Customer Relationship Management (CRM) Best

Practices and
Customer Loyalty
A Study of Indian Retail Banking Sector
Kallol Das
School of Management, International Institute of Information Technology, P-14
Rajiv Gandhi Infotech Park, Hinjawadi, Pune, Maharashtra, India
E-mail: getkdas@gmail.com
Jitesh Parmar
Shrimad Rajchandra Institute of Management & Computer Application
Gopal Vidyanagar, Bardoli Mahuva Road, Dist. Surat, Gujarat, India
E-mail: jiteshsp@gmail.com
Vijay Kumar Sadanand
Bhoj Reddy Engineering College for Women Hyderabad
Vinay Nagar Saidabad, Hyderabad - 500059
Andhra Pradesh, India
E-mail: nenuvijay@gmail.com
Abstract
The current study explores the association between deployment of customer relationship
management (CRM) best practices and loyalty of profitable customers in Indian retail
banking sector. The study comprises two parts. The first part called the CRM best
practices
survey involves the use of descriptive research design. The second part viz. case study
research involves the use of embedded customer loyalty survey. The hypothesis testing
based on literal and theoretical replication is done using the concept of pattern matching.
The findings reveal that there is no perfect bank, as yet, across the three bank types,
which
has deployed all the 29 CRM best practices to the fullest extent. The results of literal and
theoretical replication done by using pattern matching technique indicates no strong
association between deployment of CRM best practices in scheduled commercial banks
and
loyalty levels of both high and medium relationship value retail customers. The study
develops a list of 29 CRM best practices, which may be helpful to the organizations
toward
achieving comprehensive CRM deployment. The results also imply that going for CRM
deployment may not be a profitable strategy for retail banks, particularly in the Indian
context.
Keywords: Customer relationship management (CRM), customer loyalty, best practices,
retail banking, India
1. Introduction
The current study explores the association between deployment of customer relationship
management
(CRM) best practices and loyalty of profitable customers in scheduled commercial banks
of India with
respect to retail banking segment. This is important because a strong positive association
will act as a
significant motivator to organizations for making larger investments towards deployment
of CRM best
European Journal of Social Sciences – Volume 11, Number 1 (2009)
62
practices. On the other hand, a weak association will fail to provide necessary
encouragement to the
same organizations for CRM deployment. The paper begins with an introduction to
Indian banking
industry and delineates the scope of the study. It is followed by a literature review on
CRM best
practices as well as customer loyalty. The methodology used is discussed in detail
followed by the
findings and implications.
1.1. Indian Banking
The structure of schedule banks in India in shown in figure 1. The total number of public
sector banks
(PSBs) stands at 28.
In the category of private banks (PBs), there are 16 banks classified as old private banks
(OPBs) which were existing prior to the liberalization of the banking sector. The new
private banks
(NPBs) were born after 1991-92 with the opening up of this sector to private players. The
total number
of NPBs, as of 1st May, 2007, is 8. Plus, there are 29 foreign banks (FBs), most of which
are limited to
the metropolitan cities (RBI, 2006). In all, the total number of scheduled commercial
banks as of 1st
May, 2007 is 81.
1.2. Retail Banking
Retail banking refers to the dealing of commercial banks with individual customers, both
on liabilities
and assets sides of the balance sheet (Gopinath, 2005b). Similarly, Sood (2003) defines
retail banking
as “catering to the multiple banking requirements of individuals relating to deposits,
advances and
associated services” (p. 9).
1.3. Scope of Study
The current study focuses exclusively on the retail banking segment of scheduled
commercial banks.
However, within scheduled commercial banks, the regional rural banks are not being
covered. These
banks are expected to mobilize resources from rural areas and play a significant role in
developing
agriculture and rural economy (RBI, 2006).
As it is understood today, retail banking is largely an urban phenomenon with a clear
objective
of increasing the bank’s bottom line (see Gopinath, 2005a). It is very apparent that the
regional rural
banks are outside the ambit of retail banking.
1.4. Geographic Scope
Many of the 81 scheduled commercial banks in the country have a pan-India presence in
terms of
branch network. For matters of convenience, the study was restricted to Surat city, where
the
researcher was based. Another reason for accepting Surat as the place of study is the fact
that except
for one bank (State Bank of Patiala), the entire segment of PSBs is existing for many
years. In the case
of PBs, except for four banks, all others have a presence in this city. These four banks are
Lord Krishna
Bank, Nainital Bank, Ratnakar Bank, and SBI Commercial and International Bank. The
merger of Lord
Krishna Bank with Centurion Bank of Punjab is on the cards (RBI, 2007). Nainital Bank
is in the
process of getting merged with Bank of Baroda (PR Domain, 2006) and the future of the
other two PBs
is uncertain. In the case of FBs, out of the 29 players operating in the country, only 4
players are active
in the retail banking segment for more than one year (Chowdhury, 2007), out of which 3
banks are
present in Surat (only HSBC Bank is not present). Further, the practices of the banks are
consistent
across cities/ regions as confirmed by their respective managers and further corroborated
by the
researcher’s personal observations, thus ensuring that external validity will not be
affected.
