Testing the influence of factors of customer relationship management on customer loyalty at vietcombank dong nai branch

ABSTRACT The rapid development of Vietcombank Dong Nai in recent years has raised several problems, customers complain more about banking services, employees attitude and employees knowl

MASTER THESIS

Supervisor:

Professor, Ph.D, Nguyễn Đông Phong

Ho Chi Minh City, 2011

Ph.D Tran Ha Minh Quan for his guideline in study

Mr Dang Huu Phuc for his assistance with the data processing

All of my classmates in Banking course 17 for supporting and corporating with me during this course

My colleagues at Vietcombank Dong nai for their great support in collecting data

Respondents, without them, my thesis could not have been done

My family and friends, for supporting and motivating me

Thanks again for above all, who gave me the strength and courage to complete this thesis

ABSTRACT

The rapid development of Vietcombank Dong Nai in recent years has raised several problems, customers complain more about banking services, employees attitude and employees knowledge And as a result, some of them have left Vietcombank Dong Nai and closed their accounts and moved to another banks Therefore, in order to keep the stable development and ensure the effeciency of business, Vietcombank should soon find solutions to solve this problem In other words, Vietcombank Dong nai should build a customer base to form their loyalty

This study attempts to examine the aspect of Customer Relationship Management (CRM) at Vietcombank Dong Nai Specifically, it tries to identify independent variables of CRM which may influence on customer loyalty, which is considered as an dependent variable These independent variables includes: Two-way communication, Employees Attitude, Employees knowledge and the Efficiency

of banking services

In order to gather data, a survey was conducted at Vietcombank Dong Nai, the sample consists of customers there with sample sizes of 205, the responsive rate is 77.90% The result of realibility testing Cronbach Alpha and factor analysis help to affirm the comformity of measurement scales with the study objectives By testing hypotheses with multiple regression analysis, this study point out that there exists a relationship between independent variables and dependent variable In addition, coefficient beta of independent variables help to determine the degree of influence

of each variables to customer loyalty

From these findings in data analysis, this study also offers some recommendation, that Vietcombank Dong Nai should spend more resources in order

to improve employees attitude and two-way communication in order to ensure customer loyalty to the bank

