An executive summary for managers and
Modeling consumers’
choice behavior: an
application in banking
Emin Babakus
Sevgin Eroglu and
Ugur Yavas
The authors
Emin Babakus is Professor of Marketing in the Department of
Marketing and Supply Chain Management, University of
Memphis, Memphis, Tennessee, USA.
Sevgin Eroglu is Associate Professor of Marketing in the
Department of Marketing, Georgia State University, Atlanta,
Georgia, USA.
Ugur Yavas is Professor of Marketing in the Department of
Management and Marketing, East Tennessee State University,
Johnson City, Tennessee, USA.
Keywords
Banking, Information searches, Experience, Consumer research,
United States of America, Consumer behaviour
Abstract
The study proposes and tests a model of consumer bank choice
behavior in a south eastern city in the USA, based on the
economics of information theory. The model expands the domain
of inquiry beyond the initial level attributes to the first-order
latent construct and the second-order (composite) levels. Results
suggest that consumer bank choice behavior can be represented
as a global construct with three viable components (search,
credence and experience) and provide implications for bank
managers.
Electronic access
The Emerald Research Register for this journal is
available at
www.emeraldinsight.com/researchregister
The current issue and full text archive of this journal is
available at
www.emeraldinsight.com/0887-6045.htm
Journal of Services Marketing
Volume 18 · Number 6 · 2004 · pp. 462-470
q Emerald Group Publishing Limited · ISSN 0887-6045
DOI 10.1108/08876040410557249
462
executives can be found at the end of this article
Introduction
Understanding buying behavior for financial
services and choice of retail financial institutions
has long intrigued the minds of scholars and
practitioners. Financial services offered by banks
and other institutions are not only intangible and
fairly complex, but many consumers can also
perceive them as high-risk purchases. McKechnie
(1992) argues that, despite many attempts, a
generalizable conceptual framework which
adequately captures the dynamics of consumer
decision making for financial services and financial
institutions is yet to be developed. There seems to
be a consensus that the buyer behavior models
developed earlier examine this behavior solely as a
decision process, which consists of a number of
discrete but interlinked stages (Devlin, 2001;
McKechnie, 1992). While a substantial number of
studies recognize the importance of choice criteria
determination and evaluation in bank patronage
decisions, most focus only on the initial attribute
level (Kaynak and Yavas, 1985; Yavas, 1988;
Dudley et al., 1985; Erol and El-Bdour, 1989;
Anderson et al., 1976). As such, they tend to
identify the importance ratings/rankings of
individual attributes consumers use in their
decisions or employ exploratory factor analysis to
determine the underlying dimensions of bank
choice behavior. This approach, while useful at the
beginning stages of the investigation, neither
adequately captures the important higher-level
abstractions nor provides managers with
actionable strategic directions.
The present study addresses this void and
responds to the call of Tyler and Stanley (1999) for
models which offer a deeper analysis of evaluation
decisions in the financial services sector by
developing and testing a model that expands the
domain of inquiry beyond the initial attribute level.
Rooted in the economics of information literature
(Darby and Karni, 1973; Nelson, 1970), the
proposed model intends to reveal patterns of
evaluation and choice criteria that cannot be
readily extracted at the attribute level.
Managerially, the goal is to provide financial
service retailers with an instrument that enables
them to better understand and finely customize
their strategies to their customers’ needs.
The remainder of the paper is divided into four
sections. The next section presents the study
model. This is followed by discussions of the
method and results of an empirical study. The
paper concludes with implications of the results.
 Modeling consumers’ choice behavior: an application in banking
Emin Babakus, Sevgin Eroglu and Ugur Yavas
Study model
While choice behavior is sometimes guided by very
simple decision rules such as ”buy the cheapest
brand” (Hawkins et al., 2001), the choice of high
involvement products and services, such as
banking, is multi-faceted. Due to its inherent
complexity and risk, bank choice behavior is a
multidimensional decision best represented by
multi-faceted constructs. Consequently, its
analysis requires the identification and modeling of
higher-order dimensions that go beyond an initial
attribute-level approach.
Multi-faceted constructs can be represented in
several ways (Bagozzi and Heatherton 1994).
