Executive summary of “Correlates of customer loyalty to financial institutions: a case study”

Citation

(2014), "Executive summary of “Correlates of customer loyalty to financial institutions: a case study”", Journal of Consumer Marketing, Vol. 31 No. 3. https://doi.org/10.1108/JCM-04-2014-0933

Executive summary of “Correlates of customer loyalty to financial institutions: a case study”

Article Type: Executive summary and implications for managers and executives From: Journal of Consumer Marketing, Volume 31, Issue 3

This summary has been provided to allow managers and executives a rapid appreciation of the content of the article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benefit of the material present.

Customer loyalty has become increasingly important for organizations operating within service industries. Banks are a typical example where such loyalty is crucial in the face of greater deregulation that has served to heighten competition from other financial providers. Loyal customers are likelier to recommend the brand and resist the offerings of rival institutions. A positive impact on profits can be an expected outcome of such actions.

Identifying factors which drive customer loyalty toward banks and other service organizations has thus been the subject of much research. One significant discovery to emerge is that image is especially influential where the loyalty of customers is concerned. Extant literature notes that image reflects the entirety of a consumer’s perception of an object. Information used to construct an image is accessed over time from previous encounters, word-of-mouth (WOM), marketing communications and other sources. These sources also enable people without any direct experience of the firm to construct images. Besides consumption experiences, ideas and feelings influence image construction. When a company’s image is positive, the attitude of employees, investors and other internal and external stakeholders is more favorable. Customers likewise show greater enthusiasm for the organization’s products and any potential brand extensions.

It has been established that image comprises both intrinsic and extrinsic cues. These cues are accordingly seen as “inherent” and “external” to a service. Beef is used in the literature to elucidate this point. An intrinsic cue would be the product’s texture, while such as brand name and price would serve as extrinsic cues. When making an evaluation, consumers are able to use single or multiple cues of either or both types.

Intrinsic cues have been defined as a product or service’s “built-in characteristics”. Where banking is concerned, examples would include employee – customer interactions, interest rates, fees and overdraft charges. These instances also illustrate that cues can be emotional or rational in nature. Scholars have pointed out that the nature of the product or service will change if intrinsic cues are altered. In contrast, extrinsic cues are “not fundamental” to the product or service but are connected to it externally. An additional difference is that intrinsic cues are specific to the object, whereas external cues are more generalized and relevant across different services and categories.

According to various investigations, consumers seem more prone to use extrinsic cues during image creation. The principle is that the value of service provision can be inferred from the “global impression” enabled by such cues. Because this “shortcut” offers a “more holistic summary”, consumers remove the need for a detailed evaluation process at the individual attribute level. However, it has been claimed that loyalty is better served by intrinsic cues because of the emotional attachment they help create with customers.

Service institutions would benefit from having greater knowledge about how consumers use these respective cues as part of their evaluation process. That way, it should help identify where to productively allocate resources so that marketing activities can exert greater influence on consumer decision-making. Evidence suggests that the value afforded to respective cue types could be determined by how much each individual cue is linked to product quality from the customer’s perspective. People’s confidence in their capacity to accurately use and evaluate a cue is also a factor and it appears that belief is stronger for extrinsic cues.

Yavas et al. believe that gender might influence how image relates to customer loyalty. The importance of gender for market segmentation purposes makes it imperative to acquire a greater understanding of this relationship. That way, banks might be able to avoid the mistake of ignoring gender differences or placing too great an emphasis on them. Better targeted strategies and more efficient use of resources are then possible.

Acknowledged distinctions between men and women are widely attributed to both biological and social factors. The former approach highlights brain differences that result in a female tendency toward more detailed information processing and an emphasis on simplifying the process among males. There is likewise much research into how “socialization experiences” lead to attitudinal and behavioral differences. Males put great onus on mastery and control, while relationships and caring for others are typical female priorities. Differences have also been explained in the respective dependence upon logic and emotion, meaning that men “think” and women “feel”. Based on these observations, the authors purport that males will rely more on extrinsic cues and women more on intrinsic cues when evaluating a bank.

Testing these assumptions was done via a survey of customers from 50 branches of a nationwide bank in New Zealand. The final sample of 872 was deemed representative of the bank’s customer population. Subjects completed a three-part questionnaire with the first asking them to use various extrinsic cues to compare the bank with another they had acquired some knowledge of. Evaluation of the bank’s employees on five items provided the analysis of intrinsic cues, before participants completed the task by indicating four behavioral intentions associated with customer loyalty.

Results indicated that customer loyalty was more accurately predicted through extrinsic cues than intrinsic ones. Contrary to expectation, data also revealed no significant gender differences on intrinsic cues, extrinsic cues or customer loyalty. This was the case both for average scores and in respect of relationship strength among the three constructs. For both males and females, it was thus apparent that extrinsic cues had the strongest influence.

The greater effectiveness of extrinsic cues confirms findings in earlier work. Banks should therefore focus on these aspects to create a positive “global impression” that will appeal to both existing clients and potential ones. Effective communication strategies are recommended by the authors as a means to sustain a favorable image and differentiate the bank from competitors. One idea is advertisements incorporating positive testimonials that can also help establish the bank’s image among those who are not yet regular customers. Messages which communicate the institution’s dedication to “strive for excellence” can also be used and emphasized in press releases to secure constructive mass media exposure. To exploit social media channels, corporate blogs are ideal.

Intrinsic cues should not be neglected, according to Yavas et al. To this end, advertisements featuring employees who are “helpful and attentive” are suggested as a way to appeal to both male and female clients. This could form part of a wider initiative that recognizes the importance of front-line employees. Recruitment should focus on finding the right people and training them so that they are equipped with the requisite knowledge attributes needed to deliver excellent customer service. An emphasis on courtesy and professionalism when interacting with customers is one way of building the trust that is so vital to longer-term satisfaction. Managerial support in this area strongly signals to both employees and customers alike that providing superior service is high on the bank’s agenda.

An examination of other service industries, like hospitality, could help test the relevance of these findings to different contexts. In addition, longitudinal research would enable “causal” inferences to be made. The authors also suggest comparing different sized bank branches and investigating the impact of the variables used here on satisfaction and other important customer outcomes.

To read the full article enter 10.1108/JCM-10-2013-0759 into your search engine.

(A précis of the article “Correlates of customer loyalty to financial institutions: a case study”. Supplied by Marketing Consultants for Emerald.)