TABLE OF CONTENTS

ACKNOWLEDGEMENT i

ABSTRACT ii

TABLE OF CONTENTS iii

LIST OF FIGURES viii

LIST OF TABLES x

CHAPTER 1: INTRODUCTION TO THE STUDY 1

1.1 Introduction 1

1.2 Research background 1

1.3 Overview of Vietcombank Dong Nai 3

1.4 Research Problem 7

1.5 Research questions 8

1.6 Problem statement 8

1.6 Study scope 9

1.7 Research methods 9

1.8 Structure of the study 9

CHAPTER 2: LITERATURE REVIEW 11

2.1 Introduction 11

2.2 Customer loyalty 11

2.2.1 Customer loyalty to bank 12

2.2.2 Measuring customer loyalty 13

2.3 Customer Relationship Management 13

2.3.1 Defining Customer Relationship Management 14

2.3.2 Benefit of Customer Relationship Management 15

2.3.3 The components of CRM 17

2.3.3.1 Two-way communication 18

2.3.3.2 Employees’ Attitude 19

2.3.3.3 Employees’ knowledge 20

2.3.3.4 Efficiency of banking services 21

2.4 Relationship between CRM and customer loyalty 24

2.4.1 The influence of two-way communication on customer loyalty 25

2.4.2 The influence of employees’ attitude on customer loyalty 25

2.4.3 The influence of employees’ knowledge on customer loyalty 26

2.4.4 The influence of the efficiency of banking services on customer loyalty 26 2.5 Conclusion 27

CHAPTER 3: RESEARCH METHODOLOGY 28

3.1 Introduction 28

3.2 Business research 29

3.3 Research design 30

3.4 Research objectives 31

3.5 Generation of hypotheses 32

3.5.1 Hypotheses of relationship between the independent variables and the

dependent variable 33

3.5.2 Hypotheses of relationship between each independent variables and the dependent variable 34

3.5.3 Hypotheses of relationship between the biographic variables and the dependent variable 34

3.6 Data collection method 35

3.7 Measurement instrument 35

3.8 Measurement scales 36

3.8.1 Items measuring Two way communication 36

3.8.2 Items measuring Employee attitude 37

3.8.3 Items measuring Employees knowledge 38

3.8.4 Items measuring Efficiency of banking services 39

3.8.5 Items measuring Customer loyalty: 41

3.9 Pilot test 41

3.10 Data analysis 42

3.10.1 Sampling 44

3.10.2 Sample size 45

3.11 Conclusion 45

CHAPTER 4: DATA ANALYSIS AND FINDINGS 46

4.1 Introduction 46

4.2 Description of collected samples 46

4.2.1 Sex of respondents 47

4.2.2 Age group of respondents 47

4.2.3 Years of being customer of Vietcombank Dong Nai 48

4.2.4 Education level of respondents 49

4.3 Assessing measurement scale 49

4.3.1 Reliability of Two-way communication items 50

4.3.2 Reliability of Employees attitude items 51

4.3.3 Reliability of Employees knowledge items 51

4.3.4 Reliability of Efficiency of banking services items 52

4.3.5 Reliability of Customer loyalty items 53

4.4 Exploratory factor analysis 54

4.4.1 Analyzing independent variables 54

4.4.2 Analyzing dependent variable - Customer loyalty 59

4.5 Multiple regression analysis 60

4.5.1 Testing the conformity of research model 60

4.5.2 Detecting multicollinearity phenomenon 61

4.5.3 Testing hypotheses of relationship between the independent variables and the dependent variable 62

4.5.4 Analysis of variance test of biographic variables and customer loyalty 64

4.6 The empirical model 66

4.7 Conclusion 67

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 69

5.1 Introduction 69

5.2 Summary of study 69

5.2.1 Summary of factor analysis and testing hypotheses results 70

5.2.2 Findings and recommendations of the study 71

5.3 Study limitations 73

5.4 Areas for future research 74

5.5 Final conclusions 74

LIST OF REFERENCES 75

APPENDIX - Questionaires (Vietnamese version) 78

LIST OF FIGURES

Figure 1.1: The outline of Chapter 1 1

Figure 1.2: Vietcombank Dong Nai overview 3

Figure 1.3: Deposit and Debt outstanding from 2007 to Nov, 2011 4

Figure 1.4: Export and Import turnover from 2007 to Nov,2011 4

Figure 1.5: Number of ATM cards from 2007 to Nov, 2011 5

Figure 1.6: Number of credit cards from 2007 to Nov, 2011 5

Figure 1.7: The business result from 2007 to Nov, 2011 6

Figure 1.8: Structure of the study 10

Figure 2.1: The outline of Chapter 2 11

Figure 2.2: The components of CRM 17

Figure 2.3: Conceptual research model 27

Figure 3.1: The outline of chapter 3 28

Figure 3.2: Research model 33

Figure 4.1: The outline of Chapter four 46

Figure 4.2: Sex of respondents 47

Figure 4.3: Age group of respondents 47

Figure 4.4: Years of being customer of Vietcombank Dong Nai 48

Figure 4.5: Education level of respondents 49

Figure 4.6: Empirical model 67

Figure 5.1 The outline of Chapter five 69

LIST OF TABLES

Table 3.1: Items measuring Two way communication 36

Table 3.2: Items measuring Employees Attitude 37

Table 3.3: Items measuring Employees knowledge 39

Table 3.4: Items measuring Efficiency of banking services 40

Table 3.5: Items measuring Customer loyalty 41

Table 4.1: Cronbach’s Alpha of Two-way communication 50

Table 4.2: Cronbach’s Alpha of Two-way communication if item deleted 50

Table 4.3: Cronbach’s Alpha of Employees attitude 51

Table 4.4: Cronbach’s Alpha of Employees attitude if item deleted 51

Table 4.5: Cronbach’s Alpha of Employees knowledge 52

Table 4.6: Cronbach’s Alpha of Employees knowledge if item deleted 52

Table 4.7: Cronbach’s Alpha of Efficiency of banking services 52

Table 4.8: Cronbach’s Alpha of Efficiency of banking services if item deleted 53

Table 4.9: Cronbach’s Alpha of Customer loyalty items 54

Table 4.10: Cronbach’s Alpha of Customer loyalty if item deleted 54

Table 4.11: KMO and Bartlett's Test 55

Table 4.12: Total Variance Explained 56

Table 4.13: Rotated Component Matrixa 58

Table 4.14: Component Matrixa 60

Table 4.15: Model Summary 61

Table 4.16: Table ANOVAb 61

Table 4.17: Coefficientsa 62

Table 4.18: Coefficientsa 63

Table 4.19 : ANOVA test between SEX and LOY 64

Table 4.20 : ANOVA test between AGE and LOY 65

Table 4.21 : ANOVA test between YEARS OF BEING CUSTOMER and LOY 65

Table 4.22 : ANOVA test between EDUCATION and LOY 65

Table 4.23: Descriptives between AGE and LOY 66

Table 5.1: Remaining loading items 70

Table 5.2: Testing hypotheses results 71

Table 5.3: Coefficientsa 72

CHAPTER 1: INTRODUCTION TO THE STUDY

1.1 Introduction

The objective of this chapter is to provide a general introduction to the research study and to establish work flow for the study as a whole, by providing a general picture of the study This chapter is organized into seven sections as shown below:

