Barking Up the Wrong Tree – Factors Influencing Customer Satisfaction in Retail Banking in the UK - Page 2


The past two decades have witnessed increasing competitive pressures for UK retail banks. This prompted a flurry of activities by banks to consolidate their positions; mergers and the adoption of technology were completed in tandem with rising consumer demands with the objective of improving services. However, a disturbing paradox in the UK banking industry was the amount of reported customer dissatisfaction with banks despite these efforts (Johnston, 1997). Since then very few studies have effectively examined the issue of customer satisfaction in retail banking in the UK.

In the year 2000, the Cruickshank Report was unveiled (Cruikshank, 2000). The Report categorically stated that service quality was low in retail banking in the UK, implying low customer satisfaction. Arising partly from the findings of the Cruickshank Report and the fact that a large-scale study on customer satisfaction in the retail banking sector in UK is scant, the objective of this article is to investigate customer satisfaction in retail banking in the UK. To augment existing understanding of customer satisfaction in the retail banking sector, the analysis of the actual determinants of customer satisfaction or dissatisfaction will point to the exact element of the banking experience which has the most influence on customer satisfaction or dissatisfaction. An accurate identification of the determinants of customer satisfaction, its importance and relative influence will allow retail bankers to set priorities of where and what may be improved to enhance customer satisfaction in such a way that their outcomes; behavioural intentions or behaviour such as repeat purchasing (cross – selling of banking products and services in this case) and word of mouth is positively influenced.
The UK banking market for retail banking products is one of the largest in Europe and dominated by a relatively small number of ‘high street’ banks (HSBC/Midland, Royal Bank of Scotland/Natwest, Barclays, Lloyds TSB, Bank of Scotland) and former building societies (Abbey National, Halifax and Woolwich) (Wolgast, 2001). The industry is undergoing major changes due to deregulation, and the development of technology, which have allowed new competitors into a relatively conservative industry (Gardener, Howcroft and Williams, 1999). New competitors are able to operate with lower costs due to lesser branch networks and dependence on new cheaper delivery methods such as the Internet and telephone banking (Gardener, et al 1999). Customers of banking services are also more demanding in terms of delivery mechanisms and tailored product offerings highlighting amplified demand for increased convenience and accessibility, a trend, which affects not only the financial services industry but other services as well. (Devlin, 1995)

Although the Cruickshank report on the commercial banking industry was severely criticised due to its ambiguity and lack of empirical investigation, it however posed serious questions of whether the current retail banking industry is serving its customers well. (Wolgast, 2001).

A research report by MORI commissioned by First Direct in 1994 showed that 25% of the population consider the banks provide unsatisfactory service, and that more people are now prepared to do something when confronted with unsatisfactory service, and change banks (McLean, 1994). Intensifying pressure to prop up market share and profits margins, make customer retention imperative. (Maclean, op cit).

Research has proven that customer dissatisfaction has a greater psychological impact and a greater longevity compared to good experiences as it has been estimated that two out of three times as many customers will tell others of a bad experience than relate a good one (Howcraft, 1991). Therefore, there is a multiplier effect of bad service; it hurts not only the bottom line of the bank and its reputation, but implies additional costs of losing potential customers apart from existing ones. A number of studies have also shown that the costs of acquiring a new customer are more expensive than retaining existing ones. (Reichheld et al, 1990; Reichheld, 1996).

In short, superior service offering and satisfaction derived from services enhance the customer experience and result in improvements in loyalty, retention and subsequently business performance. Studies have concluded that:

  1. Service quality is one of the effective means in building a competitive position in the service industry. (Lewis, 1993)
  2. Investments in service quality, customer satisfaction and customer relationships leads to profitability and market share (Rust and Zahorik, 1993)
  3. High quality service and customer satisfaction often results in more repeat purchases and market share improvements (Buzzel and Gale, 1997)
  4. Customer satisfaction leads to customer loyalty and this leads to profitability ( Hallowell, 1996)
  5. The costs of customer acquisition are much higher than the costs of retention (Reichheld and Sasser, 1990).

Service quality is accepted as one of the elements of customer satisfaction (Parasuraman, Zeithaml and Berry, 1994). But other factors in the service sector such as price, product quality, as well as specific factors such as situational and personal factors have an impact on customer satisfaction (Zeithaml and Bitner, 2000). Customer satisfaction is also linked to increased profitability, loyalty and retention (Rust et al, 1993; Hallowell, 1996). Therefore, the logical conclusion would be to increase satisfaction in order to induce customers to repurchase services from the provider (Bou-llusar, Camison-Zornoza and Escrig-tena, 2001). Satisfaction is also an antecedent to loyalty in attitude and in behaviour (Rust and Zahorik, 1993; Yi, 1990; Dabholkar, 2000).

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