Factors influencing customers’ choice of bank

ACADEMIC 2016-2017 FACTORS INFLUENCING CUSTOMERS’ CHOICE OF BANK CLASS: FBA7 – Nantes - France MASTER THESIS Thu Hai PHAM Supervisor: Thi Lien PHAM, PhD 08-2017 Factors influencing customers’ choice of bank July-17 ACADEMIC 2016-2017 FACTORS INFLUENCING CUSTOMERS’ CHOICE OF BANK CLASS: FBA7 – Nantes - France MASTER THESIS Student Supervisor PHAM Thu Hai Dr PHAM Thi Lien 08-2017 Page Factors influencing customers’ choice of bank July-17 ACKNOWLEDGMENT First and foremost, I would like to express the sincerest thanks to my supervisor, Dr PHAM Thi Lien Without her help this thesis could not have been done Her instructions help me promote ideas and prevent me from veering off course I have learnt a lot from her I am deeply thankful to Prof Dr Frederik BALAGUER who gave me good advice for the very first outline of my study I thank Ms Trang NGUYEN (Vietcombank) for proofreading the manuscript of my thesis as well as for guiding me through process of my study My thanks also go to my colleagues: Ngoc Tram Anh HOANG, Chau QUACH (Vietinbank) who provided me with unconditional assistance I thank my friends for being with me, giving a friendly atmostphere, among others they are Quan, Quynh, Duong I thank my family for being with me all the time Thinking about them (my two lovely daughters and my husband) is one of the incentives that encourage me to go on I also thank my big family, my mum and my late dad, my sister and brother Especially, I thank my dear mum, who is always beside me wherever I feel down, who takes care my children with her big love Page Factors influencing customers’ choice of bank July-17 LIST OF TABLES Table Table for skimming sources: .19 Table Results of profile data of the respondents 27 Table Distribution of respondents’ Age by occupation .32 Table Rank of banks used by the respondents 234 Table Respondents Usage of Banking Services 30 Table Respondents need of additional bank service 35 Table Respondents degree of satisfaction with the bank services .36 Table Future intention of customers with their customer banks 37 Table Results of factor analysis 39 Table 10 Reliability Test .42 Table 11 Ranking importance of bank selection criteria factors 42 Table 12 Ranking importance of bank selection factors among different occupation 44 LIST OF FIGURES Fig The Suggested Study Model Fig The customer decision-making process Fig Influences on customer decision making .7 Fig Study sample design Source: Developed by the researcher .27 Fig Respondents bank affiliation period 33 Page Factors influencing customers’ choice of bank July-17 LIST OF ACRONYMS ATM Automated Teller Machine VCB Vietcombank VTB Vietinbank AGB Agribank BIDV Bank of investment and development of Viet Nam CP Customer Preference CPA Components Principal Analysis N Number Mil Million n.a no author n.d no date SPSS Statistical Package for Social Science Page Factors influencing customers’ choice of bank July-17 ABSTRACT Banking has remained a fast growing sector in Vietnam for the past few years Almost all commercial banks are aware that their existence and development depend on customer acquisition and always try to take care of customers in different ways as much as they can In the first place, it is important for banks to understand why and how a customer decides to choose a bank among others in the vicinity In this sense, it is essential to identify the factors that affect customers’ selection of banks In this study, I investigated the criteria that customers take into account when choosing a bank Furthermore, I found out how customers rank the factors based on their importance level Ialso intended to present an analysis of gender differences in the relative importance of choice criteria in respect of selecting a bank and to elicit the opinion of bank customers on any extra services needed to be offered by banks Upon conducting a survey, both quantitative and qualitative methodologies have been used to interview 201 customers in Hanoi from a variety of occupations and income levels These findings of studylet out that the most two important bank selection criteria for customers are “convenience” and “service provision” for the entire customers while “brand name” is the second most important factor that influences male customers’ behavior Meanwhile, the least two important factors of bank selection for customers are “financial benefits or technology”, “high ranking or reputation” and “promotion strategy” It is recommended that the information may be a very useful method for bank managers to research important decision making problems like choices of bank (Wmariam G., 2011) Keywords: Bank Selection Criteria, Customers, Banks, Banking Service Bank Selection Decision: Factors Influencing customer choice of bank Page Factors influencing customers’ choice of bank July-17 CHAPTER ONE INTRODUCTION 1.1 Background of the Study Given the current situation, the development of Vietnam’s banking system in recent years has become remarkably noticeable This development is not only revealed by a growing number of banks, but also by enhanced diversity of products and services and increasing competition in the banking industry In order to attract new customers and maintain relationship with existing customers, banks have taken different measures such as service quality improvement, preferential interest rates, promotional programs and so on However, these