Figure 1 depicts a model where measures have
been totally aggregated across dimensions
comprising the construct. In such models, the
summated or averaged scale scores subsequently
act as indicators of the construct. In the general
case, the composite single indicator is assumed to
measure the construct exactly, though a correction
for attenuation is sometimes made by fixing the
error variance at non zero values using reliability
information (e.g. Netemeyer et al., 1990; Williams
and Hazer, 1986). The main advantage of the total
aggregation model is its simplicity and ability to
capture the underlying meaning of the construct
(Bagozzi and Heatherton, 1994). Since the
observable indicators share common variance,
summing or averaging across multiple indicators
tends to smooth out random error and is, thus,
more reliable than single indicators.
Figure 2 illustrates a second alternative in which
the indicators of the complex construct are
partially aggregated. The individual items are first
summed/averaged within each component
subscale, and then that aggregate is used as an
observable indicator of the construct. This method
provides more meaningful information for
Figure 1 Total aggregation – aggregation across the dimensions
and items
463
Journal of Services Marketing
Volume 18 · Number 6 · 2004 · 462-470
managers since it signals where potential
problems/opportunities exist and allows them to
analyze respondents’ decisions/behaviors at a
higher level of abstraction. Instead of
concentrating on individual questions, managers
have the opportunity to analyze data for a
theoretically important component of the overall
construct.
Figure 3 illustrates a totally disaggregated first-
order model. In this model each individual
attribute has potential meaning, but the items are
still hypothesized to measure a single dimension of
the construct. The dimensions are allowed to
correlate among themselves. This model permits
managers to analyze respondents’ decisions/
behaviors at two levels of abstraction, the
individual attributes and the latent variables (i.e.
the dimensions of bank choice behavior). Since the
model corresponds to the standard first-order
confirmatory factor model, rigorous assessment of
construct validity is possible.
As illustrated in Figure 4, the disaggregated
model can also be treated as a second-order model.
In this model the dimensions are specifically
viewed as distinct facets of the overall construct.
These first-order components are related to each
other through their shared variance in measuring
the global construct. This approach gives
managers the opportunity to analyze respondents’
behaviors at three levels of abstraction while still
allowing for the same strict assessment of
construct validity as the first-order model. Bagozzi
and Heatherton (1994) argue that second-order
models are especially useful when the dimensions
are distinct, but contain a significant amount of
shared variance (i.e. discriminant validity is of the
“weak form”).
In this study, the fully disaggregated second-
order model (Figure 4) is used. The underlying
theory of the model was first fully developed in the
economics of information literature (Darby and
Karni, 1973; Nelson, 1970) and later refined in the
services context (Bloom and Pailin, 1995; Lynch
and Schuler, 1990). Under this conceptualization,
three sets of attributes are hypothesized to be
manifestations of a consumer’s choice decisions:
search, experience and credence (Mitra et al.,
1999). Search attributes are those that can be
accurately evaluated prior to making a choice
(Srinivasan and Till, 2002). Examples of search
attributes in the banking context include interest
rates, availability of ATMs, banking hours, and so
forth. Experience attributes are those which can be
accurately assessed only after the services have
been purchased and used. These include speed
and efficiency of the services rendered, helpfulness
and expertise of the staff, and so forth. Credence
attributes may or may not be evaluated even after
 Modeling consumers’ choice behavior: an application in banking Journal of Services Marketing
Emin Babakus, Sevgin Eroglu and Ugur Yavas Volume 18 · Number 6 · 2004 · 462-470

Figure 2 Partial agregation – hierarchical organization of dimensions

Figure 3 Total disaggregation – first-order model

the purchase is made simply because the consumer resort to using signals or experts to assess these
may lack the necessary technical experience to attributes. The search-experience-credence
make this assessment and/or there are no readily trichotomy offers an ideal framework for the
available indicators of these attributes. For purposes of this study. It not only has a great deal
instance, the trustworthiness of the bank, integrity of face validity in the context of bank choice, but
and expertise of the staff are credence attributes. In also allows the operationalization of the concept at
the absence of tangible evaluative tools, consumers different levels of abstraction.
464
 Modeling consumers’ choice behavior: an application in banking
Emin Babakus, Sevgin Eroglu and Ugur Yavas
Figure 4 Total disaggregation – second-order model
Methodology
Setting and sample
The context used to develop and test the model to
examine consumer evaluation and choice
behaviors is retail banking. The bank choice
decision is an important, and for some consumers,
a complex and risky process. Such decisions
continue to become increasingly challenging with
the variety of services and products banks have
begun to offer as a result of intense competition.
