The effects of customer relationship management on customer loyalty, within the financial services industry

Abstract

As the title suggests, this dissertation has sought to analyse the effects of Customer Relationship Management (CRM) on Customer Loyalty, within the Financial Services Industry. This topic has been chosen mainly due to the competitive variables in the current dynamic market, which has rendered CRM an issue of increasing importance. This is especially so in the services industry, due to the known characteristics of services. CRM is the combination of two disciplines, that is, Relationship Marketing and Information Technology. Through this system, companies seek to acquire customers, retain them, develop them in terms of profit yield, consult with them and finally convert them into loyal customers, the latter being one of the most important goals of CRM. There are several dimensions to the CRM concept. Two of the largest determinants of Customer Loyalty, namely Trust and Commitment, were tested in this study. Notwithstanding the importance of CRM, the study explores a minority of instances in which this does not result in Customer Loyalty. The research carried out during this study consisted of Primary and Secondary Research. The latter, helped the researcher to develop the hypotheses to be tested by the formed research design, which predicted that Trust and Commitment, as dimensions of CRM, have positive effects on Customer Loyalty. The Primary Research carried out consisted of both qualitative and quantitative research and focused on the relationships that banks, as financial institutions hold with their business customers. From the findings of the Primary research the following conclusions were drawn. Primarily, the positive effects of Customer Loyalty predicted in the hypotheses, were confirmed since the higher the degree of Trust and Commitment, the higher the level of Customer Loyalty was seen. The loyal customers mapped the effects predicted through the literature review, that is, lower customer defections increase profitability and generate positive Word of Mouth. ii However, these loyal customers seem to be loyal up to a certain degree. This is until they are offered more choice and better alternatives from other service providers. The findings indicate that whatever the levels of Trust and Commitment are within the relationship, customers would still switch to other service providers given the above situations. Furthermore, the findings showed that the importance of Trust and Commitment over other dimensions of CRM, in effecting Customer Loyalty vary during the development of the relationship. Notwithstanding the confirmation of the hypotheses, there are still customers who even though they claimed to have high levels of Trust and Commitment within their relationship with their service provider, are not loyal. As can be seen there is still room for improvement in the local CRM systems implemented, so that banks can avail themselves from the maximum benefits that Customer Loyalty renders. Recommendations were given for this purpose which included an enhancement of the internal controls and switching costs, a better understanding of customer requirements, achieving a balance between the h Conclusively, managing customer relationships is a key for service providers who want to earn their customers' loyalty and avail themselves from its benefits. Such relationship management is facilitated through the implementation of a CRM system. Two of the most important components of such system are Trust and Commitment. However, an understanding needs to be gained on the respective importance of the different variables making up the CRM system during the different stages of the relationship between the service providers and their customers.