impact of customer relationship management in … of customer relationship management in bank’s...

International Journal of Philosophy and Social Sciences.

Volume 1, Number 2 (2016), pp. 131-140

© Research India Publications

http://www.ripublication.com

Impact Of Customer Relationship Management In

Bank’s Loyalty Program

Mohd Farid Shamsudin, Hafezali Iqbal Hussain. Milad AbdelNabi Salem

Universiti Kuala Lumpur Business School

Level 8, Bangunan Yayasan Selangor

No. 74, Jalan Raja Muda Abdul Aziz

50300 Kuala Lumpur

Khairul Nizam Mahmud

Universiti Utara Malaysia 0600 Sintok Kedah

Email address: [email protected], [email protected],

[email protected], [email protected]

ABSTRACT

This literature review is an academic survey of a specific field’ body of work.

The review is about the effectiveness of loyalty program done by the banking

sector in Malaysia. The satisfaction of the consumer to the loyalty program,

how they accept the program and build long term relationship with the banks.

There are some common factors related to loyalty program but the issues are

always on how success and acceptance from consumer towards the program

organized by the bank with the intentions to keep customer loyal to them.

Bank have very broad type of customers and they bank secure the opportunity

as much as possible to explore the relationship as part of the future

development. Customer satisfaction, the quality of the product given to the

customers and the services by the participating retailer are the elements to

make the success of the loyalty program which lead to the customer loyalty to

the organization especially in the banking industry.

Keywords: Loyalty Program, Customer Service, Service Quality, Customer

Satisfaction,

mailto:[email protected]



132 Mohd Farid Shamsudin et al

1. INTRODUCTION

This is the twenty first century and every organization has their plan to be competitive

in their respective industry. One of the most important elements is the marketing.

How the organization market their product is depend on their reliability and the

effectiveness of their marketing strategies (Varadarajan, 2010). Millions of money

have been invested, but to be strong and stay comfortable definitely not impossible as

they are, many ways to be competitive the industry such as the internet (“Tiina

Jokinen,” 2014), which is one of the marketing strategies that has been used by the

organization.

The rapid growth of the banking industry makes this industry is in a competitive

situation. Their marketing strategies to retain their most valuable customers became

more diversified and one of it is Loyalty Program. Most of the banks have a loyalty

program for their cardholder; it’s given free to their customer and depends on the

categories it belongs to. The loyalty program is targeted the customer for their loyalty

(Omar, Aziz, & Nazri, 2011) to the bank. With the participating of the branded

retailer makes the loyalty program more interesting and gives the customers a piece of

mind which loyalty program or in other words, which bank to choose. Therefore, most

of the banks put and extra effort, because to get as many customers as possible to be

in the loyalty program. It is different from the normal product whereby it is adopting a

long term relationship in shaping customer behavior.

This article review is to know how customer trust, retailer commitment and customer

satisfaction which are the variables of loyalty program gives a significant impact that

affect he customer relationship management in the banking industries (Richman &

Cummings, 2010) as shown below in table 1.

Table 1: THEORICAL FRAMEWORK

Impact Of Customer Relationship Management In Bank’s Loyalty Program 133

133

2. LOYALTY PROGRAM

What is exactly the bank’s loyalty program? Does this program benefited the

customers or only to the bank and the retailer. Loyalty program, some call it rewards

program is a type of reward offered to the customers (Hanover Research, 2011). This

is because the customers that make frequent purchases, is given special privilege to

access special day sales, launching of new products, discounts, free merchandise or

coupon.

Loyalty program changes the way of the marketing bank industry. With the

participating retailer, for example EON or Tesco join forces with the commercial

banks gives significant impact to banking and finance industry. Every bank put an

extra mile to gives their customer satisfaction in their loyalty reward program

(Fraering & Minor, 2013), therefore, there are certain procedures and guideline that

the customer must follows such the point that given to the customer which some of

them has an expiry date and some is not. The reward given by the participating

branded retailer , which can be redeemed from the point collected. The customers are

given the choice whether want to redeem the point with the product, services or

coupon.

The royalty program makes the relationship between the customers and the bank

stronger (Jumaat et al., 2010) and this will lead on the loyal customer. This marketing

strategy was adopted by most of the banks in the world, especially in Malaysia,

furthermore, no only bank there are companies that have their own loyalty program

such as hotels (Landau, 1937) and airline like Malaysian Airline System with their

Enrich Program .