Data for the study were collected from the
residents of a southeastern city in the USA. A total
of 400 questionnaires were hand-distributed to
adult residents residing in different neighborhoods
of the city and personally retrieved after a two-
week period. Care was exercised to cover the entire
set of residential neighborhoods in the city.
Respondents had to have a bank account to qualify
for the survey. If a respondent did not meet the
condition, then members of the field force sought
an alternative respondent in the same
neighborhood. Usable responses were obtained
from 262 residents for a response rate of 65.5 per
cent. About half of the respondents were male, and
little less than half (47 per cent) were married. The
distribution of annual household income was as
follows: 47 per cent $30,000 or less, 32 per cent
$30,000 to $45,000, and 21 per cent reported in
excess of $45,000. About 30 per cent of the
respondents were younger than 25 years of age, 24
per cent were between 25 to 34, 20 per cent were
between 35 to 44, and 25 per cent were older than
465
Journal of Services Marketing
Volume 18 · Number 6 · 2004 · 462-470
45 years of age. A comparison of the sample profile
with the known population characteristics of the
area (US Census Bureau, 2000) revealed that the
respondents were slightly upscale in terms of
household income.
Measurement
After a review of the relevant literature (Levesque
and McDougall, 1996; Minhas and Jacobs, 1996;
Avkiran, 1997; Yavas and Shemwell, 1996;
Galloway and Blanchard, 1996; Chen, 1999;
Aldlaigan and Buttle, 2002) and examination of
survey instruments obtained from various banks,
initially a list of more than 30 bank choice
attributes was prepared. The pool of items thus
generated was then reduced to 17 by the
researchers who judgmentally assigned the
attributes into search, credence and experience
categories. The reduced list included five search,
seven experience and five credence attributes
(Table I). Respondents were asked to evaluate
their principal bank on these attributes on a
six-point scale ranging from 1 ¼ very poor to
6 ¼ excellent.
Results
Initially, to determine if the judgmentally assigned
items do indeed decompose into the three-partite
taxonomy, the 17 items were subjected to a
maximum likelihood exploratory factor analysis. A
 Modeling consumers’ choice behavior: an application in banking Journal of Services Marketing
Emin Babakus, Sevgin Eroglu and Ugur Yavas Volume 18 · Number 6 · 2004 · 462-470

Table I Scale items, descriptive statistics, first- and second-order confirmatory factor analysis results (n ¼ 262)
Items Meana Factor loadingb
Search attributes (a5 0.81) 4.44
Interest rates on deposits/loans 4.48 0.64
Overdraft privileges 4.39 0.64
Fees charged 4.35 0.71
Banking hours 4.54 0.67
New bank services 4.45 0.76
Credence attributes (a 5 0.90) 5.05
Keeping customer’s banking information confidential 5.15 0.74
Integrity of the bank 5.08 0.82
Bank’s adoption of technological advancements 4.94 0.68
Management of the bank 5.02 0.90
Bank’s competence in the business of banking 5.08 0.91
Experience Attributes (a 5 0.93) 4.96
Helpfulness of bank tellers 4.93 0.80
Provision of services in a timely manner 4.91 0.85
Attentiveness of bank personnel 4.94 0.85
Willingness of bank personnel to listen to me 4.97 0.84
Friendliness of personnel 5.17 0.76
Expertise of employees 5.00 0.80
Speed of decisions 4.80 0.78
First-order CFA model (Figure 1) fit statistics: x2 (df5116) 5 376.3, GFI 5 0.85, NFI 5 0.88, NNFI 5 0.90, CFI 5 0.92
Second-order CFA model (Figure 4) fit statistics and parameter estimatesc: x2 (df 5 116) 5 376.3,
GFI 5 0.85, NFI 5 0.88, NNFI 5 0.90, CFI 5 0.92
g150.81 (7.63), g2 5 0.85 (7.78), g3 5 0.91 (5.32)
Notes: aMean scores range between 6¼ excellent and 1 ¼ very poor; bcompletely standardized factor loadings. All factor loading are
significant (t - values .2.0). The estimates remain the same under first- and second-order models; cIdentical model fit statistics is the
best outcome since a second-order model cannot provide better fit. g1, g2, g3 are standardized regression coefficients for search,
credence and experience factors as a function of the second order bank choice construct (t-values are in parentheses)

three-factor solution emerged with eigenvalues
greater than 1.0, which accounted for 61 percent
of variance. All items loaded heavily on their
respective underlying factors as a result of oblique
rotation. Factor loadings ranged from 0.45 to
0.95.The reliability coefficients (alpha) were 0.81,
0.93, and 0.90 for the scales representing search,
experience and credence dimensions. These values
are well above the recommended minimum for
reliability (Nunnally, 1978).
