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www.palgrave-journals.com/fsm
Journal of Financial Services Marketing Vol. 10, 4 86–97 © 2006 Palgrave Macmillan Ltd 1363-0539 $30.00
INTRODUCTION
Marketing scholars and practitioners have
long exhorted fi rms to allocate resources
towards developing long-term relationships
with their customers.
1 – 3 Central to the
argument is that, through ongoing
* Correspondence: Judge Business School, University of
Cambridge, Trumpington Street, Cambridge CB2 1AG, UK
Tel: + 44 1223 339700; Fax: + 44 1223 3390701;
E-mail: ae246@cam.ac.uk
communication and mutual learning, a higher
degree of customisation of a fi rm ’ s offerings
is possible, which leads to greater customer
loyalty and more profi table relationships over
time. As a consequence of this interest in
customisation, the literature has begun to
focus on to the benefi ts of customer
participation in the service production process.
Encouraging customers to be active ‘ co-
producers ’ , it is suggested, is an effective means
of delivering superior service quality and
Analysis papers
Relationship marketing in the
fi nancial services industry:
The importance of customer
education, participation and problem
management for customer loyalty
Received: 26th May 2006
Andreas B. Eisingerich *
holds a BSc in Management from the London School of Economics and an MPhil in Management Studies from the University of
Cambridge, where he also earned his PhD. His research interests include relationship marketing strategies, and the role of social network
effects in driving cluster performance.
Simon J. Bell
is a university lecturer of marketing at the Judge Institute of Management Studies, University of Cambridge. He received his PhD from the
University of Melbourne. His current research interests are in organisational learning, internal marketing and sales force management,
services and relationship marketing, brand management and new product development.
Abstract The effectiveness of relationship marketing efforts in services selling is to a large
extent dependent on customers ’ commitment to increase the depth and breadth of their
relationship with the organisation. In this study, we seek to extend current thinking by
presenting a model that examines the relative importance of customer education, participation
and problem management in driving customer loyalty. To test the relationships between these
variables, we use data collected from 1,268 clients of a global fi nancial services fi rm. Overall,
the results support the hypothesised model and show customer education to be the strongest
determinant of client loyalty. Current fi ndings provide implications for multi-product fi nancial
institutions that are of theoretical and practical interest alike.
Journal of Financial Services Marketing (2006) 10, 86 – 97. doi: 10.1057/palgrave.fsm.4760022
Keywords Customer education , customer participation , problem management , customer
loyalty , relationship marketing , services marketing
Relationship marketing in the financial services industry
© 2006 Palgrave Macmillan Ltd 1363-0539 $30.00 Vol. 10, 4 86–97 Journal of Financial Services Marketing 87
increasing service productivity.
4,5 In the context
of multi-product fi nancial services fi rms, drawing
the client closer to the service production and
delivery process can lead to deeper relationships
through increased mutual understanding,
building of relationship switching costs and
increased opportunities for cross-selling.
Although there is a growing body of
literature underscoring the importance of
customer participation in relationship marketing,
our understanding of the factors that facilitate
participation is less well developed. Equally, we
are only beginning to understand the relational
benefi ts of participation. In the current
literature, there is an assumption that customer
participation always facilitates better customisa-
tion service offerings.
6 However, the assumption
of increased customer loyalty as a result of
increased participation may hold only when
clients have the expertise to make valuable and
meaningful contributions to service delivery.
Accordingly, in this study, we seek to under-
stand the role of client education initiatives in
facilitating effective participation in the service
process and its consequent effects on loyalty.
Helping to build customer skills for more
effective participation is only part of the story,
however. A relationship characterised by
support and effective problem resolution is
more likely to motivate customers to
participate in service delivery. Customers are
likely to value the ‘ safety net ’ of comprehensive
problem resolution mechanisms and will as a
consequence be more motivated to get
involved in service co-production. Furthermore,
problem resolution mechanisms imply a higher
degree of social exchange and reciprocity in
client – adviser relations — a factor likely to
underpin greater loyalty among clients.
