Banking in india
1. Introduction
This chapter provides the background to the study undertaken, a discussion of the case study and summarises the overall aims and objectives for the research.
1.1 Banking in India
The Indian Banks were started as intermediaries for taking deposits and to deliver funds for satisfying the working capital needs of trade and industry. This was based on the classical Scottish model of banking (Bhattacharyay and Ghose, 1989).
Reserve Bank of India is the regulatory central bank in the Indian Banking structure. The rest of the structure comprises of the commercial banks, the financial institutions (FIs), encompassing term-lending institutions, investment institutions, specialized financial institutions and the state-level development banks, Non-Bank Financial Companies (NBFCs) and other market intermediaries such as the stock brokers and money-lenders. The commercial banks and many NBFCs are older participants in the markets while the Financial Institutions are considerably newer in the market place (Satija, 2008).
The Indian banking system is characterized by a large number of banks with mixed ownership. The commercial banking segment comprises 27 public sector banks in which the Government has majority ownership, 21 private sector banks, and 30 foreign banks (RBI, 2009). Public sector banks had 75 percent of the total deposits of the banking system in 2008-09, private and foreign banks held the rest 25 percent of the total deposits (RBI, 2009).
While assessing the competition in Indian Banking, Prasad and Ghosh (2005) note that the financial system in India fundamentally addressed the needs of planned development and the government sector had a major role in all the financial policies. The period 1991-97 laid the foundations for reform in the banking system (Rangarajan, 1998).
In 1991, the Indian financial system underwent reforms which permitted the Reserve Bank of India to establish new banks in the private sector. They were permitted on the basis that they match the minimum start up capital and other requirements and the set of prudential norms with regard to accounting, provisioning and other aspects of operations. (Government of India, 1991, p.72)
However, a rise in the non-performing assets and other factors such as inflexibility in licensing of branches and management structure increased the overall expenditure and overhead costs of the banks (Prasad and Ghosh, 2005). Segmented and underdeveloped financial markets were the key characteristics of this period which resulted in distorted interest rates and improper distribution of scarce resources (Prasad and Ghosh, 2005).
A second Committee on Banking Sector Reforms, chaired by Shri M. Narasimham, was appointed in 1998 to review financial system reforms implemented in 1991 and to put forth reforms needed in future (Government of India, 1998).
The committee stated that they viewed permission for new private banks to be set up, and the more liberal approach towards foreign bank offices being opened in India as one of the most significant reforms put forth by the committee in 1991. According to the committee, the reforms enhanced the competitive framework for banking the more so as the new private and foreign banks have higher productivity levels based on newer technology and lower levels of manning. (Government of India, 1998, Para 1.21)
The importance of competition was also recognized by the Reserve Bank, when it observed that: Competition is sought to be fostered by permitting new private sector banks, and more liberal entry of branches of foreign banks. Competition is sought to be fostered in rural and semi-urban areas also by encouraging Local Area Banks. Some diversification of ownership in select public sector banks has helped the process of autonomy and thus some response to competitive pressures. (Reddy, 2000)
More recently the RBI observed that the competition induced by the new private sector banks has clearly re-energized the Indian banking sector as a whole: new technology is now the norm, new products are being introduced continuously, and new business practices have become common place. (Mohan, 2004)
The growth in the number of banks and the subsequent increase in competition have led to one consensual conclusion as in most sectors: The customer is the king. The decision of staying or leaving a bank is entirely upto the customer as he has lot many more options. Marketing has become key strategy in acquiring and maintaining the customers in the competitive market.
1.2 Rationale for the research
Mckinsey and Companys report (2009) on Indian Banking segment highlights the effect of competition on the overall banking market. The report highlights the fact that all types of banks i.e. Public sector banks, old and new private sector and the rapidly rising foreign banks need to address their approach towards acquiring new customers and strengthening the relationships with existing ones. Maintaining a fundamentally long-term value-creation mindset will be their greatest challenge.
To maximise the customer base profitably, banks need to use effective market strategies as they try to acquire their target customer population.
Although considerable research has been done on the customer service quality in the Indian Banks (Sureschandar et.al. 2003, Angur et.al. 1999, Lenka et.al 2009, Choudhary 2007, Panda and Kumar 2001), the literature considerably lacks the understanding of the factors which drive the customer to select a bank for his/her financial needs in India. Thus, the current research is set to achieve the following aims and objectives.
1.3. Aim
The aim of the research is to determine the factors that are considered extremely important by an urban Indian consumer whilst selecting a bank for his/her financial needs and develop a marketing framework based on these factors for development of strategies by the commercial banks in India.
1.4 Research Objectives
The objectives of the current research can be summarised as follows:
1.5 Layout of the research
The research is divided into five sections which starts with the introduction to the study consisting of a background on the study and discusses the aims and objectives of the research. The second section discusses the academic literature underpinning the consumer decision making concepts and also reviews the previous research carried out in the customer selection of banks in various countries leading to framework for the research. The third section develops the research methodology and discusses the data collection method employed for the research.
The results of the study are discussed in the fourth section with comprehensive analysis of the data collected included in the same. Insights from the analysis of the data, recommendations and future research scope are discussed in the fifth section and ends with a concluding discussion.
2. Literature Review
This chapter reviews the consumer behaviour literature which underpins the rationale of the research. A framework for selection of a service provider is discussed in the chapter as well. The chapter also acts a source of secondary research material with its analysis of the existing studies on bank selection criteria in various countries. The literature is a prelude to the research design discussed in the following chapter.
