Customers when Choosing a Bank Look for Key Factors - Research Paper Example

Key Factors for s when Choosing a Bank Supervisor May 22, Many factors influence consumers’ decisions. Existing literature suggest effects of such factors as attitude, service quality, specialized technology-based services, and developed confidence on customers’ choice of banks and this study sought to investigate major factors to the decision among bank customers in the United Kingdom. Based on consistency theory, a survey design was used to investigate factors to the customers’ choice. Questionnaire was used to collect data from 20 randomly selected research participants and descriptive statistics and regression analysis was used investigate the factors. Results identify significance customers’ rationale into bank selection, satisfaction with banks, awareness, and attitude as the main factors. These, together with intense competition and immobility, further suggest significance of product features in influencing customer’s choice of banks. Further research, with a larger sample size and a wider correlation scope is proposed. Contents Contents 3 1.0 Introduction 4 2.0 Literature review 4 3.0 Methodology 6 4.0 Results 7 5.0 Discussion 11 6.0 Conclusion 12 7.0 Reference list 12 Appendixes 14 Appendix 1: Questionnaire 14 Appendix 2: Data 16 Key Factors for Customers when Choosing a Bank 1.0 Introduction Organizations operate with the aim of maximizing returns. Marginal returns, for every additional client, and cumulative returns that an entity has are important for the profit motive. Understanding customers’ needs, such as factors that influence their choice of a bank is an example. Many factors affect demand for products and could inform customers’ choices of banks, based on product features that each bank offers. One of the factors to individual demand is price of a commodity (Steinemann 2011, p. 2-1), which could be interest rates for financial services and cost of running a bank account. Consumers’ taste and preferences, which could factor in customer relation services and product differentiation, also influence demand and differences within banks could influence customers’ choices for their service providers (Whitehead 2014, p. 58). In addition, price of related products influences individual demand for a commodity and since banks operate competitively, lower prices in other banks, with other factors kept constant, are likely to shift demand to the lowly-priced products (Hill 2014, p. 28). This study aims at investigating specific factors that influence consumers’ choice of a bank, with focus in the United Kingdom market through the following research question. What factors affect customers’ choice of a bank? The paper is organized into six parts. The first part is the introduction, which offers background information into customers’ choice of bank. The following sections are literature review, methods, results, discussion, and conclusion. 2.0 Literature review Features of offered products remain significant to an organization’s ability to influence consumers’ decisions and gain competitive advantage. Use of online services is likely to meet needs of digital consumers, and therefore influence the segment towards an entity’s products. Digital natives are forming a majority of the workforce and types of online services that banks offer are likely influence number of customers, through preference of applied technology. Strategic approach to asset management also helps banks to meet consumers’ needs. With increased level of customers’ sensitivity and rationale, effects of product positioning and management of assets for meeting customers’ needs are likely to be significant and with other factors kept constant, disparity in number of clients is likely to exist across banks. Similarly, client mobility is likely to be significant with movements towards banks whose product positioning and asset management meet customers’ demands (Rosignoli, Zardini, & Cantoni 2013, p. 12, 13). Ethical orientation is another factor to consumption among contemporary customers. Moral initiatives, such as corporate social responsibility, are likely to be linked with moral consumption and influence demand. This is particularly significant in influencing consumers’ attitude towards an entity, which then influences preference of the entity over its competitors. Developed positive attitude, from this perspective, influences consumers’ choice of an entity (Oh & Yoon 2014, p. 238). Advertisement is another factor to consumers’ choice of a bank and influences an entity’s ability to attract and retain customers. Awareness role of advertisement that points out product features to consumers influences the consumers’ decisions type of financial services provider. Greater significance of advertisement occurs in moments of financial risks, such as during financial crises, through offering indicators from which customers can perceive an entity’s stability (Ioannou, Boukas, & Skoufari 2014, p. 24). Perceived stability of a bank, especially during crises, is likely to inform the bank’s retention of customers and flow of customers from competitors. Established effects of disclosure of information by a bank support the awareness role of advertisements in influencing customers’ choice of a bank. According to a study by Alemu (2012, p. 457) availability of information to consumers, which advertisement achieves, is a significant factor to people’s decision to use a particular bank. Other factors, according to the researcher, are availability of online