Figure 1.1: The outline of Chapter 1

1.2 Research background

Vietnamese banks have traditionally operated in a relatively stable environment for decades However, today the banking industry is facing a dramatically aggressive competition in a new deregulated environment The State Bank of Vietnam has granted permission for several Joint Stock banks and equitized quite a number of state banks which further increases the competition and complexity among the banks The net result of the recent competition and

legislation is that traditional banks like Vietcombank have lost a substantial proportion of their customers to other banks Competition will undoubtedly continue to be a unvoidably significant factor

Banks in Vietnam begin to realize that no bank can offer all products and become the leading bank for all customers They are forced to find a new basis for competition and they have to improve the quality of their own products and services In other words, banks have to create the customer relationship that deliver value beyond that provided by the core product

In addition, the needs and requirements of customers for banking services have also become more complex, they have become more knowledgeable, sophisticated, and assertive on where to make banking transactions They demand higher levels of customer service, are less loyal, and more inclined to switch to a competitor To ensure the banks’ survival in the face of fierce competition, Vietnamese banks are trying their best effort in marketing activities to attract new customers as well as to retain their current customers Unfortunately, traditional marketing which was seen before as providing the right product at the right place and at the right time was not suitable for the current situation However, a new concept of marketing and customer service has emerged, which focuses on customer needs and their preferences (Christopher, Payne & Ballantyne, 1993:5) This approach is much more complex and requires more works to do, i.e investigating customers needs; building relationships with customers and potential customers; and satisfying their needs In other words, banks have to listen to their current and potential customers and build relationships with them (Duhan, Johnson, Wilcox & Harrell, 1997) The needs and perceptions of banks customers must therefore be studied so that service delivery of banks can be accommodated and improved to meet their requirements

Moreover, in order to exist in a such fiercely competitive environment, banks nowadays require a loyal customer base which can be achieved through sufficient

customer relationship management strategies in order to increase customer loyalty The concept of CRM, its variables and customer loyalty will be further discussed in Chapter 2

1.3 Overview of Vietcombank Dong Nai

Vietcombank is one of the largest state-owned commercial banks in Vietnam This bank was previously owned by the Government and was equitized in

2007 and now the Government still owns the largest proportion of its shares Among the Vietnamese commercial banks, Vietcombank have significant advantages and a very good base for stable development in the future They are scale, brand name, customer base, technical infrastructure system, personnel, contributed capital at big economic organizations

Vietcombank Dong Nai is one of the longest- standing bank branches in the province It was established on April 1st 1991 as the result of the division of the foreign exchange department of the The state bank of Vietnam- Dong nai branch During the process of building and development, Vietcombank Dong Nai has continuously expanded its operation to catch up with the economic growth of the province The figure summarizes some characteristics of Vietcombank Dong Nai up

to November, 2011

Figure 1.2: Vietcombank Dong Nai overview

Figure 1.3: Deposit and Debt outstanding from 2007 to Nov, 2011

(Unit: billion VND)

(Source: Build from Annual report of Vietcombank Dong Nai)

Figure 1.4: Export and Import turnover from 2007 to Nov,2011

(Unit: million USD)

(Source: Build from Annual report of Vietcombank Dong Nai)

In recent years, Vietcombank Dong Nai has witnessed the rapidly increase of its customer in retail sector To November, 2011, in retail sector, Vietcombank Dong Nai has more than 360.000 customers using ATM cards and 10.000 customers using credit cards including Visa, Master, Amex cards

Figure 1.5: Number of ATM cards from 2007 to Nov, 2011

(Unit: piece)

(Source: Build from Annual report of Vietcombank Dong Nai)

Figure 1.6: Number of credit cards from 2007 to Nov, 2011

(Unit: piece)

(Source: Build from Annual report of Vietcombank Dong Nai)

Figure 1.7: The business result from 2007 to Nov, 2011

(Unit: billion VND)

(Source: Build from Annual report of Vietcombank Dong Nai)

With the characteristics of a wholesale commercial bank, its main customers are enterprises, especially big corporations Too much concentration on a small number of big customers brings high profit but low stability The loan portfolio is not diversified so it has a higher potential risk Therefore, in recent years,

Vietcombank’s policy has changed to expand into the retail market, enhanced granting loans, services to small and medium enterprises, and individuals and household customers

At the current time, Vietcombank Dong Nai has a relatively small market share of retail banking One of the reasons is due to the characteristic of the region focusing on many industrial parks with strongly developed manufacturing sectors so there are many big corporations In the long run, Vietcombank Dong Nai is focusing

on expanding retail banking, SME and individuals customers

1.4 Research Problem

Above figures shows that Vietcombank Dong Nai in recent years is developing in terms of scale quite fast Such rapidly development has raised several problems for Vietcombank Dong Nai More specifically, customers complain more about employees attitude, employees knowledge, the efficiency of services are still not good In fact, most customers request flexibility in hours of operations, greater convenience, customer satisfaction, transparency, and easy access to their financial needs Unfortunately, some of the employees do not meet their need due to lack of knowledge about banking services, some of them do not display positive attitude toward customers in work, some do not give clear instructions forcing customers to repeat the same transaction again and again Another case is when customers try to contact Vietcombank Dong Nai at counters or even by telephone, they are being transferred from department to department

