Academic journal article South Asian Journal of Management

An Empirical Investigation of the Switching Process in Retail Banking †

Academic journal article South Asian Journal of Management

An Empirical Investigation of the Switching Process in Retail Banking †

Article excerpt


With changing consumer, regulatory and technological landscape, organizations across sectors are experiencing increasing competitive intensity and are seeking ways to retain customers. Though organizations have realized the value of keeping customers loyal, how to keep them loyal is a question that has been intriguing everyone. Previous studies suggest that failure to keep customers loyal results in customers shifting their businesses wholly or partly to other firms for a variety of other reasons even when they are satisfied with the existing business. Whether customers shift their businesses wholly (total switching) or move their businesses out partially (partial switching), it is a loss for the organization and is a clear sign that customers see a decreasing stream of value from the organization. Customer switching behavior has a damaging effect on the market share and profitability of organizations as the costs organizations have to incur to acquire customers far exceed the cost of retaining them.

It is more difficult to understand switching behavior in the services sector than in manufacturing because of the very nature of services that makes it difficult to decode and understand how consumers make their choice. A decrease in switching leads to an advantage both on the revenue side as well as the cost side for service organizations as continuing customers, even at higher prices, increase their usage of service (Bolton and Lemon, 1999) and result in higher operating efficiencies due to lower operating costs (Reichheld and Sasser, 1990). Retention of customers also leads to motivational, perceptual and behavioral benefits to the service provider (Bansal and Taylor, 1999) as customers will search less for substitutes, will be more resistant to competitor influence and will engage in positive word-of-mouth communication (Dick and Basu, 1994).

The banking industry is one characterized by a high degree of similarity in product and service offerings and by the absence of any clear distinguishing theme thus making it vulnerable to customer switching behavior. Rising income, changing consumer choices, proliferation of products, regulatory changes and technological advancements have made customer life cycle increasingly ephemeral in the banking industry. For continuously delivered services like banks that charge fees for access and basic services, customer switching can be particularly damaging as non receipt of the fees and charges can affect their bottom-line (Keaveney and Parthasarathy, 2001). While a pertinent question is what banks can do to prevent switching, there is an increasing need to understand why customers switch their banks. The presences of relational and contractual bonds add to the complexity of understanding bank switching. An investigation into the cognitive process that leads to customer switching, beginning from what makes customers even consider switching as an option and how customers switch will help banks to modify their service offerings and retain customers.


Studies on customer switching have investigated its antecedents and the process of switching (Keaveney, 1995; Bansal and Taylor, 1999; Colgate and Hedge, 2001; and Colgate and Lang, 2001). Models that describe service switching suggest that switching involves a gradual process resulting in the dissolution of relationships that exist between the customer and the service provider due to more than one problem experienced over time. The multiple problems are not viewed separately by customers; the combined effect of interaction among these factors influence customers in their decision to switch (Keaveney, 1995). Switching does not often result in immediate dissolution of business relationship but in a gradual decline of customers' engagement in the established relationship as they begin to allocate more of their resources to competitors (N'Goala, 2007).

The switching process involves a series of incidents, many decisions and actions of a customer ending one relationship and forming another relationship. …

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