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Journal of Retailing and Consumer Services 15 (2008) 921 www.elsevier.com/locate/jretconser

Acquiring and retaining customers in UK banks: An exploratory study

Jillian Dawes Farquhar, Tracy Panther
Business School, Oxford Brookes University, Oxford OX33 1HX, UK

Abstract This paper explores how traditional banks1 in the UK are managing customer acquisition (CA) at the same time as the retention of protable customers. In spite of the interest of UK banks in retention, new customers often receive more favourable prices and conditions than existing customers, suggesting that acquisition may dominate. To explore the balance between acquisition and retention and to discover marketing activities that might support both, semi-structured interviews were conducted with a small sample of senior bank staff in the UK. Analysis of the interviews, using computer-aided software indicated that banks are indeed trying to manage acquisition with retention but encountering a range of difculties as they revisit long-held strategies. The study also suggests seven activities that might contribute to a better balancing of CA with retention. By seeking expert management opinion through a qualitatively based study, this research proposes a preliminary framework of marketing activities that support both acquisition and retention. r 2007 Elsevier Ltd. All rights reserved.
Keywords: Customer acquisition; Retention; Qualitative study; Services; UK banks

1. Introduction The UK has one of the most diverse and competitive banking sectors in the world with both specialist and nonbank providers offering services such as credit cards, insurance and loans. This research concentrates on UK high street providers of nancial services, such as the big four banks, national and large regional building societies and which the majority of customers continue to patronise. The level of competition amongst nancial service providers has led to price-dominated strategies that attract new customers, but which do not appear to strengthen loyalty in the existing customer base. Financial services, customers are increasingly prepared to change their provider, or switch, usually to achieve more favourable prices. It has been observed that customers usually switch from one high street provider to another (Miles, 2004; Mintel, 2002a), rather than a specialist provider or internet-only bank, thus maintaining the dominance of the traditional high street provider. In spite of the importance that banks dedicate to
Corresponding author. Tel.: +44 1865 485977; fax: +44 1865 486830.
1

acquiring customers, they are aware of the value that can be derived through the retention of their protable customers. Previous research, however, has indicated that balancing activities directed towards customer acquisition (CA) and retention has proved challenging with attempts at retention being undermined by acquisition strategies (Farquhar, 2005). The aim of this study is to explore how banks are attempting to balance customer retention (CR) with CA and to identify marketing activities that support both CA and CR. The structure of the paper is as follows: rstly a background to the study is provided, then there is a brief description of the research design, the ndings are presented, followed by a discussion and conclusion. 2. Background to the study Although marketing is concerned with both the CA and CR (Drucker, 1963), strategies directed at gaining market share through acquisition have often dominated. CA contributes to revenue, prot targets and shows growth in the short-term but, if new customers have to be acquired constantly to replace those who leave, protability can be eroded (Berger et al., 2002). It has been argued that

E-mail address: jfarquhar@brookes.ac.uk (J.D. Farquhar). Banks, in this study also refer to building societies.

0969-6989/$ - see front matter r 2007 Elsevier Ltd. All rights reserved. doi:10.1016/j.jretconser.2007.02.001

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keeping existing customers is a more effective way of spending marketing resources (Fornell and Wernerfeldt, 1987), although some new customers will be needed to replace those who no longer require the company offering (Fornell, 1992; Johnson and Selnes, 2004). There is growing consensus that CA and CR are not separate activities and that one impacts upon the other (Reinartz et al., 2005; Thomas, 2001). Reinartz et al. (2005) investigated how to balance acquisition and retention resources with a view to maximising customer protability in a business-to-business goods manufacturer, by calculating marketing spend across communication channels. They generate a decision-making model which they acknowledge has limitations if considered within a business-to-consumer scenario, such as high street banks. Thomas (2001) strengthens the link between acquisition and retention by proposing a model that corrects for the biases occurring from an analysis of CR without taking account for CA. The contributions of these writers to marketing management literature, as well as the studies into customer equity and asset management (e.g. Bolton et al., 2004; Hogan et al., 2002; Reinartz et al., 2005; Venkatesan et al., 2005) point to a shift in emphasis from product to customer protability, at the same time proposing metrics for assessing customer protability. Relationship marketing (RM) is connected with CA and CR as it is concerned with establishing, developing and maintaining successful relational exchanges (Berry, 1983). RM in consumer markets, especially in services, features a set of activities that aim to maximise the value of a customer to the organisation with an emphasis on one-toone marketing as opposed to mass marketing (Buttle, 1996). Although the relevance of RM has been questioned for consumer markets (OMalley and Tynan, 1999) and for certain types of customers (Li and Nicholls, 2000), RM and customer relationship management (CRM) have become features of marketing in the last two decades, facilitated by the increasing power and precision of information technology (Boulding et al., 2005). Although there are signicant benets for the banks in building relationships with customers, some customers seem less certain (Harrison, 2000), as they perceive that they gain little from these relationships (Miles, 2004). DallOlmo Riley and De Chernatony (2000) have stated a case for convergence between RM and branding and point out that the rationale for branding as a way of communicating values is consistent with the creation of the structural bonds of RM. In a similar vein, Rust et al. (2004b) have argued that branding must focus on maximising customer lifetime value, which can be best effected through brand building around selected customers segments based, say, on protability. If companies merely aggrandize the brand, then they might be able to achieve an increase in market share but may be less successful in building customer value (Rust et al., 2004b). By creating a brand within a brand (Zeithaml et al., 2001), companies can begin to differentiate themselves from their competi-