Furthermore, these programs considering a cost saving to customers as it is saving

costly time and give discounts. The customers can use the internet (Voutsas &

Heinrich, 2011) as tools to make purchases by redeeming their points. Although there

is little research was done, it shows that the main reason for loyalty program is mean

to retaining the bank potential customer for a long period of time. As we know that

the competition in the banking industry to retain the potential customers is getting

more competitive. The suggestion to use the apparent media to gain the trust

(YouGov-Cambridge, 2013) and the loyalty of potential customer is part of the bank

customer relationship management where, the purchase is frequently differentiation

between supplies is low. Apart from focus on customer satisfaction, the quality of

banking services , value of perception and banking services.

In marketing strategy (Varadarajan, 2010), every step that the bank takes is for the

benefit of the shareholders and the strategic directions of the bank future planning.

Giving the benefit to the customers may lead to increase the new segment of potential

customer for the bank. In this loyalty program, of course, there are beneficial that the

bank gives to the customer such as recognition benefits, cost saving where the

customer do not have to pay or a single cent, just redeem the points (Wel, Nor, &

Ahmad, 2011). A member deal day, rebates from participating retailer, contests,

membership which is given free by the banks and to reduce customers search and

decision costs. The benefit also goes to the retailer as part of the program, the

participating retailer; especially the established retailer will indirectly pulled the

potential customer to be part of the loyalty program.


The loyalty program also gives a significant impact to the Malaysia country, as this

program will boost the economic, psychological, sociological influences and enhances

the attractiveness of the retail store and relationship. Dick and Basu (1994) had

created four level categories of framework loyalty (Jumaat et al., 2010) which is

based on the factor of behavior and attitude: true loyalty, spurious loyalty, latent

loyalty and no loyalty as per table 2 below.

Table 2: DICK AND BASU’S LOYALTY MODEL

Loyalty is an emotional relationship (Omar et al., 2011) and this relationship does not

necessarily give a word, to let the other people know his or her loyalty. A loyalty

program is designed for this type of customer, where they enjoy the benefit without

telling other people. As per Dick and Basu (1994) loyalty model which had

mentioned in table 1, the higher of repeat patronage to the particular organization,

especially the bank it mean that the customers has spurious and true loyal customers

or lower relative attitudes toward the bank, they are the customers that we call latent

and no loyalty customers. Nevertheless, the loyalty program is to gain long term

relationship (Liu, 2007) rather than the customer loyalty to the banks

2.1 The Economics of Scale

The customers who participate in loyalty program will receive value (Gk & Ganesh,

2013) in the form of rewards. When people buy things and this action repeatable, that

is the economics of scale (Basavaiah & Velayudhan, 2009) all about. Not only for the

bank and the retailer, it also benefited the country.

2.2 The Psychological

It is normal and natural for people receiving a free gift. Customer loyalty, appreciate

reward so much regardless of age. The effect is when the customer is given a point

every time they make purchases, the customers are not stopping until they get what

they want. Like Citibank, which offer a point to redeem a hair dryer, the customer will

try their best redeem their points by making purchases until they get the point that


135

they want. This psychological motivated (Usman, 2010) will lead to the use of the

bank facilities, therefore, become an active and loyal customer. As part of marketing

strategy (Varadarajan, 2010), it is better creating and maintain customer loyalty

because this element are some of the customer relationship management.

2.3 Sociological influences

Human motivation, likely to identify more strongly with the troupe. This outcome of

the survey shows that corporate social responsibility (CSR) (Mandhachitara &

Poolthong, 2011)receives a significant strong and positive association with attitudinal

loyalty, whereby the positive relationship between the customers and the banking

industry has shown, which is the behavioral loyalty.

3. TRUST

How to gain trust from customers? Is easy to gain trust from customers? Not really,

isn’t it. Nowadays the words of trust (YouGov-Cambridge, 2013) being used widely

in the word, it also includes the banking industry. There are trust programs, trust

foundation, even in banking there is a trust receipt. Sometime, we are confused

whether this is real or not. In the banking sector, trust doesn’t come so easy and not in

a short period of time. Transparency and service promises alone will not capture the

loyalty of the customers (Azim, Hussain, & Ali, 2013), they must develop lasting

relationships with the customers as this customer will recommend the bank to other

customers. Traditionally, the banks focus on attracting new customers, overtimes at

the expense of existing customers locked in by the perceived troubled in switching.In

banking industry the reality is, they are struggling to gain the trust of the potential

customers (YouGov-Cambridge, 2013), especially for the newcomers like Al-Rajhi

Bank. Others like Islamic Bank also difficult to gain trust from the non-Muslim

customers. Nevertheless, whether like it or not, the banking sector must choose the

correct marketing strategies to gain trust from the customers.