The three dimensional model was subjected to
an initial first-order confirmatory factor analysis
for convergent and discriminant validity
assessment. Anderson and Gerbing (1988) suggest
that evidence of convergent validity for first-order
models exists if all observable indicators
(attributes) load significantly on their respective
latent variables. As shown in Table I, all observable
indicators (ls) loaded significantly on their latent
variables (all t-values . 2.0). Thus, the model
meets Anderson and Gerbing’s (1988) criteria for
convergent validity.
A common issue in research involving
multifaceted constructs is the establishment of
discriminant validity (Parasuraman et al., 1994).
To test for discriminant validity, the three-factor
model was used as the base or standard model.
466
Then, a second model was compared to the
standard model where the correlation between two
factors was fixed at 1.0. This constrained model
will always fit worse than the standard first-order
model because it has more restrictions (i.e. more
degrees of freedom). The statistic of interest is the
change in x2 between the two models. For
instance, the test for discriminant validity between
the search and credence factors involves fixing the
correlation between these two factors to 1.0. The
null hypothesis is that the two factors are
indistinguishable. That is, the indicators of these
two factors may be modeled as indicators of a
single underlying factor. If the null hypothesis is
rejected, then discriminant validity is evident. This
test must be conducted separately for all pairs of
latent constructs in the first-order model. The
difference in x2 between the standard first-order
model (df ¼ 116) and the constrained model
(df ¼ 118) is significant at 0.01 or less for all three
tests. Thus, the scales representing the dimensions
of consumer bank choice evaluation exhibit
discriminant validity.
Second-order model
Table I also presents the results of the tests of the
second-order model depicted in Figure 4. The
 Modeling consumers’ choice behavior: an application in banking
Emin Babakus, Sevgin Eroglu and Ugur Yavas
model fit statistics are identical to those of the first-
order model, indicating the best possible expected
model fit (since the goodness of fit of a second-
order model can never be better than the first-
order model). In second-order models there is an
additional condition that must be met for
convergent validity. That is, the relationship
between the endogenous latent factors (i.e. search,
experience, and credence) and the exogenous
overall factor (i.e. consumer bank choice
construct) captured by the g coefficients in
Figure 4 must be significant. All three g
coefficients were significant (t . 2:0) in the
present study.
The standardized g coefficients are highly
informative since they signal the relative
importance of the first-order factors in the model.
The results suggest that “experience” is the most
reliable indicator of choice evaluation (g3 ¼ 0:91)
followed by “credence” (g2 ¼ 0:85) and “search”
(g1 ¼ 0:81) dimensions. It appears that provision
of services in a timely manner and attentiveness of
bank personnel followed by willingness of
personnel to listen to customers are most critical in
defining the experience construct. Availability of
new services and fees charged are the best
indicators of the search construct. Closer scrutiny
also suggests that qualities attributable to the bank
as a system and its functional and technical
characteristics at the organizational level
characterize the credence construct. Of those,
bank’s competence in the business of banking and
management are the most critical attributes.
Discussion and managerial implications
The major objective of this research is to develop
and apply a model which examines consumers’
bank choice behavior. Based on the economics of
information literature, the proposed model
expands the analysis beyond the initial attribute
level to a fully disaggregated second-order model,
offers a deeper understanding of the dynamic
choice behavior and provides bank managers with
a tool for identifying and capitalizing on the
strategic opportunities within their respective
target markets.
The results indicate that the model developed in
this study, comprising search, credence and
experience dimensions, represents a valid
framework. At the individual attribute level (first
level of abstraction), management might look at a
bank’s rating (i.e. mean score) for each individual
attribute and may identify areas which need special
attention. For instance, if a bank falls short on the
search attribute of “fees charged”, this would
signal a need for intervention. Bank management
467
Journal of Services Marketing
Volume 18 · Number 6 · 2004 · 462-470
could initiate an investigation to see if this is a
misperception or competitors have better fee
structures. Either way, action would be necessary.