7
Accordingly, in examining customer
education and problem management in
combination with customer participation, we
strive to achieve several objectives. First, we
seek to identify which relationship building
strategy has the most signifi cant impact on
customer loyalty. Given the substantial costs
involved in relationship marketing, it is
critical to evaluate how fi nancial services
fi rms can use their resources most effectively
to benefi t from co-operative and loyal clients.
Second, we hope to advance current
understanding of customer participation in
service delivery by integrating the diverse
literatures on customer participation, education
and problem management. In doing so, we
investigate the impact of problem management
and customer education on customer
participation in the service process and
customer loyalty. For each of these relationships,
we outline important insights for relationship
marketing initiatives. Specifi cally, we argue that
in the context of services high in credence
properties, such as multi-product fi nancial
services, customer education becomes crucial to
enhanced client participation and loyalty.
Finally, we aim to provide managerial
recommendations relating to problem
management, customer education and
participation. Financial services fi rms may be
facing more intense customer service pressure
than ever before. The aim of our study is to
inform the design of service strategies, and the
management of relationship marketing
initiatives of customer education, co-option and
problem management. The signifi cance of this
study is further highlighted when one considers
the substantial costs involved in relationship
marketing and the increasing managerial focus
on maximising customers ’ value in more co-
operative and long-lasting relationships.
We organise the paper as follows. The next
section provides a brief background to our study
and develops a conceptual model, which presents
fi ve formal hypotheses to be empirically tested.
This is followed by a section in which we
outline the research design and method, an
analysis of the data and a discussion of the results.
We conclude with a discussion of the theoretical
and practical implications of the fi ndings, before
offering suggestions for future research.
CONCEPTUAL FRAMEWORK
Background
According to the services literature, effective
relationship selling will be most critical when
Eisingerich and Bell
Journal of Financial Services Marketing Vol. 10, 4 86–97 © 2006 Palgrave Macmillan Ltd 1363-0539 $30.00
88
(1) the service is complex, customised and
delivered over a continuous stream of
transactions,
8 (2) many buyers are relatively
unsophisticated about the service
9 and (3)
customers face uncertainty regarding
technical outcomes.
10 Financial services in
multi-product fi nancial institutions possess
all these characteristics. First, services are
highly complex and highly intangible,
having a long-time horizon of delivery.
Furthermore, clients frequently lack the
technical knowledge and experience to
confi dently evaluate whether investment
advice resulted in maximum return at an
acceptable level of risk. Taken together, the
long or indefi nite time horizon of service
delivery and the potential for inconsistent
performance in meeting expectations can
contribute to a high level of uncertainty in
the relational context.
Because clients ’ inability to evaluate
technical service outcomes can bias or
obstruct service quality perception and affect
their degree of confi dence in a fi rm,
relationship quality from the customer ’ s
perspective can be achieved through the
fi nancial service provider ’ s ability to reduce
perceived uncertainty.
10 One of the primary
functions performed by fi nancial service
employees is service customisation. Advisers
are specialised and trained in conducting
detailed needs assessments and presenting
personalised proposals to customers. Since
interactions tend to be ongoing rather than
single encounters, advisers have the
opportunity to deepen relationships with
clients to provide a means by which fi nancial
institutions can achieve more profi table
positions in microsegments through enhanced
customisation.
Customer participation in service
production and delivery offers a potentially
fruitful avenue for fi rms attempting to
customise their offerings. Involving the client
in service delivery will help develop social
bonds between the client and adviser,
increase the responsibility the client assumes
for service outcomes and make the
relationship more resistant to intermittent
failures. The extent to which customer
participation can be encouraged will depend
on two main factors. First, customers require
the expertise or skills to be able to help co-
produce a service. Involvement theory would
suggest that as a product category increases in
relevance to customers, the more effort they
are likely to exert in product search and
selection.
11 To the extent that customer
education increases the perceived relevance
and importance of fi nancial services to
clients, the more we would expect to see
customers participating in service
development and delivery.
Second, customer involvement in service
production requires a willingness to exert
effort on behalf of the relationship. Social
exchange theory would suggest that customers
are more likely to reciprocate with such effort
if they believe advisers have made equivalent
contributions to the relationship.
