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Terrence Levesque: Associate Professor, School of Business and Economics, Wilfrid Laurier University, Ontario, Canada
Gordon H.G. McDougall: Professor, School of Business and Economics, Wilfrid Laurier University, Ontario, Canada
Introduction
In an era of mature and intense competitive pressures, many firms are focusing their efforts on maintaining a loyal customer base. This is particularly true in the financial services sector where deregulation has created an environment that allows consumers considerable choice in satisfying their financial needs. In response, many retail banks are directing their strategies towards increasing customer satisfaction and loyalty through improved service quality.
Retail banks are pursuing this strategy, in part, because of the difficulty in differentiating based on the service offering. Typically, customers perceive very little difference in the services offered by retail banks and any new offering is quickly matched by competitors (Coskun and Frohlich, 1992; Devlin et al., 1995). Also, retail banks, like many other service providers, have discovered that increasing customer retention rates can have a substantial impact on profits.
The task facing these managers is to focus on those activities that result in meeting or exceeding customer expectations. The question is: what are the major determinants of customer satisfaction? The main objective of this paper is to identify these determinants in the retail bank sector. To accomplish the objective, information was collected from 325 respondents who rated their main financial institution on aspects of service quality, service problem recovery, service features, product usage, satisfaction and future intentions. The results provide insights for managers concerned with improving customer satisfaction in retail banking.
Background
The rewards to firms that establish a loyal customer base have been well documented (Armstrong and Symonds, 1991; Heskett et al., 1994; Reichheld and Sasser, 1990). In general, increased loyalty leads to lower costs of servicing the firm's customers, reduced marketing expenditures, increased business from the existing customer base and greater profits. These rewards are particularly true in the retail banking sector. By increasing loyalty, a retail bank:
- reduces its servicing costs (i.e. accounts do not have to be opened or closed, and credit ratings do not have to be established;
- gains knowledge of the financial affairs and needs of its customers (thereby allowing effective and efficient targeting); and
- has an opportunity to cross-sell...