Also by obtaining information about competitor
banks’ ratings, management can compare the focal
bank’s rating on each attribute to that of the
competing banks. Significantly lower ratings in any
attribute are potential problems, and significantly
higher ratings in any area are sources of
competitive advantage to capitalize on.
At the second level of abstraction (the latent
construct), choice attributes can be combined into
valid and reliable composite scores across the three
dimensions. This analysis can be useful to
management in revealing information that is not
readily available by the individual attributes. The
major advantage of this higher level of analysis is
that the theory underlying the latent constructs
can be meaningfully extended to practical
applications. In the current study, the congruence
between the first-order factors and economics of
information theory means that the model not only
offers deeper insights than earlier
conceptualizations, but it also has a strong
underlying theory that is directly applicable to the
bank choice context. For instance, assume that the
focal bank is rated lower than its competitor(s) on
experience dimension and higher on search
dimension. If the attributes were not grouped
according to the model validated here, managers
would likely have a difficult time to spot areas for
intervention or strategic initiative on the basis of
attribute scores. Scores at the dimension-level
provide direction for intervention in one area (e.g.
experience domain) while “keeping up the good
work” in the other area (e.g. search domain) where
the bank may already possess a competitive edge.
At the third and highest level of abstraction, as
depicted in Figure 4, the model allows bank
management to develop an overall rating of the
relationship between the bank and its customers.
Aggregate results can be compared across
branches or against the competitors. These results
may be used for strategic initiatives. For instance,
poor performing branches may benefit from a
holistic intervention.
The study has identified several search
attributes which are typically accessible and can be
evaluated prior to the purchase action. Interest
rates, fees charged, banking hours, new bank
service and overdraft privileges emerged as salient
indicators of search dimension. It is important for
banks to make information on such search
attributes as readily and clearly available as
possible. Hence, advertisements and other
promotions for the bank that refer to the specific
search attributes should be highly informative,
specific and factual. In addition to managers, all
 Modeling consumers’ choice behavior: an application in banking
Emin Babakus, Sevgin Eroglu and Ugur Yavas
frontline service personnel should be equipped
with the general knowledge about these facts, or at
the very least know where to acquire it. As Nelson
(1970) suggests, consumers are likely to believe
realistic claims about verifiable issues and are not
likely to be skeptical about most factual data. Hard
information, rather than aesthetic or emotional
appeals, should be the focus of these promotional
efforts. Such information, in effect, can help the
bank management in positioning its efforts as, for
example, a “low fees” or “reasonable interest
rates” bank. For new bank branches, such claims
can be used for creating awareness about their
existence and for image development. For existing
branches, factual information about new service/
product offerings can be promoted.
For experience attributes, about which the
buyers can make a reasonable quality judgment
only after accumulating some experience with the
service provider, different advertising and
promotion strategies are recommended. Given
that experience attributes are more likely to be
refuted by consumers (Nelson, 1970; Ford et al.,
1989), it may be best to avoid factual claims for
this set of attributes. Zeithaml (1981) suggests that
consumers be encouraged to obtain information
vicariously about experience attributes from
people who have actually used the service.
Capitalizing on this, banks, for example, can
employ ads featuring favorable testimonials from
real customers. This strategy can be especially
effective with new customers who have not yet
developed an established image of the bank. An
alternative strategy is to concentrate on image
executions that are hard for consumers to refute
(Lynch and Schuler, 1990). For example, five out
of the seven experience attributes identified in this
study deal with bank personnel qualities.
Accordingly, images of “friendly”, “attentive” and
“experienced” employees can be portrayed in the
ads in order to promote the match between the
bank and its customers’ expectations. Another
strategic option in the experience attribute context
is to facilitate prospective customers’ opportunity
to experience at least some aspect of the bank’s
offerings. To this end, the bank can provide free
educational services on various financial matters.
For example, creating opportunities for customers
to meet and chat with the specialists without being
pressured to make a purchase commitment is
another way for them to get a feel for the bank’s
human capital.
