THE CONTEXT

Companies operating in Banking Services Industry experience much more complex market situations and interactions. Customers are becoming all the more sophisticated, knowledgeable and aware.

Relationship Marketing

The concept of ‘Relationship Marketing’ has emerged within the field of Services Marketing and Industrial Marketing in the last years of the twentieth century. One of the most important contributions was Hunt’s (1993) proposal, which established that the fundamental element in mar­keting is the management of interactions, although a decade earlier Berry (1983) had already proposed a formal definition of Relationship Marketing as a strategy to attract, maintain and enhance cus­tomer relationships (Beatty et al., 1996). Gronroos (1994) defines Relationship Marketing (RM) as ‘’Marketing is to establish, maintain and enhance and, when necessary, terminate relationships with customers and other stakeholders, at a profit so that the objectives of all parties involved are met; and this is done by mutual exchange and fulfilment of promises,” (Egan, 2004), within the network of relationship (Gummeson, 2002) and acknowl­edging a stable customer base (Rowley, 2004). Nevertheless, there are few empirical works which have explored the motivations and benefits con­sumers get from keeping a long-term relationship with a specific bank (Sheth & Parvatiyar, 1995; Bendapudi & Berry, 1997; Gwinner et al., 1998; Reynolds & Beatty, 1999; Henning-Thurau et al., 2002), even though it is obvious that, in practice, such benefits are interpreted as advantages by consumers in terms of their satisfaction and their analysis may render more efficient competitive strategies (Gwinner et al., 1998).

Relationship Marketing Outcome

Consumer satisfaction is a central element in the marketing exchange process, because it undoubt­edly contributes to service providers’ success (Darian et al., 2001),the higher the probability that consumers will repeat purchase establishment (Wong & Sohal, 2003) and repurchase highlight the importance of identifying and explaining the conditions under which satisfaction develops (Be­jou et al., 1998). The two key elements stand out in the literature of relationship marketing: customer loyalty and word-of-mouth (Henning-Thurau et al., 2002; Wong & Zhou, 2006) and loyalty is one of the primary phases of relationship marketing espe­cially in relation to profitability from a theoretical and empirical approach (Reichheld & Earl Sasser, 1990; Payne & Rickard, 1997; Oliver, 1999). The core of Relationship Marketing is Customer relationships. According to Durkin and Howcroft (2003), a prevalent theme in the Relationship Mar­keting literature is the influence of technology in increasing channel efficiencies by lowering costs, or by facilitating more meaningful and profitable relationships between channel parties.

Customer Relationship Management

Lang and Colgate (2003) further propose that both Information Technology and non-Information Technology mediums (i.e. human interaction) can be used as an approach towards relationship development. In this arena the term Customer relationship management (CRM) has emerged and being introduced by Berry (1983) in several literature is defined as ”a combination of business process and technology that seeks to understand a company ’ s customers from the perspective of who they are, what they do, and what they are like” (Couldwell, 1998). Technological definition of CRM was given as “the market place of the future is undergoing a technology-driven metamorpho­sis” (Berry & Parasuraman, 1991). Berry stressed that the attraction of new customers should be viewed only as intermediate step in the marketing process.

Customer Relationship Management in Service Industries

According to peppers & Roggers Group (2006) where they argued that by utilizing customer rela­tionship management business practices, compa­nies can affordably weather the storms of a down economy by providing cheap growth opportunities fresh strategic capabilities and incremental process changes, meanwhile, implementation of CRM in banking sector was considered by Mihelis et al. (2001). Yli-Renko et al. (2001) have focused the customer relationships of new technology-based firms. According to Smith (2006), building an IT infrastructure for CRM is like building a bridge; it takes comprehension of a need, engineering, reviewing, building, and re-building. Lindgreen and Antioco (2005) suggest that CRM frequently employs IT technology as a means to attract, develop, and retain customers. Although, it must be emphasized that CRM does not necessarily involve IT technology (Park & Kim, 2003). Row­ley (2002) recognizes that CRM systems support all stages of the interaction with the customer from order through delivery to after-sales service (Swift, 2001). Services are performances where the employees play a major role in shaping the service experience (Bitner, 1995). Bolton (2004) refers to a bank’s CRM system by suggesting that maintaining the processing of checks, withdrawals, transfers, etc. is well established.