2.1 Introduction
Consumer behaviour is a very complex phenomenon which is considered primarily in the marketing decisions. It is highly important to understand the customer preferences before launching a product or service or a marketing campaign to sell that product or service. Marketing mix for any product or a service is decided on the basis of the consumer behavioural research from the target market.
A comprehensive consumer behaviour model is discussed in the next section before analysing the different factors which influence consumer decision making process.
2.2 Consumer Behaviour Model
The belief in the post world war2 era was to create new models to gain competitive advantage and advertising was the way to convince the consumer to purchase the product (Engel et al, 1995). Several analysts, in their research to capture consumer behaviour, developed consumer behaviour models. More effective marketing strategies were developed as a result of these models (Du Pleiss et al 1990, pp: 9).
Nicosia was one of the first analysts to develop a model for consumer behaviour more than thirty years ago (Dubois, 2000). The model aimed towards rationalising how companies influenced consumers by the medium of advertising and promotional activities. However, the model lacked in clarity with regards to the definitions of the variables and the relationships between variables in the model. Another criticism of this model is that the no repeat purchase behaviour was included (Du Pleiss et al, 1990). The model was never updated and therefore might not apply fully in the case of modern consumer behaviour (Dubois, 2000).
Howard and Sheth developed another model in 1969 (Dubois, 2000) to analyse the consumer decision making process. Dubois (2000) stated that the model is a comprehensive one with well defined variables and their links. The model acknowledged the repeat purchase concept and included the same. Pastrana (2003) further stated that the model included the satisfaction component as well as illustrated the importance of feedback on purchasing experience.
Although, there are few critics of the Howard-Sheth model, an important observation is that there is no update of the model since 1990. The model was deemed complex for use in everyday situations by Du Pleiss (1990, pp: 24).
A comprehensive consumer behaviour model was developed by Engel et al (2001) and is depicted in the figure below (fig 2.) The model has regularly been updated since 1968 (Dubois, 2000 pp: 301).
The model is a framework for understanding the consumer behaviour process in its entirety. The model provides in depth understanding of (Dubois, 2000 pp: 301):
The decision making process of a consumer is the central theme of this model (Dubois, 2000 pp: 301). The five key steps identified by Engel et al are- problem/need recognition, search, alternative evaluation (pre-purchase), choice/purchase and outcomes (post-purchase evaluation).
These activities are influenced by three different groups of factors, namely individual differences, environmental influences and psychological processes (Engel et al 1995, pp: 143). The model has a strong emphasis on cognitive phenomenon, majorly on information processing and memory factors (Dubois, 2000, pp: 302).
This section discussed very briefly the research in the consumer decision making models till date while discussing three important models in this context. The Engel et al model was discussed in a bit more depth as it is considered to be a more comprehensive model of consumer behaviour.
The scope of this research is to study the group of factors influencing the decision making process of an Indian urban consumer whilst selecting a bank. The Engel et al model provides an initial framework to identify these factors. The following section discusses these factors in detail.
2.3. Consumer behaviour concepts: An analysis of the key factors affecting consumer behaviour
Bagozzi et al (2002) suggested that consumer behaviour consists of the psychological and social processes that people undergo in the acquisition, use and disposal of products, services, ideas and practices.
Dubois (2000, pp: 10) suggests, consumption and purchase are more or less directly coherent with individual characteristics such as motivation, perception and attitudes. These factors associated with ones personality are the first set of factors dictating ones buying behaviour. The second sets of factor are more to do with the people associated with the individual. Their opinions and suggestions could play a major role in the consumption/usage pattern of the person. These people include- family, friends, colleagues, etc. Social class, lifestyle and culture are the third level of factors which influence the consumers buying decision. These factors are derived from the socio-cultural context in which they occur (Dubois, 2000 pp: 10).
In the consumer behaviour model (Engel et al) discussed in the previous section, there are three different groups which would affect the individual differences, environmental influences and psychological processes. Each of these groups will be discussed in detail below.
2.3.1. Individual differences
2.3.1.1 Consumer resources
The first individual difference identified by Engel et al (1995 pp: 295) is consumer resources. Consumer resources constitute temporal perspective, information reception and processing capabilities and capital.
Economists from the eighteenth century were the first ones to address the concept of buying behaviour (Dubois, 2000 pp: 14-15) leading rise to the maximisation of utility theory- whereby the consumer would divide his resources amongst the purchases he has to make on the basis of incremental satisfaction dependant on its price. Ernst Engel studied the food consumption of a sample population in the 19th century and postulated a law that states demand for food is income inelastic. The rise in food demand is not in proportion with income and the consumption of food may change in different ways. Today economic resources such as income, assets and credit facilities can be used for measurement of expenditure.
Hawkins et al (2007 pp: 541) describe the temporal perspectives as situational characteristics that explain the effect of time on consumer behaviour. The amount of time available for the consumer to make a decision has significant effect on the decision taken. Increased time pressure would imply shorter information search, leading to less information availability resulting in suboptimal purchase (Hawkins et al 2007 pp: 541). This is particularly relevant with regards to the current study as the consumer would not evaluate the options available in the banking sector and restrict his/her decision to the recognised or older brands in the market. Recommendation by family/ peers, which would be reviewed further section, might be accepted by the consumer without review of his alternatives.