Among the credence attributes identified in this
study are integrity, managerial capability and
technological advancement of the bank, as well as its
trustworthiness in terms of keeping consumer
information confidential. Since these claims are the
most difficult (if not impossible) to accurately
468
Journal of Services Marketing
Volume 18 · Number 6 · 2004 · 462-470
evaluate (Matilla and Wirtz, 2002; Howcroft and
Beckett, 1996; Ostrom and Iacobucci, 1995), they
pose a challenge for banks. Promoting a quality that
has very few, if any, tangible indicators is no easy
task. Factual claims probably do not work since
consumer skepticism is likely to be high (Ford et al.,
1989). One strategy is to provide market signals for
consumers when they make quality judgments
about credence attributes. Lynch and Schuler
(1990) found that consumers often rely naively on
market signaling where each signal is but a single bit
of information used to make a judgment about a
second bit of information. These signals could be
focused on, for example, the high profile customers
who have been affiliated with the bank for a long
time, or the availability of the latest technology and
equipment to be used in transactions.
In conclusion, it should be noted that while the
results and implications of the present study are
useful, more studies of other bank consumers in the
same locality as well as elsewhere would be helpful in
cross-validating the findings. The convenience
sample used here is adequate for the illustrative
purpose of the study. However, data from a random
sample of customers would be necessary to generate
dependable results for a bank considering using the
current model. Also this research is restricted to
retail banking setting only. Further research into
multiple service industries would be fruitful in
examining which search-experience-credence
attributes are extracted across different contexts and
to what extent they converge or diverge.
References
Aldlaigan, A.H. and Buttle, F.A. (2002), “SYSTRASQ: a new
measure of bank service quality”, International Journal of
Service Industry Management, Vol. 13 No. 4, pp. 362-81.
Anderson, J. and Gerbing, D. (1988), “Structural equation
modeling in practice: a review and recommended two step
approach”, Psychological Bulletin, Vol. 103, May,
pp. 411-23.
Anderson, W.T., Cox, E.P. and Fulcher, D.G. (1976), “Bank
selection decisions and market segmentation”, Journal of
Marketing, Vol. 40 No. 1, pp. 40-5.
Avkiran, N.K. (1997), “Models of retail performance for bank
branches: predicting the level of key business drivers”,
International Journal of Bank Marketing, Vol. 15 No. 6,
pp. 224-37.
Bagozzi, R.P. and Heatherton, T.F. (1994), “A general approach to
representing multifaceted personality constructs:
application to state self-esteem”, Structural Equation
Modeling, Vol. 1 No. 1, pp. 35-67.
Bloom, P.N. and Pailin, J.E. Jr (1995), “Using information
situations to guide marketing strategy”, Journal of
Consumer Marketing, Vol. 12 No. 2, pp. 19-27.
Chen, T. (1999), “Critical success factors for various strategies in
the banking industry”, International Journal of Bank
Marketing, Vol. 17 No. 2, pp. 83-91.
 Modeling consumers’ choice behavior: an application in banking
Emin Babakus, Sevgin Eroglu and Ugur Yavas
Darby, M. and Karni, E. (1973), “Free competition and the
optimal amount of fraud”, Journal of Law and Economics,
Vol. 16 No. 2, pp. 67-8.
Devlin, J.F. (2001), “Consumer evaluation and competitive
advantage in retail financial services: a research agenda”,
European Journal of Marketing, Vol. 35 No. 5/6,
pp. 639-60.
Dudley, S.C., Young, G.F. and Powers, R.L. (1985), “A study of
factors affecting individuals’ banking preferences”,
Journal of Professional Services Marketing, Vol. 1 No. 1/2,
pp. 163-8.
Erol, C. and El-Bdour, R. (1989), “Attitudes, behavior, and
patronage factors of banking customers towards Islamic
banks”, International Journal of Bank Marketing, Vol. 7
No. 6, pp. 31-8.
Ford, G.T., Smith, D.B. and Swasy, J.L. (1989), “Consumer
skepticism of advertising claims: testing hypotheses from
economics of information”, Journal of Consumer
Research, Vol. 16, pp. 433-41.
Galloway, R.L. and Blanchard, R.F. (1996), “Variation in the
perception of quality with lifestage in retail banking”,
International Journal of Bank Marketing, Vol. 14 No. 1,
pp. 22-9.
