W. Thomas Anderson, Jr., Eli P. Cox III, and David G.
Fulcher
Bank Selection Decisions
and Market Segmentation
Determinant attribute analysis reveals convenience- and
sevice-oriented bank customers.
I N an analysis of marketing activities in
service industries, George and Barksdale con-
cluded that although service industries have ex-
perienced unprecedented expansion in recent
years, "the marketing function appears to be less
structured in service_companies than in manufac-
turing firms . . . . Fragmentation of marketing
activities in service firms holds true for all com-
ponents of the marketing mix."! Moreover, ser-
vice firms appear to allocate a relatively smaller
proportion of their operating budgets to market-
ing activity than manufacturing firms. Marketing
has traditionally been the neglected stepsister in
most service industries. Nowhere has this been
more evident than in the market for commercial
banking services.?
Banking has historically had an apparent im-
munity from marketing. Yet,
one unalterable fact of marketing life confronts
every bank, from Bank of America and First Na-
tional City, with their billions in deposits and
branches the world over, to the smallest, one-office
country bank; Money is a commodity, and one
bank's product is no greener or crisper than
another's.' <
Only recently has the commercial banking indus-
try begun to learn and implement marketing
1. William R. George and Hiram C. Barksdale, "Market-
ing Activities in the Service Industries," JOURNAL OF MARKET-
ING, Vol. 38 (October 1974), p. 69.
2. Richard H. Brien and James E. Stafford, "The Myth of
Marketing in Banking," Business Horizons, Vol. 10 (Spring
1967), pp. 71-78; and William D. Sullivan, "Recognize Mar-
keting as a Way of Life Today, Before Your Competition
Does So Tomorrow," American Banker, June 8,1966, p. 16.
3. Business Week, September 15, 1973, p. 129.
Journal of Marketing, Vol. 40 (January 1976), pp. 40-45.
40
techniques that other industries applied decades
ago. Donald H. Gerdts, a New York banking con-
sultant, concurs:
No matter how many computers you install,
what sort of management structure you use, or
what kind of economic planning you do, it's all
for nothing unless you know how to package and
sell your product and to position it in the mar-
ketplace. Packaged-goods companies call it
"product differentiation." Many bankers don't
call it anything, because they still haven't dis-
covered what it's all about."
Where the banking community has accepted
marketing practices, marketing research aimed at
delineating market targets for programming pur-
poses is often focused on consumer demographic
and sociopsychological characteristics rather than
on the criteria used by customers in making bank
selection decisions. Hence, product/service pack-
ages and promotional programs are frequently
misdirected toward consumer characteristics that
may in no way relate to those critical factors that
determine bank selection.
The present research involves a determinant at-
tribute analysis of bank selection criteria. Spe-
cifically, the analysis assesses the principal deci-
sion factors used and their relative determinance
in bank selection decisions. It also examines the
usefulness of these factors as criteria for market
segmentation and the design of patronage ap-
peals.
Methodology
A questionnaire was designed to determine the
relative importance of factors that may influence
4. Same reference as footnote 3.
Bank Selection Decisions 41

TABLE 1
BANK SELECTION CRITERIA: DETERMINANT ATTRIBUTE ANALYSIS

Cluster 1: Cluster 2:
Convenience- Service-
Oriented Bank Oriented Bank
Total Customers Customers
Sample Mean Mean
Decision Criteria Mean Rank N = 256 Rank N=21O Rank

Recommendation
by friends 7.623 1 5.504 1 10.205 3
Reputation 7.528 2 5.266 3 10.286 2
Availability of
credit 7.309 3 4.672 6 10.524 1
Friendliness 7.251 4 5.133 5 9.833 4
Service charges on
checking accounts 6.352 5 5.227 4 7.724 7
Interest charges
on loans 5.843 6 3.828 10 8.300 5
Location 5.736 7 5.316 2 6.248 10
Overdraft privileges
on checking accounts 5.586 8 3.527 11 8.095 6
"Full Service"
offering 5.550 9 3.934 9 7.519 8
Parking 5.303 10 4.512 7 6.267 9
Hours of operation 5.133 11 4.379 8 6.052 11
Interest payments on
savings accounts 4.350 12 3.254 12 5.686 12
Special services
for youths 3.998 13 3.012 13 5.200 13
Special services
for women 3.436 14 2.582 14 4.476 14
New account premiums
or gifts 2.798 15 2.316 15 3.386 15

