ABSTRACT
The study examined the cost implication on customer acquisition and customer retention in the banking sector. The study ascertains the extent to which cost affect the acquisition and retention of customers. 104 questionnaires were distributed and used. Spearman rank correlation, analysis of variance (ANOVA) and correlation coefficient was used to test the hypotheses raised in the study. The researcher revealed that all the variation of cost studied has a significant effect on customer acquisition and retention. The researcher concluded that in order to retain customers after acquisition, banks should keep on researching on new ways of satisfying their customers thereby making them loyal customers. The researcher recommends that banks should ensure that the service delivery time are optimized to the advantage of the customers.
TABLE
OF CONTENTS
Title page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Contents vi
List of Tables viii
Abstract ix
CHAPTER
ONE
BACKGROUND OF THE STUDY
1.1 Introduction 1
1.2 Statement
of the Problems 3
1.3 Objective
of the Study 4
1.4 Research
Questions 4
1.5 Research
Hypotheses 4
1.6 Significance of the Study 5
1.7 Scope
of the Study 5
CHAPTER TWO
REVIEW
OF RELATED LITERATURE
2.1 Conceptual Framework 6
2.1.1 Concept of Customer Acquisition 7
2.1.2 Customer Identification 8
2.1.3 Ways of Customer Identification 8
2.1.4 Customer Acquisition Strategies 9
2.1.5 Customer Acquisition Management 10
2.1.6 Customer Acquisition Cost 11
2.1.7 Ways Cost are Incurred in Customer
Acquisition 12
2.1.8 Importance of Customer Acquisition 13
2.1.9 Concept of Customer Retention 13
2.1.10 Customers Retention Strategies 14
2.1.11 Ways Cost are Incurred in Customer Retention 17
2.1.12 Importance of Customer Retention 18
2.2 Theoretical
Framework 18
2.3 Empirical
Framework 19
2.4 Summary
of Related Literature 20
CHAPTER THREE
RESEARCH
METHODOLOGY
3.1 Research Design 21
3.2 Area of Study 21
3.3 Population of the Study 21
3.4 Sample and Sampling Procedure 22
3.4.1 Sample Size Determination 22
3.5 Method of Data Collection 23
3.6 Method of Data Analysis 23
3.7 Model Specification 23
3.8 Test of Validity 24
3.9 Test of Reliability 24
CHAPTER FOUR
RESEARCH ANALYSIS
4.1 Data
Presentation and Analysis 25
4.2 Hypothesis
and Analysis 26
4.3 Findings
and Discussions 35
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary 37
5.2 Conclusion 37
5.3 Recommendation 38
REFERENCES
APPENDIX
LIST
OF TABLES
Table 4.1 Cost
Compare with Market Share 27
Table 4.2 Components
of rs 27
Table 4.3 Rating of customer relationship
management cost and bank profitability 29
Table 4.4: ANOVA Summary 30
Table 4.5 Cost
of Incentives and Banks’ Turnover 31
Table 4.6 Customer
Reward and Customer Loyalty 33
Table 4.7 Components
of rs 34
CHAPTER
ONE
BACKGROUND
OF THE STUDY
1.1 Introduction
A customer is considered to be the most important
person in the survival of any bank establishment. The customer represents all
those that undertake one form of transaction or the other for which both
parties obtain mutual benefits. According to Ray Obasi (2013) customer
acquisition is the activities a company undertake s to acquire customers while
customer retention is the activities a company undertakes to prevent customers
from defecting to alternative companies. Successful cost acquisition and
retention starts with the first contact and continues through the entire lifetime
of the relationship. The importance of the customer is expressed in the
followings; customer is the most important visitor in our premises. He is not
an interruption on our work, he is the purpose of it. We are not doing him a favor
by serving him. He is doing us a favor by giving us an opportunity to do so” –
Mahatma Ghandi.
Over the years, before the banking reforms which
started in 2014, the increasing number of banks in the country had been
tremendous. There were 89 commercial banks operating in Nigeria with high
degree of soundness. Structurally, Nigerian commercial banks were highly
concentrated and accounted for 50% of the industry’s asset and liabilities
(Ezeoha, 2007).
So many banks in a country like Nigeria have brought
about sever competition in this sector. The dire need for strategic customer
acquisition and retention strategies can therefore not be disregarded.
