Why Customers Choose Community Banks: An Empirical Study

Article excerpt

ABSTRACT

This paper examines the reasons customers choose community banks and the perceptions of community bank chief executive officers as to why customers might choose a community bank. Additionally, the paper examines what services and facilities the customer prefers. It represents two studies. First, a survey was sent to chief executive officers from 60 banks, with 41 banks responding. Subsequently, 150 surveys were sent to each of the 41 responding banks for random distribution to each tenth customer who came to the lobby or motor bank. Both customers and chief executive officers were surveyed in the three major population areas of Texas (Houston, Dallas-Ft. Worth, and Austin-San Antonio). 'The research included both urban and rural banks within the three major population areas. The second study was a confirmation study surveying 50 banks outside the state of Texas with 32 banks responding. Subsequently, their customers were surveyed in the same fashion as the first study.

INTRODUCTION

Community banks occupy a unique position in the United States. What is it that makes community banking unique? Based upon what customers have indicated in various banking situations, personalized and quality customer service will provide community banks with the ability to be more competitive than large regional or multi-national banks. This fact is born out in the two studies.

Customer satisfaction related to expectation fulfillment is an extremely important and critical issue facing organizations in the complex business environment of today. The banking industry is, certainly not an exception to this premise. In fact, it has been widely held in financial institutions that customer satisfaction may be the most influential factor in the selection of a banking institution. Likewise, with all of the changes taking place in the financial marketplace and the increase in competition, it becomes apparent that more attention must be given to customer service and satisfaction.

Based on what customers have indicated in various banking situations, personalized and quality customer service will provide community banks with the ability to be more competitive than large regional or multi-national banks.

To develop and implement a successful customer relations program, a financial institution must begin by determining the inherent view within the organization relative to customer service. Usually, it is determined that management sets the standard by which an organization establishes its goals and objectives. For management to set the standard, there must be some perception of what the customer or prospective customer wants and needs. By inference, the employees and officers of a financial institution usually exhibit those service characteristics emanated by management.

Therefore, it is not only important to obtain customer input as to the services and products they desire, but it is equally important to receive management's perceptions of the customers' wants and needs to avoid situations where the institution fails to live up to customer expectations due to failed communications. For example, management may determine that his/her bank does not need more than one automated teller machine. Management's basis for the decision is based upon low usage of an existing machine in a poor location. On the other hand, customers may be moving from that bank because they believe the competition has machines in locations that better meet their needs.

EXISTING LITERATURE

The American Bankers Association (1994) reported that during the past decade banks have seen their customer base decline. Efforts to reduce this decline have not proved successful to date. One thing that appears to be promising is the implementation of good customer service. To implement good customer service, it has been shown that researching customer expectations and determining customer desires is vital. …