Engel et al., (1995 pp: 323) interpreted the information reception and processing as Cognitive resources represent the mental capacity available for undertaking various information-processing activities. In this context on can assess the role of attention. Attention is a process through which an individual focuses on certain stimuli rather than other, as quoted by Celsi and Olson (1988). Dubois (2000 pp: 68) explored the concept of attention by analysing the influence of factors linked with stimulus or individual factors. He concluded that a consumers attention is gained voluntarily or can be provoked. Voluntary attention is gained when the consumer is searching for information while the stimulus injected would result in the necessary provocation of the consumer to gain attention. Although marketers can control the stimuli they are rarely in control of the individual characters which influence attention.
For example, a consumer might not comprehend the stimulus provided by a bank in the form of an advertisement and ignore it completely. On the other hand, another consumer might consider the advertisement and search for further information regarding the bank. This lack of attention or careful consideration is associated with the mental processing of the advertisement by the individual consumer
2.3.1.2 Motivation
Hawkins et al. (2001 pp: 362) defined motive as a construct representing an unobservable inner force that stimulates and couples a behavioural response and provide specific direction to that response. The definition relates to motive as internal drive and therefore, motivation can be looked at as the process which influences people to act in a specific manner (Dubois, 2000 pp: 22).
McGuire, as stated by Neal et al. (2006, pp: 300), developed classification system for motives which included four categories of motivation. This classification system is considered to be more specific than Maslows hierarchy of needs, which was designed by Maslow to account for most of human behaviour in general terms. Maslows theory assessed motives on the basis of the critical value associated by the consumer to need/want and stated that consumer first satisfies his primary needs and then moves up the luxury ladder. McGuire assessed the motives depending upon whether the motive was cognitive or affective and whether the motive was striving to maintain the current status or for the purpose of growth. (Neal et al. 2006 pp: 300)
Sheth et al. (1999 pp: 343) suggested that consumers go through a motivational process that is initiated by a stimulus and the resulting arousal will lead the person to behave in a specific way. The state achieved from this process might lead to satisfaction. Sheth et al further state the result of the arousal depends upon the consumers goals and will lead to approach or avoidance motivation. While approach motivation implies the desire to achieve the set goal, avoidance motivation will come into picture when the consumer wants to avoid the object.
A number of motives are activated in different situations and consumers could face something called as motivational conflict. The resolutions of these motivational conflicts would affect the consumption pattern.
Solomon (1994, pp: 91) describes three motivation conflicts that a customer might face:
Marketers need to analyse the situations that may result into these motivational conflicts and providing solutions on them would attract consumers facing these conflicts (Neal et al .2006, pp: 310).
2.3.1.3 Knowledge
Consumer behaviour literature addresses the impact that knowledge has on a consumer decision and that is the second individual difference as stated by Engel et al.
Engel et al (1995 pp: 144) have defined knowledge as the information stored in memory, and it encompasses a vast array such as the availability and characteristics of products and services, where, and when to buy; and how to use products. The part of the information, which deals with consumer activities, is called consumer knowledge.
McNeal and McDaniel (1981) explored the concept of consumer knowledge in consumer behaviour and stated how this concept is interwoven with the other terms which are usually referred to in consumer behaviour literature. They determined six commonly used and 10 uncommonly used concepts from consumer behaviour which have knowledge embedded in them. They are mentioned in the following table:
Table 1
Due to the limitation of the study the researcher will not engage into discussing these terms and their association with knowledge in depth and detail. The engagement of these terms with the concept of knowledge can be summarised with the help of the discussion by Engel et al. and Peter and Olson.
Engel et al. (1995 pp: 344) studied three different aspects of consumer knowledge, namely how much a consumer knows about a product category, what his/ her buying knowledge is and whether the usage of the product is known. These three aspects encompass the concepts of attributes, facts, information, learning and understanding as stated by McNeal and McDaniel. Thus, a consumer selecting a particular bank needs to have the knowledge of the products offered by the bank, understand their relevance to his needs and also how to make maximum utilisation of the same.
Peter and Olson (1993 pp: 87) explored the concept by analysing the knowledge of a consumer at different levels of abstraction. The concrete level referring to the physical attributes of the product and the abstract level referring to the power of the product. By power of product, Peter and Olson meant whether the consumer was fully aware of the underlying benefits to the consumer. For example, a bank could offer an automatic overdraft facility on the account after a years association.
Peter and Olson (1993 pp: 93) also discussed the concept of benefits perceived by the consumer while purchasing a product. The concepts of beliefs, expectations, intention as stated by McNeal and McDaniel address perceived customer benefit while discussing knowledge. Benefits represent the desirable consequences consumers seek when buying and using products and brand, (Peter & Olson, 1993:93).
2.3.1.4 Attitudes
An attitude can be simply explained is the way a consumer thinks, feels about and acts towards some aspect of his/her environment (Neal et al. 2006 pp: 333). Dubois (2000 pp: 109) describes attitude as manifestation of ones frame of mind or intentions. It can also be stated as inclination or a tendency of a consumer to respond towards a product or a product in a particular manner (Dubois, 2000 pp: 109).
It is considered to be a difficult task to change a customers attitude once formed (Engel et al., 1995 pp: 144).
Sheth et al. (1999, pp: 390) recognised three aspects of attitude, namely cognitions, affects and conation. Knowledge, beliefs and expectations that are associated by the consumer with a brand/product form the cognitive component of attitude. If we consider the example of Barclays Bank, the attitude of an Indian consumer towards it will be based on what he/she knows regarding Barclays- that it is foreign bank, it is originally from UK, is a recent entrant in the banking sector in India, etc. The impression of the consumer is constituted consumers image regarding Barclays as a bank (Dubois, 2000 pp: 79). Emotions and feelings (negative or positive) towards the brand/product form the affective component of attitude. It is linked with the evaluation of the image of the brand or the product involved. Finally, the conative component is associated with the end action that the consumer might take and is linked with behavioural intentions (Dubois, 2000 pp: 110).