12 – 14 Problem
management procedures, and the procedural
justice they imply, will be perceived as
contributions to the relationship.
Model development and hypotheses
In this section, we present a model and a set
of hypotheses that formalise our expectations
for the impact of problem management and
customer education on participation and
loyalty ( Figure 1 ). First, we expect customer
participation to have a positive relationship
with loyalty. Second, we propose customer
participation to partially mediate the positive
Customer
Loyalty
Customer
Participation
Customer
Education
Problem
Management
H1 (+)
H5 (+)
H4 (+)
H2 (+)
H3 (+)
Figure 1 A model of customer education, participation,
problem management and customer loyalty
Relationship marketing in the financial services industry
© 2006 Palgrave Macmillan Ltd 1363-0539 $30.00 Vol. 10, 4 86–97 Journal of Financial Services Marketing 89
impact of both problem management and
customer education on loyalty. Following
Baron and Kenny,
15 we defi ne mediation as
the ‘ generative mechanism ’ through which
the focal independent variables are able to
infl uence the dependent variable. More
specifi cally, the model provides a framework
for considering the indirect effects of
problem management and customer
education on loyalty through customer
participation. Finally, we explore the direct
effects of problem management and customer
education on loyalty.
Customer participation and loyalty
In this study, we defi ne customer
participation as clients ’ willingness to make
constructive suggestions to the fi rm on how
to improve its service offerings,
16 while
customer loyalty we defi ne as consumers ’
intent to stay with an organisation.
17,18 It has
been noted that customers increasingly
demand a role in production, and in order to
satisfy them, companies must open up more
of their processes to clients ’ active
participation.
19 Furthermore, customers may
be more willing to assume responsibility for
jointly produced outcomes. Accordingly,
clients tend to share the credit as well as the
blame for service outcomes, as they become
more involved in the service process.
15
Hence, increased customer participation can
reduce customer switching behaviour and
defections in fi nancial service institutions.
Moreover, customer participation can be a
vital source of cross-selling that allows fi rms
to identify clients ’ unmet needs, enhance
customisation and propose new business. In
addition to improving a company ’ s
effectiveness in addressing clients ’ articulated
needs, increased communication between
customers and a service provider is likely to
enhance the number of ways in which the
fi rm can meet the unarticulated needs of its
customer base as a whole. As fi nancial
institutions become more profi cient in
involving clients in the service customisation
process, customer loyalty is likely to increase.
Moreover, customer participation can lead to
the development of social bonds that make
the client – fi nancial service provider
relationship more resistant to intermittent
failures. Therefore, we hypothesise customer
participation to be a signifi cant determinant
of customer loyalty in fi nancial services fi rms:
H
1 : Customer participation will be positively
related to customer loyalty.
Problem management, customer
education and participation
Problem management is likely to have a
signifi cant impact on customer evaluations of
service quality, especially as customers
become emotionally involved in the fi rm ’ s
response to their concerns. We defi ne
problem management as a fi nancial adviser ’ s
response speed and recovery initiation, which
communicate empathy, effort and respect to
the customer.
20,21 In addition to technical
service outcomes, customers have been
shown to evaluate service encounters on the
basis of interaction and the quality of
interpersonal treatment and communication
during the encounter.
22 Accordingly, a
fi nancial institution ’ s responsiveness to
customers ’ concerns can enhance customer
evaluations. Specifi cally, the fl exibility and
speed with which concerns are dealt with has
been identifi ed as a vital dimension of
procedural justice.
21
The less fl exible and the longer the length
of time taken to resolve customers ’ concerns,
the greater will be the client ’ s perception that
procedural justice has been violated. Owing
to costs, such as time and effort, associated
with participation,
23 customers are less likely
to make constructive suggestions and work
with the fi rm if they perceive their concerns
not to be taken seriously. Moreover, the
manner in which a fi nancial institution
approaches the concerns of its customers can
provide insight into the character of the
Eisingerich and Bell
Journal of Financial Services Marketing Vol. 10, 4 86–97 © 2006 Palgrave Macmillan Ltd 1363-0539 $30.00
90
service fi rm. In other words, customers ’
perceptions of problem management
procedures are likely to have a material
impact on the extent to which they actively
participate in service production and delivery.
