCH OBJECTIVES 1.3.1 Primary objective 1.3.2 Secondary objectives 1.3.3 Research design objectives 1.4 RESEARCH METHODOLOGY 1.4.1 The sample 1.4.2 The measuring instruments 1.5 OUTLINE OF STUDY 1.6 CONCLUDING REMARKS

CHAPTER TWO: AN OVERVIEW OF RELATED LITERATURE 2.1 INTRODUCTION 2.2 WHO IS THE CUSTOMER 2.2.1 Reasons why people shop 2.2.2 What financial services customers really want 2.3 CUSTOMER LOYALTY 2.3.1 Approaches to measuring loyalty 2.3.2 Types of loyalty 2.3.3 How can businesses create and maintain loyalty? 2.4 RELATIONSHIP BANKING

PAGE

ii iii iv v viii ix x

1 2 4 5 5 6 8 8 9 10 10

12 12 15 15 16 18 20 22 23

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TABLE OF CONTENTS CONTINUED

PAGE

2.4.1 Benefits of relationship banking

25

2.5 ELECTRONIC BANKING

26

2.5.1 Barriers to e-banking

27

2.5.2 Benefits of e-banking

29

2.6 CUSTOMER SATISFACTION

31

2.6.1 Measuring customer satisfaction

32

2.7 BENEFITS OF CUSTOMER SATISFACTION SURVEYS

34

2.8 PROBLEMS IN MEASURING CUSTOMER SATISFACTION

35

2.9 CUSTOMER ATTRACTION

36

2.10 HOW TO GENERATE NEW CUSTOMERS

37

2.11 CUSTOMER RETENTION

39

2.12 MEASURES OF CUSTOMER RETENTION

39

2.13 STRATEGIES FOR CUSTOMER RETENTION

40

2.14 RELATIONSHIPS BETWEEN CUSTOMER SATISFACTION,

RETENTION, LOYALTY, RELATIONSHIP BANKING, E-BANKING

AND PROFITABILITY

42

2.15 CONCLUDING REMARKS

43

CHAPTER THREE: THE FINANCIAL SECTOR OF SOUTH AFRICA

3.1 INTRODUCTION

44

3.2 SOUTH AFRICAS FINANCIAL SECTOR

44

3.3 SOUTH AFRICAN BANKING SYSTEM

45

3.3.1 The South African Reserve Bank

46

3.3.2 South African retail banking industry

47

3.3.3 The JSE limited

53

3.4 CONCLUDING REMARKS

54

CHAPTER FOUR: RESEARCH METHODOLOGY

4.1 INTRODUCTION

55

4.2 RESEARCH DESIGN

55

4.3 RESEARCH METHODOLOGY

57

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TABLE OF CONTENTS CONTINUED

PAGE

4.3.1 Qualitative Research

57

4.3.2 Quantitative Research

58

4.3.3 Triangulation

59

4.4 SAMPLE POPULATION

59

4.5 DATA COLLECTION

60

4.6 THE MEASURING INSTRUMENT

60

4.6.1 Questionnaires

61

4.7 CONCLUDING REMARKS

62

CHAPTER FIVE: ANALYSIS, INTERPRETATION AND RESULTS OF THE

EMPIRICAL INVESTIGATION

5.1 INTRODUCTION

63

5.2 RESEARCH RESPONSE

63

5.3 ANALYSIS OF RESULTS

64

5.3.1 Analysis of biographical data

64

5.3.2 Analysis of respondents bank

66

5.3.3 Analysis of perceptions on variables

68

5.3.4 Summary of results of perceptions on variables

76

5.3.5 Qualitative analysis

78

5.4 CONCLUDING REMARKS

79

CHAPTER SIX: RECOMMENDATIONS AND CONCLUSIONS

6.1 INTRODUCTION

80

6.2 SUMMARY

80

6.3 RECOMMENDATIONS

81

6.4 OPPORTUNITIES FOR FURTHER RESEARCH

83

6.5 CONCLUSIONS

83

LIST OF SOURCES

84

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LIST OF FIGURES

PAGE

Figure 1: Conceptual model to improve customer retention and attraction

6

Figure 2.1: A Customer-centric organisation

14

Figure 2.2: Two-dimensional model of customer loyalty

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Figure 2.3: Online banking customers in the USA

28

Figure 2.4: Asimple customer satisfaction model

33

Figure 2.5: Sources of business-to-business leads

38

Figure 2.6: The satisfaction-profit chain

42

Figure 3.1: Market share of South African Banks

49

Figure 4.1: The conceptual model for research design objectives

56

Figure 5.1: Graphical illustration of age of the respondents (%)

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Figure 5.2: Graphical illustration of respondents gender (%)

66

Figure 5.3: Graphical illustration of respondents banks (%)

67

Figure 5.4: Graphical illustration of overall mean scores of variables

77

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