The three components of attitude may appear in different sequences and form different hierarchies.
Ray (1973) developed three hierarchy models.
The theories of attitude components hierarchy can be used by the marketers to change consumer attitude, changing a particular component changes other components in the hierarchy resulting in the change of attitude.
2.3.1.5 Personality, values and lifestyle
Hilgard, quoted in Dubois (2000, pp: 38), defines personality as the collection of an individuals stable and co-ordinated response to their environment. This response will be the same for an individual in same situations or circumstances. Hawkins et al. (2001, pp: 378) conclude that consumers purchase products that the strongly identify with or the ones which they perceive to solve/improve upon their weakness.
`There are various theories in consumer behaviour that analyse the concept of personality. Individual personality theories, as discussed by Neal et al (2006, pp: 312), consider the traits or characteristics formed at younger age and deem them unchangeable over the years. Individual personality theories do not acknowledge the effect of the external environment or situation/circumstances that the consumer faces. Single trait theory states that only one characteristic of an individual is important and dominant, whereas multiple trait theory considers several characteristics/ traits in combination that form a substantial portion of the personality. (Neal et al. 2006, pp: 312)
Social learning theories also attempt to analyse the concept of personality. As situations change, the reaction of the individual also changes. Social learning theories emphasise on environment as the determinant of behaviour. (Neal et al. 2006, pp: 313)
Dubois (2000, pp: 43) reports that the link found by researchers between purchasing behaviour and personality has not been convincing. However, he argues that inconsistent empirical results from the research studies are more to do with failure methodologies applied and less with the personality concept being defective. Dubois found the idea, that an individual develops a set of responses towards his environment over his lifetime which affects his purchasing behaviour, reasonable. However, Dubois was not convinced with the idea of using a generic instrument to assess a particular event (Dubois 2000, pp: 44). Mowen (1993, pp: 219) also stated that marketers cannot predict future behaviour from a single situation measurement of a personality. To counter this, Dubois (2000, pp: 44) warranted the adaptation these instruments in the consumption context and suggested the widening of the observation studies.
Engel et al. (1995, pp: 443) identified values as set of activities which are deemed acceptable by an individual. Social values are the activities which are classified as normal or natural by the society or group, while personal values are associated with normal behaviour as assessed by the individual.
Sheth et al. (1999, pp: 63) present a further classification of the personal values of an individual, namely social and emotional. An individual would purchase products which are associated with the norms of people in the same group and is referred to as social value. Emotional satisfaction of a product is achieved if a product is purchased on the basis of emotional values.
Marketers need to assess these values in order to understand how an individual would seek a product.
Lazer was one of the first consumer researchers to address the concept of lifestyle in context with consumer behaviour. He defined lifestyle as the distinctive or characteristic mode of living, in its aggregate and broadest sense, of a whole society or segment thereof. It is concerned with those unique ingredients or qualities which describe the style of life of some culture or group, distinguish it from others. It embodies the patterns that develop and emerge from the dynamics of living in a society. Lifestyle, therefore, is the result of such forces as culture, values, resources, symbols, licence and sanction. From a marketing perspective, the aggregate of consumer purchases and the manner in which they are consumer, reflect a societys lifestyle. (Quoted in Dubois, 2000 pp: 177)
Hawkins et al. (1998 pp: 433) explanation of lifestyle analyses the definition provided by Lazer. Lifestyle can be referred to as the way an individual lives, determined by the individuals past experience, characteristics and current situation. Hawkins et al. (1998 pp: 433) further state culture, values, demographics and social class influence the lifestyle as social interaction plays an important role in characterising an individuals lifestyle.
As Hornik (1989) pointed out, marketing communication will be more effective if they are able to analyse the consumer lifestyles reasonably well.
2.3.2. Environmental differences
2.3.2.1 Culture
Culture can be assessed as an abstract construct influencing humans and can be defined and discussed in different forms. Culture can be analysed on the basis of its parts and components like social and economic systems, family, religion, education, language and communication and technology (Baligh, 1994). All these macro-environmental influences construct the objective reality in which the consumer decides to buy a product. Internalize beliefs, values, logic and decision rules of a culture form the subjective reality of an individual consumer.
Thus, one can state that peoples economic behaviour reflects the overall culture in which it is embedded and cannot be considered as directionless (Baligh, 1994).
Culture has definitive characteristics inspite of being termed as abstract (Strauss and Quinn, 1992).
As culture is shared amongst the members of the society, it can be distinguished fromf the individual phenomenon (McCort and Malhotra, 1993).
Culture is reflected in peoples general tendencies and/or preferences for particular states of affairs, specific social process, and general rules for selective attention, interpretation of environmental cues, and responses (Tse et al., 1988). Second, culture is a learned phenomenon. It is manifested in learned behaviour acquired through socialization (Hofstede and Bond, 1988; Ward et al., 1987). Humans learn norms through imitation or by observing the process of reward and punishment in a society of members who adhere to or deviate from the groups norms (Engel et al., 1995, p. 613). In this sense, culture is observable and amenable to empirical description.