Financial Service Industry: An Emerging Scenario

Chaitanya (2005) viewed services industry as a key area which is vital for the economic development of any nation. Often much of the technology is already in place, so the main barrier to building these connections is simply a failure to recognize their value. (Agarwal et al., 2006), indicating thereby that the technology provided has not been absorbed (Arunoday, 1990). As stated by Solow (1987), “you can see the computer age everywhere these days, except in the productivity statistics.” Shu and Strassmann (2005) studied 12 banks operating in the US for the period of 1989­1997 and found that although IT has been one of the most marginal productive factors among all inputs, it cannot increase banks’ profits (Kozak, 2005). Curry and Susan (2004) in their paper sheds some light on the debate about the extent of use of IT in services, in this case in banking. Role that technology can play in helping to bring mainstream financial services to low-income populations and communities, while making it profitable to do so (Stegman, 2001; Stegman and Lobenhofer, 2002; Lobenhofer, Bredencamp, and Stegman, 2003; Stegman and Faris, 2004). More to the point, a recent industry report forecasts that mainstream financial institutions may be able to capture as much as $3.3 billion, or 22%, of the national unbanked market by 2010 using new self-service technology (Katkov, 2002). Early studies (Sarkar et al., 1998) found somewhat weak evidence to suggest that ownership was an important determinant of performance. More re­cent studies exhibit mixed evidence: while certain studies (Keova, 2003) suggest ownership to have some effect on bank performance, others (e.g., Bhaumik & Dimova, 2004) veer around the view that competition induced public sector banks to eliminate the performance gap that existed between them and both domestic and foreign and private sector banks. More recent research reported dif­ferences in the efficiency of Indian commercial banks with different ownership status, level of non-performing loans, size and asset quality (Das & Ghosh, 2006).

Measuring Efficiency and Effectiveness in Financial Service Industry

Since the 1990s, numerous studies have focused on measuring the efficiency of commercial banks. Berger and Humphrey (1997) document 130 studies on financial institutions’ efficiency, using data from 21 countries, from various types of institutions including banks, bank branches, savings and loan institutions, credit unions and insurance companies. Richard et al. (2002) evalu­ate the production efficiency of US commercial banks during 1984-98. They found as strong and consistent relationship between efficiency and independent measures of performance. Girardone et al. (2004) investigate that X-inefficiencies tend to decline over time for all bank sizes. The inclu­sion of risk and output quality variables in the cost function reduces the significance of the scale economy estimates where deposits are treated as an input since a bank’s main business is to borrow funds from depositors and then lend to others. The approach specifies three outputs: the provi­sion of loan services; portfolio investment; and non-interest income and three inputs: bank staff; assets; and deposits. Kumar and Gulati (2009) in their research appraise the efficiency, effective­ness, and performance of 27 public sector banks (PSBs) operating in India and reveals that high efficiency does not stand for high effectiveness in the Indian PSB industry. They measured a posi­tive and strong correlation between effectiveness and performance measure and stated that Indian PSBs should pay more attention to their income­generating capabilities (i.e. effectiveness) relative to their ability to produce traditional outputs such as advances and investments (i.e. efficiency).

Ho & Zhu (2004) in their research realised that company performance evaluation focus merely on operational efficiency. Operational effectiveness, however, which might directly influence the survival of a company, is usually ignored. As a result, in their study the innovative two-stage data envelopment analysis model that separates efficiency and effectiveness to evaluate the performance of 41 listed corporations of the banking industry in Taiwan. They concluded that a company with better efficiency does not always mean that it has better effectiveness. There is no apparent correlation between these two indicators.