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What do Consumers Look for in a Bank? An Empirical Study
Ugur Yavas
East Tennessee State University
College of Business and Technology, Johnson City, TN 37614
Phone: 423 439 5382.
Email: raxyavas@mail.etsu.edu
Emin Babakus
The University of Memphis
Fogelman College of Business and Economics, Memphis, TN 38152.
Phone: 901 678 3857.
Email: ebabakus@memphis.edu
Nicholas J. Ashill
Victoria University of Wellington
School of Marketing and International Business, Wellington, NZ
Phone: 0064 4 4635430.
Email: Nicholas.Ashill@vuw.ac.nz
ABSTRACT
At a time when banks face intense competition not only within traditional banking institutions but
also with other non-banking financial firms such as securities and insurance companies, the
study reported here identifies the factors that consumers consider in selecting a bank and the
performance of banks in terms of these factors. Results and their implications are discussed.
INTRODUCTION
During the past decade or so, regulatory, structural and technological factors have significantly
changed the banking environment throughout the world (Angur, Nataraajan and Jahera, 1999;
Lee, 2002) and resulted in intensified competition in the market place. In the United States,
arguably, the intensified competition in the market place has been primarily stirred by regulatory
changes (Lee and Marlowe, 2003; Yavas and Shemwell, 1997).
In 1994, the enactment of a law removed virtually all of the restrictions on interstate banking
expansions. Furthermore, restrictions on expansions by bank holding companies were removed
in September 1995 and restrictions on interstate branching were removed in 1997. The tearing
down of such barriers was especially troublesome for small community banks which faced
competition from larger multi-state banks that benefited from the new legislations in several
ways (e.g., a simplified regulatory environment, operational efficiencies and marketing
economies of scale). More recently, the Gramm-Leach-Bliley Act passed in 1999 amended both
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the Glass-Steagall Act of 1933 and the Bank Holding Company Act of 1956 and repealed
prohibitions against affiliation of banks, securities firms, and other financial service providers.
As a result, the financial services industry today is facing intense competition not only within
traditional banking institutions (i.e., commercial banks, savings and thrifts, and credit unions) but
also with other non-banking financial firms such as securities and insurance companies (Fay,
2000).
This new form of competition makes an understanding of consumer choice behavior to the
financial services industry imperative. From earlier writings it is apparent that consumers’
choice of a financial institution is a decision process, which consists of a number of discrete but
interlinked stages (Devlin, 2001; McKechnie, 1992). And choice criteria determination and
evaluation of banks in terms of these criteria are two critical steps of that process. Against this
background the purpose of this study is to provide a better understanding of how consumers
choose their financial institution and how banks are faring in this milieu. In accomplishing the
study objective, first an attempt is made to determine the underlying configurations of bank
choice criteria employed by consumers. Then, importance-performance analysis is used to
assess the relative importance of various choice factors to consumers and the performance of
banks in meeting these criteria.
METHOD
Data for the study were collected from the residents of a city in the Southeast. Four-hundred
questionnaires were hand-distributed to adult residents residing in different neighborhoods of the
city and personally retrieved after a two-week period. Care was exercised to cover the entire set
of residential neighborhoods in the city. Respondents had to have a bank account to qualify for
the survey. If a respondent did not meet this condition, then members of the field force sought
an alternative respondent in the same neighborhood. Usable responses were obtained from 262
residents for a response rate of 65.5%. About one-half of the respondents were male, and little
less than one-half (47%) were married. The distribution of annual household income was as
follows: 47% less than $30,000, 32% $30,000 to $45,000, and 21% in excess of $45,000. About
30% of the respondents were younger than 25 years of age, 24% were between 25 to 34, 20%
were between 35 to 44, and 25% were older than 45 years of age. A comparison of the sample
profile with the known characteristics of the area population revealed that the respondents were
slightly upscale in terms of household income.
After a review of the relevant literature (Dudley, Young and Powers, 1985-86; Evans 1979;
McDougall and Levesque, 1994; Neal, 1980; Levesque and McDougall, 1996; Khazeh and
Decker, 1992; Minhas and Jacobs, 1996; Avkiran, 1997; Yavas and Shemwell, 1996; Galloway
and Blanchard, 1996; Chen, 1999; Aldlaigan and Buttle, 2002) and examination of
questionnaires obtained from various banks, a list of 34 bank choice criteria was prepared (see
Table 1). On a seven-point scale ranging from 7 = very important to 1 = not important at all,
respondents were asked to indicate the level of importance they attached to each criterion when
choosing a bank and to evaluate their principal bank on these criteria on a six-point scale ranging
from 1 = very poor to 6 = excellent.