Meanings, values, ideas and beliefs of a social group are expressed through various cultural artifacts, such as products, information and communication technologies (Hasan and Ditsa, 1999). Douglas and Isherwood (1979) posit that people from different cultures use products as a means of communication. According to McCracken (1986), in a consumer society, cultural meaning moves from the culturally constituted world (the original location of cultural meaning) to consumer goods (carrying and communicating cultural meaning) and then from these goods to the individual consumer. The nature of cultural influence can be seen as a circular process from which meaning is created, maintained and transmitted within a society (McCort and Malhotra, 1993).
Culture refers to a set of values, ideas, artifacts, and other meaningful symbols that help individuals communicate, interpret, and evaluate as members of society. (Engel et al., 2001pp: 314.)
Peter and Olson (1993:414) identified several issues, which must be taken into account, when culture is analysed. These issues include the fact that sub-cultures of small groups can be analysed, that a shared meaning among the group being analysed is critical and that social groups differ in the amount of freedom they have to adapt to various cultures.
From the above discussion, it can be observed that the culture of single working women must be comprehensively understood, in order to effectively market to them.
2.3.2.2 Social class
is the second environmental variable, which may affect consumer behaviour. Social class is defined as relatively permanent and homogeneous divisions in a society into which individuals or families sharing similar values, lifestyles, interests, wealth, status, education, economic positions, and behaviour can be categorized. (Engel et al., 2001:346.)
Various factors will determine an individuals social class. These can be divided into three groups, namely economic variables (occupation, income and wealth), interaction variables (personal prestige, association and socialisation) and political variables (power, class and mobility). The likelihood of an individual changing her social class is very small (Engel et al., 1995:682).
Solomon (1994:407) posits that social class will affect the access to resources. The argument was made that the people who have the resources (for example money) can be grouped into one class and that the people who lack the resources will be grouped into another class. The people who have little money will serve the people with more money, to help them remain in their position. People of the same social class will also have the same tastes and preferences.
People of the same social class will work in the same kinds of occupations and will socialise with each other. These people will have the same lifestyles and earn the same incomes. Marketers need to take this fact into account, when they market to consumers.
2.3.2.3. Personal influence
is the third environmental factor, which has the potential to influence consumer behaviour. It refers to the impact, which other people have on the individuals life and how this may influence their behaviour. The individual may behave in a way she perceives as being expected of her. There are three types of reference group influence. The first type involves normative compliance. When an individual is forced to perform a certain activity, to enable her to belong to the group, normative compliance is experienced. The need to conform will be the strongest, when the benefit gained by the compliance will outweigh the cost involved. The value-expressive influence is the second type of reference group influence. In this type of influence, the individual needs to be psychologically associated with the group. This requires that the individual must have the same value system as the rest of the group. The reward will be an improvement in image and respect (Engel et al., 1995:716).
Particular to the financial industry, the single working woman may have a credit card facility. The extra points she can earn by using it may result in receiving paid airfares to exotic destinations. This could suit the image of an independent world explorer, which she may wish to create.
The third type of reference group influence is called informational influence.
An example, with regard to this study, would be if the single working woman does what her financial adviser recommends, due to her lack of knowledge of the subject. The danger exists that an individual may also, because of a lack of knowledge, adhere to word-of-mouth influence. Whether an individual would listen to a trusted friends advice, by word-of-mouth, rather than to a financial adviser who practices informational influence, will have to be investigated in the future.
2.3.2.4 Family
is the next environmental influence, which may affect consumer behaviour. Family can be defined as a group of two or more persons related by blood, marriage, or adoption who reside together. Certain aspects will affect the consumer behaviour of a family. These include the age of the head of the house, whether a couple is married, whether they have children and whether they work. If a family has children, there would be, for example, a need to purchase clothing and medicines (Engel et al., 1995:743).
There are also three factors, which may explain the behaviour of families. Cohesion refers to the emotional relationship among family members. Family members can bevery close to each other on an emotional level. This constitutes a high level of cohesion. Adaptability refers to the extent to which a family can change, when different demands are created in the family. This involves a change in the role structure and authority in the family. Communication is the third factor in this process. If the members of the family are able to communicate effectively with each other, the result will be an increase in cohesion and adaptability (Engel et al, 2001pp: 362).
Members of a family can play different roles in the purchasing process. Instrumental roles refer to the money an individual has to pay when purchasing the product. A family member who helps the buyer to make the decision performs the expressive role. The role involves giving emotional assistance when needed. It can be observed that families are important social systems for two consumer-related reasons, as defined by Du Plessis et al. (1990:173):
A huge amount of product consumption is generated by families together and certain product purchases, which are considered as activities performed by one individual, can become family matters, when the family performs the roles described above.
The single working woman may be influenced by her uncles or brothers advice on which kind of investment to make. Knowledge of the single working woman and her purchase behaviour is important, but knowledge of the family members who play a role in her life is also important, to enable the development of an effective marketing strategy. These factors will be taken into account in the empirical part of this study.
2.3.2.5 Situation
is the last environmental influence, which may have an impact on the purchase behaviour and decision-making process of the individual. Situational influence can be viewed as the influence arising from factors that are particular to a specific time and place that are independent of consumer and object characteristics. (Engel et al. 1995, pp: 794)
According to Engel et al. (1995:794), a consumer can experience three different types of situations:
The first one involves the communication situation. Particular to this study, should the female, for example, while in a hairdressing salon hear an advertisement about a certain policy broadcast over the radio, she would not pay much attention to the advertisement, because of the noise present. If, however, she should listen to the same advertisement on the radio in her car, she may pay more attention to the advertisement of the product.