tors (McDonald et al., 2001) based on segmentation. The rational and emotional dimensions of brands, as identied by DallOlmo Riley and De Chernatony (2000), may play different roles in acquisition and retention. Customers acquired in mass-market conditions, for example, may be responding to rational dimensions such as price and performance, whereas CR and loyalty may be associated with the emotional dimensions of the brand. As part of developing long-term relationships with customers, organisations are increasingly concerned with loyal customers who, it has been asserted, contribute to increased revenues (Reichheld, 1993), make further purchases (Payne, 2000) and generate positive word-of-mouth (Gremler and Brown, 1999). Dick and Basu (1994) propose that the loyalty of a customer can be determined by the strength of the relationship between attitude and behaviour so that true loyalty only ensues when levels of both relative attitude and intention to purchase are high. In a study into service industries, Bloemer et al. (1999) found that service quality appeared to have a positive effect on service loyalty but that the relationship between them varied across the industries. Service quality (Ennew and Binks, 1996; Ranaweera and Neely, 2001) and customer satisfaction (Stauss et al., 2001) have both been found to be instrumental but, in themselves, not sufcient to retain customers. Olivers conclusion (1999) that the relationship between satisfaction and loyalty can be likened to a seed that needs supportive conditions to grow into a healthy plant, has merit in that it draws attention to the range of variables that are involved in the transformation. The CA and CR embrace a number of marketing constructs as the background to the study suggests, with evidence to support the premise that acquisition and retention are closely linked if not actually a continuous process. Research that aims to calculate the economic value of customers and the marketing resources required, in particular, the work of Rust et al. (2004a), has begun to support the linking of these constructs empirically. The aim of this preliminary study is to explore from a qualitative aspect, using expert practitioner opinion in the traditional banking sector, on how CA and CR are being managed together and to identify marketing activities that support a harmonious balance. 3. Research design The data for the study were generated by interviewing senior banking staff responsible for, or having an interest, in CA and CR. Purposive sample selection was employed, in common with most qualitative research (Miles and Huberman, 1994), with variation sought in the selection of individual organisations to promote external validity (Patton, 1990), specically, the size and type of institution varied. Selection was limited to UK, national or large regional high street banks or building societies, as these traditional institutions continue to dominate UK high streets and offer the range of nancial products that most

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J.D. Farquhar, T. Panther / Journal of Retailing and Consumer Services 15 (2008) 921 Table 1 Details of participants Code name Description Principal activity Job title of informant(s) Type of interview Phone Face to face Face to face Face to face Phone Face to face Phone Phone Phone Face to face 11

Edge Hill Naseby Bosworth Culloden Hastings Crecy Waterloo Trafalgar Blenheim Stamford bridge

Mutual Bank Bank Regional mutual Bank (former mutual) Regional mutual Bank (former mutual) Mutual Mutual Bank division

Senior executive retail strategy Senior research manager Director of retail operations and head of customer understanding Home loans and savings Customer contact manager and strategic analyst Home loans, but range of personal banking Customer propositions team member products Home loans and savings Customer development manager Personal banking services Head of CRM development Home loans and savings Home loans and savings Home loans to particular segments Manager, customer excellence Withheld Operations leader, mortgage contact centre

Personal banking services Personal banking services Personal banking services

consumers seek, for example, loans, mortgages and savings. Recruitment of informants was achieved by contacting marketing departments of the banks to identify managers with appropriate expertise. The individuals were then contacted directly and permission for interviews sought. The research question involved discussion of highly condential material and this, accompanied by time constraints, resulted in a small selection of informants in 10 national or large regional high street nancial services retailers (see Table 1) with 12 informants. The sample, nonetheless, includes some of the major institutions that dominate the UK high street, for example, two of the big four banks, one very large building society and a bank that converted from a building society (see Table 1). Participants were provided with an outline of the research and how they might contribute in line with ethical research protocols. Anonymity of the participating banks and condentiality were assured. Questions for the interview guide were derived from the literature designed to generate longer responses and so included questions such as: How important is it to attract new business? How do you attract new business? What are your most recent CR initiatives? How do you create customer loyalty? Can you provide an update on customer satisfaction initiatives? Probe questions were also used to encourage full responses. This guide contributed towards consistency and, hence, validity of the data generated in the interviews (Rossman and Rallis, 1998), but was exible enough to enable themes to emerge from the data, thus minimising any predetermined scheme or template (Spiggle, 1994). New issues raised by the informants (DallOlmo Riley and De Chernatony, 2000) were, for example, m-technology and its role on creating stickiness and converting price-sensitive customers. The interviews were conducted either face-to-face or over the telephone according to informant preference and availability. All the interviews were audio-taped for

verbatim transcription and lasted on average 1 h. Participant details have been concealed at the request of informants, using the names of famous battles alluding to the highly competitive nature of the retail nancial services sector (see Table 1). Two informants participated in the interviews in Culloden and Bosworth. Immediately after each interview, a brief summary of 100 words or so was made as an aide-memoire and to assist in the analysis. The data were then transcribed into electronic les and managed within NVivo, qualitative data analysis software. Using the computer-aided analysis software (NVivo), the process of data reduction began with the identication of nodes, and data passages were coded accordingly. This open coding (Mason, 2002) was followed by analysis of individual nodes, and patterns of inter-relationships between nodes, to identify broad themes within the data. This categorisation resulted in the arrangement of nodes in tree formations. The use of such software supports theory generation from complex data sets as it automates coding and retrieval aspects (Hesse-Biber, 2004), thus facilitating rigorous data examination. The outcomes of the analysis were studied, discussed and reviewed by the researchers, during which the trees from the computer-aided analysis were considered and evaluated for soundness using the criteria of credibility, transferability, dependability and conrmability (Lincoln and Guba, 1985). The iterative process of analysis, reection and evaluation nally suggested seven themes that appeared to capture the data most succinctly. These themes frame the presentation of ndings in the following sections of the paper. 4. Findings The ndings of the study are organised according to the seven themes that emerged from the analysis of the data, derived from the vocabulary of the informants (Strauss, 1987) and are as follows: customer value, branding, creating

