An empirical study of customer retention in New Zealand’s retail banking industry

Abstract

In an environment of increasingly intense competition and reduced profits, one of the most important business tenets in current practice is customer retention. The literature on customer retention is vast. Even so, little research has been conducted concerning the major constructs influencing consumers' decisions to stay with or leave their bank. In addition, none of the studies have attempted to explore the variables that might impact customer retention in the New Zealand banking context.

Thus, the present research was designed to examine this gap. This study begins with the proposal of a model that specifies a range of constructs which might impact retention. These constructs include customer satisfaction, customer value, corporate image, competitive advantage, and switching barriers as antecedents to consumers' behavioural intentions, and customer loyalty, which might lead to customer retention in the financial institutions. Eleven hypotheses were derived from this model and tested. Data were collected from 514 usable mailed surveys from a systematic sample of Christchurch's retail banking consumers. Hypotheses were tested with regression analysis. Potential relationships of the constructs with demographic variables were tested with Chi-square, t-test and one-way ANOVA tests.

The findings of this study suggested that consumers' behavioural intentions and customer loyalty are important constructs that lead to customer retention in the banking industry. The findings also revealed that customer satisfaction and customer value have a positive impact on consumers' behavioural intentions. Moreover, customer value, corporate image, competitive advantage and switching barriers have a significant positive relationship on customer loyalty. In addition, demographic variables such as age and educational level of consumers' were also found to be influential in the customer retention model.

Overall, ten out of eleven hypotheses were supported. Nonetheless, the findings provide strong support for the customer retention model to be applied in New Zealand's banking industry's context. Understanding how these constructs are perceived by consumers will allow bankers to improve retention rates.

Finally, the theoretical insights generated by this model offer a platform for future research into customer retention. In addition, the findings of this research will be beneficial for banking executives. It has provided insights into consumer evaluation and resulted in implications for adding value and gaining competitive advantage in service markets more generally.