An Examination of Customer Retention Behavior in Debt Management Program

Article excerpt

Customer retention is a critical issue in service industries such as insurance and telecommunications given that these firms' stable profits are based on a continuous access fee paid by the customers (Keaveney & Parthasarathy, 2001). In the credit-counseling industry, customer retention can also benefit credit-counseling organizations in the same manner since the organization, who serves as a middleman, receiving "fair share" payments from the creditor as well as collecting service fees from the consumer, highly depends on a continued relationship with customers to achieve its business goals. On the other hand, customer retention has its special implication to consumers' interest in this particular context: If a consumer can be successfully retained in a Debt Management Program (DMP) and deposits payments timely and fully, then he or she would have a significantly lower incidence of filing bankruptcy (Staten & Barron, 2006). As such, a better understanding of consumer behavior in successfully completing a DMP will not only assist creditors and credit counselors in reaching their business goals but will also help consumers with debt troubles to achieve their personal financial goals. However, approximately one-half of debt management plans fail after about six months (Hunt, 2005). How to retain customers in DMP, therefore, becomes a critical issue for credit counseling organizations.

This study examined customer retention behavior in debt management program (DMP) within the framework of extended theory of planned behavior. This theory argued that customers' attitude toward the organization (i.e., customer satisfaction with the organization) may indirectly influence customers' attitude toward remaining in the program through the mediating effect of customers' anticipated behavioral outcomes of remaining (Eagly and Chaiken, 1993). These outcomes include both utilitarian outcomes such as setting up future financial plan and social outcomes such as conforming to social norms. In addition, consumers' attitude toward remaining, their anticipated behavioral outcomes, and perceived control of remaining may have an impact on their behavioral intention of remaining. Finally, consumers' behavioral intention and perceived control of remaining may both affect consumers' actual retention behavior.

Data was collected using a survey with a sample of 209 clients from a major credit counseling organization in USA. Archival data was also connected with survey data so as to explore the customer actual retention behavior. A two-step structural equation modeling (SEM) procedure was employed to establish the construct validity and test the hypotheses. The results revealed that, consistent with the prediction of the extended theory of planned behavior, the positive effect of customer satisfaction on customer's attitude toward remaining in DMP is mediated by customer perceived utilitarian outcome and normative outcome. Next, customers' intention to remain in DMP is positively influenced by customer's positive attitude toward remaining and customer perceived control of his or her own remaining behavior. …