Clients are likely to reciprocate and act
‘ co-operatively ’ toward fi nancial institutions
that address their concerns with respect and
empathy. Therefore, we expect that customer
participation in the service process will be
infl uenced by customers ’ evaluations of
problem management encounters:
H
2 : Problem management will be positively
related to customer participation.
Because of the highly complex and intangible
nature of fi nancial services, products are
intrinsically diffi cult for customer to evaluate.
Educated clients who seek to make informed
decisions about service offerings, on the
other hand, are more likely to feel
comfortable making constructive suggestions
and, thus, participate in the service process.
Customer education refers to the extent to
which service employees provide customers
with the skills and abilities needed to utilise
information.
24 More specifi cally, we defi ne
customer education as service advisers ’
willingness to explain fi nancial concepts and
the pros and cons of recommended
investment opportunities to their clients.
25
Since clients ’ understanding of fi nancial
services plays an important role in their
ability to appreciate, and contribute to,
effective service delivery, customer education
is likely to have a signifi cant impact on
customer participation.
By educating its customers, a fi nancial
service fi rm may not only enhance clients ’
ability to participate in service delivery but
also increase their understanding of, and
ability to work with, the idiosyncratic nature
of the fi rm ’ s processes. Equally, investments in
client education are relationship specifi c and
impossible to re-deploy to other customer
relationships. Accordingly, customer education
initiatives can serve as a strong signal of
commitment to customers, strengthening the
service provider – client relationship. Financial
institutions ’ effort to educate clients may
also yield meaningful information that can
be fed into future product development that
can more closely meet customer needs.
Customers, in turn, are more likely to
reciprocate with participation in the service
process if they perceive that fi nancial advisers
are responsive and take their input to the
service process seriously. Accordingly, we
hypothesise:
H
3 : Customer education will be positively
related to customer participation.
Problem management, customer
education and loyalty
Transaction cost reasoning suggests that
making idiosyncratic investments in
customers may cause clients to be more
confi dent in a company ’ s interest, attention
and commitment to the relationship.
26 Both
problem management and customer
education can involve substantial monetary
and non-monetary costs (eg, time and effort)
to service providers. To the extent that
fi nancial institutions ’ commitments are
perceived as sincere, problem management
and customer education will have a positive
impact on customer loyalty, increased
transaction volume and increased breadth of
products purchased.
Customers are likely to perceive an
organisation ’ s effort to explain fi nancial
concepts and manage customers ’ concerns as
key elements of effective service delivery. For
example, the willingness to help clients
understand complicated fi nancial techniques
and become more fi nancially literate would
be seen as a genuine service augmentation.
Similarly, problem management is likely to
result in more frequent contact between
exchange parties, enhancing information
sharing. Increased communication between
Relationship marketing in the financial services industry
© 2006 Palgrave Macmillan Ltd 1363-0539 $30.00 Vol. 10, 4 86–97 Journal of Financial Services Marketing 91
fi nancial services fi rms and customers, in
turn, can foster the development of similar
goals, emotional contagion and reciprocity.
27
Failure to take customers ’ concerns seriously,
on the other hand, is a leading cause of
consumer switching behaviour in service
organisations.
20 Therefore, we hypothesise
that both problem management and customer
education will have a positive infl uence on
customer loyalty:
H
4 : Problem management will be positively
related to customer loyalty.
H
5 : Customer education will be positively
related to customer loyalty.
METHOD
Selection of sample
A global fi nancial services organisation co-
operated in the study. The fi rm offers a wide
range of fi nancial services, including fi nancial
advising / planning, stock broking and fund
management products. All products are
delivered by certifi ed fi nancial services
advisers. The organisation provided contact
details of 4,244 clients, randomly generated
from the population of clients classifi ed as
‘ high value ’ . The organisation assigns clients
to a segment based on past and potential
revenue generation. Accordingly, ‘ high-value ’
clients have a larger number of valuable
transactions with the fi rm than ‘ low-value ’
customers. High-value customers are likely to
interact more frequently with their fi nancial
advisers and, thus, can be in a better position
to recall and comment on service outcomes
and delivery customers. The sample was
representative of the population of high-value
clients using demographic and fi nancial
characteristics for comparison.