As a result, Vietcombank has witnessed customers closing their accounts and moving to another bank Therefore, to stay competitive and retain a customer base, Vietcombank Dong Nai needs to take immediate steps to address the issues regarding maintaining customer loyalty before losing more of its clients to other financial institutions

Given the context of the problem, the purpose of this study addresses the need for a further understanding of factors of CRM and customer loyalty at Vietcombank Dong Nai, the research problem is as follows:

To investigate the variables of CRM that may have an impact on the customers loyalty at Vietcombank Dong Nai

• Forth research question: Do the biographic variables (sex, age, years of being customers and education level) influence customer’s loyalty at Vietcombank Dong Nai?

1.6 Problem statement

More formally, the purpose of this study is to identify the impact of independent variables of customer relationship management influence on an dependent variable at Vietcombank Dong Nai The dependent variable in this study

is customer loyalty, which refers to the perceptions of customers regarding the loyalty with Vietcombank Dong Nai The possible influence of the selected variables in customer relationship management on customer loyalty will be discussed in more detail in the next chapter

1.6 Study scope

As time and sources for the study are limited, therefore this study was conducted at the main branch Vietcombank Dong Nai and at six sub branches, which are located at Bien Hoa, Tan Phong, Cho Sat, Ho Nai, Trang Bom, Long Khanh

1.7 Research methods

This study will be conducted at Vietcombank Dong Nai and its sub branches located in Dong Nai province The main method used for this work are survey which will be carried out by sending questionnaires to a number of customers to gather as much information as possible about how customer thinking about CRM at Vietcombank Dong Nai and their loyalty commitment

Data were collected by through questionnaires will be processed by SPSS software version 16 to help answer the above research questions Cronbach alpha coefficient and Exploratory Factor Analysis and Multiple Linear Regression analysis will be utilized to assess the reliability of the measurement items as well as

to test the research model and hypotheses Further detail of research methodology for this study will be discussed in Chapter 3

1.8 Structure of the study

This study is organized into five chapters Chapter 1 mentions about the introduction to the research including research background, research problems, research questions, research objectives and scope of the research Literature review about CRM and its factors, customer loyalty will be presented in Chapter 2 Chapter

3 presents about methodology utilized in the research Chapter 4 analyses collected data and presents the findings of the research Chapter 5 draws some conclusions and the recommendation for the research Figure 1.8 illustrates the structure of the study

Figure 1.8: Structure of the study

CHAPTER 2: LITERATURE REVIEW

2.1 Introduction

This section provides a general view on customer loyalty and its link with Customer Relationship Management and followed by literature on them in details The outline of this chapter is shown below:

Figure 2.1: The outline of Chapter 2

Chapter 2: LITERATURE REVIEW

2.1 Introduction

2.2 Customer loyalty

2.3 Customer management relationship

2.4 Relation between CRM and Customer loyalty

2.5 Conclusion

2.2 Customer loyalty

Acquiring a new customer is always more expensive because costs are higher

in the acquisition of a customer than in retention customers as it happens only when customers have repeatedly purchased the products and services and the volume of purchases increases The firms do not must invest in attracting the loyal customers towards their products and services These findings prompted business decision makers and executives to search for new innovative strategies to keep their existing customers loyal towards their products and services, and also to further increase the

base of loyal customers (Darrell K Rigby, Frederick Reichheld & Chris Dawson, 2003)

Prus & Randall (1995) stated that customer loyalty is a composite of a number of qualities It is driven by customer satisfaction, yet it also involves a commitment on the part of the customer to make a sustained investment in an ongoing relationship with a brand or company Customer loyalty is reflected by a combination of attitudes like their intention to buy again and/or buy additional products or services from the same company, willingness to recommend the company to others, commitment to the company demonstrated by a resistance to switching to a competitor and behaviors which may include repeat purchasing, purchasing more and different products or services from the same company, recommending the company to others

2.2.1 Customer loyalty to bank

Loyalty to a bank can be thought of as a continuing patronage over time The degree of loyalty can be gauged by tracking customer accounts, over defined time periods and noting the degree of continuity in patronage (Yi & Jeon, 2003)

In order to increase customer loyalty, many banks have introduced innovative products and services (Alam & Khokhar, 2006) Marketing success requires understanding and frequently monitoring the product and service attributes which increase loyalty and share of wallet However, as such innovations are frequently followed by similar charges; it has been argued that a more viable approach for banks is to focus on less tangible and less easy to imitate determinants

of customer loyalty such as customer judgments like service quality and satisfaction (Worcester, 1997; Yavas & Shemwell, 1996)