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loyalty, maximising information, managing channels, pricing and products and, nally, satisfying customers. 4.1. Customer value It has been argued that the longer an organisation retains a customer, the greater the prot generated (Reichheld and Sasser, 1990) but recent research has indicated that the breadth and depth of the relationship are possibly more important that its length (Bolton et al., 2004; Reinartz and Kumar, 2000). Customers can be segmented according to their protability (Payne and Frow, 1999), as described by the Trafalgar informant, who provided an overview of the banks approach to segmentation in the following extract. We have a customer segmentation that is based on customer value, not only now but as customer value in the future and so on. So, we can identify those customers that we would like to have most of because they are protable now and they are going to be protable in the future. The way its built, is based on customers value to us overall. Theres another bunch of customers that really is unlikely we will ever make any prot out ofy (Trafalgar) Customers often use a number of nancial services providers for their nancial needs, therefore a bank has to understand its relative share of a customer and then aim to increase that share. The bank also needs to identify those customers whose value indicates that they are worth cultivating and, then, maintain those relationships that generate the most prot (Hogan et al., 2002). It is in this way that acquisition and retention begin to become mutually supportive activities, or elements of a continuous single process as suggested by Thomas (2001). UK banks offer free banking as a Bosworth informant commented, we give away all the transactions for nothing. Most banks have customers from whom they derive varying degrees of protability which has prompted the banks to think of offering differentiated service levels and identifying tiers of customers based on their value (Zeithaml et al., 2001) to the bank. This approach was being considered by several banks as a means of overcoming the variability in revenue from different segments of customers. The Waterloo informant provides an illustration. But then in terms of the customers that weve labelled high value, i.e. those that arent necessarily high worth, but they do deliver prot to the business, then we started to look at them as the next tier, if you like, of customers that we believe we may need to serve differently to meet their needs and keep them with us and develop loyalty. (Waterloo) Two of the organisations in this study (Crecy and Trafalgar) operated schemes that rewarded customers based on the length of time that the customer stayed.

None of the banks operated a scheme that specically rewarded high-value customers and, so unlike many reward schemes in the retail sector, they measure merely longevity and not necessarily the desired customer behaviours that build value. Not all of the banks in the study differentiated between their protable and non-protable customers in such a way. The Crecy informant was proud of the strategy of treating all customers equally, but she did go on to explain that they did offer special products to their longer serving customers. It is possible that senior management has differing opinions about what constitutes customer protability (Ryals and Knox, 2005) and, perhaps, one of the reasons that held back retention was that it requires a long-term view. 4.2. Branding The Hastings bank informant described a recent rebranding initiative that aimed to bring the brand to life in the minds of the customers, and which appeared to refer to the emotional dimensions of the brand (de Chernatony and DallOlmo Riley, 1998). The bank had not involved staff in the exercise, tending to conrm an observation that there is little congruence between internal and external brand perceptions (McDonald et al., 2001). As part of the branding strategy adopted by Waterloo bank, it aimed to be the consumer champion with the strategy outlined by the informant as follows: We want to make sure that our customers are getting a good deal, transparent, nothing is hidden, so that they know what they are paying and we provide them with a good deal. So, I think, what we are trying to be is open and honest about our interest in customers and what they get for that interaction. (Waterloo) There is nothing in this extract that indicates how Waterloo bank links its segmentation to their brand strategy. Although it could be argued that all customers should perceive the bank to be a consumer champion, customers may have very different views about how a customer champion may actually translate into practice for them. The banks, in this study, that concentrated on mortgages and savings, where there is limited opportunity for interaction on a personal level, relied on their brand for building relationships. Crecy, for example, explained how the bank tried to ensure that its brand values were evident throughout the organisation. The Culloden informants recounted the lack of investment in building the banks brand and how it had become overly reliant on editorial coverage of its low prices in the press to acquire customers. To counter its low-price strategy, the bank planned to increase spending on advertising as part of strengthening their brand. As these smaller banks pursue new customers and extend beyond their heartland or traditional geographic marketplace, they encounter non-traditional customers who are primarily concerned with obtaining the

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best price or rate. Their traditional mutual values do not t with the needs and expectations of these customers, as the Blenheim informant recounts. Now, we are getting a lot more people who are coming in, weve got a direct lending [arm], we get, for example, a best buy that we lend all around the country so those people dont really have any loyalty or afnity with us,y. the softer brand stuff and community-type approach that we have, doesnt really work very well with them. (Blenheim) These new customers or people as referred to by this informant, have not been attracted by the banks brand but purely by its low prices. Customers attracted by low prices present a challenge to banks if they are attempting to retain them. It is in this situation that any tension between acquisition and retention is at its most acute and gives rise to critical questions about conventional measures of market share, growth and protability and their viability in contemporary strategy development. For larger banks, a potential hazard for the brand arises from concentrating on the more protable but smaller segments, as the Bosworth informant explained. We do take into account what happens in the brand as well, because you know we could well go down to the really niche set of customers who really make us money, but a lot of our brand attributes are about being big, well known, respected in the industry, trustworthy and that comes from being a big bank. Would we lose some of those brand attributes and some of those customers by going down that route of focusing? (Bosworth) In a similar vein, the Waterloo informant commented on a possible incompatibility between their mass-market brand and their attempts to develop a differentiated service for selected segments such as their high-value customers. The comments of these informants can be related to the arguments of Rust et al. (2004b), who claim that aggrandising the brand is not consistent with serving those smaller segments that may optimise customer value. There is evidence though of branding to particular segments as Culloden has developed a part of the business that deals directly with business via intermediaries. This part of the business has its own brand with outwardly no relationship to the parent bank. Stamford Bridge has recongured much of its activities so that the bulk of its business is with intermediaries that deal with those customers who have poorer credit ratings. 4.3. Creating loyalty This third theme arises from how informants spoke of customer loyalty with regard to CA and CR. The extensive research into customer loyalty has discussed behavioural and attitudinal components of the construct (Dick and Basu, 1994; Oliver, 1999). The informants were aware of the importance of engaging their customers favourable