Questionnaire design and
administration
Pre-testing of the questionnaire was
conducted using a random selection of 20
clients from the sample. The questionnaire
was also sent to a panel of experts
comprising three managers from the
organisation and marketing academics. This
helped to establish face validity of the items
in the questionnaire and led to suggestions
for the modifi cation of some scale items
to suit the specifi c industry / fi rm context.
Following the administration of the
questionnaire, a total of 1,268 usable
questionnaires were returned, for a response
rate of 30 per cent. Again, the fi nal sample
was representative of the ‘ high-value ’ client
population based on
2 tests of difference
on key demographic criteria (see Table 1
for fi nal sample characteristics).
Measures
All constructs used a seven-point Likert
scale with anchors of strongly disagree
(1) and strongly agree (7). A full list of items
that comprise each measure is presented in
Table 2 .
Table 1 Sample characteristics ( n = 1268)
Gender Percentage Age group
(years)
Percentage Relationship duration
(years)
Percentage
Male 84 18 – 30 0.4 < 1 1.10
Female 16 31 – 45 8.8 1 – 5 33.1
46 – 65 50.0 5 – 10 31.1
66 – 80 35.5 10 – 15 13.3
81+ 5.3 15 – 20 10.2
20+ 11.2
100.0 100.0 100.0
Eisingerich and Bell
Journal of Financial Services Marketing Vol. 10, 4 86–97 © 2006 Palgrave Macmillan Ltd 1363-0539 $30.00
92
Customer participation refers to clients ’
willingness to make constructive suggestions
to the fi nancial services fi rm on how to
improve its service. We adapted a four-item
scale from a study by Bettencourt
16 to
measure customer participation. Customer
loyalty is concerned with consumers ’
intention to stay with, and their commitment
to, the organisation. The scale included four
items and was constructed by combining the
loyalty dimensions of the behavioural
intentions scale by Boulding et al.
17 and
Zeithaml et al .
18 Slight changes in wording
were required to fi t the fi nancial services
context. In the context of this study,
customer education refers to advisers ’
willingness to explain complex concepts to
clients and provide appropriate information
to aid customers ’ understanding of service
offerings. The measure of customer education
includes four items and was constructed by
adapting the communication effectiveness
scale of Sharma and Patterson.
25 Lastly,
problem management is conceptualised as
fi nancial advisers ’ responsiveness, which
communicates empathy, effort and respect, for
a customer ’ s concerns. We used a four-item
scale adapted from studies by Smith et al.
20
and Tax et al .
21 Slight changes in wording
were required to fi t the study context.
Measure validation
We employed exploratory and confi rmatory
factor analyses to test for the measurement
properties of the scale items. First, we
examined factor loadings (>0.40) and cross-
loadings ( < 0.40) to purify the measurement
items for each construct. We then used a
second principal component analysis in
which four meaningful factors emerged that
mirrored the predetermined scales.
28,29 There
was no general factor in the unrotated factor
structure, indicating that common method
Table 2 Results of confi rmatory factor analysis
Constructs Factor loading t-value
Problem management
1. The length of time taken to resolve any concerns I have is adequate 0.81 40.47
2. My adviser is fl exible when dealing with any concerns I have 0.87 50.32
3. My adviser takes seriously any concerns I have 0.90 53.24
4. My adviser puts the appropriate amount of effort into resolving
any concerns I have
0.93
a —
Customer participation
1. I have a good knowledge of the different services offered by ( Business Name ) 0.58 16.12
2. I make constructive suggestions to ( Business Name ) on how to improve its
service
0.66 17.76
3. When I experience a problem at ( Business Name ), I let someone know so they
can improve service quality
0.77 19.21
4. If an employee at ( Business Name ) gives me good service, I let them know it 0.65
a —
Client education
1. My adviser keeps me very well informed about what is going on with my
investments
0.83 33.93
2. My adviser explains fi nancial concepts and recommendations in a meaningful
way
0.87 36.93
3. My adviser always offers me as much information as I need 0.86 35.84
4. My adviser always explains to me the pros and cons of the investment he/she
recommends to me
0.82
a —
Customer loyalty
1. I try to use ( Business Name ) for all my investment needs (loyal) 0.63 22.17
2. I will invest more funds through ( Business Name ) in the future 0.88 32.23
3. The chances of me staying in this relationship are very good 0.93 33.92
4. The likelihood of me trying other ( Business Name ) services is very good 0.76
a —
a Item was fi xed to 1 to set the scale.