2.2.2 Measuring customer loyalty

There are two major approaches when defining and measuring loyalty; one is based on behavior and the other on attitude The behavioral loyalty refers to a customer's behavior on repeat purchase, indicating a preference for a brand or a service over time There are two behavioral dimensions to loyalty Firstly, the question must be asked if the customer is still active Secondly, the organization must determine if they maintain their share of the customer's spending Meanwhile, attitudinal loyalty refers to a customer's intention to repurchase and recommend, which are good indicators of a loyal customer A customer who has the intention to repurchase and recommend, is very likely to remain with the organization (Tynan and McKechie, 2009) Attitudinal loyalty is measured by reference to components

of attitude such as beliefs, feelings and purchasing intention Customers who have a strong preference for involvement or commitment to a supplier are the more loyal in attitudinal terms This study will focus on the attitudinal loyalty of the customers of long-term insurance organizations Organizations must track customer loyalty as the truer measure of how they compare to competitors and this will shift the focus from customer acquisition to customer retention (Baran et al., 2008) For the purpose of this study, these measurement will be used to test the model

- Customer’s primary attitude: recency, frequency and amount of purchase;

- Customer’s secondary attitude: customer referrals, endorsements and spreading the word;

- Customer’s intent to attitude: is the customer ready to repurchase in the future

2.3 Customer Relationship Management

The concept of Customer Relationship Management (CRM) has started in 1980s when organizations began to understand how to develop relationship with

customers The term CRM also has been known by other labels, coined by various experts in their respective fields, such as Integrated Marketing Communications (Don Schultz), One-To-One Relationship Management (Don Peppers and Martha Rogers), Real-Time Marketing (Regis McKenna), Customer Intimacy (Michael Treacy and Fred Wiersema), and a variety of other terms At this stage, CRM was described as a business strategy employed by firms to build and develop long term relationships with their clients However, few understand the meaning of CRM which led to its failure towards the end of 1990s To some executives, CRM is a technology or software solution that helps track data and information about customers to enable better customer service Others think of CRM as an elaborate marketing or customer service discipline Others even described CRM as

“personalized email” This failure was due to the misinterpretation that CRM is just

a technology

CRM is not a technology or even a group of technologies Technology is simply the enabler of CRM CRM itself is closely related to people where people make decisions to use a service or buy a product Some claims that CRM is a strategy Others say that CRM is a philosophy, business approach, process or methodology To understand CRM further, it is useful to look at some definitions of CRM and the detail concepts of CRM

2.3.1 Defining Customer Relationship Management

To find the most closed definition of CRM, Buttle (2004) described CRM as

a core business strategy that incorporates internal processes and functions and external networks to create and deliver value to targeted consumers at a profit It is grounded on high-quality customer data and enabled by IT (Buttle, 2004:34) CRM can be further described as a comprehensive set of activities that covers all functions of the firm interacting with and supporting a consumer These activities ultimately build customer satisfaction by providing in their needs, wants, and desires over the long term (Wilmshurst & Mackay, 2002:169) CRM can be further

described as a comprehensive set of activities that covers all functions of the firm interacting with and supporting a consumer These activities ultimately build customer satisfaction by providing in their needs, wants, and desires over the long term (Wilmshurst & Mackay, 2002:169)

In its most generalized form, CRM can be thought of as a set of business practices designed, simply, to put an enterprise into closer and closer touch with its customers, in order to learn more about each one and to deliver greater and greater value to each one, with the overall goal of making each one more valuable to the firm It is an enterprise wide approach to understanding and influencing customer behavior through meaningful communications to improve customer acquisition, customer retention, and customer profitability

Defined more precisely, it is an enterprise wide business strategy for achieving specific customer objectives by taking specific customer actions It is enterprise wide because it can’t be assigned to marketing if it is to have any hope of success Its objectives are customer-specific because the goal is to increase the value of each customer Therefore, the firm will take customer specific actions for each customer, made possible by new technologies

In essence, CRM involves treating different customers differently Today, there is a CRM revolution underway among businesses It represents an inevitable literally, irresistible movement All businesses will be embracing CRM sooner or later, with varying degrees of enthusiasm and success, for two primary reasons: Firstly, CRM represents the way customers, in all walks of life, in all industries, all over the world, want to be served Secondly, it is simply a more efficient way of doing business

2.3.2 Benefit of Customer Relationship Management

The fundamental reasons why companies want to build relationships with customers are based on economic considerations Companies will generate better

results when they manage their consumer base in such a manner as to ensure that they could identify, satisfy and retain their most profitable consumers The rationale for the implementation of CRM strategies is that it improves business performance

by enhancing customer satisfaction and increasing customer loyalty The benefits of CRM can be also accessed from what it could contribute to customers as well as to the firm itself

2.3.2.1 Benefit from CRM to clients

Successful relationships with clients involve a mutual fulfillment, with benefits to both parties, namely the service firm and the client A client will desire a relationship with a specific service provider if he/she finds that the benefits to be received, will significantly exceed the associated costs of obtaining such benefits