attitudes, as the Naseby informant observes in the following extract. People go around with various barometers, thermometers in their head which are warmed towards the various organisations that they do business with.[y].and there are certain moments that can reduce that substantially and I think that keeping an eye on those moments reduce that level of stickiness, adherence, warmth, whatever you want to call it, are things I think to look at. (Naseby) The term stickiness appears to refer to a favourable attitude or affective commitment on the part of the customer, which is thought to be an antecedent of retention and customer share development (Verhoef, 2003). When affective commitment is accompanied by an understanding of customer satisfaction, in particular, of satisers and dissatisers (Johnston, 1995), it is instrumental in building loyalty or, at least, not weakening warmth. The Bosworth and Naseby informants used the same term to refer to products, service enhancements which they saw as soft exit barriers or the psychological costs that customers incur when switching. Where relatively high exit barriers exist, for example, with cheque accounts, customers who are less than satised might make a decision to stay with the provider rather than incur these costs (Ranaweera and Prabhu, 2002). Emotional barriers to switching can be combined in different mixes for different customer segments with cognitive barriers such as search costs, transaction costs, learning costs, loyal customer discounts and customer habit (Fornell, 1992), all of which might discourage customers who are time poor from switching. Banks could choose to lower exit barriers for less protable customers in the hope that they might switch to a competitor, who then incurs the costs of servicing this customer. Financial services, like most services, are low in search qualities, therefore, word-of-mouth plays a critical role in of the decision-making of others (Gremler and Brown, 1999), such as potential bank customers. To encourage positive word-of-mouth, banks try to encourage net promoters (Reichheld, 2003), in other words existing customers, to become advocates to enable them to increase their customer base. Trafalgar was aware of the value of advocacy as the informant explained. The measure we particularly like to look at in a customer satisfaction survey is how many customers will recommend us to a friend and thats the thing we always want to be high. (Trafalgar) Banks also aim to build relationships with their customers, many of whom are generally receptive to such overtures (Alexander and Colgate, 2000). There are customers who prefer a transactional arrangement as the Crecy informant has discovered. Some customers are not interested, they come in buy a product and they are not interested in that relationship.

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Other customers are interested in that relationship and customers are our insurance, so loyalty is very important to us and, I think, thats why we feel quite strongly about demonstrating within our brand and that, hopefully, will generate loyalty and a relationship rather than just a good price. Anyone can give a good price, cant they at the end of the day? (Crecy) In this extract, the informant hopes that loyalty will supersede competitive pricing in decision-making and there is some support for her wish as loyal customers tend to be less price sensitive (Reichheld, 1996). The management of relationships varied amongst the informant banks, for example, Hastings saw relationships much more in terms of information and information management, and Edge Hill tended to think of meaningful relationships as improved opportunities for selling. Whatever the nature of the relationship, the longer it lasts, the more likely it is that the customer will be retained. Appropriate mailings and loyalty programmes can be of assistance (Verhoef, 2003) in prolonging a relationship. Trafalgar described the recent introduction of an optimiser into their systems that directed mailings to customers in terms of frequency and scale. One of the Culloden informants reported that the bank had increased its direct mailings signicantly in the last year although apparently with less precision. The Stamford Bridge informant was somewhat cynical about the existence of customer loyalty. In terms of the afnity or the loyalty and I guess thats actually going back to the earlier question about whats happened to loyalty, well, perhaps it doesnt really exist per se, because there isnt really that loyalty, theres not that connection, theyre not engaged to [the bank]. (Stamford Bridge). The rest of the informants, however, considered loyalty not only to exist but to be a most desirable outcome of their marketing activities. Crecy, in particular, referred to the behavioural set that the bank tried to instil into the staff as part of their branding strategy and which she thought was a successful contribution to their consumer champion brand. The efforts to create loyalty on the part of Bosworth and Trafalgar were carefully calculated taking account of the value of the customer to the bank. 4.4. Maximising information Customer data on consumption and purchasing behaviours underpin retention (Ahmad and Buttle, 2001) therefore systems that provide these data and track customers form an essential facet of processing the customer from acquisition onwards. The Hastings informant provides a picture of the information that his bank obtains that supports retention. y. we spend money, time and effort getting people to come into the bank and its a lot cheaper and quicker to keep them there than it is to recruit new customers. So

