The Influence of Loyalty Programmes on Customer Loyalty in the Banking Sector - Essay Example

?The Influence of Loyalty Programs on Loyalty in Banking Sector Contents The Influence of Loyalty Programs on Loyalty in Banking Sector 1 Contents 2 Introduction 3 Literature Review 4 Methodology 6 Resources/ Data Access 7 Reference 8 Introduction Customer loyalty has received much importance both from the academics and practitioners in various industries. In the competitive world, customer loyalty is seen as a key factor to succeed and gain market share and thus develop a sustainable competitive advantage. Therefore banking sector is no such exception, as it has a high level of interaction with its customers thus making it necessary for the managers to understand the factors which influence the loyalty of the customers toward the banks (Afsar et.al, 2010, p.1). Due to globalised competition the strategic importance of satisfaction, loyalty and quality has been the core structure in winning over the consumer’s preferences and maintain competitive advantage. Thus the higher the quality of service, the more satisfied and loyal the customers would be. Since customer loyalty is still in a flux in the financial service sector, banks have an opportunity to strengthen the customer relationship by means of rewards programs which are relevant to its customers. About 20% of the banking customers are likely to change the primary institutions and also almost half of the percentage of customers prefers relationship with multiple institutions. Therefore a successful loyalty program would get customers invested in the relationship by rewarding the customers on the most optimal products and services (BAI, 2011). Aims and Objective The aim of the research is to find out the influence of loyalty programmes on customer loyalty in banking sector. The objectives of the project are to Analyses the factors that influences the loyalty of the customers in the banking sector To analyses the influence of quality on satisfaction Any changes in the customers loyalty patterns Recommendations on how banks can improve customer loyalty. Research questions The following are the research questions associated with the project: 1. What will be the impact of customers loyalty towards the banks brand image and positioning? 2. Does customer loyalty influences consumer behaviour? 3. How would customer loyalty affect the competitive advantage of the banking sector? 4. What is the influence of loyalty programs in the banking sector? 5. What factors influences the customer’s loyalty in the banking industry?. Literature Review Customer loyalty is about attracting right customers, getting the customers to buy often, allow the customers to buy in higher quantities and brings in more customers for the organization. it is build through means of keeping in touch with the customers, showing the customers that the organization cares for them and rewarding the customers for choosing a particular bank over its competitors. Thus treating the customers the way they want it to be treated (Customer Loyalty Institute, n.d). There are many different approaches towards customer loyalty. Theories of behavioural loyalty were considered as the function of total purchase; function of buying pattern, or of buying probability. These are the approaches that look at the brand loyalty rather than reasons. Loyalty should be evaluated both attitudinal and behavioural criteria (Akhter et.al, 2011, p. 1168). With the availability of ample banking facilities the customers gets influenced and this leads to customer loyalty towards its bank (Fry et.al, 2011). The managers are aware of the fact that quality superiority provides a competitive advantage for the banks and leads to customer loyalty, growth of market share and productivity of the banks. Culture has been identified as the key variable that influences the service quality perception that examines the banking sector (Sigala & Christou, 2006, p.381). Brand plays an important role in bank marketing in order to attract as well as retain its customers. Brand building is a costly activity but its benefits are also high in the market as it’s capable of providing financial benefits and equity for the banking sector. Thus with a strong brand equity the banks are able to attract new and potential customers and also retain the existing and old customers. Branding can affect customers in emotional or rational manner. Thus emotional customers who consider the bank to be key factor in the purchase decision, the role of branding would be high for such customers. Therefore the brand awareness influences the banks brand image (Sutarso et.al, n.d, p.2). Service quality has been recognised as the potential mode that can deliver strategic benefits for the banks. With the help of service quality, customer retention can be improved, enhancing operational efficiency and profitability (AJBUMA, 2010, p.152). Customer loyalty influences consumer behaviour mainly when it comes to e-banking. Thus customer’s e-loyalty is a new concept which is regarded as the branch of concepts relating to loyalty (Al-Agaga & Nor, 2011, p.2). Sustainability has been recognized as central to growth though the financial sector has lately responded to the trend of sustainability, but now it is emerging as important drivers across all the sectors in the economy. In the banking sector, new code of