3.1 Financial Stability

As we know, in an economy that does well and efficiently, it requires a stable of

robust banking and fiscal arrangement (Mohd. Azmi Omar, Abdul Rahim Abdul

Rahman, Rosylin Mohd. Yusof, M. Shabri Abd. Rasid Majid, & Mohd. Eskandar

Mohd Shah, 2006). Confidence in the stableness of the banking and fiscal system is

indispensable for the quiet and effective provision of finances to corporate, private

and public The bank now also faces a substantial competitive threat (Ciccarelli,

Maddaloni, & Peydro, 2010) from both new market entrants and non-bank who are

largely into the industry like Aeon or MBSB. Lately, there are banks that suffer a

financial stability (Imf, 2013) and force the government aid to remain solvent.

3.2 Efficiency

As the banking services have become more commodities, the emphasis on personal

service has gone downward, only today the bank has balancing service efficiency

(Mohd. Azmi Omar et al., 2006) and client value. The increasingly transnational


nature of banking relationship has improved efficiency, though at the expense of the

customers. The customers regularly indicate they feel let down by their banks through

unfair or unexpected charges, with the loyalty program which most of the bank give it

free to its customers for being the cardholder and loyalty, the customers are enjoying

the benefits. This is the starting step towards earning the right to show relationships

(Jumaat et al., 2010) and sell additional products and services.

3.3 Technology

The use of the internet give a significant impact to the banking industry. Consumers

can use the technology anywhere and any time, as long the internet line is available.

With the local area wireless computer networking or WIFI, The using of the internet

is more easier as consumers can access it even by mobile phone. Therefore the

redeemable of the point from the loyalty program is in the consumer finger. The

reservation can be done without hassle. Most of the bank loyalty program offer

discount to their cardholder for the purchase of the product online.

4. RETAILERS COMMITMENT

Good for the retailers that up for changes, it implies change and chances. For instance

the raw concept of marketing which is the exercise of the internets (Voutsas &

Heinrich, 2011), the organizations selling or market their product thru this concept,

even in the banking industry. The old fashion market by advertisement is not diversify

from it’s old fashion style, hence it gives an advantages (Voutsas & Heinrich, 2011)

of the retailer to market their product or services. This phenomenal growth, all sorts of

exciting technologies emerge from augmented (Yeng & Nik Mat, 2013) into reality

changing. Hence, the loyalty program is one of the channels the retailer use to

increase their sales, giving the opportunities both for the banks and the retailers. The

state of affairs will lead to the potential of growth (Oracle, 2005) of the system,

particularly in the banking industry, and for the retailers, the customers tend to buy

more.

4.1 Product

Customer are smart, there really know what they desire, the more beneficial product

or services as they require their value for monies (Ha, 2007). Although, there are

many of good companies in the industry, but selling a bad product and service.

Therefore, because of this reason the customers are now taking extra precaution to

buy and looking only the original goods for their consumptions.

4.2 Operating Environment

If we take a look the peculiarity between marketing tactics and marketing strategy

(Varadarajan, 2010), the customers are now can judge spontaneously. Customers are

more in lifestyle situation as per analysis done on Starbuck Corporation (Analysis &

Starbucks, 2013) just because they like to leisure at the place where they get free Wi-

Fi, comfortable, clean and of course good location. Furthermore, they get discounts or

voucher from their loyalty program reward (Acatrinei & Puiu, 2012).


137

4.3 Service

Sometimes the service itself is large, merely it is competing in a category where the

services it is plainly not enough and it truly need to go into a special system attention

(Authors, 2014). If the services require system integration, it is better to ensure that

there is system already in place with the capabilities and incentives to sell the

products. Therefore, the retailer only needs to be part of the system in the banking

industry (Acatrinei & Puiu, 2012) and the customers will benefit from the services of

one system selling two products.

5. CUSTOMERS SATISFACTION

Every organization wants a long term relationship (Authors, 2013) with their

customer, especially in banking; this is because customers become significant

leverage to the organization. Especially in the bank, they will take necessary action to

retain their customers (Fraering & Minor, 2013). Customers will satisfy if the services

or the product that given to them is beyond expectation.

5.1 Brand

Loyalty programs can also be a brand extension aid (Liu, 2007)which indirectly will

encourage the customers to use bank services or to buy the retailer product by using

the bank’s credit or debit card. With this loyalty program, it is a potential aspiration of

marketing relationship. In loyalty program, the customers have a feeling of

belongingness and ownership to the bank and therefore, lead to the value added to the

brand. If we think deeper and deeper the brand actually lead to the quality (Wel et al.,

2011) and value of the brand. The famous name nowadays, Apple, Facebook, Google,

etc. gives a very good example of good quality and value of a brand. Consumer know

by looking to its logo.