we would, we look to understand, so we have continual research studies that talk to customers that are across a range of satisfaction levels, a range of life stages and look to understand their attitudes towards nancial services, what constitutes good service in and outside nancial services and their attitudes specically towardsy (Hastings) Of note in the above extract is the benchmarking of good service against outside the nancial services sector, an indication that banks consider that lessons can be learnt from other companies in other sectors. Culloden has used in-house data for trials to measure the size of mortgage with the age of the customer so that they can improve their understanding of their customer base. Bosworth and Naseby had well developed systems for measurement and prediction commensurate with being a large bank. It was an informant in a smaller bank, however, who related a rather more sophisticated use of their data on retained customers as follows. by looking at our database in this way, we can identify that business that we can do in a very efcient and cheaper manner because its to people that we already have and then work out against our nancial plans what gap that gives us and, therefore, how much acquisition we have to do. (Trafalgar) This was the only example in the interviews of an indication that retention can actually drive acquisition (Thomas, 2001) through an analysis of in-house data that determined acquisition targets. This informant was particularly proud of the recent improvements made to the banks information capabilities which he thought were further enhanced by numerate marketing staff. Several informants spoke about the importance of gaining a customer view, which refers to the ability of the information systems to look at a customer across the product ranges. In support of building strong relationships with customers, there has been huge investment in CRM technologies and data warehouses. In the following extract, the Edge Hill informant describes how the banks system provides information across all the channels used by a customer. ywe call it an integrated customer relationship management system, that uses things like prompts, uses things like contact history, uses things like a single customer view, so we understand all of their [customers] holdings, all of their contacts across all channels. (Edge Hill) Waterloo was working towards this capability, which surprisingly lacked in spite of the size of the bank. It is possible that because of the banks concentration on a volume strategy, its structure, information and brand are all tilted towards acquisition. There was considerable variety among the participating banks in the way information was managed and the level of decision-making that

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rested upon it. Although the larger banks managed signicant amounts of data, there was variety in the way that the data were analysed and perhaps most signicantly, the role of analysis in strategy formulation, as Trafalgar bank shows. 4.5. Managing channels The bank branch continues for many customers to be the focus of their banking activities, in spite of the burgeoning of alternative channels and encouragement from the banks to shift their business to virtual channels (Mintel, 2002b). Both the Hastings and the Edge Hill informants referred to certain segments that will trade off the attractive rates that are available via virtual channels against the personal contact available in the branch. The introduction of alternatives has merely encouraged customers to use a variety of channels, as this informant remarked. Our most valuable customers, a lot of them do interact through a number of different channels and it was quite a surprise to me, I think, when we started to get that analysis, [y] and one kind of expected that a lot of customers would interact with us through the branch network only and make a few phone calls, but actually weve got quite a high number of customers who do interact with us concurrently through separate channels. (Waterloo) The Edge Hill informant commented on how the grey surfers were so satised with internet banking that they had become rm advocates of this particular channel and by association with the provider. Customers are inuenced in their choice of channel by the nature of the product they are purchasing or consuming (Howcroft et al., 2003), so efforts to migrate or shift customers to lower-cost channels may be counterproductive (Nunes and Cespedes, 2003) if banks fail to recognise customer need for choice. This Bosworth informant recognised the power of channels in CR. y in terms of trying to retain and attract customers that the channel is actually becoming much, much more a tool with which you create stickiness or not. y I was in Finland last week looking at it over there, and thats M technology, mobile technologies, mobile phones. [y] they create stickiness by what they call push and pull text messages. [which becomes] just another big hurdle to get over, when you transfer that account because I quite like that text message. (Bosworth) Daily texting of account details is a new service that the bank has decided to offer its customers, copying the idea from another bank. The texts are unsolicited (push) but create an exit barrier (pull). As this bank demonstrates, this service is easily replicated which could undermine its effectiveness as an exit barrier as any of its UK competitors can introduce it.

The independent intermediary, or broker, in retail nancial services is a well-established channel through which customers have traditionally purchased a range of nancial products. Stamford Bridge, for example, has a close relationship with an on-line broker. As part of a major change in customer targeting, they have closed many of their branches and are now aiming to serve customers who have lower credit ratings. The informants views on loyalty mentioned above may have been inuenced by this major change. From a retention perspective, the intermediary is usually considered to create customer churn and inhibit loyalty as any relationship that might exist between the bank and the customer is mediated by the broker. The Hastings informant summarised this scenario, underlining the product/channel relationship. [Channels are] very product sensitive, such examples, bank accounts, the vast majority are through branches. Mortgages are a completely different equation, as are some other investments [y] The branch is an important channel but when we talk about how customers can do business with us, I think, I focus a lot on the us and therefore Id remove the whole introducers (intermediaries) from that equation because I think the customer has the relationship with the introducer at the moment. (Hastings) His assertion that the intermediary weakens any relationship between bank and customer is supported by the Edge Hill informant, who describes such relationships as skinny. In spite of this view, Edge Hill plans to increase the amount of business via intermediaries, which indicates a drive to acquire customers. Although this bank reckons that it is fairly new to retention, there may be a belief that the bank can convert customers acquired via this route into loyal customers. In contrast to Edge Hill, Waterloo bank is planning to reduce the number of customers they acquire via intermediaries, further underlining the shift in emphasis in this bank away from the previous volume-based strategy. The Edge Hill informant summarised the channel strategy that he hopes might provide a competitive advantage for the bank. The way we want to deal with people in a multi-channel business so [is] for instance, if you walked into a branch on Monday morning and asked for a quote for a personal loan, you know, Tuesday you phone up the call centre, wouldnt it be nice if we knew that you got a quote Monday morning in the branch and, indeed, wouldnt it be clever when you logged on to your internet on Wednesday, we would put a quote there for you to pick up and maybe, we offered you a call back from the call centre? So it is a sort of joined-up experience for the customer across all channels. Thats very much what we are shaping and trying to keep leading edge. (Edge Hill) Such is the competitive nature of mortgage provision, that Blenheim and Culloden have both created subsidiary