a person's choice of a commercial bank. Fifteen
bank selection criteria were developed by means
of preliminary interviews and a review of the rel-
evant literature (see Table 1).5 Questions were
constructed to measure the perceived importance
of each bank selection criterion using determinant
attribute analysis." Each subject was first asked to
indicate the importance of each bank selection
criterion along a five-point scale ranging from (1)
not important at all to (5) the most important.
5. Brien and Stafford, same reference as footnote 2.
6. Mark 1. Alpert, "Identification of Determinant
Attributes-A Comparison of Methods," Journal of Market-
ing Research, Vol. 8 (May 1971), pp. 184-191; and James H.
Myers and Mark 1. Alpert, "Determinant Buying Attitudes:
Meaning and Measurement," JOURNAL OF MARKETING, Vol. 32
(October 1968), pp. 13-20.
• ABOUT THE AUTHORS.
W. Thomas Anderson, Jr. is associate professor of
marketing and Eli P. Cox III is assistant professor of
marketing in the College of Business Administration,
The University of Texas at Austin.
David G. Fulcher is in the Marketing Department
of the Student Loan Marketing Association,
Washington, D.C.
Subjects were then asked to indicate the extent to
which five major competing banks were perceived
to be similar or different on each bank selection
criterion along a four-point scale ranging from (1)
very similar to (4) very different.
A person's determinant attribute score was cal-
culated as the simple product of (1) the impor-
tance associated with a particular bank selection
criterion, and (2) the degree to which competing
banks were perceived to differ in terms of that
selection criterion. Thus, the range of possible de-
terminant attribute scores was from 1 (not impor-
tant at all and very similar) to 20 (the most im-
portant and very different).
The determinant attribute score provides a
measure of the relative importance of a particular
selection criterion and the perceived difference
among competing banks in terms of this criterion.
The higher the score, the higher the relative de-
terminance of the criterion in bank selection deci-
sions, and the higher its potential as a competi-
tive tool in attracting bank patronage. Assume,
for example, that friendliness and convenience of
location are both perceived as very important in
bank selection decisions. Assume also that cus-
42
tamers generally perceive all competing banks to
be equally friendly but to vary widely in conve-
nience of location. In this instance, friendliness
will not be a critical factor in bank selection deci-
sions, but convenience of location will be a key
determinant of bank patronage.
The questionnaire was mailed to a systematic
random sample of residences drawn from the
telephone directory of a medium-sized (275,000
population) southwestern city in the spring, 1973.
The analysis was conducted using 466 completed
questionnaires, which represented a response rate
of 17.5%. The low response rate is a result of the
combined factors of a lengthy questionnaire deal-
ing with an uninspiring topic with no incentives
provided for the respondent. However, respon-
dents were contrasted with the local population
on the basis of census data and were found to be
slightly skewed toward the middle and upper
socioeconomic strata with respect to the occupa-
tion and education of the chief wage earner and
annual family income.
The first stage in the analysis was to calculate
the fifteen determinant attribute scores for each
of the 466 respondents. An examination of the
rank order of the fifteen attributes indicates the
relative importance attached to the various bank
selection criteria.
The second stage of the analysis involved a