5.2 Monetary Savings

The loyalty program can save cost and time to the customers(Basavaiah &

Velayudhan, 2009). This is because customers can enjoy shopping with the flyer

programming that given to them by the bank. For example, if the customer wants to

buy a sport shoes or go to the spa, the customer can go straight to the participating

retailer outlets of the store without the need to search for particular outlet or store. The

program not only saves cost and time, it also gives value added benefits (Kopalle,

Neslin, & Sun, 2007) to customers.

5.3 Entertainment

Some of the customers perceive and attract to join the loyalty program (Liu,

2007)because they like of the pleasure associated with collecting points and redeem it.

They enjoy collecting points and redeem it for a voucher in addition, they enjoy a

discount given by the participating retailer.


CONCLUSION

It is rather usual to determine similarity among the loyalty program (Hanover

Research, 2011) provided by the depository financial institution. Customers, however,

highlighted the importance of societal welfare (Mandhachitara & Poolthong, 2011)

that is acknowledged as one of the key drivers that glued their relationship with the

selected banking industry and retailers. As for middle income customers, monetary

saving become the main drivers towards relationship(Kopalle et al., 2007) and being

loyal to the banking industry and the retailer, finding that the cost of living is

increasing in Malaysia especially in Klang Valley. The customers is no choice to be

smart spender, and with the loyalty program, entitle them for a special discount,

coupon or special days sale by the participating retailers.

While the younger generation (Oracle, 2005) is comfortable with the efficiency of the

system such as the internet (Voutsas & Heinrich, 2011), where they can buy a product

online or use services online (“Customer Loyalty Program for Ecommerce,” 2014)

and at the same time getting points which can be redeemable. The location of banking

services and the retail outlet (Imran, Ghani, & Rehman, 2013), making the transaction

or the purchase of the product more easier. For banking industry the loyalty program

will give long the long term relationship(Wel et al., 2011) to their customers. The

longer the relationship the deeper trust gain from their customer (Yeng & Nik Mat,

2013)(Omar et al., 2011), thus maintaining the customer loyalty is the most important

element in customer relationship management and therefore, this will lead to the

growth of the banking industry (Munusamy, Chelliah, & Mun, 2010).

References

Acatrinei, C., & Puiu, T. V. (2012). The Loyalty Card : Issues in Evaluating

Loyalty Program Effectiveness by. International Journal of Economic

Practices and Theories, 2(3), 153–164.

Analysis, S., & Starbucks, O. (n.d.). Strategic Analysis Of Starbucks

Corporation.

Elissavet Keisidou., Lazaros Sarigiannidis., Dimitrios I. Maditinos. (2013).

Customer Satisfaction, Loyalty and Financial Performance. Holistic Approach

of the Greek Banking Sector . 481-497.

Zhibin Lin., Dag Bennet. (2014). Examining retail customer experience and

the moderation effect of loyalty programmes Article information :

Azim, a, Hussain, a, & Ali, M. (n.d.). The Effect of Salesperson Trust,

Preferential Treatment & Commitment on Customer’s Loyalty. International

Review of Management and Business Research, (1997), 184–192. Retrieved

from http://irmbrjournal.com/papers/1367572812.pdf

Basavaiah, S., & Velayudhan, S. (2009). A strategic insight into retail loyalty,

(June).

Ciccarelli, M., Maddaloni, A., & Peydro, J.-L. (2010). Trusting the Bankers: A

New Look at the Credit Channel of Monetary Policy. ECB Working Paper

Series, (1228), 59 pages. http://doi.org/10.2139/ssrn.1767969


139

Tiina Jokinen. (2014). Customer Loyalty Program for Ecommerce. Retrieved

from http://www.rapidmarketplace.com/Resource/Create-Customer-Loyalty-

Program

Fraering, M., & Minor, M. S. (2013). Beyond loyalty: customer satisfaction,

loyalty, and fortitude. Journal of Services Marketing, 27(4), 334–344.

http://doi.org/10.1108/08876041311330807

Gk, K., & Ganesh, L. (n.d.). International Journal of Advances in Management

and Economics Perception of Loyalty Programmes and their Influence on

Purchase Behaviour , Store Attractiveness and Loyalty, 107–115.

Ha, S. (2007). How Customer Loyalty Programs Can Influence Relational

Marketing Outcomes: Using Customer-Retailer Identification To Build

Relationships.