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arms, as mentioned in the branding section that deals exclusively with customers introduced by intermediaries. Stamford Bridge has reduced its branch network to concentrate on this segment but Culloden maintains its existing network and appears to be an illustration of an acquisition versus a retention approach. Culloden is aiming to gain new customers by extending its intermediary business, like Edge Hill. On the other hand, Stamford Bridge is targeting a segment with the aim of generating revenue from these customers by charging them higher rates as they present a higher risk to the bank. The study indicates that channels affect the structure of the business through the creation of specialist divisions that can support or, conversely, undermine opportunities for creating bonds or stickiness depending upon the channel. The intermediary allows the bank to reach a wider audience with lowered costs by delegating the personal selling aspect to the broker but in so doing, the provider loses the opportunity to build a relationship with the customer. The differing views amongst informants on the use of the intermediary may be indicative of the wider tensions that exist between CA and CR. There was sharply divided opinion on the use of the intermediary. 4.6. Pricing and products The informants talked extensively about products, pricing and the related practice of cross-selling. The Naseby informant believed that having most of the customers wherewithal, or share of wallet, created an exit barrier, because the greater the number of products that a customer had with a bank, the stronger the relationship is considered. His notion of a strong relationship appears to correspond with the broad relationship as dened by Bolton et al. (2004), who also refer to relationship length and depth. As the data suggest, the structure of some of these banks does not facilitate broadening a relationship in this way. The Waterloo informant explained how the banks structure and accounting systems inhibited a complete understanding of an individual customers holdings. Our prot and loss in the business is still product-led, so that is quite a challenge that prot and loss is siloed, particularly [for] those customers that have more than one relationship with us. y If you look at the customers whole relationship, you nd that they are very valuable because they have a large mortgage with you and some savings, for instance. (Waterloo) Along with talking about a whole relationship, this informant also mentions that customers have more than one relationship with the bank, where it appears that relationship was synonymous with product. If the bank cannot generate a customer view for analysis and evaluation, then the ability of strengthening the relationship is severely limited. The Hastings and Blenheim informants both spoke of the challenges of differentiating

their offerings from their competitors. Although differentiation can be achieved through customising offerings to generate value for customers (Anderson et al., 1997), there seemed to be little indication of this approach in this study. Instead, some of the banks relied almost completely on price as a means of attracting customers, but the drawbacks of relying on price are becoming increasingly evident. A Culloden informant described how low prices had created customer churn as customers switched to another low-priced offering at the end of the products term. I guess, historically, us, combined with lots of other people, have very much focused on price as a way of attracting customers in, which has its own problems obviously, which is where the whole retention issue comes in, really, because all the vast majority of customers want to do is just nd another of the cheaper products, which is a big issue for us. (Culloden) Crecy and Stamford Bridge described how they were using exible pricing to retain customers, perhaps realising the scope for offering exible pricing that could include non-economic benets to existing customers (Ahmad and Buttle, 2001). The following extract captures the thinking on pricing by the informants in the study. I think the interesting sort of angle on this is when you work out whether it costs you more to keep pricing yourself at the top of this market or just to be reasonably competitive and good service for existing customers. (Bosworth) Although price plays a signicant role in CA, it becomes less important after the relationship has been developed (Bolton et al., 2004); there seems the potential for banks to engage in a thorough re-appraisal of pricing which could address the discontent of existing customers (Miles, 2004). The cheque account was also a major concern for the informants, even if they did not actually offer it as part of their product range (e.g. Blenheim, Trafalgar). Naseby described the cheque account as being the bridgehead for cross-selling and Blenheim spoke of it as a dream for customer information, as the opportunities for crossselling and the exit barriers created by this account can offset its costs. The Waterloo informant set out the value of this account for her bank as follows: A [cheque] account is a key acquisition for other products for us too. We target cheque accounts and we pay a good rate of interest, a very low margin for us in order that we can cross sell other products on the back of it. Thats certainly been a strategic decision. y Customers see that there is a barrier to moving it. We have sold on the back of current accounts what they do buy next and how they buy it and over what time period. (Waterloo) This bank views the cheque account not only as the bridgehead for cross-selling, but also as an exit barrier and indeed this may work for customers who have a strong relationship with the bank, that is, they have a number of

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products. Is it a similar situation for customers who just have this single product with the bank? Waterloo may be falling into a similar situation as Culloden by providing a loss leader, without necessarily gaining the advantages of selling a number of other products to offset the costs. The Trafalgar informant said that his banks decision not to offer a cheque account is continuously under review, as the bank was fully aware of its advantages in terms of customer information and retention. Although cross-selling is, for UK banks, a prime motivation for retention, the Stamford Bridge informant cited in-house research that showed that if a mistake was made in one product area, the customer could take all of his business elsewhere, and this point was backed up by the Waterloo informant. Crossselling has driven banking strategies for some years (Harrison, 2000), but there is still limited evidence in support of its contribution to protability and which may continue to encourage banks towards CA. 4.7. Satisfying customers The Naseby informant conrmed the importance of customer satisfaction to banks and its role in a number of ways in retaining customers. yorganisations are obviously committed to serving their customers as well as they possibly can and that obviously has to be a retention tool but, I think, it is all about not one single retention tool or acquisition tool being the universal panacea, it has to be a combination of lots of things. (Naseby) Trafalgar bank has acknowledged that customer satisfaction provides a basis for defending customers with the establishment of a customer service excellence team. The team runs across the bank with the aim of improving service on a continuous basis. Customers derive satisfaction from both the service encounter and the qualities of the offering (Rese, 2003), therefore, Bosworth gains a fuller picture of customer satisfaction by merging the banks sales data with its satisfaction measures. All the informants spoke of satisfaction measures, but there was an explicit commitment to satisfaction in building loyalty and retaining customers by Crecy, Hastings, Bosworth, Naseby and Trafalgar. The informants realised that there are moderating inuences between satisfaction and retention. Bosworth demonstrates the extent of their satisfaction research which concentrates on loyalty rather than retention itself. We look at customer satisfaction at different levels, so that we can try to understand how customers interact with the organisation at different levels and how they interact over time and how that then contributes to their loyalty, and obviously then to retention. So, whilst we dont overtly talk about retention, we do understand what drives satisfaction amongst our customers and what enables them to become loyal customers and subsequent customers thereafter. (Bosworth).