If a company implements CRM strategies, its clients will possibly experience higher levels of customer satisfaction This indicates that clients will have a higher level of satisfaction at individual service encounters The implementation of sufficient CRM strategies may lead to higher levels of efficiency and cost reduction for a firm This may possibly lead to lower price levels for clients Thus, in the banking services industry, additional benefits to clients from CRM may include individualized services, higher customer satisfaction during banking services encounters, and special decreased bank charges

2.3.2.2 Benefit from CRM to banking sector

Banks face many challenges, especially to retain clients in a branch of industry where little differentiation and extensive competition exist, as the retention

of clients is the key for growth The priority is to reduce the administration overheads, which in the past have met client expectations, to create one-on-one client intimacy, and to implement technologically advanced systems Additionally, the relationship between a bank and its clients is very important to both parties, as

the bank is entrusted with a scarce resource of the client, which must be managed in the client’s best interest to ensure support for the bank

As CRM is a strategic approach incorporating a process of maintaining valuable, long term relationships with clients, it provides a bank with an enhanced opportunity to understand its clients It allows a bank to target clients more closely and implement “one-on-one” marketing strategies CRM therefore provides a bank with the opportunity to acquaint itself with its clients’ needs and change its service delivery to suit their needs In effect, this generates substantial benefits for the firm

2.3.3 The components of CRM

The purpose of this section is to discuss the components of CRM which will

be viewed as independent variables in this study with possible direct influence on customer loyalty, which are looked as the dependent variable CRM can be viewed

as a composition of four factors (Rootman, 2006) including: (1) Two way communication; (2) Employee attitude; (3) Employee knowledge; (4) Efficiency of banking services These variables will be illustrated in Figure 2.3 and discussed more details in next paragraphs

Figure 2.2: The components of CRM

Source: Build from concept of Rootman (2006)

2.3.3.1 Two-way communication

2.3.3.1.1 Defining Two-way communication

Communication refers to any process used to get a message across, from one individual or group to another Communication involves a Sender, a Receiver, a message and communication tools Communication tools can be various medium namely mail, e-mail, websites, telephone, fax, chat-rooms, contact centers, help-desks and complaints lines, etc

Two-way communication is an expanded form of communication, in which both Sender and Receiver can send and receive message

2.3.3.1.2 The role of Two-way communication in banking services

Two-way communication plays a key role in the retail banking sector In such fiercely competitive banking environment nowadays, retail banking services can not be sold as simple services but they would take place during from pre-selling, selling, consuming and post-consuming stages This requires to constitute a relationship between banks and their customers Little and Marandi (2003:30) also states that relationships between service firms and their consumers, are built on and maintained by communication which would be done by bank staffs

2.3.3.1.3 The components of Two-way communication:

As discussed earlier, two-way communication is an exchange message between firm and customer Rootman (2006) depicted this exchange may involve following items :

- Employee’s communication skill: employees are at the front line of service

so they are the first ones to know more than anyone else in the organization what customers want In other words, all exchanged information is mostly done by them

Thus bank employees should possess communication skills which may also include: listening and persuasion skills to create a positive image about banks

- Update actively news or important information to customers: this means the bank should actively let the customers know actively their news In banking sector, this information can be a news of launching a new product of deposit, credit card, or opening a new sub branch, or sending monthly account statement, etc This update can be done indirectly though broadcast media like television, newspaper, website

or directly medium like mail, e-mail, SMS, phone calls, etc

- Efficient feedback channel: bank should create a convenient environment for customers to allow them easily give their feedback This mechanic may be a suggestion box placed at transaction points or even a meeting with managers

2.3.3.2 Employees’ Attitude

2.3.3.2.1 Definition of Employees’ Attitude

An attitude can be defined as a positive or negative evaluation of people, objects, event, activities, ideas, or just about anything in your environment (Zimbardo et al., 1999) or it can be defined as a tendency to respond in a specific way, based on positive or negative judgments regarding objects, people and/or situations (Robbins, 1998)

As this study examines how employees’ attitudes of bank, as perceived by clients, attitude thus mentioned in this study are related only to aspect of work which includes attitude determining employees’ reaction, response to or behavior towards various aspects of his/her job

2.3.3.2.2 Types of attitudes

Robbins (1998:142) expressed employees’ attitude can be looked at how an employee “feels” about his/her job, and how he/she reacts because of this feeling Otherwise, employees’ attitude can be accessed through two main items:

- Job satisfaction: refer to employees’ attitude towards their jobs which results from employees’ perception of their jobs (Robbins, 1998:142; Gibson, et al 1997:106) Job satisfaction is experienced when employees are able, through their jobs, to satisfy one or all of their physiological, security, social, status and self-actualization needs An employee with a high level of job satisfaction holds positive attitudes to his/her the job, while an employee who is job dissatisfied holds negative attitudes to his/her job