The banking industry is highly competitive, with banks
not only competing among each other; but also with non-banks and other financial
institution (Hull, 2002). Most banks’ product are easy to duplicate and when
banks provide nearly identical services, they can only distinguish themselves
on the basis of relationship marketing. Therefore, customer retention and
acquisition is potentially an effective tool that banks can use to gain a
strategic advantage and survive in today’s ever increasing competitive banking
environment.
In customer acquisition and retention, there are many
factors that influence it and one of them is cost. Cost is the unit price
attached to a product or service at a particular place, in a given time. Cost
plays a major role in the acquisition and retention of customers. Areas where
cost could be incurred are advertising, personal marketing, customer relationship,
incentives and so on (Obasi, 2013).
As the cost of acquiring new customer and account
increases, banks are paying more attention to the number of customer and
accounts they are losing. Therefore a firm which refuses to install proper
customer retention and acquisition practice experiences major crises in
managing its cost in its endeavor. The time health of any business is therefore
closely related to how well it acquires and retains customers.
Clearly, there are compelling arguments for bank
management to carefully consider the factors that might increase customer
retention and acquisition rates. Several studies have emphasized the
significance of customer retention and acquisition in the banking industry
(Dawkins and Reichheld, 1990; Marple and Zimmerman, 1999). However, there has
been little effort to investigate factors that might lead to customer retention
and acquisition. Most of the published research has focused on the impact of
individual constructs, without attempting to link them in a model to further
explore or explain retention and acquisition. If retention and acquisition
criteria are not well managed, customers might still have their banks, no
matter how hard bankers try to retain them.
This study examines the cost implication on customer retention
and acquisition and relevant constructs that influence customers’ decisions to
stay or leave their firms
1.2 Statement
of the Problem
According
to Bowen and Chen (2001), in the course of retaining customers, having
satisfied customers is not enough, there has to be extremely satisfied
customers. Satisfaction influences repurchase intention whereas dissatisfaction
has been seen as a primary reason for customer defection and discontinuation of
purchase (La Barbera and Mazursky, 2000). The consequences of satisfying
customer can be server; this is because customer satisfaction must lead to
customer loyalty and retention (Reichheld and Sasser, 1990).
Building customer loyalty is not a choice any longer
with businesses; it’s the only way of building sustainable competitive
advantage (Bansal and Gupta, 2001). Retaining and acquiring the wrong customer
will just lead to piling cost and no increase in the profitability of the firm.
Building loyalty in these key customers has become a core marketing objective
shared by key players in all industries catering to business customer.
Customer retention is an important element of
strategies in today’s increasing competitive economic environment. Employee
performance and professionalism, willingness to solve problem, friendliness,
communication skills, and selling skills, among others must be employed.
Furthermore, customer defection can also be reduced through adjustment in a
bank’s rates, policies and branch location (Leeds, 1992).
1.3 Objectives of the Study
The
general objective of the study is to examine the cost implication of customer
acquisition and retention in the banking sector. However, the specific
objectives includes;
i. Determine
the impact of the cost of wooing and sustaining customer attention on market
share of banks;
ii. Ascertain
whether the cost of customer relationship management has any effect on the
overall profitability of banks.
iii. Determine
how the cost of incentives affect turnover of banks.
iv. Ascertain
the degree to which the cost of customer reward affects customer loyalty of
banks.
1.4 Research
Questions
Key
research questions for this study include the following;
i.
How
does the cost of wooing and sustaining customer attention affect market share of
banks
ii.
How does the cost of
customer relationship management affect the overall profitability of banks
iii.
How does the cost of
incentives affect turnover of banks
iv.
How
does the cost of customer reward affect customer loyalty of banks
1.5 Research
Hypotheses
Hypotheses
to be tested in the course of this study are stated in the null as follows:
H1:
Cost of wooing and sustaining
customer attention has no significant effect on market share of banks.
H2: Customer relationship management cost has no significant effect
on the overall profitability of banks.
H3: Cost of incentives has no significant effect on turnover of
banks.
H4: Customer reward costs have no significant effect on customer loyalty of
banks.
1.6 Significance of the Study
Every
research study must aim at either solving a specific human problem or
contribute to existing knowledge. The significance of the study tends to
address the followings;
·
This study will explain
in details the challenges associated with customer acquisition and retention in
banks.
·
This research contributes
immensely to existing literature on customer acquisition and retention, thereby
forming a reference material for students and researchers.
·
The findings of this
study are envisaged to help in developing strategies that will improve customer
retention and acquisition.
1.7 Scope
of the Study
This
research is focused on reducing the cost of retaining and acquiring customers
in the banking sector.
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