Customer Relationship Management and its Effect on Loyalty

Background of the Study

One of the basic elements of modern marketing understanding is customer satisfaction. Businesses can survive as long as they can meet the customers’ needs and enable customer satisfaction Apparently, the current marketing trend implies the unavoidable opportunities of designing and implementing a viable CRM system is impeccable for any company to formulate a profitable long- run relationship with its customers in the current competitive business world. Customers become partner & the firm must make long- term commitments to maintaining those relationships with quality, service & innovation. Relationship marketing essentially represents a paradigm shift with in marketing- away from an acquisition/transaction focus toward a retention/relationships focus. Relationship marketing (relationship management) is a philosophy of doing business, a strategic orientation, which focuses on keeping & improving current customers rather than on acquiring new customers.

Consequently, in recent years, CRM has received enormous attention and many companies are spending huge finance to incorporate the system. On the other side, many academicians have tried to address the issue from different angles in pursuit of developing effective and efficient CRM systems. Thus, CRM has been expanded to include an integrated perspective on marketing, sales, customer service, channel management, logistics and technology for engaging in customer satisfaction. The first three steps in the marketing process understanding the marketplace and customer needs, designing a customer-driven marketing strategy, and constructing a marketing program-all lead up to the fourth and most important step: building profitable customer relationships. Customer relationship managements perhaps are the most important concept of modern marketing. Some marketers define it narrowly as a customer data management activity (a practice called CRM). By this definition, it involves managing detailed information about individual customers and carefully managing customer “touch points” to maximize customer loyalty. Loyalty is one of the key concepts in the field of marketing management that plays an important role in creating long-term benefits for the organization because loyal customers do not require extensive promotion efforts (Kalati, et al, 2008, 48-35).

Loyal customers help the organization in determining the expected increase in sales and profit. In addition, customers who are familiar with the brand are likely to recommend it to their friends and relatives and affect the feedback and evaluation cycle of the product and these issues are critical in today's business environment (Allamehand Noktedan, 2009, 124-109). Loyalty is defined as follows: Loyalty is a strong commitment to repurchase a product or service in the future,so that the same brand or product is purchased despite the marketing efforts and potential competitors (Birelyet al, 2004, 255). Larson and Susana (2004) believe that: loyalty is creating customer commitment to doing business with a particular organization and procurement of goods and services (Larson and Susana, 2004, 48).

​​​​​​​Background of the Bank

Dashen Bank was founded by eleven visionary shareholders and veteran bankers with initial capital of Birr 14.9 million in September 1995. Upon securing license from the National Bank of Ethiopia, Dashen opened its doors for service on the 1st of January 1996 with eleven fully-fledged branches.

The Simien Mountains is home to endemic wild life including the Walia Ibex, Simien Fox or Ethiopian Wolf and the Gelada Baboon. Dashen aspires to set new heights in banking services through the delivery of unique value propositions second to none.

Headquartered in Addis Ababa, the Bank is among the biggest private Banks in Ethiopia. It operates through a network of more than 403 Branches, ten dedicated Forex Bureaus, 362ATMs and 868plus Point-of-Sale (POS) terminals spread across the length and breadth of the nation. It has established correspondent banking relationship with 462 banks covering 70 countries and 170 cities across the world. Wherever business takes customers around the world, Dashen Bank is already there.

Dashen is the most reputable brand in the domestic banking market; a reputation earned through consistent delivery of values and preeminence unmatched by its competitors. The Bank also works in partnership with leading brands in the electronic payments industry (AMEX, VISA, MasterCard & Union Pay) and prominent money transfer operators (Western Union, MoneyGram, Express Money & Dahabshiil, Ezremit, Transfast, KAI, World Remitand Ria).

Corporate Statement Vision

‘‘In as much as Mount Dashen excels all other mountains in Ethiopia, Dashen Bank S.C. continues to prove unparalleled in banking services.’’

Mission

‘‘Provide efficient and customer focused domestic and international banking services, overcoming the continuous challenges for excellence through the application of appropriate technology.’’

Value

• Develop banking habit in the community

• Assist continuous growth of customers

• Sustainable growth and stability

• High integrity and accountability

• Esteemed customers satisfaction

• Non-stop openness for community access

• Brightened and trained employees

• Attend customers’ constructive outlook

• Normative confidentiality

• Keen to consciously build professionalism and service quality

Motto: Always one Step ahead!

​​​​​​​Statement of the Problem

Due to fierce competition in the banking sector, where the competitive struggle to win larger market share and attract the largest possible number of customers is constantly being led, and taking into account poorly differentiated offer of banks, adequate customer relationship management is a fundamental tool for achieving betterbusiness results.