- Organizational commitment: Organizational commitment is the degree to which employees identify with the specific firm they are employed by and the degree to which they identify with the firm’s goals (Robbins, 1998:142) If employees wish to maintain membership of the firm, their organizational commitment is high Greenberg and Baron (2000:181) view organizational commitment as the extent to which an employee is involved with his/her firm and the degree of interest he/she has in remaining on as an employee

2.3.3.3 Employees’ knowledge

Knowledge is a fluid mix of framed experience, values, contextual information, and expert insight that provides a framework for evaluating and incorporating new experiences and information It originates and is applied in the minds of knower (Davenport & Prusak, 1998) To this we could add Davenport, De Long and Beers’ (1998) definition: “Knowledge is information combined with experience, context, interpretation, and reflection It is a high- value form of information that is ready to apply to decision and actions”

Meanwhile, employees’ knowledge refers to the level an employee has regarding specific aspects, products and/or services of a firm

2.3.3.3.1 Types of knowledge

Greenberg & Baron (2000:118) stated that there are two kind of knowledge which employees possess: academic and tacit knowledge Academic knowledge is the ability to remember formulas and information, whereas tacit knowledge is the ability to be practical and action-orientated with regard to a firm’s products, services, procedures, internal policies, etc More specifically, in the banking service industry, it is known that an increase in the tacit knowledge of employees leads to improved competitiveness for a service firm (Thompson & Mchugh, 2002:187)

The degree of knowledge of employees can be perceived by clients as the employees’ ability to create ideas and the level of value resulting from their applied knowledge The knowledge of employees can depend on their task competence, peer and management support, task and role clarity, and firm awareness (Mullins, 1996:508) Thus, employees will gain increased knowledge if they perform their tasks in a satisfying manner, regularly interact with their peers and management, have clarity on their tasks and roles in the workplace, and are fully informed about the firm

2.3.3.3.2 The role of employees’ knowledge in the banking services

In a banking institution, employees’ academic knowledge will depend on their insight in and ability to fully understand banking procedures, policies, products and/or services Banking employees’ tacit knowledge will depend on their ability to practically implement banking procedures and perform duties regarding banking service delivery through the relevant banking systems The above implies that an employee should have technical, product and firm knowledge (Walker, 1990:36)

2.3.3.4 Efficiency of banking services

2.3.3.4.1 Efficiency of banking services notion

Efficiency is defined as the degree to which tasks or activities are performed correctly and as desired (Marx et al 1998:349-350) A firm needs to direct its employees as efficiently as possible in order to satisfy the needs of its target market and to reach its objectives For example, a bank needs to ensure that its employees conduct their tasks and responsibilities in an efficient manner This would result in resources being utilized efficiently and tasks being performed successfully

Efficiency is defined as the degree to which tasks or activities are performed correctly and as desired (Marx et al 1998:349-350) A firm needs to direct its employees as efficiently as possible in order to satisfy the needs of its target market and to reach its objectives For example, a bank needs to ensure that its employees conduct their tasks and responsibilities in an efficient manner This would result in resources being utilized efficiently and tasks being performed successfully

2.3.3.4.2 The factors influence on of Efficiency of banking services

This section will look at the factors that influence on efficiency of banking services which will be used later to design measurement scale for this study According to Rootman (2006), these factors may include following items: (1) Confidentiality of clients’ banking information; (2) Security of funds; (3) Ethical behavior; (4) Variety of services; (5) Bank charges and related costs; (6) Technology in the banking service These items will be discussed in more detail in the following paragraphs

- Confidentiality of clients’ banking information: As the nature of banking transactions is mostly based on trust, therefore banks can ensure their clients through focusing on the implementation of strategies for the confidentiality of client information, the security of clients’ funds, and explicit ethical behavior Many reasons exist for clients’ concern for the confidentiality of their information Clients want their information to be private; they want to avoid unwanted intrusion, embarrassment, economic harm, and criminal harm These reasons may be

applicable to banking clients Clients want their financial and personal information

to be kept private by their bank in order to avoid some or all of these consequences For example in online banking services, the customers were always concerned about the confidentiality of their accounts This concern may very well be shared by Vietcombank clients

- Security of funds: The personal funds of customer is very important, as it is

a scarce resource on which the customer is dependent and which is placed under the supervision of a bank The security and protection thereof is important to all banking clients Research findings have shown that the primary reason why banking clients do not make use of online banking, is their concern about security The findings indicated that 26% of the respondents were in doubt about the security of online banking facilities (Greenspan, 2003:2)

- Ethical behavior: Ethical behavior refers to the conforming to acceptable norms of behavior, based on custom, practice and personal conscience A bank’s degree of ethical behavior will depend on its conformance to socially acceptable and legal ways