Hanover Research. (2011). Consumer Loyalty Programs, 1–27.

Imf. (2013). Malaysia : Financial Sector Stability Assessment, (13), 51.

Imran, M., Ghani, U., & Rehman, K. U. (2013). Consumer Perception of Store

Image and Store Loyalty. Journal of Managerial Sciences, 7(1).

Jumaat, A., Mahajar, B., Binti, J., & Yunus, M. (2010). The relationship

between customer commitment and satisfaction on the loyalty card program of

department stores in Malaysia. Problems and Perspectives in Management,

8(4), 198–206.

Kopalle, P. K. ., Neslin, S. a ., & Sun, B. (2007). A Dynamic Structural Model

of the Impact of Loyalty Programs on Customer Behavior.

Landau, L. (1937). the Long-Term Impact of Loyalty Program: an Evaluation

From a Las Vegas Casino Hotel. Zhurnal Eksperimental’noi I Teoreticheskoi

Fiziki, (December), 141. Retrieved from

http://scholar.google.com/scholar?hl=en&btnG=Search&q=intitle:No+Title#0

Liu, Y. (2007). The Long-Term Impact of Loyalty Programs on Consumer

Purchase Behavior and Loyalty. Journal of Marketing, 71(4), 19–35.

http://doi.org/10.1509/jmkg.71.4.19

Mandhachitara, R., & Poolthong, Y. (2011). A model of customer loyalty and

corporate social responsibility. Journal of Services Marketing, 25(2), 122–133.

http://doi.org/10.1108/08876041111119840

Mcbrearty, R. (2011). The Future of Retail Customer Loyalty: RFID Enables

Breakthrough Shopping Experiences, (June), 1–8. Retrieved from

http://www.cisco.com/web/about/ac79/docs/innov/RFID_Loyalty_IBSG_0614

.pdf

Mohd. Azmi Omar, Abdul Rahim Abdul Rahman, Rosylin Mohd. Yusof, M.

Shabri Abd. Rasid Majid, & Mohd. Eskandar Mohd Shah. (2006). Efficiency

of Commercial Banks in Malaysia. Asian Academy of Management Journal of

Accounting and Finance, 2(2), 19–42.

Munusamy, J., Chelliah, S., & Mun, H. (2010). Service quality delivery and its

impact on customer satisfaction in the banking sector in Malaysia.

International Journal of Innovation, …, 1(4), 398–404. Retrieved from

http://www.ijimt.org/papers/71-M461.pdf


Omar, N. A., Aziz, N. A., & Nazri, M. A. (2011). Understanding the

relationships of program satisfaction, program loyalty and store loyalty among

cardholders of loyalty programs. Asian Academy of Management Journal,

16(1), 21–41.

Oracle. (2005). Ensuring Customer Loyalty: Designing Next-Generation

Loyalty Programs, (February). Retrieved from

http://www.oracle.com/us/products/applications/siebel/047108.pdf

Richman, L., & Cummings, E. (2010). Customer Loyalty in Retail Banking

North America 2010. Bain & Company, 24. Retrieved from

http://www.bain.com/Images/Customer_loyalty_in_retail_banking.pdf

Usman, A. (2010). Impact of Reward and Recognition on Job Satisfaction and

Motivation : An Empirical Study from Pakistan. International Journal of

Business and Management, 5(2001), 159–167.

http://doi.org/10.5539/ijbm.v5n2P159

Varadarajan, R. (2010). Strategic marketing and marketing strategy: Domain,

definition, fundamental issues and foundational premises. Journal of the

Academy of Marketing Science, 38(2), 119–140.

http://doi.org/10.1007/s11747-009-0176-7

Voutsas, K., & Heinrich, C. (2011). Enhancing the banking customer value

proposition through technology-led innovation.

Wel, C. A. C., Nor, S. M., & Ahmad, A. H. (2011). Exploring relationship

drivers’ toward loyalty card programs. African Journal of Business

Management, 5(15), 6429–6433. http://doi.org/10.5897/AJBM11.312

Yeng, L. C., & Nik Mat, N. K. (2013). The antecedents of customer loyalty in

Malaysian retailing: Capitalizing the strategic tool. Proceedings of 3rd Asia

Pacific Business Research Conference, 25-26 February 2013, Kuala Lumpur,

Malaysia., (February), 1–17.

YouGov-Cambridge. (2013). Public Trust in Banking, (April). Retrieved from

http://cdn.yougov.com/cumulus_uploads/document/ylf7gpof19/Public_Trust_i

n_Banking_Final.pdf

impact of customer relationship management in … of customer relationship management in bank’s...

Documents