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63
Figure 1: Structure of Scheduled Banks in India
Scheduled Banks in
India
Scheduled Commercial
Banks
Public Sector
Banks
Private Banks
Foreign
Banks
Regional
Rural Banks
Scheduled Co-operative
Banks
Scheduled Urban
Co-operative
Banks
Scheduled State
Co-operative
Banks
Old
Private
Banks
New
Private
Banks

Surat is the ninth largest city of India in terms of population as per 2001 census
(Population,
2006). The city is ranked 70th amongst the most populous cities of the world for the year
2006 with an
estimated population of 3.9 million (vom Hove, 2006). The city was ranked 131st
amongst the
wealthiest cities of the world for the year 2005 and is predicted to be the 4th fastest
growing city of the
world (second in the country) for the period 2006 to 2020 (vom Hove, 2006). All these
facts make
Surat a very lucrative market for the banks, particularly, in the retail banking segment.
This also
explains the high representation of scheduled commercial banks in the city.
1.5. Population for the Current Study
The population for the study is defined as the retail banking segment of scheduled
commercials banks
based in Surat city with at least one year of commercial operation. The scheduled
commercial banks
are into both retail and wholesale (corporate) banking. Retail banking is an area of
interest for all the
banks today and the study has been restricted only to this segment of the banks for the
purpose of
focus. Also, it was felt that business organizations need to complete a significant period
of operation
(in this case, one year) after which the practices can be considered to be well established
and suitable
for comprehensive description. This line of thought was endorsed by other researchers
and marketing
practitioners who have provided their support in the conduct of the study. With this
definition of the
population, one NPB, Yes Bank, had to be excluded from the scope of the study as it had
not
completed one year of existence as of November 2006 when the data collection phase got
over.
Similarly, State Bank of Patiala, a PSB, was not studied as it was non-existent in the city
as of
November 2006.
2. Literature Review
CRM has been a part of marketing literature since more than a decade. Interestingly,
there is still much
debate over what exactly constitutes CRM (Nevin, 1995; Parvatiyar and Sheth, 2001; Sin
et al., 2005).
According to Parvatiyar and Sheth (2001), some of the themes represent a narrow
functional marketing
perspective while others offer a perspective that is broad and paradigmatic in approach
and orientation.
One example of a narrow perspective is to view CRM as database marketing (Peppers
and Rogers,
1995) emphasizing promotional aspects of marketing by leveraging customer databases.
Other
examples of a narrow approach include electronic marketing (Blattberg and Deighton,
1991) and
aftermarketing (Vavra, 1992). Electronic marketing encompasses all marketing efforts
supported by
information technology while aftermarketing efforts focus on customer bonding after the
sale is made.
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64
On a broader level, CRM may mean customer retention or partnering (Peppers and
Rogers, 1993,
Vavra, 1992).
In order to develop a comprehensive list of CRM practices, it is essential to identify the
key
constructs of CRM. In this direction, Sin et al. (2005) have proposed that CRM
comprises the
following four constructs: Key customer focus, CRM organization, Knowledge
management and
Technology-based CRM. Each of these is discussed as follows.
Key customer focus
This is all about developing a strong customer focus (Das, 2004; Sheth et al., 2000;
Vandermerwe,
2004) and continuously delivering superior value to selected key customers (Parvatiyar
and Sheth,
2001) through personalized/ customized offerings (Dyche´, 2002).
CRM organization
It implies organizing the whole organization around CRM, which will lead to
considerations like
organizational structure, commitment of resources and human resources management
(Sin et al., 2005).
Knowledge management
Key facets of this construct include learning about customer needs and wants,
dissemination and
sharing of this knowledge and action (Sin et al., 2005).
Technology-based CRM
Technology plays the role of enabler in CRM deployment (Das, 2004) and allows firms
to achieve
greater customization and better service at lower cost (Sin et al., 2005).
A review of academic and practitioners’ literature was done to develop a comprehensive
list of
CRM practices. Please refer appendix I for the practices and their respective chief
sources.
Going over to customer loyalty, Oliver (1999) defined it as a deeply held commitment to
re-buy
or re-patronize a preferred product or service in the future despite situation influence and
marketing
efforts having the potential to cause switching behaviour. Thus, loyalty has both an
attitudinal and
behavioural dimension (Day, 1969; Dick and Basu, 1994). Behavioural loyalty will
include examples
like repeat purchase, word of mouth, etc while attitudinal loyalty will comprise examples
like trust or
emotional attachment (Baumann et al., 2005).
Further, behavioural loyalty does not necessarily reflect attitudinal loyalty, because there
might
exist other factors that prevent customers from defecting (Aldlaigan and Buttle, 2005;
Liljander and
Roos, 2002; Reinartz and Kumar, 2002). Customer loyalty has been additionally related
to profit levels
(Reichheld and Teal, 1996). Besides, customer loyalty is one of the key objectives of
CRM (Das, 2004;
Lindgreen, 2004; Parvatiyar and Sheth, 2001; Payne, 2002; Sin et al., 2005).
3. Study Outline
The current study has two parts as mentioned below:
a. CRM best practices survey
b. Case study research
Following are