This informant distinguishes between retention and loyalty, indicating perhaps an awareness of the pitfalls of blind retention, where protability is not assured. The bank also looks at satisfaction not only from the perspective of relationship length but also relationship depth by referring to subsequent custom, that is future purchases, although satisfaction is more likely to inuence the rst of these relationship dimensions rather than the latter (Bolton et al., 2004). Of course, ultimately a satised customer is more predisposed to make additional purchases as the Crecy informant comments. I think one of the reasons customer satisfaction has been quite important to us is that we do want to develop a loyal base of customers and you want them to buy more products off us. (Crecy). This informant makes an explicit connection between satisfaction and loyalty, and indeed if these banks are now looking to create loyalty rather than merely retain as the Bosworth informant hinted at above, then satisfaction is a pre-requisite or antecedent as the literature suggests. The seven themes that have emerged from an analysis of the data have not only provided a means for discussing the ndings but also form the basis for a framework for managing the balance between CA and CR which is discussed further in the following section. 5. Discussion The informants expressed awareness that acquisitiondriven strategies alone were inconsistent with environmental conditions and had driven change or, were in the process of driving change within their banks which involved, for example, re-branding, restructuring and the creation of new channels. The ndings illustrate a number of different approaches to managing CA with CR. Trafalgar, for example, has developed an ability to identify the prot potential of acquired customers through a rigorous examination of its customer information. Blenheim, on the other hand, is just beginning to appreciate that some of its newly acquired customers exhibit different characteristics from its traditional base. It is revising its strategies so that there is a closer t between the bank and its new operating environment. Managing CA with CR seems, on the basis of this research, to require a number of keystones to be in place, for example, maximising information that informs strategic decision-making. It is unlikely that there is a once size ts all for managing CA with CR effectively even within a single sector such as banking, but the seven aspects of CA and CR that have emerged from this study, we argue, provide an initial basis for strategy development. The aspect of customer value, as described in this research, marks a shift away from mass acquisition strategies to a more considered approach that involved a rigorous sifting and separating of customers (Trafalgar,

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Waterloo). It was anticipated by the informants that protability would be derived either by gaining new customers from new segments (Blenheim) or by identifying customers who have potential value (e.g. Bosworth) and offering them differentiated service levels (Waterloo). Several informants indicated that through careful analysis and the setting of targets for both CA and CR that they were trying to avoid or reduce indiscriminate CR, which does not necessarily contribute to protability. The outcome of these analyses is that customers, who do not generate acceptable levels of prot, will not be marketed to (Trafalgar). These customers may, in due course, defect to a competitor bank, which will then incur the costs of servicing these customers. Within the aspect of branding, the informants indicated that efforts were directed at building a mass-market brand (Waterloo and Bosworth). This nding runs counter to the strategy of branding to smaller and more protable segments as advocated by Rust et al. (2004b). The larger banks consider that their brand is linked to the size of the bank, its status with other stakeholders (Bosworth) which includes, perhaps, their presence both physical and psychological in the marketplace. Some UK banks have also tried the strategy of sub-branding in the past but it was not a success. Since banks now realise that prot is often derived from small segments, it may be an opportune time to revisit a brand within a brand strategy. Some of the informants thought that by championing the consumer (Crecy, Waterloo), the brand would reach both new and existing customers. If a number of banks are championing the consumer, none of them is going to be able to adopt the differentiated position that they all seek (Hastings). A particular benet of branding is its ability to communicate organisational values to staff and banks in the sample displayed quite different approaches. Hastings bank, exceptionally, had excluded staff from the banks re-branding exercise, thereby missing an opportunity to engage staff with the very values that it was seeking to communicate to its customers. Trafalgar, on the other hand, had incorporated the brand in its developmental initiatives for staff. The Crecy informant referred to the behavioural set that the bank aimed to inculcate in its staff that formed part of the banks brand, particularly with a view of creating loyalty. The fourth aspect that emerges from this study is maximising information. Edge Hill used its integrated system of information across its multiple channels to create customer satisfaction and competitive advantage; Bosworth measured satisfaction at various levels to predict customer behaviour and Waterloo considered its lack of a single customer view as a signicant disadvantage in CR. From an acquisition perspective, Trafalgar drew up its plans for CA after an extensive analysis of its information on retention. We nd, in this study, that information, the analysis of the information and how it used at strategic levels has provided a smaller bank with a holistic approach to CA and CR (Trafalgar). Setting acquisition targets and