The second type of situation involves the purchase situation. Particular to this study, it would involve a company asking higher prices for their products in a special situation. Cold drink bought at the movies versus at the grocery store, would be a good example. In the financial world, the broker can be so friendly and care-giving that it may result in the female purchasing the product which he recommends, although it is not her first choice.
The last situation refers to where the product is used and how that will influence the purchase behaviour. Due to the lack of practicality of this situation in financial terms (a female will consume her life policy when she dies), this situation will not be further discussed.
2.3.2.6 Socio-Economic factors and the Indian consumer
After discussing the theoretical aspects of the effect of external environment on the consumer decisions, the researcher deems it right to discuss India as the environment. The effects of family, culture, reference groups, subcultures, external cultural influences are all unique to individual societies and countries.
Changes occurring in a mans psychic structure were attributed to the socio-economic development of capitalism by sociologist George Simmel (Slattery, 2003).
The philosophy of consumer capitalism has become central to the developing countries as more people are affected and the process of consumption and its related services become the dominant social activity. The society has created its own characteristics and philosophical framework defining social ranks and exclusivities, with membership and identification assessed by the level of consumer participation.
India is the second most populous country in the world with an estimated population of more than 1.2 billion (www1: census.gov, viewed on 03 Feb 2010) and it may at the rate of growth, be the most populated country within a decade. On witnessing economic liberalization in the early 1990s and a recent economic growth surge rapid socio-economic changes are taking place in India giving rise to many new markets and a further expansion of the existing ones. With above 300 million people moving up from the category of rural poor to rural lower middle class between 2005 and 2025, rural consumption levels are expected to rise to current urban levels by 2017. (www3 :ibef.org, viewed on 06 Feb 2010), Indias market potential is greater than that of many countries in Western Europe with more than 150 million middleclass consumers earning more than $4,000 annually in local purchasing power (Kulkarni, 1993).
Beginning in the late 1980s, the Indian government has taken a series of steps to liberalize the economy and ease restrictions on imported goods, thus moving away from more than four decades of socialistic economic policies and a near obsessive focus on self-reliance in the consumer goods sector (Banks and Natarajan, 1995). As a result, the Indian market today is flooded with imported products from many countries. This has increased collaborations, indigenous brands and international brands all competing to grab the growing market opportunities. In 1991, the Indian financial system underwent reforms which permitted the Reserve Bank of India to establish new banks in the private sector. They were permitted on the basis that they match the minimum start up capital and other requirements and the set of prudential norms with regard to accounting, provisioning and other aspects of operations. (Government of India, 1991, pp: 72) This was the initial step in allowing the entry of foreign banks.
This process of globalization has been an integral part of the recent economic progress made by India. Globalization has played a major role in export-led growth, leading to the enlargement of the job market in India, especially in the urban centres such as Bangalore, Mumbai, and Hyderabad.
As a new Indian middle class has developed around the wealth that the IT and BPO industries have brought to the country, a new consumer base has developed. International companies are also expanding their operations in India to service this massive growth opportunity (www2: economywatch.com, viewed on 12 Feb 2010).
Marketing research, thus, becomes a crucial tool to the businesses in assessing the market requirements and leading to the requirements is the need to understand the behavioural patterns of buyers and consumers towards a product and the trends towards the category. Consumers take a number of factors into account when they make purchasing decisions and according to conventional wisdom, if two competing goods relatively equal in terms of quality, performance and design are available to a rational economic consumer will choose the cheaper one. If the price difference is too small, then the consumer will choose the product with better quality and finally if most factors are considerably similar, then the consumer will look at design for choice. However, this is not as simple as it appears (Cooper and Press, 1998)
2.3.3. Psychological processes
Psychological processes are the third and last group of variables, which will have the potential to influence the decision-making process. They involve information processing, learning and attitude and behaviour change. Each of these elements will be discussed, for a better understanding of their impact on the decision-making process.
2.3.3.1 Information on processing refers to the divestment of marketing messages, which the consumer received. An important concept relating to this matter is consumer sovereignty, which involves that, the consumer will only see and hear what she want to see and hear (Engel et al., 1995:146). Information processing was extensively discussed when the decision process was evaluated in the previous section. The researcher will, therefore, only give a definition of information on processing in this section. #
2.3.3.2 Learning
is the second psychological process, which may influence consumer behaviour in decision-making. Learning can be defined as the process by which experience leads to changes in knowledge and behaviour. Cognitive learning refers to a change in knowledge by certain events experienced by the consumer.
There are two factors, which will have an influence on learning, namely rehearsal and elaboration. Rehearsal involves the repetition of the messages and will help to establish the messages in the long-term memory. Elaboration refers to the process where the individual will connect the new message with an old message, thus enhancing learning (Engel et al., 1995:514).
Motivation, in relation to the above-mentioned factors, will also play a role in the learning process. A motivated individual will be more likely to remember certain events (Engel et al., 1995:516). It is important to note that motivation will only occur in a high-involvement learning situation. There will be no motivation in a low-involvement learning situation (Hawkins et al., 2001:325).
Engel et al. (1995:518) suggest that companies can use different strategies to enhance retention. Concrete, rather than abstract words, which would be easier to remember, should be used. The clients should also be told about the products several times. In addition to the previous methods, two types of conditioning methods can be used to enhance learning. Classical conditioning involves presenting a stimulus to the consumer to which she will respond positively. Operant conditioning refers to the process where the individual will consume the product and, because of the satisfactory results, will purchase the product again (Engel et al., 1995:531).