Relationship marketing in the financial services industry
© 2006 Palgrave Macmillan Ltd 1363-0539 $30.00 Vol. 10, 4 86–97 Journal of Financial Services Marketing 93
bias was not a signifi cant threat to the
interpretation of the results.
30 Furthermore,
to help ensure unidimensionality, items in
each multi-item scale were factor analysed
separately and, in all cases, a single factor
emerged. Principal component loadings are
high and provide evidence for the
unidimensional nature of the scale items.
31
Reliability estimates for the scales were
uniformly high with Cronbach alpha
coeffi cients ranging from 0.76 to 0.94.
We further validated our measures via
confi rmatory factor analysis (CFA) using
maximum-likelihood estimation with AMOS
5.
32 The results of the confi rmatory factor
analyses indicated that the measurement
models provided very good fi t to the data
(
2
(98) = 517.09, GFI = 0.95, TLI = 0.96,
CFI = 0.97, RMSEA = 0.06). The results of
the CFA with factor loadings and t -values are
summarised in Table 2 .
We employed a set of established
procedures to check for convergent
validity
33,34 and discriminant validity
35 – 37 of
our scales. Convergent validity was supported
as the estimated coeffi cients of all the
indicators were signifi cant and the estimates
for the average variance extracted (AVE)
were higher than 0.50,
33 with the exception
of customer participation (AVE = 0.45). We
elected, however, to retain all four original
items on the basis of strong t -values for each
item and to maintain face validity of the
scale. Discriminant validity was assessed by
calculating the AVE for all pairs of constructs
and comparing this value to the squared
correlation between the two constructs of
interest.
37 Discriminant validity was satisfi ed
as the squared correlation between any pair
of constructs was in all cases less than the
respective AVE of each of the constructs in
the pair.
37 See Table 3 for the results of these
analyses.
RESULTS
The hypothesised relationships were estimated
as part of a structural model in AMOS 5.
32
Table 4 presents the standardised regression
weights and measures of model fi t.
Standardised coeffi cients are directly
comparable and, thus, give a better insight
into the relative contribution of each variable.
Finally, Table 5 depicts the direct, indirect and
total effects of each independent variable on
customer loyalty.
The results of the regression analyses
provide support for all hypothesised
relationships. Consistent with H
1 , customer
participation had a signifi cant and positive
infl uence on customer loyalty ( = 0.12,
p < 0.01). In accord with H
3 , customer
education displayed a signifi cant, positive
relationship with customer participation
( = 0.47, p < 0.01). Both problem
management ( = 0.15, p < 0.01) and customer
education ( = 0.57, p < 0.01) exert a
signifi cant, direct infl uence on customer
Table 3 Correlations
a , reliabilities and descriptive statistics ( n =1268)
1 2 3 4
1. Customer loyalty 1.00
2. Customer education 0.76 1.00
3. Problem management 0.69 0.85 1.00
4. Customer participation 0.47 0.50 0.43 1.00
Mean 5.08 5.43 5.84 4.96
Standard deviation 1.30 1.23 1.10 1.02
Cronbach’s alpha 0.86 0.91 0.94 0.76
Composite reliability 0.88 0.91 0.93 0.76
Average variance extracted 0.65 0.73 0.77 0.45
a All correlations are signifi cant at the 0.01% level, using a one-tailed t -test.