services such as internet services, telephone services, and messaging services. Other independent studies have supported significance of quality, into attitude towards a bank and its services and derived utility from the services, as significant factors to consumers’ decisions on financial service providers (Yu & Ting 2011, p. 935, 936; Al-Qasa, Isa, Othman, and Faaeq 2013, p. 8). Consistent literature suggest effects of such factors as attitude, service quality, specialized technology-based services, and developed confidence as some of the factors to consumers’ choice of banks. The literature however relates to different economies and a study on United Kingdom banks is proposed, through the following question. What factors affect customers’ choice of a bank? 3.0 Methodology The study sought to investigate factors that customers consider when choosing a bank, based on consistency theory. According to the theory, humans seek consistency in their preferences (Petri & Govern 2012, p. 269) and this suggests supportive results to existing literature review. Bank customers formed the study’s population. Twenty 20 customers, mainly expected from Barclays, Santander, NatWest, and Lloyds, formed the study’s sample. Consistency in factors to consumers’’ choice over banks, as identified in existing literature, suggest a high level of reliability and this, together with cost and time constraints, informed the small sample size. Simple random sampling was used to identify and recruit research participants and its ability to eliminate bias and generate a representative sample informed its use. Questionnaire, developed from literature review gap, was used for data collection, based on its advantages such as minimized researcher bias in data collection and sufficient time to research participants for responding to questions. Ethical approval was sought and informed consent sought from national officers of targeted banks. A random sample of individual was then obtained from residents of New York and the scope of the study explained to them. Informed consent was then sought from the participants, their contacts taken, and appointment booked for data collection. Questionnaires were then mailed to the participants with a request for response within one week. Data was then recorded in excel, necessary coding done, and analysis followed this using the software. 4.0 Results The sample was representative of the samples age groups and gender. A majority of the participants, eight, fell within the age group of between 35 and 44 years. The sampel was gender sensitive, having a significant percentage of each gender. Barclays, Lloyds, and Santander were the main service providers in the market, each controlling 25 percent, as shown in graph 3, and this suggest intense competition. Figure 1: Bank of choice The customers’ rationale for bank selection was also significant and banks’ reputation is the most important reason and recommendations by friends and relatives follows this. Banks’ reputation was the most significant reason for participants’ choice of their respective banks, explaining 45 percent of responses. Other reasons were also significant, with the least significant, other banks, explaining 10 percent of the rationales. The follofing graph shows the results. Figure 2: Reasons for selection In addition, a majority of the research participants (60 percent) had never changed their banks, and those that had changes moved to their current banks, a factor that suggests rigid mobility. Figure 3: Movement to another bank The banks also satisfy their clients, 90 percent having reported a level of satisfaction. Figure 4 shows this. Figure 4: Customer satisfaction Regression analysis, based on codding of banks identities into quantitative variables, suggest significance of bank identity as a factor to customer’s satisfaction (p= 0.016, F= 7.012), though the model only explains 24 percent of the data. The following tables shows the analysis result extracts Table 1: Summary statistics SUMMARY OUTPUT Regression Statistics Multiple R 0.529485 R Square 0.280355 Adjusted R Square 0.240374 Standard Error 0.823205 Observations 20 Table 2: ANOVA table ANOVA   df SS MS F Significance F Regression 1 4.752013 4.752013 7.012325 0.016355 Residual 18 12.19799 0.677666 Total 19 16.95       The following table summarizes descriptive statistics of level of satisfaction by bank identity. Table 3: Description of level of satisfaction Descriptive statistics NatWest Lloyds Barclays Santander Other Mean 3 3.6 4 4.8 4 Standard Error 0.57735 0.509902 0.316228 0.2 0 Median 3 4 4 5 4 Mode #N/A 4 4 5 4 Standard Deviation 1 1.140175 0.707107 0.447214 0 Count 3 5 5 5 2 Based on the results, Santander’s clients are the most satisfied, followed by clients of Barclays and Lloyds respectively. The banks however had the same level of popularity. Having used bank’s credit or debit card outside the UK, comfort in making payment using credit card, use of online banking, existence of a friend or family member who is a client to the same bank, attitude towards the bank, and opinion on the bank’s safety were however not significant factors. This is because the participants had similar opinions across the banks. 