proles based on their existing customer base minimises this banks churn and lowers its costs. As Edge Hill bank demonstrates, information across channels supports the next aspect in the study of managing channels. Data are collected on customer touches, that is any points of contact between the bank and the customer (Edge Hill) which allows the bank to develop a picture of how an individual customer interacts with the bank. An informant from Bosworth claimed that the daily texting of account details to its customers created stickiness or an exit barrier, but it seems unlikely, as argued earlier, that a single barrier will prevent switching. Higher exit barriers may be created if banks can combine emotional barriers with cognitive measures such as search costs, transaction costs, learning costs, loyal customer discounts and customer habit (Fornell, 1992). The role of the intermediary provoked a mixed response amongst the informants with Edge Hill expanding the intermediary network and the Hastings informant decrying the practice. Customers, introduced via an intermediary, to the bank may be harder to retain as they are attracted by low rates. In some cases these low rates are made available by the bank only to those customers using intermediaries (Stamford Bridge). These new customers are therefore price-sensitive and have quite different expectations from customers who use other channels, such as the branch, where the branding is stronger (Blenheim, Culloden). The banks may nd that attempts to retain these new customers or create loyalty, who are not susceptible to their values, are not an effective use of resources. Once more there is an argument for tiering customers according to their value to the bank (Zeithaml et al., 2001). Price and product form part of the classical marketing mix and, in this research, these two elements are combined in the single aspect of pricing and products. Of particular interest here, was a recognition that low pricing has contributed to customer switching, prompting a reconsideration of low pricing as an acquisition tactic (Culloden). The cheque account product played a valuable role in retention, in the sense, that it provides a basis on which to cross-sell (Waterloo) and is a good example of a tool that supports both CA and CR. This aspect of pricing and products epitomises the situation that many banks face, in that they want to attract customers to open cheque accounts and yet, move away from low pricing as an acquisition strategy. It is only through organisational restructuring to enable a customer view (Waterloo), accurate measurement (Bosworth) and careful customer selection (Trafalgar) that banks are going to be able to respond to the tensions exhibited in this aspect. It is possible that the importance of price may diminish as a means of attracting customers but, in the meantime, banks are competing in a marketplace that is sensitised to competitive deals and may have to adopt a long-term view. In spite of the somewhat ambivalent role of customer satisfaction in creating loyalty as argued by Oliver (1999) for example, the data indicate that banks recognise some

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J.D. Farquhar, T. Panther / Journal of Retailing and Consumer Services 15 (2008) 921 Table 2 Preliminary mapping of aspects of customer acquisition and retention Acquisition Aspects managing the balance Customer value Branding Retention 19

Aims at a mass market where customer value may be hard to predict. Challenges to be faced in converting customers to protability Being big, well known and respected in the industry. Consumer champion New customers inuenced by positive word-of-mouth from existing customers Use data on retention to set acquisition targets

Creating loyalty Maximising information

Customer has relationship with introducer not with the bank. Attracts new customers who may not loyal Emphasis on price as a way of attracting customers in. Attractive rates to gain current account customers. Problems with differentiating products Organisational commitment to customer satisfaction. Service excellence. Individual incidences of customer satisfaction

Managing channels Pricing and products

Satisfying customers

Segmentation based on customer value, existing and potential. Levels of service matched to value of customer Honesty and openness with customers. Softer brand and community-type approach. Branding to selected markets/segments Identify those customers who are interested in a relationship. Encourage positive word-of-mouth Single customer view, tracking customers touches. Identifying customers to reduce level of marketing/ communication Continuous research on attitudes, satisfaction, life stage Creating stickiness, multiple barriers to exit. Means of a satisfying customer experience either across channels or with a particular channel Cheque account is a platform for cross-selling and increase banks and increase banks share of customer. Aim to increase number of customer holdings, offer exible pricing, differentiated or customised products Aim to create cumulative customer satisfaction. Measure and study how interactions contribute to satisfaction and then to loyalty, factoring product satisfaction. Combining satisfaction with other retention tools

connection between the two. Bosworth measures satisfaction levels with the specic intent of improving customer loyalty and Trafalgars customer excellence initiative was established with a similar objective. In order for banks to understand the relationship between customer satisfaction and loyalty, they also need to distinguish between customers who merely seek a transaction and those who could be retained in a relationship. A satisfactory service encounter may require far fewer resources than a sustained strategy built on cumulative customer satisfaction. Cumulative satisfaction with a particular channel has the potential to create loyalty as indicated by Edge Hills grey surfer segment. The seven aspects, as discussed above, are drawn from an analysis of the ndings from this exploratory study, which underpin managing CR with CA. In Table 2, we map each aspect onto both CA and CR with supporting evidence drawn from the interview data. 6. Conclusions This exploratory study set out to investigate how a selection of UK traditional banks attempts to balance CA with CR and to uncover marketing activities that might support this balance. The aim was to provide an alternative perspective to the models of customer asset and customer equity literature (e.g. Bolton et al., 2004; Hogan et al., 2002; Reinartz et al., 2005; Venkatesan et al., 2005) by developing a qualitatively derived framework of marketing activities that support both the acquisition and retention.

The analysis of the ten semi-structured interviews with twelve expert informants suggested seven marketingrelated activities that provide insight into managing acquisition with retention. This exploratory research also yields a research agenda in terms of testing the framework (see Table 2) as a whole as well as exploring its individual aspects. Considering the framework as a whole, the aspects uncovered by the research and their descriptions form the basis for a survey of the retail banking industry within the UK, from which an instrument can be developed to enable a wider range of experts to be consulted. The individual aspects of the framework also present avenues for further investigation. Branding, for example, as practised by some of the institutions, would appear to be associated with values that are not necessarily consistent with the direction that banks want to go in, for example, being big and yet targeting clearly dened segments. Further research into branding within an acquisition and retention framework may be able to provide insight into how branding can be reconsidered so that it unies a range of stakeholders including staff. The pricing and products aspect of this study suggests avenues for research, in particular how it can be linked more strongly with cross-selling efforts (see Table 2). Within the managing channels aspect, the use of the introducer revealed diverging strategies which do not complement CR and instead appear to create customer churn. The small number of informants, although representing a range of traditional banks in the UK, is a limitation to

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