policies may not be enough to achieve considerable outcomes if banks fail to understand customers’ desire In order to attract customers, banks need to answer the question: “What factors decide customers’ choice of banks?” For years, this has been the theme to the research of many economists and marketers worldwide Adequaly answering this question would help banks build their marketing strategy to acquire new customers as well as keep existing customers, which eventually make up banks’ growth and profits For these reasons, research on factors that decide customers’ choice of bank serve as the base for banks’ marketing strategies (Blankson et al, 2007) As aforementioned, there are many researches on customers’ considerations when choosing a bank These focus on individuals when choosing non-credit transactions such as account service, card service, internet banking, etc Notable works come from Anderson et al (1976), Lewis (1982), Schram (1991), Khazeh and Decker (1993), Thwaites Vere (1995), Zineldin (1996), which limits the scope of research to Western developed countries such as UK, USA, Switzerland, New Zealand,… Not until the 2000s did researches on Eastern countries come out such as Ta and Har (2000), Huu & Kar (2000), Gerrard & Cunningham (2001) about Singapore, Almossawi (2001) about Bahrain, Mokhlis, Salleh & Mat (2008) and Mohamad (2013) about Malaysia, or Rao & Sharma (2010) about India The researches show that the deciding factors of customers’ choice of banks are different in different countries In Vietnam, there are a few works on this field, yet they have not looked into all the details associated with the issue Therefore, identifying factors that decide customers’ choice of banks is necessary for commercial banks to design suitable action plan for the purpose of profit maximization by efficiently attracting new customers and diligently maintaining Page Factors influencing customers’ choice of bank July-17 existing customer relationship The results of this research will contribute to summarize knowledge on banking service quality improvement in Vietnam This study focuses only on non-credit services such as account services, payment services, cards, and internet banking The banking sector now is becoming more competitive than ever, serving every customer segment across the nation Depending on sizes and strengths, there are banks that serve the whole market (Vietcombank, Vietinbank, BIDV…) while some focus only on the rich segment (foreign banks’ branches in Vietnam) and some found a niche market for their own In this study, we only look at some specific retail segments as follows: Segment 1: Young people (16-35 years old), including students and working people Most of them belong to the low and middle income levels This segment is characterized by their demand for fast and professional services, and their desire for innovation and technology Segment 2: Middle-aged people (35-50 years old) Most of them are working people with middle or high income levels This segment is characterized by the stability in their career and personal lives They may have some contact with modern technology, but are not very quick and open to innovations 1.2 Objectives of the Study In this thesis, the main aims are to examine the factors that influence customers’ selection of banking services and they can be summarized as follows: Specific Objectives  Identifying the criteria that are of importance when customers consider select a bank and to which extent those criteria are prioritized according to their importance  Examining if customers expect other services rather than thosealready provided by their prefered bank 1.3 Specific Research Questions The following research questions have been raised to attain the above mentioned objectives What factors does a customerconsider important when he or she chooses a bank and what are the most significant factors? What kind of services customers frequently use with a bank? Page Factors influencing customers’ choice of bank July-17 Are there any additional services that customers expect rather than those already provided by their selected bank? 1.4 Significance of the Study The thesis has been conducted to determine the factors influencing customers’ choice of banks and also to evaluate the connection between customers’ character and decision on bank selection Though this topic has been covered in literature in many parts of the world as reviewed later in this thesis, to the best of our knowledge there is no work of this type conducted for banks in Hanoi In this sense, the outcomes of this study can contribute towards the understanding of bank selection and be used as a reference point for other future work of the same type Furthermore, the study may also help banks in Hanoi identify the determinants of selection criteria by customers, thereby being able to implement decent marketing plans to meet their demand and utimately improving services and customers’ satisfication 1.5 Scope and Limitations This research focuses on a specific sector of customers and thus the results not represent the general public As the survey conducted was only restricted to Hanoi and approached merely some occupations, results may vary if research is conducted on a broader scope and in a wider range of occupations And further if the study is conducted taking all customers of the selected organizations and businessareas the results may vary It is limited