7 Final

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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Rasheed
HABIB BANK LIMITED
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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HABIB BANK LIMITED
1.2 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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1.2.4 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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HABIB BANK LIMITED
service 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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HABIB BANK LIMITED
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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Rasheed
HABIB BANK LIMITED
1.4 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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Rasheed
HABIB BANK LIMITED
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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Rasheed
HABIB BANK LIMITED
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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HABIB BANK LIMITED
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.
10 © Adnan
Rasheed
HABIB BANK LIMITED
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.
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Rasheed
HABIB BANK LIMITED
Hypothesis
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.
12 © Adnan
Rasheed
HABIB BANK LIMITED
CHAPTER 2: LITERATURE REVIEW
2 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
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HABIB BANK LIMITED
disloyalty and churn. Curing this ailment requires a customer-centric approach,
including 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.
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Rasheed
HABIB BANK LIMITED
Now some brief introduction of some CRM and related definitions
2.1.1 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.
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HABIB BANK LIMITED
2.2.1 In the beginning…
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.
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Branching of information, sub-folders, and custom tailored features enabled
companies to break down information into smaller subsets so that they could evaluate
not 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.
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2. Advances in information technology, networking and manufacturing
technology have helped companies to quickly match competition. As a result
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.
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2.3 CRM PROGRAMS
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.
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2.3.1 Customer Relationship Management
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
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different sources of web customer data. They have also hierarchically segmented data
sources into clusters, automatically labeled the features of the clusters, discovered the
characteristics 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
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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
through 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.
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2.3.3.1 CRM Development
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
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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
with 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.
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The CRM group analyzes results obtained and designs action plans, such as
campaigns, promotions, special marketing initiatives, etc. Plans developed are then
implemented 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.
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Data Mining analyses are not carried out directly on the Data Warehouse, but
on 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.
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2.3.4 One-to-One Marketing
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.
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2.3.7 Missing Process of CRM
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.
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2.4 ARCHITECTURE OF CRM
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.
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The operational part of CRM typically involves three general areas of business:
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.
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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
efficiently, 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.
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3. Analysis of Customer data may relate to one or more of the following

analyses:
 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
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transactional in nature.
Collaborative CRM provides the following benefits:
 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
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one location is known as a contact centre.
A call centre is often operated through an extensive open workspace, with

work 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
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company in tracking and correcting the product problems reported by
customers by feeding this information into the R&D operations via ERP.
2.5.4 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.
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2.6.2 Customer’s Bond
According to Berry and Parasuraman’s (1991) conception of customers-seller

bond has three levels:
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 3Structural 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
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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
to 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:
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(1) Customer-bank’s technologies interactions, in the case of using self-

service machines and online services;
(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
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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.
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
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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.
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
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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
underlying 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.
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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
switching, 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
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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,
Loveman, 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
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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).
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
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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
value (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
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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.
Some 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
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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)
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
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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
behavior 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

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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
profitable 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
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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
affinity 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
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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
about 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
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close in meaning to service quality is brought; in this thesis they are considered the
same.
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.
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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
customer. 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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The 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
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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,
uncertainty 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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2.6.4.10 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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2.7 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
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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
valuable 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
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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.
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
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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
whatever 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
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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.
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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2.7.3 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
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for a paradigm shift, becoming an enabler for communication between the
organization and its customers, and within the organization itself.
2.8 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.
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 High value customer requiring low value service.
Keeping 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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2.9 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)
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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
forecasting, 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
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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
integrator 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
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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.
2.9.6 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
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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.
2.9.7.3 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
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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.
2.9.8 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.
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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.
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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:
3.2.1 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
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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”.
3.2.4 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.
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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.
3.3 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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3.4 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
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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.
3.4.1.2 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)
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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).
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
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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)
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.
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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.
3.4.2 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.
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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.
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
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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
comments. 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.

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3.5 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.
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3.5.1.4 Observer bias
Observer bias is a question about how the interviewer interprets the data
received.
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
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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.
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
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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.
Salary
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
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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
Out 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
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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.
Behavior 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
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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.
CROs 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
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and 35 and are university graduated. Also the results show that most of them
have official occupations. This could be because of their education.
4.2 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
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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…)
6. 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
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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.
4.2.2 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
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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.
4.2.3 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.
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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.
4.2.4 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
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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.
4.2.5 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
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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.
4.2.6 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.
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4.3 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
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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.
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
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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
relation 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
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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.
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
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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.
5.1 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,
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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.
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

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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:
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
104 © Adnan
Rasheed
HABIB BANK LIMITED
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.
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
105 © Adnan
Rasheed
HABIB BANK LIMITED
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
main 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
106 © Adnan
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HABIB BANK LIMITED
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.
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;
107 © Adnan
Rasheed
HABIB BANK LIMITED
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.
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IMPACTS & EFFECTIVENESS OF CUSTOMER

RELATIONSHIP (Case Study of HBL)

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

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

1.2.1 Who Is a Customer?

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

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

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

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

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

1.2.2 Customer Churn

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

1.2.5 Customer Life Time Value

1.3 CUSTOMER RELATIONSHIP SERVICE

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

Today’s businesses are facing fierce and aggressive competition while

Four Levels of Service

Another element that gets in the way of impressive service

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

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

CRM evolved from business concepts and processes such as relationship

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

1.5 CRM OBJECTIVES IN BANKING SECTOR

1.6 BANKING AND LOYALTY

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

Competition will undoubtedly continue to be a more significant factor.

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

1.7 PROBLEM STATEMENT

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

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

HBL Customer relationship management circumferences on these objectives those are

 To elucidate the customer relation activities in the HBL.

 To gauge the impact CRM on the customer relations in

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

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

H0 = Customer relationship officer activities do not have any impact

H1 = Customer relationship officer activities have impact on organizational

1.9 SIGNIFICANCE OF STUDY

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

2.1 CUSTOMER & CUSTOMER RELATIONSHIP

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

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

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

2.1.2 Customer Relations

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

2.2 HISTORY OF CRM

Customer Relationship Management (CRM) is one of those magnificent

2.2.2 Advances in the 1990’s

In the 1990’s companies began to improve on Customer

2.2.3 True CRM comes of age

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

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

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

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

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

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

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

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

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

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

It was also emphasized that customer relationship management based on social

2.3.2 CRM Objectives in Banking Sector