cluster analysis of the respondents on the basis of
the fifteen determinant attribute scores to assess
the consistency of opinion within the sample re-
garding the relative importance of bank selection
criteria. This was done to determine the possible
existence of distinctive consumer typologies, dif-
fering as to the relative significance associated
with bank selection criteria, which might provide
a basis for market segmentation and program-
ming.
A nonhierarchical clustering routine was used
to help determine the most appropriate number
of bank customer clusters and to look for the exis-
tence of important differences within the group of
respondents." The purpose of the clustering
routine used was to extract customer clusters
having maximal intracluster similarity and in-
tercluster dissimilarity. That is, the technique iso-
lates market segments that are both maximally
homogeneous internally and maximally differen-
tiated in terms of their determinant attribute
scores, thus providing a focus for marketing pro-
gramming.
The final stage of the analysis involved an at-
7. D. J. McRae, MKCA: A Fortran IV Iterative K-Means
Cluster Analysis Program (Monterey, Calif.: CTB/McGraw-
Hill Book ce., 1970).
Journal of Marketing, January 1976
tempt to distinguish the two groups of bank cus-
tomers that were isolated by means of the cluster
analysis on the basis of the 20 demographic vari-
ables listed in Table 2. It was hoped that this
procedure WOUld provide a focus for market seg-
mentation and the design of patronage appeals.
Findings
Determinant Attribute Analysis
Table 1 presents findings with respect to the
relative determinance of bank selection criteria.
Results of the analysis for the total sample indi-
cate that the bank selection decision is based
primarily on five determinant selection criteria:
friends' recommendations, reputation, availabil-
ity of credit, friendliness, and service charges on
checking accounts. Special services for women
and youths and new account premiums or gifts
appear to be uniformly insignificant bank selec-
tion criteria.
The cluster analysis produced two quite dis-
tinct groups of 256 and 210 respondents. The de-
terminant attribute scores for the two clusters are
shown in Table 1. It is particularly noteworthy
that vast differences exist between the two clus-
ters with regard to the importance associated
with bank selection criteria.
Customers comprising Cluster 1, representing
nearly 55% of the respondents, appear to regard
banking services essentially as convenience goods
and money as a largely undifferentiated product.
While they view friends' recommendations, loca-
tion, reputation, friendliness, and service charges
on checking accounts as relatively more impor-
tant bank selection criteria, Cluster 1 customers
apparently regard banks as essentially indistin-
guishable on the basis of these and the other di-
mensions.
Conversely, the customers comprising Cluster 2,
representing 45% of the respondents, ascribe sig-
nificantly greater importance to all decision
criteria and perceive substantial differences
among competing banks on a number of selection
criteria. For the members of Cluster 2, availability
of credit is the most important single determinant
of bank patronage, followed by reputation,
friends' recommendations, friendliness, and in-
terest charges on loans.
Implied in these findings is the conclusion that
a substantial segment of the market for banking
services appears to be relatively immune to pa-
tronage appeals in that they attach comparatively
little importance to any bank selection criteria.
Even the highest-ranking determinant attribute for
the convenience-oriented customers comprising
Bank Selection Decisions 43