only to customers of several banks inHanoi from different occupations such as studentsfrom Vietnam National University Hanoi, businesspersonsand employees from the company Some distributed questionnaire are left unreturned, resulting in a reduced sample size 1.6 Organization The thesis is structured in five chapters as follows Chapter sketches a summary of the study and is followed by Chapter which contains a review of the literature including customers behavior and satisfaction on banking services Chapter discusses the research design and methodology, the chapter explains the research sampling method as well as methods used in collecting data and statistical methods used to analyze the data The main outcomes of the study are also discussed in Chapter Finally, Chapter concludes the thesis by summarizing the findings and drawing some recommendations for future work Page Factors influencing customers’ choice of bank July-17 CHAPTER TWO REVIEW OF LITERATURES 2.1 Definition of Terms Bank is a financial organization in which the module of finance accept the major type of deposit taking institution; they make their living essentially by taking deposits which represent their liabilities and giving loans to borrowers which represent their assets Banks can earn commissions and fees by selling various products such as foreign exchange services, safe custody services, advice, account management charges, credit card facilities, insurance and so forth (Pilbeam, 1998) Banking is an activity which acceptance of deposit for the purposes of lending or investing (Goiteom Wmariam) Apart from their traditional services such as deposit taking, lending and general services, banks also provide agency services such as transfer agency service, trust lending service and asset management Moreover, banks nowadays can even perform global payments and cash management solutions more conveniently and simply than ever before The role of banks can be characted by two functions: primary and secondary functions Primary functions of banks include accepting deposits and lending moneyto people who have surplus income and savings find it convenient to deposit the amounts with banks, then banks will use funds pooled for lending purposed Loans and advances are given to members of the public and to the business community at a higher rate of interest than allowed by banks on various deposit accounts On the other hand, secondary functions aim to provide customers agency services, payment and cash management solutions in the most convenient way 2.2 Customers Behavior Consumers make many buying decisions everyday, and the buying decision is the focal point of marketers’effort Most large companies research consumer buying decisions in a great detail to answer questions about what consumers buy, where they buy, how, and how much they buy, when they buy, and why they buy Marketers can study actual consumer purchase to find out what they buy, where, and how much However, learning about the whys of consumer buying behavior is not so easy, the answers are often locked deep within the consumer’s mind (Philip Kotler,2012) Page 10 Factors influencing customers’ choice of bank July-17 The following this table clarifies the investigation results of the significance rank of bank selection criteria, with the mean scores for the sample distribution by occupation Table 12 Ranking importance of bank selection factors among different occupation Selection Factors Employees Students Businessmen Mean Rank Mean Rank Mean Rank Convenience 3.3472 2.4902 3.6705 Service provision 3.1759 3.0376 2.2557 Bank’s image 3.0833 3.1059 3.3409 Technology 2.3889 2.0628 1.3561 Reputation 2.3380 2.0118 1.9470 Promotion strategy 2.1759 2.2392 1.8636 Financial benefits 2.0972 2.0235 1.4925 2.9546 Secure feelings Based on five-point Likert scale = very important; = not important at all As a result, the most three important factors considered by employees and student customers when selecting a bank are “convenience”, “service provision” and “bank image” Nevertheless, convenience factor is the considered as a first choice by employees’ hence third most important factor by students and bank image was the most essential factor by students as ranked third by employees On the other hand, businessmen customers considered “bank image” as the second most important factor, while ranking “secure feeling” as the third most important factor, “bank’s atmosphere” is ranked third by employee customers while student customers ranked convenience as their third choice for selecting baking services So this difference might have resulted from the general lack of trust for banks in Hanoi Businessman customers tend to rely on secure feelings because they might feel banks are the best alternatives to save their money in a secured manner And the findings of technology as a least important factor in this study is consistent with findings of previous study Cicic et al (2004) in which the technology related facilities considered as the least important factors when his study compared to the studies in developed countries Financial benefit, reputation and promotion strategy related items are also considered as the least important criteria by the customers to patronize bank services Page 44 Factors influencing customers’ choice of bank July-17 So it is interesting that the determinants of the bank selection related to the reputation are not that highly ranked as