5.0 Discussion The analysis identifies significance of rationale for bank selection, derived utility from banks, awareness, and attitude as significant factors to customers’ decisions to be members of their respective banks. A level of immobility also exist among the customers and the stiff competition, from the fact that major three out of the five bank identities control the same percentage of clients, suggest that product features and customer relations into attitude and satisfaction, prohibits customer immobility across banks. Availability of online services, customers’ positive attitude towards banks, and confidence in safety of the banks also identify effects of attitude and satisfaction on customer’s choices to stick with their banks. Even though the study did not investigate advertisement, possible awareness role of friends and relatives shows effects of information on consumers’ choices. 6.0 Conclusion The study identifies significance of customers’ rationale, product features, attitude of customers, and awareness on selection of their banks. This is consistent with existing literature and the derived reliability means ability to generalize the results in the UK banking market. Use of a small sample size and lower scales of measurements were however limitations to the study and further research, that addresses these, for a more valid and reliable study, is recommended. 7.0 Reference list Alemu, A 2012, ‘Factors influencing consumers’ financial transactions in Islamic Banks compared with Ordinary Conventional Banks: Empirical evidence from selected Middle-East countries with a dual banking system,’ African & Asian Studies, Vol. 11, No. 4, pp. 444-465. Al-Qasa, K Isa, F Othman, S and Faaeq, M 2013, ‘Factors affecting intentions to use banking services in Yemen,’ Journal of Internet Banking & Commerce, Vol. 18, No. 3, pp. 1-14. Hill, B 2014, An introduction to economics: Concepts for students of agriculture and the rural sector, CABI, Oxford shire. Ioannou, M Boukas, N & Skoufari, E 2014, ‘Examining the role of advertising on the behavior of co-operative bank consumers,’ Journal of Co-operative Organization & Management, Vol. 2, No. 1, pp. 24-33. Oh, J & Yoon, S 2014, ‘Theory-based approach to factors affecting ethical consumption,’ International Journal of Consumer Studies, Vol. 38, No. 3, pp. 278-288. Petri, H & Govern, J 2012, Motivation: Theory, research, and application, Cengage Learning, London. Rosignoli, C Zardini, A & Cantoni, F 2013, ‘When customer behavior change, should banks’ approaches to online trading stay the same?’ Journal of Internet Banking & Commerce, Vol. 18, No. 2, pp. 1-16. Steinemann, A 2011, Microeconomics for public decisions, askmar publishing, New York. Whitehead, J 2014, Microeconomics: A global text, Routledge, Oxon. Yu,V & Ting, H 2011, ‘Identifying key factors affecting consumers’ choice of wealth management services: An APH approach,’ Services Industries Journal, Vol. 31, No. 6, pp. 929-939. Appendixes Appendix 1: Questionnaire RQ: What are the key factors for customers when choosing a bank? May I ask.. 1) Of which bank(s) are you a customer? (tick more than one if needed) A. Barclays B. Santander C. NatWest D. Lloyds E. Other_______ 2) What are the main reasons why you chose this bank? A. Reputation of the bank B. Suggestions from the friends and family C. The bank is near my home D. Other_________ 3) Have you ever changed your bank? A. Yes If so, from what bank and why ? ____________ B. No 4) Have you ever used your bank debit or credit card outside of UK? A. Yes B. No 5) Is payment by credit card is comfortable method of payment if you have one? A. Yes, more preferable than cash payments B. No, cash or other types of payments more preferable C. Either way is comfortable 6) On a scale of 1 to 5 to what extent are you satisfied with the service of the bank? A. 1-not satisfied at all B. 2- hardly satisfied C. 3- quite satisfied D. 4- satisfied E. 5- very satisfied 7) Do you use online banking system if it is provided? A. Yes B. No C. Not provided 8) Does anyone from your family or friends use the same bank? A. Yes B. No Use of online 9) What is your attitude toward banking? _____________________________________________________________________ _____________________________________________________________________ ___________________________________________________________________­­__ 10) What do you think, are banks a safe place to keep savings? A. Yes B. No General questions: 1) How old are you? 18-24 25-34 35-44 45 or more 2) Gender M F Appendix 2: Data Client bank reasons for chosing the bank Ever changed bank Changed to Ever used banks credit or debit card outside UK Payment by credit card comfortable Satisfaction with services of the bank Use of online banking family or friend using same bank Attitude towards the bank Opinions that banks are safe Age group Gender Other 3 YES current YES YES 4 YES YES POSITIVE YES 4 M NatWest 3 NO YES YES 2 YES YES POSITIVE NO 1 M Lloyds 2 NO YES YES 2 YES YES NEGATIVE NO 2 F NatWest 4 YES current YES YES 3 YES YES POSITIVE YES 3 F Barclays 1 YES current YES YES 3 YES NO POSITIVE YES 4 M Lloyds 2 NO YES YES 3 YES YES POSITIVE YES 1 F NatWest 2 YES current YES YES 4 YES YES POSITIVE YES 3 M Barclays 1 YES current YES YES 4 YES YES POSITIVE YES 3 M Santander 1 NO YES YES 4 YES YES POSITIVE YES 3 F Other 3 NO YES YES 4 YES YES POSITIVE YES 4 F Lloyds 3 NO No YES 4 YES YES POSITIVE YES 3 M Lloyds 1 NO NO YES 4 YES YES POSITIVE YES 1 F Barclays 1 NO YES YES 4 YES YES POSITIVE YES 3 M Barclays 1 NO YES YES 4 YES YES POSITIVE YES 2 F Santander 4 YES current YES YES 5 YES YES POSITIVE YES 3 F Santander 1 YES current YES YES 5 NO YES POSITIVE YES 3 M Barclays 2 YES current YES YES 5 YES YES POSITIVE YES 4 F Santander 1 NO YES YES 5 YES YES POSITIVE YES 2 M Santander 1 NO YES YES 5 YES YES POSITIVE YES 2 F Lloyds 2 NO YES YES 5 NO YES POSITIVE YES 2 F Read More