TABLE 2
CUSTOMER CLUSTER DIFFERENCES ON DEMOGRAPHIC
AND SOCIOECONOMIC VARIABLES

Significance
Variable dJ. X2 Level

Sex 1 1.751 .1857

Marital status 2 8.240 .0162
Chief source of income 4 2.799 .5920
Employment status of the spouse 2 11.082 .0044
Age of the chief wage earner 4 4.043 .4002
Family size 4 5.296 .2583
Education of the chief wage earner 4 5.809 .2138
Annual family income 4 7.126 .0279
Ethnic background 3 4.032 .2580
Type of residence 4 1.643 .8010
Number of automobiles owned 3 3.304 .3471
Length of residence 3 5.427 .1431
Employment in the central business
district 2 2.085 .7201
Frequency of downtown shopping 4 189.823 .0000
Family member selecting principal bank 3 172.200 .0000
Source of information in selecting
principal bank 4 14.183 .0067
Bank with one of the five principal
downtown banks 4 43.070 .0000
Number of banks patronized 3 4.260 .3720
Stage in the family life cycle 8 11.442 .0435
Residential location 5 3.537 .6178

Cluster 1 appears to be of less perceived impor-
tance than the twelve top-ranking determinant
attributes for Cluster 2. A second sizable seg-
ment of the market for commercial banking ser-
vices, however, perceives substantial differences
among competing banks and their service offer-
ings. Convenience appears to be a secondary con-
sideration among the service-oriented customers
comprising Cluster 2, for whom bank image and
financial considerations emerged as principal
selection criteria.
Demograph ic and
Socioeconomic Variables
Table 2 presents the results of chi-square tests
of differences between the convenience-oriented
customers comprising Cluster 1 and the service-
oriented customers in Cluster 2 on the basis of 20
demographic and socioeconomic variables. Of the
20 variables analyzed, frequency of downtown
shopping, family member selecting the principal
bank, and banking at one of the five major down-
town banks were the most statistically signifi-
cant discriminators between the service-oriented
and the convenience-oriented bank customers. A
more detailed presentation of the significant
findings appears in Table 3.
Among the convenience-oriented bank custom-
ers, 56% shopped downtown at least twice a week
and 51% patronized one of the principal
downtown banks. Conversely, nearly 50% of the
service-oriented customers almost never shopped
downtown and, correspondingly, only 21% of the
service-oriented customers patronized a down-
town bank. Thus, convenience-oriented bank cus-
tomers apparently incorporate banking into their
regular pattern of frequent downtown shopping
expeditions and view banking services as con-
veniences.
Whereas among both the service-oriented and
the convenience-oriented customers the husband
selected the family's principal bank in two-thirds
or more of the cases, the convenience-oriented
customers were characterized by greater joint
bank selection than the service-oriented custom-
ers. Among the service-oriented bank customers,
however, a higher proportion of wives selected
the family's principal bank.
Employment status of the spouse and primary
source of information in selecting the principal
bank differentiated the convenience-oriented from
the service-oriented customers at the .01 level;
marital status, stage in the family life cycle, and
annual family income yielded differences sig-
nificant at the .05 level. A significantly higher
proportion of the service-oriented customer
households had working wives than did the
convenience-oriented customer households. Both
the convenience-oriented and the service-oriented
bank customers placed principal reliance on con-
44 Journal of Marketing, January 1976

TABLE 3
SIGNIFICANT CUSTOMER CLUSTER DIFFERENCES ON DEMOGRAPHIC
AND SOCIOECONOMIC VARIABLES

Cluster 1: Cluster 2:
Convenience- Service- Signifi-
Oriented Oriented cance
Variable Bank Customers Bank Customers Level

Deal with one of the five 51% yes 21% yes

principal downtown 49% no 79% no .0000
banks
Frequency of downtown 56% twice/week or 5% twice/week or
shopping more often more often
18% 2-3 times/month 15% 2-3 times/month
13% once a month 14% once a month
8% 2-6 times/year 16% 2-6 times/year
5% almost never 50% almost never .0000
Marital status 76% married 86% married
14% single 9% single
10% other 5% other .0162
Family member selecting 67% husband 69% husband
principal bank 9% wife 14% wife
22% both 15% both
2% other 2% other .0000
Stage in the family life 13% single 9% single
cycle 30% childless 28% childless
23% preteenage 32% preteenage
children children
17% teenage children 18% teenage children
7% postteenage 9% postteenage
children children
10% other 4% other .0435
Annual family income 20% above $20,000 31% above $20,000
53% between $10,000 46% between $10,000
and $20,000 and $20,000
27% below $10,000 23% below $10,000 .0279
Employment status of the 27% full time 42% full time
spouse 20% part time 14% part time
53% not employed 44% not employed .0044
Source of information 10% television 5% television
concerning bank 1% radio 0% radio
selection 8% newspapers 3% newspapers
78% conversations 90% conversations
3% billboards 2% billboards .0067