Solomon (1994:123) states that consumers have learned experiences, which are either intentional or unintentional. Marketers rely on these learned experiences to surface in the minds of the consumers, when they intend to buy products. Several factors, however, may influence the information retrieval. State-dependant retrieval refers to the fact that consumers will be more able to retrieve the information, if their internal state is identical to that which existed when the information was learned. Familiarity with an item will also enhance retrieval. The salience factor refers to the prominence of a stimulus in the environment. If the consumer can easily observe the stimuli, her chance of recalling the relevant information will be enhanced.
2.3.3.3 Attitude and behaviour change
is the last psychological process, which can influence the consumer decision-making process. An attitude is an enduring organization of motivational, emotional, perceptual and cognitive processes with respect to some aspect of our environment. It is a learned predisposition to respond in a consistently favourable or unfavourable manner with respect to a given object. (Hawkins et al., 2001:394.)
Attitudes were already discussed in Section 3.2.8 (a) as one of the individual differences, which may affect the consumer decision-making process. The discussion about attitudes in this section will, therefore, only refer to the definition.
2.4 Review of existing research on Bank Selection criteria
This section will review the previous research conducted in the field of bank selection criteria in India as well as western countries. The section aims at developing a base for the creation of the research design of the current study.
2.4.1. Research in the Western countries
Bankers in the western countries have engaged in assessing competitive advantage capabilities of their organisations since a long time.
Anderson et al. (1976) undertook a study of 466 residents in a south western city in the US to assess the principal decision factors used and their relative determinant in bank selection decisions. They concluded that results of the analysis for the sample indicated that the bank selection process is based primarily on five determinant selection criteria: friends recommendation, reputation of bank, and availability of credit, friendliness of staff and service charge of accounts. The view that convenient location is the prime mover was held with such tenacity that the finding that recommendation of friends was the most important criterion was met with great scepticism. Dupuy and Kehoe (1976) revealed that through their research convenience consistently ranked as the most important selection criteria for a commercial bank. They criticised the results obtained by Anderson et.al and deemed it as inconsistent with the previous bank research.
The American Banking Association (ABA) conducted a survey in 1984 regarding the customer attitudes towards commercial banks covering competitive advertising and positioning, consumer financial services usage and their perceptions (Carcione, 1985). The study shed a light on the growing popularity of brokers for newer profitable financial products. The study concluded that the customers were inclined towards the banks only for traditional accounts, deposits and loans. Schlesinger et al. (1987) in their study conducted in New York State found that the three most important factors in selecting a bank for small business customers were lending rates, accessibility of borrowing, and the number of services offered. Price of service was also found to be an important bank selection factor in another survey conducted by Buerger and Ulrich (1986). Laroche et al. (1986) conducted a survey in Canada and found that speed of services, and factors relating to the competence and friendliness of bank personnel and convenience of location were the major factors which consumers perceived as important in their selection of a bank.
In the USA, Boyd et al. (1994) asked respondents to rank the criteria which they perceived to be most important in the selection of a financial institution. Overall, the five most important criteria identified were reputation, interest on savings accounts, interest charged on loans (the latter two price considerations for the marketing mix), quick service and location in the city. The relative importance of selection criteria varied between groups of respondents, except that reputation was selected by all household categories except divorced people. A number of studies have also been conducted which focus on consumer satisfaction with banking services. One review of US customer perceptions of service quality by Stafford (1994) found that customers want courtesy, friendliness and convenience but that consumers also view fair prices, concerned management and institutional stability as integral components of the service process.
Khazeh and Decker (1992) also studied selection criteria of banks in the USA. Their methodology was particularly useful in that it focuses attention on the selection criteria which would lead a customer to choose one bank over another, that is, the importance of the item to consumers and also the degree to which they perceived they could differentiate between banks on the provision of this item. Their findings revealed that the most important selection criteria were service-charge policy (price), reputation (positioning) and competitiveness of loan rates (price). Another US study by Plank et al. (1994) investigates another important area: gender differences in selection criteria. The findings showed that husbands and wives have different criteria by which they judge the quality of service received. Husbands placed higher relative importance on personal recognition and attention while wives placed higher relative value on comfortable service (for example, tellers who smile), feeling at home in the bank, evening banking hours, polite bank personnel, and so on. These findings could be relevant to Poland as women traditionally make the household financial decisions (Kennington et al., 1993). A comparative study of Hong Kongs domestic and foreign banks was conducted by Kaynak and Kucukemiroglu (1992). This study investigated the importance of a series of factors in choosing a commercial bank. Fast and efficient service and friendliness were found to be important selection criteria, then the efficiency of completing banking transactions and convenience. The authors also recommend that banks follow a market segmentation strategy in order to differentiate themselves by creating an image which is tied to the provision of a few services or elements of service quality. Another study on bank selection criteria by Yue and Tom (1995) was based on Chinese- Americans residing in Sacramento, California. The important factors of bank selection by the customers were found to be efficiency of services offered, banks reputation, bank fees, location, and interest rates on saving accounts.
Holstius et al. (1995) cited efficiency and courtesy as the most important attributes in determining overall customer satisfaction, while other important attributes were convenience of location, range of services, reputation and availability of innovations. Zineldin (1996) conducted a survey of 19 potential factors which customers consider as important in the selection of a bank in Sweden. These factors include reputation, recommendation by others, interesting advertisement, convenience of location, opening hours and high technological services. Each respondent was asked to rate the importance of each of the above-mentioned factors on a scale of 5 (very important) to 1 (completely unimportant). His study revealed that friendliness and helpfulness of personnel, accuracy in account/transaction management, and availability of loans and provision of services were the most important factors.