conduct and standard promotes accountability, transparency and the consideration of impacts on the environment and society as such (IFC, 2007, p.3). Therefore loyalty program consists of integrated system of the marketing activities which is aimed to increase the member’s loyalty by means of rewarding the customers according to their purchase frequency and the amount spent by the customers. The loyalty programs have become popular as these programs rewards the customers and probably bring them back for re purchase. When the customers are satisfied with the rewards they will be intended to spend more in that particular sector. Apart from the customers repurchase, these loyalty schemes allow the substantial amount of information about the consumer behavior. Thus the banks have the opportunity to understand the need and requirements of the individual customers, their wants and preference and the reaction of the customer towards the promotional campaigns of the banks (Filip, 2011, p.88). Banks that provides efficiency enjoys a competitive advantage but an important component to customer’s loyalty is achieved through a strong employee appreciation system within the organization as such. According to research, people tend to leave the job because of lack of appreciation rather than lack of compensation. Thus customer loyalty comes through appreciated employees (Cooperstein, 2008). Methodology The methodology used for this paper is through primary and secondary based research. A lot of information could be collected by means of questionnaires, interviews and through observations. Thus methodological research approach for this part would be quantitative. The questions would try to find out the factors that influences customer loyalty in UK. The method of analysis includes the use of tools such as correlation, regression and analysis of variance Resources/ Data Access The resources that would be used for the research paper would be information about the banks of UK to determine the customer loyalty towards the banks. Few banks, around five largest banks would be selected such as Royal Bank of Scotland, HSBC, Barclays, Standard Chartered and Citigroup. The secondary data would be collected from the annual reports of the banks which include net profit of the banks, revenue generated by the banks, total amount of deposits, total lending and the total number of customers per banks respectively. The primary data would be gathered by way of survey of customers in each of the five banks. The respondent would be randomly selected either by personally going to the customers or through social networking sites. Sampling techniques such as snowball could be used in order to attract the people to participate in the survey. This can be done by asking friends and acquaintances to participate which in turn would help in conducting the survey by inviting their friends and thus gathering more information about the banks and the customer loyalties and programs conducted by these top five banks. Reference Afsar, B.et.al. (2010). Determinants of customer loyalty in the banking sector: The case of Pakistan. [Pdf]. Available at: http://www.academicjournals.org/ajbm/pdf/pdf2010/June/Afsar%20et%20al.pdf. [Accessed on November 12, 2011]. AJBUMA. (2010). Technology and Service Quality In The Banking Industry. [Pdf]. Available at: http://journal.aibuma.org/paper12_Technology_Quality_Ongoro.pdf. [Accessed on November 12, 2011]. Akhter, W et.al. (2011). Factors affecting customers loyalty in Pakistan. [Pdf]. Available at: http://www.academicjournals.org/ajbm/pdf/pdf2011/18Feb/Akhter%20et%20al.pdf. [Accessed on November 12, 2011]. Al-Agaga, A.M. & Nor, K.M. (2011). Factors That Influence E-Loyalty Of Internet Banking Users. [Pdf]. Available at: http://academic-journal.org/conference/NETs2011/NETs2011_CD/Paper/FACTORS%20THAT%20INFLUENCE%20E-LOYALTY%20OF%20INTERNET%20BANKING%20USERS.pdf. [Accessed on November, 2011]. BAI. (2011). Earning Rewards from Rewards Programs. [Online]. Available at: http://www.bai.org/bankingstrategies/marketing-and-sales/marketing-and-promotion/earning-rewards-from-rewards-programs. [Accessed on November 12, 2011]. Copperstain, P. (2008). Customer Loyalty Comes Through Appreciated Employees: Bank On It! [Online]. Available at: http://businessmomentum.org/research/article_banking_on_customer_loyalty.html. [Accessed on November 12, 2011]. Customer Loyalty Institute. (No Date). What is customer Loyalty? [Online]. Available at: http://www.customerloyalty.org/. [Accessed on November 12, 2011]. Filip,A. (2011). Loyalty Programs. Role, Structure and Potential Benefits. [Pdf]. Available at: www.ijept.org/index.php/ijept/article/download/12/16. [Accessed on November 12, 2011]. Fry, J.N. (2011). Customer loyalty to Banks. [Online]. Available at: http://www.jstor.org/pss/2351919. [Accessed on November 12, 2011]. IFC. (2007). Banking on sustainability. [Pdf]. Available at: http://www.ifc.org/ifcext/enviro.nsf/AttachmentsByTitle/p_BankingonSustainability/$FILE/FINAL_IFC_BankingOnSustainability_web.pdf. [Accessed on November 12, 2011]. Sigala, M. & Christou, E. Global trends and challenges in services. Emerald Group Publishing. Sutarso, Y. Et.al. (No Date). Factors influencing to intention to buy extension brand: study on banking services. [Online]. Available at: bai-conference.org/BAI2011/Papers/2.Marketing/2248. [Accessed on November 12, 2011]. Read More