expected, and the “convenience” is the only determinant that is highly ranked by most of the respondents that also leads to the conclusion that the respondents consider the proximity to their home and/ or workplace criterion for selecting banks and banking services Based on the above results, we are able to attain a conclusion that the more advanced technologies are so far to acquire embrace in Vietnam to facilitate reduction of the visits to the banks or reduction of personal contacts with the employees of the bank Page 45 Factors influencing customers’ choice of bank July-17 CHAPTER FIVE CONCLUSION AND IMPLICATIONS 5.1 Conclusion Nowaday, competition among banks necessitates a detailed understanding of the influential factors behind the bank choice decision in Ha Noi city The objective of this research is to investigate the determinants of bank selection decision based on their importance and identify the additional services needed by customers other than the currently offered services We used a convenience sampling procedure comprising 201 observations The sample size comprises 85 students, 72 employees and 44 businessman in the city The years analysis Related said to that most education, respondents about 77 % in of the the age group sample of under respondents 27 have attained at least a first degree Refer to bank selection by customers, the level of income of the respondents matters more.In this regard, the results show that about 21 and 59 % of the respondents received a monthly income of less than7 Mil VND and to 10 Mil VND This is followed by a very few number of individuals33 % and 7% correclatively So that has the income around10 to 20 Mil VND and above 20 Mil VND A chief issue in dealing with bank choice is to realize the affiliation of respondents with the respective banks Effect simplicated that a very small number of the customers have less than two year experiences of getting service with a particular bank The major group about 50% have indicated a relationship that lasts for to years Morever, 32 % and 15 % of the useful reports as having more than years affiliation range respectively Observing that four JSC banks VCB, VTB, AGB,BIDV are in the higher ranking preferred banks by customers Users frequently choose those bank for reputation, good service and they have beliefs We observe that the particular banking services, customers, specially young people and businessmen are widely noticed using a long term saving account, money transfer services and current account Moreover, is the finding that customers are not using the loan services available across banks Apart from the current services, clients highlighted some further improvements in the banking industry Therefore, among others, introduction of internet banking, mobile banking, e-bank and access to ATM over all branches and inter-branch networking were identified as a key future requirement that banks should cover Page 46 Factors influencing customers’ choice of bank 5.2 July-17 Recommendations Based on the findings of the study,We give some of the recommendations afer we have findings of the study as follow:  Users press strongly on factors like convenience, service provision,employers’ influence and bank image(color, logo, symbol, slogan ) Therefore, such factors should beconsidered seriously by the commercial banks in designing their marketingstrategies by widening their branches and providing good customers services tocustomers  Users suggest some additional innovation and improvement in the banking zone otherthan the services currently offered Thus, customers focus on highly technology and qualified staffs, they look forward for enhance core banking platform that suit world bank trend Maintain this, bank can allowthe loyalty from customer  Since the numerious of young people has the most usage and more representation inthe sample, banks should target its marketing mix toward this category Such atechnique will ensure attraction of job-market entering people towards bankservice and also retention of the people who are likely to remain long-term loyalcustomers  More than 50% customer feel satisfied, banks should keeptheir customers more satisfied with the services provided.Based on the results ofthis study, customer satisfaction and loyalty would be increased by focusing on different, but related, factors: bank service processes, including well experiencedbank personnel, inter-bank networking,multi-product and increase up to date core banking system required conditionsfor receiving the needed services  Last but not least, bank management should be aware that some of the bank selectiondeterminants differ from one segment to another in the business firm market.These results would enhance bank managers to identify the important bankattributes that affect bank selection decisions made by each segment in thebusiness market in Ha Noi area Page 47 Factors influencing customers’ choice of bank July-17 REFERENCES Anderson, W.T., Jr., Cox, E.P and Fulcher, D.G (1976), 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N.B Please put a ‘ √ ’ mark to all your responses in the circle provided beside to eachquestion (if necessary) Part I: Personal Information 1.Gender of respondent: Male Age of respondent: Below 27 years >45 years Female 27-35 Years Marital Status: Single Married Occupation: Student Businessman 36-45Years Divorced Widowed Employee Level of education: Primary completed