Hawkins, D.I., Best, R.J. and Cooney, K.A. (2001), Consumer
Behavior: Building Marketing Strategy, McGraw-Hill,
New York, NY.
Howcroft, B. and Beckett, A. (1996), “Branch networks and the
retailing of high credence products”, International Journal
of Bank Marketing, Vol. 14 No. 4, pp. 3-11.
Kaynak, E. and Yavas, U. (1985), “Segmenting the banking
market by account usage: an empirical investigation”,
Journal of Professional Services Marketing, Vol. 1 No. 1/2,
pp. 177-88.
Levesque, T. and McDougall, G.H.G. (1996), “Determinants of
customer satisfaction in retail banking”, International
Journal of Bank Marketing, Vol. 14 No. 7, pp. 12-20.
Lynch, J. and Schuler, D. (1990), “Customer evaluation of the
quality of hospital services from an economics of
information perspective”, Journal of Health Care
Marketing, Vol. 10 No. 2, pp. 16-22.
McKechnie, S. (1992), “Consumer buying behavior in financial
services: an overview”, International Journal of Bank
Marketing, Vol. 10 No. 5, pp. 4-12.
Matilla, A.S. and Wirtz, J. (2002), “The impact of knowledge
types on the consumer search process: an investigation in
the context of credence services”, International Journal of
Service Industry Management, Vol. 13 No. 3, pp. 214-30.
Minhas, R.S. and Jacobs, E.M. (1996), “Benefit segmentation by
factor analysis: an improved method of targeting
customers for financial services”, International Journal of
Bank Marketing, Vol. 14 No. 3, pp. 3-13.
Mitra, K., Reiss, M.C. and Capella, L.M. (1999), “An examination
of perceived risk, information search, and behavioral
intentions in search, experience and credence services”,
Journal of Services Marketing, Vol. 13 No. 3, pp. 208-28.
Nelson, P. (1970), “Information and consumer behavior”,
Journal of Political Economy, Vol. 78, March-April,
pp. 311-29.
Netemeyer, R.G., Johnston, M.W. and Burton, S. (1990),
“Analysis of role conflict and role ambiguity in a structural
equations framework”, Journal of Applied Psychology,
Vol. 75 No. 2, pp. 148-57.
Nunnally, J.C. (1978), Psychometric Theory, McGraw-Hill,
New York, NY.
Ostrom, A. and Iacobucci, D. (1995), “Consumer trade-offs and
the evaluation of services”, Journal of Marketing, Vol. 59
No. 1, pp. 17-28.
469
Journal of Services Marketing
Volume 18 · Number 6 · 2004 · 462-470
Parasuraman, A., Zeithaml, V.A. and Berry, L.L. (1994),
“Reassessment of expectations as a comparison standard
in measuring service quality: implications for further
research”, Journal of Marketing., Vol. 58, January,
pp. 111-24.
Srinivasan, S.S. and Till, B.D. (2002), “Evaluation of search,
experience and credence attributes: role of brand name
and product trial”, Journal of Product and Brand
Management, Vol. 11 No. 7, pp. 417-31.
Tyler, K. and Stanley, E. (1999), “Marketing financial services to
businesses: a critical review and research agenda”,
International Journal of Bank Marketing, Vol. 17 No. 3,
pp. 98-115.
US Census Bureau (2000), Census 2000 Summary, available at:
http//factfinder.census.gov/bf.
Williams, L.J. and Hazer, J.T. (1986), “Antecedents and
consequences of satisfaction and commitment in turnover
models: a reanalysis using latent variable structural
equation methods”, Journal of Applied Psychology, Vol. 71,
pp. 219-31.
Yavas, U. (1988), “Banking behavior in an Arabian Gulf country:
a consumer survey”, International Journal of Bank
Marketing, Vol. 6 No. 5, pp. 40-8.
Yavas, U. and Shemwell, D.J. (1996), “Bank image: exposition
and illustration of correspondence analysis”, International
Journal of Bank Marketing, Vol. 14 No. 1, pp. 15-21.
Zeithaml, V.A. (1981), “How consumer evaluation processes
differ between goods and services”, in Donnelly, J.H. and
George, W.R. (Eds), Marketing of Services, American
Marketing Association, Chicago, IL, pp. 186-90.