versations with friends as the primary source of
information in bank selection decisions. However,
the service-oriented customers relied significantly
more on conversations with friends, while the
convenience-oriented customers regarded televi-
sion and newspapers as relatively more impor-
tant secondary sources of information. In addi-
tion, a relatively higher proportion of the
service-oriented bank customers were married,
and the service-oriented customers occupied ear-
lier stages in the family life cycle and had higher
annual family incomes than the convenience-
oriented customers.
Table 2 also shows a number of demographic
variables that failed to significantly differentiate
the service-oriented from the convenience-
oriented bank customers. It is particularly
noteworthy that the service-oriented and the
convenience-oriented bank customers were highly
distinguishable on the basis of frequency of
downtown shopping, family member selecting the
principal bank, and patronage of one of the major
downtown banks, but they were not differentiated
on the basis of employment in the central busi-
ness district or residential location.
Conclusions and Implications
The most significant insight revealed by the
study is that for a sizable proportion of the mar-
ket served by commercial banks, banking services
appear to be viewed essentially as convenience
Bank Selection Decisions
goods and money is an undifferentiated product.
To the extent that bank selection decisions are
made on the basis of conscious deliberation, con-
venience appears to be a dominant determinant
of patronage for many customers. Convenience-
oriented bank customers apparently incorporate
banking into their regular pattern of frequent
downtown shopping expeditions. Overall, how-
ever, convenience-oriented bank customers ap-
pear to be relatively immune to patronage ap-
peals in the sense that they attach comparatively
little importance to any bank selection criteria.
Alternatively, a second sizable segment of the
commercial bank market attaches substantially
greater significance to virtually all bank selection
criteria, and sees meaningful differences among
competing commercial banks and their service of-
ferings. Bank image and financial considerations,
rather than dimensions of convenience, constitute
the principal determinants of bank patronage
among service-oriented customers and provide
highly useful criteria for market segmentation
and the design of patronage appeals. To appeal to
this segment, promotional programs should focus
on the dual determinants of bank patronage: (1)
bank image, including friends' recommendations,
reputation, and friendliness; and (2) critical
financial considerations, including availability of
credit, interest charges on loans, service charges
on checking accounts, and overdraft privileges on
checking accounts. Promotional appeals stressing
special services or new account premiums or gifts
would appear to be misfocused on inconsequen-
tial bank selection criteria and, hence, are largely
ineffectual in cultivating bank patronage.
Twenty demographic and socioeconomic vari-
ables were examined to determine their useful-
ness in differentiating between the convenience-
oriented and the service-oriented bank customers.
Eight of these variables were found to yield statis-
tically significant differences between the two
groups, as revealed in Table 3.
All of the statistically significant variables may
help bank managers and researchers better un-
derstand the decision process underlying bank
choice. For example, the convenience-oriented
45
customers appeared to rely heavily on mass media
as sources of banking information. This is consis-
tent with the notion that they seem to have a
more casual attitude toward their bank choice
decision. However, this finding is of no im-
mediately obvious managerial significance in the
development of separate marketing strategies for
the two potential segments, because more than
75% of the members of both groups indicated that
they depended on personal conversations as the
principal source of banking information.
Alternatively, there are two variables that do
appear to have both statistical and managerial
significance. The convenience-oriented bank cus-
tomers tended both to bank and shop downtown
with far greater frequency than the service-
oriented customers, independent of employment
in the central business district or of residential
location. The causal nature of this relationship
cannot be ascertained because of the nonexperi-
mental nature of the study. Nevertheless, it ap-
pears that centrally located banks share a com-
mon fate with other downtown businesses and
with the downtown area itself. Hence, it is in the
interests of downtown commercial banks to sup-
port collective efforts to solicit downtown retail
patronage, while responding to the critical de-
terminants of bank selection.
This study has demonstrated the usefulness of
determinant attribute analysis in isolating and
evaluating the relative determinance of bank
selection criteria to provide a foundation for mar-
ket segmentation and the design of patronage ap-
peals and product/service offerings that can be
oriented toward demographic differences among
commercial bank customers. Determinant attri-
bute analysis is a technique that is applicable in a
wide variety of marketing research situations
where the objective is to ascertain the critical fac-
tors in consumer decision making. Selecting a re-
tail store, a brand, a service, a political candidate,
or a church are examples of situations where
knowledge of the relevant decision factors may be
critical to the design of appropriate appeals and
in implementing effective market segmentation
strategies.