- Variety of services: Variety indicates a firm’s availability of a selection of products and/services to clients In the banking services industry, a bank’s variety will depend on its different types of services and options to clients with regard to banking services For example, Vietcombank have a variety of products and/or services if it provides clients with the options of banking at a physical branch, using

an ATM, Internet, telephone and cellular phone banking Additionally, a bank’s variety of products and/or services will increase if it provides clients with various account options, including saving, cheque and credit card accounts A bank’s variety is extended through the availability of different types of transaction options, such as deposits, transfers, balance enquiries and the payment of accounts

- Bank charges and related costs: Bank charges refer to the fees charged by a bank for the services it renders, for example, transaction fees for transfers and general administration Bank fees are the same for all clients, but may vary in some instances For example, in Vietcombank Dong Nai, the transaction fees applied for may depend on a client’s relation with the bank and his/her amount Specific bank packages may decrease a specific client’s bank charges due to his/her use and implementation of the package For example, some banking institutions provide decreased bank charges if clients permanently maintain a specific balance in their cheque accounts Additionally, banking analysts believe that clients are generally reluctant to change their manner of conducting transactions in order to decrease bank charges (Stovin-Bradford, 2004:17)

Technology in the banking service: Increasingly, many services are being delivered with the help of technology Advances in technology have transformed banking service in recent years, especially with regard to self-service options and service support (Swartz & Iacobucci, 2000:103) For example, Vietcombank now offer faster and better services, with increased availability and convenience like Internet banking, SMS banking, ATM, ATM kiosk Delivering services through technology is a cost-effective, reliable and efficient method for service firms Furthermore, these advanced services can be delivered at any time and at any place, not only in a physical banking branch during its opening hours However, technology delivered services limit the direct or indirect contact between a service provider and its clients (Swartz & Iacobucci, 2000:103) The use of more advanced technology minimizes the level of personal and customized service from banks to clients This decreases physical interaction between a bank and its clients and may negatively influence the relationships the bank has with clients

2.4 Relationship between CRM and customer loyalty

As stated earlier in this chapter, CRM can be composed from four components: (1) two-way communication ; (2) employees attitude; (3) employees

knowledge and (4) efficiency of banking services To support the hypotheses raised

on Chapter 1, next section will discuss about possible influence of CRM components on customer loyalty

The rationale behind CRM components is that it improves organization performance by enhancing customer satisfaction and driving up customer loyalty Customer satisfaction increases because the insight into customers allows organizations to understand them better, and through this, organizations create improved customer value propositions As customer satisfaction rises, so does customer repurchase intention, otherwise customer loyalty This then influences the actual purchasing behavior, which significantly impacts organization performance

2.4.1 The influence of two-way communication on customer loyalty

It has been found that a firm’s communication can affect consumer expectations Discrepancies between service delivery and external communications, including exaggerated promises and/or the lack of service delivery information (influencing expectations), may influence consumers’ perceptions of the service quality of a firm (Zeithaml, Berry & Parasuraman, 1988:44) This may lead to lose customers’ trust Therefore, two-way communication may influence on customer loyalty for firm

In this study, two-way communication is specified as an independent variable with a possible direct influence on customer loyalty

2.4.2 The influence of employees’ attitude on customer loyalty

Walker (1990) has pointed out that attitude of employees towards clients can positively or negatively influence a firm’s service strategy Additionally, it is clear that employees’ attitude play an important role in constituting service quality for firms Research from Jude (1998) has been shown that 68% of the clients lost by

firms left due to the poor attitude displayed by an employee Thus, attitudes may influence a customer loyalty

In this study, the employees’ attitude of Vietcombank Dong Nai, as perceived by clients, is specified as an independent variable with a possible direct influence on customer loyalty

2.4.3 The influence of employees’ knowledge on customer loyalty

The most valuable asset for service firms like banks is their employees, and the application of service employees’ skills and knowledge is the key differentiator between “good” and “bad” service (Beckford, 2002:12) According to Walker (1990:6), the knowledge and skills of employees, specifically front-line employees, are essential to a firm’s ability to fulfill the service quality expectations of its clients Through extensive knowledge and expertise, bank employees can help clients effectively and efficiently in making financial transactions If this is achieved, the perceived customer satisfaction may increase and therefore customer loyalty for firms may be also influenced positively

In this research, the employees’ knowledge of Vietcombank Dong Nai, as perceived by clients, is specified as an independent variable with a possible direct influence on customer loyalty

2.4.4 The influence of the efficiency of banking services on customer loyalty

Customer always want to receive faster and better services, therefore the efficiency of provided services of firm may have an influence on the customers perception about service quality of a firm This in turn will create a base for forming customer loyally

In this study, efficiency of banking services at Vietcombank Dong Nai is specified as an independent variable with a possible direct influence customer loyalty

Figure 2.3: Conceptual research model

Source: Build from Literature

In the next chapter, this model will be discussed in more detail and modified again to meet the research purpose