Further reading
Athanassapoulos, A.D. (1997), “Another look into the agenda of
customer satisfaction: focusing on service providers’ own
and perceived viewpoints”, International Journal of Bank
Marketing, Vol. 15 No. 7, pp. 264-78.
Gerrard, P. and Cunningham, J.B. (1997), “Islamic banking:
a study in Singapore”, International Journal of Bank
Marketing, Vol. 15 No. 6, pp. 204-16.
Holstius, K. and Kaynak, E. (1995), “Retail banking in Nordic
countries: the case of Finland”, International Journal of
Bank Marketing, Vol. 13 No. 8, pp. 10-20.
Executive summary and implications for
managers and executives
This summary has been provided to allow managers
and executives a rapid appreciation of the content of
this article. Those with a particular interest in the topic
covered may then read the article in toto to take
advantage of the more comprehensive description of the
research undertaken and its results to get the full benefit
of the material present.
A model of how customers choose their bank
Customers’ choice in some areas is guided by very
simple rules, such as “buy the cheapest brand”. In
other areas – such as choosing one’s bank – the
choice is much more complicated. A generalizable
 Modeling consumers’ choice behavior: an application in banking Journal of Services Marketing
Emin Babakus, Sevgin Eroglu and Ugur Yavas Volume 18 · Number 6 · 2004 · 462-470

conceptual framework that adequately captures information confidential, the integrity of the bank,
the dynamics involved when a consumer chooses a its adoption of the latest technology, its
particular financial service or financial institution management and its overall competence in the
has not yet been developed. Most attempts to do so business of banking.
focus only on the initial attribute level: that is to
say, they tend to identify the importance ratings of The first level of abstraction
individual attributes that consumers use in their
At the individual-attribute level (the first level of
decisions, or employ exploratory factor analysis to
abstraction) management might look at the bank’s
determine the underlying dimensions of the
mean score for each individual attribute and
choice. This approach, while a useful starting
identify areas that need special attention. For
point, neither adequately captures the important
example, if the bank falls short on the search
higher-level abstractions, nor provides managers
attribute of “fees charged”, it could find out
with actionable strategies. Babakus et al.. develop
whether its competitors really do have a better fee
and test a model of how consumers choose their
structure or whether this is simply an inaccurate
bank, which reveals patterns of evaluation and
perception, then decide what action to take to
choice criteria that cannot readily be extracted at
remedy the situation.
the attribute level.

The second level of abstraction

Search, experience and credence attributes
At the second level of abstraction (the latent
The model, based on the economics of
construct) choice attributes can be combined into
information theory, expands the area of inquiry
valid and reliable composite scores across the three
beyond initial-level attributes to the first-order
dimensions. This analysis can reveal information
latent construct and the second-order (composite)
that is not readily available by the individual
levels. The research results suggest that
attributes. For example, a bank may be rated lower
consumers’ behaviour in choosing a bank can be
than its competitors on experience dimension and
represented as a global construct with three viable
higher on search dimension. If the attributes were
components:
not grouped according to the model, managers
Search attributes – which can be accurately
would have difficulty spotting areas for strategic
evaluated before making a choice. In the banking
initiatives based on attribute scores. But scores at
context, these include interest rates on deposits
the dimension level provide direction for
and loans, overdraft privileges, fees and charges,
intervention in one area (for example, experience
banking hours and new bank services.
domain) while “keeping up the good work” in the
Experience attributes – which can be accurately
other area (for example, search domain), where the
assessed only after the service has been purchased
bank may already have a competitive edge.
and used. In the banking context, these include the
helpfulness of tellers, the provision of services in a
timely manner, the attentiveness of bank staff, The third level of abstraction
their willingness to listen to the customer, their At the third and highest level of abstraction, the
friendliness and expertise, and the speed of model enables bank management to develop an
decisions made by the bank. overall rating of the relationship between the bank
Credence attributes – which may or may not be and its customers. Aggregate results can be
evaluated even after a purchase is made, simply compared across branches or against competitors.
because the consumer may lack the technical These results may be used for strategic initiatives.
experience needed to make the assessment or there
may be no readily available indicators of the (A précis of the article “Modeling consumers’ choice
attributes. In the banking context, credence behavior: an application in banking”. Supplied by
attributes include keeping the customer’s banking marketing consultants for Emerald.)

470