Ethiopia is on the way to be the middle income country in the next 15 years. For this expected growth of the country the financial sector has its own contribution and private banks take their own part for this development.

In order to take their parts in the development of the country, Banks are not only trying to attract new customers but also adopted the strategy of keeping existing customers and improved their loyalty to the organization. Thus, the customer satisfaction is not enough and marketing should provide the improvement of customer loyalty more than ever and retain more customers and ensure the long-term market share and profitability of the organization. Therefore the profitability and sustainability of these banks are important for the expected growth of the financial sector as well as the growth of the country. As stated earlier to be profitable the bank must win the competition through creating loyal customers and to become more profitable these banks must be customer centric and apply full dimensions of CRM in their business activities. The four dimensions of CRM are Key customer focus, knowledge management, CRM organization & technology based CRM.

​​​​​​​Basic research Question

The Application of CRM in Dashen Bank

1. What is the extent of the application of the CRM dimensions (Key customer focus, knowledge management, CRM organization & technology based CRM) in Dashen Bank?

2. To what extent Key customer focus dimension affect on loyalty ?

3. What level knowledge management dimension Dose affect on loyalty ?

4. What is the effect of CRM organization dimension on loyalty ?

5. What level technology based CRM dimension affect loyalty ?

6. What is the effect of technology based CRM dimension on loyalty

​​​​​​​Research Objectives

​​​​​​​General objective

The general objective of this study is to determine the extent of application of CRM dimensions and measure their effect on loyalty.

​​​​​​​Specific objectives

The specific objectives of the study are:

• To determine the extent of the application of the CRM dimensions (Key customer focus, knowledge management, CRM organization & technology based CRM) in Dashen Bank.
• To determine the effect of each CRM dimensions (Key customer focus, knowledge management, CRM organization & technology based CRM) on customer loyalty.
• To recommend ways to improve on CRM areas which are found to be weak and build on areas which are found to be strong.
• To help focus management’s attention on the CRM dimensions this has the strongest effect on customer loyalty.

Research hypothesis

• H1o: Key customer focus dimension does not have a significant effect on loyalty in Dashen Bank.

• H1a: Key customer focus dimension has a significant effect on loyalty in Dashen Bank.

• H2o: Knowledge management dimension does not have a significant effect on loyalty in Dashen Bank.

• H2a: Knowledge management dimension has a significant effect on loyalty in Dashen Bank.

• H3o: CRM organization dimension does not have a significant effect on loyalty in Dashen Bank.

• H3a: CRM organization dimension has a significant effect on loyalty in Dashen Bank.

• H4o: Technology based CRM dimension does not have a significant effect on loyalty in Dashen Bank.

• H4a: Technology based CRM dimension has a significant effect on loyalty in Dashen Bank.

​​​​​​​Significance of the study

This study is expected to contribute to the theoretical and methodological study of CRM practices. The study will also contribute for the Bank to identify the dimensions of CRM which are done properly and which need further improvement to a successful implementation of CRM across the four dimensions and their effect on customer loyalty. In addition this paper will give insights to other researchers who want to assess the level of the application of CRM and its effect on loyalty in the banking industry or other financial sector.

​​​​​​​Definition of Terms

1. Customer - operationally customer refers to organizations individuals and businesses that patronize bank products and services

2. Customer Relation Management (CRM); CRM is the utilization of customer-related information or knowledge to deliver relevant products or services. Levine (2000)

3. Loyalty: The seller's perception of the consumer's positive attitude to the product manifested by re buying. (Hougaard and Bjerre 2009: 67).

Scope of the study

The study assess branches of Dashen Bank that are found only in Addis Ababa having higher grade (Grade 4 & 3 ) per the Bank`s branch rating scheme. This limits the area of the study by discriminating those branches of Bank found in outlying areas and those in Addis Ababa but with lower grades.

Geographical scope of the study limited on branches located in Addis Ababa territory selected by using convince sampling techniques, that the researcher believes the sample were representative of the population considering; wide customer range, technological advancement and adopting CRM activities. The study gives emphasis on customer relationship management along with its components’ level of effects on customer Loyalty

Conceptual scope Customer Relationship Management is a strategy or philosophy which provides a vision for the company to deal with the customers. The aspire of a customer relationship management strategy is to maximize profitable relationships with customers by increasing the value of the relationship for both the seller and the customer of the most companies

​​​​​​​Organization of the Study

The study encompasses five chapters. In chapter one, background of the study, statement of the problem, research questions, and research objectives, significance of the study, definition of terms, scope and limitations of the study will be included. In chapter two the review of literature in the area of CRM will be discussed. In the third chapter the methodology part will be conferred.