Eisingerich and Bell
Journal of Financial Services Marketing Vol. 10, 4 86–97 © 2006 Palgrave Macmillan Ltd 1363-0539 $30.00
94
loyalty, providing support for H
4 and H
5 ,
respectively. However, contrary to
expectations, problem management was found
to be insignifi cantly related to customer
participation ( = 0.04, p >0.05), which means
that H
2 was not supported.
The direct, indirect and total effects of
customer participation, problem management
and customer education on customer loyalty
are illustrated in Table 5 . Problem
management had a slightly stronger total
effect on customer loyalty than customer
participation. However, it was customer
education that had by far the greatest impact
on customer loyalty due to its large direct
and indirect effects.
DISCUSSION
Our model integrates customer participation,
problem management, customer education
and loyalty to (1) investigate the mediating
role of customer participation, (2) to
empirically test direct and indirect effects
on customer loyalty and (3) to compare
relationship marketing strategies ’ total effects
in the context of multi-product fi nancial
institutions. The fi ndings of this study shed
some light on the nature of relationships
between these four key elements of
fi nancial services marketing and, thus, have
substantial implications for managers and
researchers alike.
First, the study shows that customer
participation has a signifi cant, positive impact
on customer loyalty. As clients participate and
become more involved in the service process,
they tend to share the credit as well as the
blame for service outcomes.
15 The
implication is that customers begin to assign
responsibility to themselves for service
outcomes, which can reduce customer
switching behaviour. Because of timely
interaction and enhanced communication
between clients and their advisers, customer
participation can also lead to the
development of social bonds that make the
client – fi nancial service provider relationship
more resistant to services failures so common
to the fi nancial services industry.
Given the high complexity and
intangibility of fi nancial services, clients are
likely to be alert to the fl exibility and speed
with which fi nancial advisers address their
concerns. The fi nding that problem
management was not signifi cantly related to
Table 4 Structural model results
a
Dependent variables Customer participation Customer loyalty
t-value t-value
Exogenous variables
Problem management 0.04 0.53 0.15 3.06
Customer education 0.47 6.41 0.57 10.22
Endogenous variable
Customer participation 0.12 4.05
R
2 0.25 0.59
2
(98) , p < 0.01 517.09
CFI 0.97
AGFI 0.93
PNFI 0.79
RMSEA 0.06
a Standardised regression weights.
Table 5 Effects of independent variables on customer
loyalty
Variable Direct
effect
Indirect
effect
Total
effect
Customer participation 0.12 — 0.12
Problem management 0.15 0.00 0.15
Customer education 0.57 0.06 0.63
Relationship marketing in the financial services industry
© 2006 Palgrave Macmillan Ltd 1363-0539 $30.00 Vol. 10, 4 86–97 Journal of Financial Services Marketing 95
customer participation was unexpected. We
had anticipated that as expectations of
procedural fairness were met, customers
would be more likely to make constructive
suggestions as these would have a material
effect on service resolution. An insignifi cant
effect suggests that customer participation
occurs irrespective of the procedural fairness
they perceive. Possibly, customers were unable
to see the connection between their
participation and feedback, and the
procedures and processes the fi rm has in
place to correct service problems.
Alternatively, taking an attribution theory
point of view, customers might hold the
general expectation that problems caused by
the fi rm should be solved by the fi rm, and
that the need to participate in the solution is
beyond their responsibilities.
Customer education, on the other hand,
emerges as a powerful determinant of
customer participation. Clients ’ investment
expertise plays an important role in their
ability to understand fi nancial service
offerings. Accordingly, educated customers
will be more confi dent in making suggestions
and contributing to effective service delivery.
Because of its signifi cant direct and indirect
effects, customer education had the greatest
total effect on customer loyalty. One possible
explanation is that fi nancial institutions ’
willingness to provide clear explanations of
service offerings and concepts is seen as a
valuable service augmentation by customers.
In addition, customer education can address
clients ’ need for reassurance about the
decisions they are making,
38 thereby building
further credibility with clients about the
sincerity of the fi rm ’ s intentions.