Nielsen et al. (1998) conducted a nationwide survey in Australia for 25 banks and 2,500 bank business customers to rank the factors to be considered more important in bank selection process. Their findings revealed that business firms placed more importance on the willingness of the bank to accommodate their credit needs and the efficiency of the bank in its day-today operations. Whereas bankers placed more importance to their ability to offer competitive prices, a full range of products and services and the provision of a personal banking relationship. Another study conducted for Athens (Greece) by Mylonakis et al. (1998) who studied 811 bank customers to identify the important factors for bank selection criteria. Their study pointed out location convenience, attention to customers, personalized service as the most important factors in the selection of a bank. Driscoll (1999) identified five factors (convenience; price; product selection; service; and ambience) that customer perceive as important for selecting their financial services providers.
Another survey was undertaken by Thornton and White (2001) to analyze consumers attitude towards the usage of financial distribution channels. Their findings revealed that banks adopt a multiple distribution channel to meet the needs of different market segments. This study suggested that if a financial institution finds that its profit comes mainly from service oriented customers, then it would be best for the banks to concentrate on human interface type of services like branch network. And if banks were to attract or retain convenience, technological or change oriented customers, then they should focus more on online electronic type of distribution channels. Furthermore, in a competitive banking scenario, customer service, user friendly technology, and more sophisticated customer products are important components within the marketing mix, but communication is also emerging as a crucial element in the marketing activity of a bank (Andrew, 1990).
From above gathered literature, one can assess that considerable research has been conducted in the western countries in the banking behaviour of customers. Many of the researches have come up with similar conclusions. There has been lack of such research in the India. Very few researchers have explored the decision making behaviour of Indian consumers whilst selecting a bank. The following section attempts to review the existing literature in the Indian context.
3. Research Methods
3.1. Introduction
The objectives of the current research that have been mentioned before are as follows:
The objective 3 mentioned above delivers value to the research whereby empirically the researcher establishes the key determinants of bank selection criteria in India. Chapter 2 has already outlined the absence of such a study in the Indian context and has also provided a base for the research design development. The literature review also presents the researcher an opportunity to compare the findings from the present study to those conducted in the western countries. The literature review has also addressed the first two objectives mentioned above.
The data collected from the respondents will not only help to determine the factors influencing the selection of banks but also provide the basis for development of a framework for marketers for further research into developing marketing strategies.
This chapter will illustrate the development of the research design and also provide insight into the data analysis methods to be used in chapters ahead. The chapter will end with the limitations of the study undertaken.
3.2. Research Strategy
The choice of method for a research project should reflect the overall research strategy (Mason, 1996). The researcher has to make a strategic decision as to which research method to use from the variety of options and alternatives he faces (Denscombe, 2007). Each choice is a package of assumptions, advantages and disadvantages. The researcher needs to choose the strategy which could be the most beneficial for the project. Furthermore, Oleary (2004) specifies three important facets that a research methodology should possess to satisfy the research-
The choice between using either quantitative or qualitative methodology is based on the nature of the information required and the expected use of the findings (Robson, 2002). Quantitative research is frequently stated as an objective search depending upon hypotheses and variables, and is conducted on large scale, whereas Qualitative data on the other hand is desrcribed as subjective, value-laden, biased and ad hoc process that accepts multiple realities through the study of small number of cases (Cavana et al 2000; Cresswell, 1994; Neuman, 1997).
The research need was to determine the factors influencing the selection of banks in Indian context. Therefore, various research strategies were considered by the researcher, namely- experimental, survey, action research, case study and archival research. Considering the limited time available to the researcher, action research and experimental research strategies were not considered. Secondly, as Hakim (2000) suggested, experimental research was considered to be costly and quite complex considering the objectives of the research. Case study was not considered appropriate by the researcher as the objective was more to do with that of a large sample size not confined to a particular organisation. Archival research was not the way forward as limited resources were found by the researcher during the literature review phase.
Considering the above issues and the need of the research, survey based research strategy was considered appropriate by the researcher.
The study of secondary literature such as books and journals, which Bell (2005) suggests as important as extremely valuable source of data, was conducted as initial part of the research. Literature material was collected and reviewed in the literature review and analysis chapter which led to the resulting hypotheses. These hypotheses are also a reason for the survey methodology to be adopted by the researcher.
Surveys provide wide and inclusive coverage of the research and in principle provide a panoramic view of the study. As surveys are conducted at a particular point in time, they are considered up to date as they present the current state of affairs while emphasising on tangible things- that can be measured and recorded. (Denscombe 2007)
Saunders et al (2007) stated that survey strategy is associated with a deductive approach and tends to be used in exploratory and descriptive research. Surveys also allow the collection of large sample size in an economical way. Survey strategy tends to give the researcher more control over the entire data collection process (Saunders et al 2007).
The survey will be used to gather the basic data which will provide input to the strategic framework for bank marketers in India.
3.3. Data Collection
3.3.1. Site and Sample Selection
3.3.1.1. Indian Urban Consumer
The market category selected was on the basis of the rapid growth of the India Urban sector and also a further growth forecast in this sector.
Between 2006 and 2016, Indias population is expected to increase from 1108 Mn to 1269 million. While the overall population is expected to grow to an annual rate of ~1.4%, Indias urban population is expected to grow at ~2.3% in the same period to reach ~400 Mn.
Indias projected economic prosperity is likely to be spearheaded by a rea