Secondarycompleted Diploma Master Degree or above BachelorDegree other, specifies……………………………………………………………………………… Could you indicate in which category your monthly income belongs? Less than Mil VNĐ – 10 Mil VNĐ 10 – 20 Mil VNĐ Over 20 Mil VNĐ Page 54 Factors influencing customers’ choice of bank July-17 Part II: Banking Behavior of Respondents 7.Do you use bank services? Yes No 8.If your response to Q7 is no, why? I don’t have enough money Lack of awareness I use other alternatives (like Micro Finance Institutions, Idir, and Equb) I don’t need it please specify your reason …………………………………………………… If your response to Q7 is yes, which bank/s you utilize for your bankingservices? (List them if you concurrently use many banks) …………………………………………………………………………………………………………… 10.What is the length of your relationship with your main bank/s in terms of years? (Please indicate for allbanks). _ 11.What type of service/s you use in that bank? (Multiple answers possible) Current account Saving account Loan/credit Transfer ATM service Other, please specify 12.Do you need any other facility to add other than the services currently rendered from your customer bank? Yes No 13.If your response for Q12 is yes, what type of service you need to be added? …………………………………………………………………………………………………………… 14.Are you satisfied with banking services you are rendered? Yes No 15 If your response for Q14 is No,what could be done to solve those problems? …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… Page 55 Factors influencing customers’ choice of bank July-17 Part III: Bank Selection Criteria 16 Indicate in the following table the rate of importance of the criteria you didconsider by choosing a specific bank Please circle one number for each statementby using the followingscale ranging from “5 = most important” to “1 = notimportant at all” based on their degree of importance 5=most important, 4=more important,3=important, 2=less important,1=notimportant at all Factors 10 11 12 13 14 15 16 17 18 19 20 21 22 23 The closeness/nearness to my home/work The convenient location of the bank It have several branches The reception at the bank It offered variety of services to customers Its extended operation hours (i.e Saturday, evening etc ) The facilities of ATM services It provide internet/online banking facility It give parking facilities It advertises it’s services in mass medias It offer phone banking facility Recommendation from my family and/or my friends Its service charge is low in contrast to others Its interest rate on loans is low in contrast to others Its interest rate on savings is high in contrast to others It provide good service to customers By its reputation/brand name Its service provision is fast & efficient It was established early ( it is the oldest bank) It provides interest earning in a relatively short period of time My employer uses the same bank Being a governmental bank The exterior and/or interior appearance of bank 17 Do you have an intention to change your customer bank? 18 If your answer to Q17 is yes, please elaborate why? Level of importance Yes No …………………………………………………………………………………………………………… 19 If you ever changed your customer bank, has the current bank solved your aforementioned problems? Yes No 20 Comments (if you have comments regarding this survey, please fill in) …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… Page 56 Factors influencing customers’ choice of bank July-17 TABLE OF CONTENTS ACKNOWLEDGMENT LIST OF TABLES LIST OF FIGURES LIST OF ACRONYMS ABSTRACT CONTENT PAGE CHAPTER ONE: Introduction 1.1 Background of the Study 1.2 Objectives of the Study 1.3 Specific Research Questions 1.4 Significance of the Study .9 1.5 Scope and Limitations of the Study .9 1.6 Organization of the Paper CHAPTER TWO: Review of Literatures 10 2.1 Definition of Terms 2.2 Customers Behavior .6 2.2.1 Steps in the Customer Decision Process .6 2.2.2 Influences on Customers’ Decisions .7 2.3 Customers Satisfaction 2.4 Bank Selection Criteria 10 CHAPTER THREE: Research Design and Methodology 2126 3.1 Source of Data and Sampling 2126 3.2 Research Design .2126 3.3 Data Collection .2227 3.4 Data Analysis and Interpretation 2429 CHAPTER FOUR: Data Analysis and Discussions .2530 4.1 Descriptive Analysis 2530 4.1.1 Customers Profile .30 4.1.2 Banking Behavior of Customers 32 4.1.3 Customers’ Usage of Banking Services 34 4.1.4 Customers Service Needs 30 Factors influencing customers’ choice of bank 4.1.5 July-17 Customers Satisfaction with Banking Services 36 4.2 Factor Analysis 37 4.3 Factor Formulation .38 4.4 Explanation of Bank Selection Factors 38 4.5 Reliability Test 41 4.6 Ranking Importance of Bank Selection Factors .42 4.7 Ranking of Importance by Occupation and their Explanation 43 CHAPTER FIVE: Conclusion and Implications 45 5.1 Conclusion 46 5.2 Recommendations 47 REFERENCES 48 APPENDIX .54 ... customer choice of banks Finally he recommended banks management should pay attention to factors that have significant effect on the choice of banks Page 21 Factors influencing customers’ choice of bank. .. bank affiliation period 33 Page Factors influencing customers’ choice of bank July-17 LIST OF ACRONYMS ATM Automated Teller Machine VCB Vietcombank VTB Vietinbank AGB Agribank BIDV Bank. .. Bank Selection Decision: Factors Influencing customer choice of bank Page Factors influencing customers’ choice of bank July-17 CHAPTER ONE INTRODUCTION 1.1 Background of the Study Given the current