Our research fi ndings are consistent with
notions of procedural and interactional
justice,
20,21 where organisations ’ response to
the concerns of their clients has a signifi cant
infl uence on customer defections.
Furthermore, our results are consistent with
notions relationship selling and partnership
building.
39 Both client participation and
education can result in more frequent and
meaningful contact between customers and
service providers. Enhanced information
sharing, in turn, may increase the parties ’
mutual knowledge about each other, thereby
fostering the development of similar goals,
social attachment and reciprocity.
In summary, the fi ndings (1) highlight the
role of customer participation in partially
mediating the relationships between
problem management, customer education
and loyalty, (2) underscore customer
education ’ s importance as a determinant of
client loyalty and (3) examine the relative
effects of relationship building strategies,
such as problem management, client
education and participation, on the longevity,
depth and breadth of linkages with
consumers.
Managerial implications
The empirical fi ndings of this study suggest
that, in managing client relationships,
fi nancial institutions should consider the
relative effectiveness of individual relationship
building strategies in fostering customer
loyalty. Although a fi rm ’ s problem
management initiatives do have a signifi cant,
positive impact on customer loyalty, our
results suggest that priority should be given
to customer education initiatives, while, at
the same time, opening up the service
production and delivery process to client
participation. Potentially, this could be met
with resistance in many fi nancial services
fi rms, where time-pressed advisers perceive a
large gap between their fi nancial expertise
and that of clients. Perhaps, through training
and the reconfi guration of rewards, however,
fi nancial services fi rms could establish a
culture among client advisers that both client
education and participation are expected and
desirable. A fi rst step might be to devise
performance incentives that link customer
feedback with rewards.
This is not to say, although, that problem
management processes should not be
supported. Advisers should be provided the
Eisingerich and Bell
Journal of Financial Services Marketing Vol. 10, 4 86–97 © 2006 Palgrave Macmillan Ltd 1363-0539 $30.00
96
behavioural latitude to respond to customer
concerns in a timely and appropriate manner.
By focusing on customer education, however,
perceived problems with the service process
are likely to diminish, especially as customers
become more capable and begin to assume
greater responsibility for the service outcome.
The insignifi cant relationship between
problem management and customer
participation might suggest that fi rms should
communicate more clearly the way customer
participation can improve the process of
problem resolution. Further, fi rms should
feedback to customers how their participation
in problem resolution leads to better service
recovery. Ultimately, sensible allocation of
resources to both customer education and
problem resolution is likely to deepen
relationships, facilitate better customisation of
service products and enhance opportunities
for cross-selling.
Limitations and directions for future
research
First, drawing cause and effect inferences
from cross-sectional data may be tenuous and
the proposed model would clearly benefi t
from a longitudinal design to establish the
hypothesised sequence of effects. Education
contributes to customer expertise over time.
It is likely that rates of customer learning
and, thus, the impact of customer education
will be non-linear. An intriguing avenue for
future research would be the investigation of
the nature of customer education ’ s impact on
consumer loyalty over time.
The parsimony of our proposed model
suggests that some additional variables might
help explain key relationships further. For
instance, the examination of clients ’
availability of time, perceived cost of
participation, knowledge of available
alternatives and switching costs might further
help to explain the customer loyalty decision.
Future research may also use objective data
to validate the scales and hypothesised
relationships of our model.
We chose a single-industry approach to
minimise systematic and random noise
attributable to industry differences. Although
single-industry studies may sometimes be
preferable to establish the internal validity of
a proposed model,
40 replication in different
service contexts would provide greater
confi dence in the generalisability of the
current results.
CONCLUSION
This study provides initial empirical evidence
of the effects of customer participation,
education and problem management on
customer loyalty in a fi nancial services
context. Financial service institutions can use
the current fi ndings to develop services
marketing strategies that deepen and enhance
customer relationships. The implications of
our study point to ways in which fi nancial
services fi rms can allocate relationship
marketing resources to maximise returns in
terms of customer loyalty, and fully unlock
the opportunities of increased client
participation in, and contribution to, effective
service delivery.
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