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1 Interest rates on deposits/loans
2 Convenience of location
3 Saturday hours
4 Local ownership
5 Number and location of ATMs outside of branches
6 Office/home banking
7 Overdraft privileges
8 Adequate parking
9 External appearance of bank
10 Fees charged
11 Banking hours
12 New bank services
13 Helpfulness of bank tellers
14 Provision of services in a timely manner
15 Attentiveness of personnel
16 Willingness of bank personnel to listen to me
17 Bank procedures are clearly defined and explained
18 Problems are resolved quickly
19 Quality of advice given to me
20 Drive-in service
21 Friendliness of personnel
22 Well trained employees
23 Speed of decisions
24 Accuracy of written communications (e.g., bank statements)
25 Being known personally
26 Bank manager having up to date knowledge of bank products
27 Accurate representations (e.g., loans approvals, fees, etc.)
28 Bank's interest in helping the community
29 Customer’s banking information is kept confidential
30 Integrity of bank
31 Bank is technologically advanced
32 Bank is well managed
33 Bank's competence in the business of banking
34 Bank's commitment to me as a customer
Table 1: List of choice criteria.
RESULTS
Choice Criteria Dimensions
Principal components analysis was used to identify the underlying dimensions of the 34 bank
choice criteria. For this analysis, importance ratings attached to individual criteria were used as
the input data. The initial solution was rotated using the varimax procedure and factors with
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eigenvalues greater than 1.0 were retained. As shown in Table 2, the analysis resulted in 7
factors. These factors collectively accounted for 62% of the variation in the data.
By considering variables with highest loadings on each of the 7 retained factors, they were
named as follows:
Factor 1 Staff Quality
Factor 2 Integrity/Trustworthiness
Factor 3 Exterior
Factor 4 Service Variety
Factor 5 Hours of Operation
Factor 6 Fees
Factor 7 Location
Bank Performance
To investigate the performance of banks in terms of the identified factors, importance-
performance analysis was used. Based on the conceptual foundations of multi-attribute choice
models, importance-performance considers two critical dimensions consumers employ in
evaluating an object. These are the relative importance of the attributes to consumers and
consumers’ assessment of the performance of the object in terms of these attributes. By
dichotomizing these dimensions into high/low categories, the technique identifies the object’s
strengths and weaknesses and prescribes four strategies (Table 3). Keep up the good work is for
those attributes rated high both in importance and performance. Concentrate here strategy applies
to those attributes that are high in importance but rated substandard in performance. Attributes
rated low in terms of both importance and performance call for a low priority strategy. Finally,
attributes rated high in performance but low in importance implies that overkill has occurred. In
this case the recommendation is that the resources committed to these attributes should be
channeled elsewhere.
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FACTOR 1 FACTOR 2 FACTOR 3 FACTOR 4 FACTOR 5 FACTOR 6 FACTOR 7
VAR001 -0.03
0.56
0.31 0.15 -0.16 0.32 -0.18
VAR002 0.06 0.19 0.19 0.06 0.09 0.11
0.75
VAR003 0.11 -0.01 0.17 0.22
0.76
0.06 0.15
VAR004 -0.06 0.05 0.49 0.17
0.76
-0.13 -0.05
VAR005 0.08 -0.14 -0.06
0.74
-0.01 0.05 0.42
VAR006 -0.02 0.19 0.24
0.65
0.35 -0.02 -0.02
VAR007 0.15 0.06 0.10
0.69
0.13 0.23 -0.10
VAR008 0.11 0.09
0.68
0.10 0.14 0.14 0.17
VAR009 0.24 -0.05
0.65
0.21 0.02 -0.03 0.13
VAR010 0.24 0.19 -0.03 0.08 -0.02
0.73
0.04
VAR011 0.36 0.14 0.07 0.17
0.62
0.21 0.06
VAR012 0.36 0.12 0.31
0.61
0.13 0.07 -0.02
VAR013
0.71
0.13 0.32 0.08 0.01 -0.12 0.14
VAR014
0.60
0.21 0.27 0.08 -0.08 0.27 -0.06
VAR015
0.72
0.20 0.31 0.04 0.01 0.24 0.04
VAR016
0.78
0.27 0.10 0.16 0.03 0.09 -0.01
VAR017
0.62
0.37 -0.06 0.22 0.22 0.14 -0.10
VAR018
0.56
0.20 -0.07 0.05 0.16 0.41 -0.13
VAR019
0.60
0.44 -0.07 0.06 0.13 -0.02 -0.01
VAR020 0.12 0.03 0.10 0.23 0.18
0.51
0.32
VAR021
0.72
0.11 0.28 0.06 0.13 0.21 0.17
VAR022
0.71
0.39 0.06 0.05 0.11 0.08 0.08
VAR023
0.57
0.35 0.23 0.14 0.18 0.22 -0.05
VAR024 0.34
0.57
0.00 -0.02 0.14 0.24 0.06
VAR025 0.33 0.07 0.49 -0.15 0.41 -0.08 -0.14
VAR026 0.42
0.56
0.18 0.16 0.19 -0.08 -0.10
VAR027 0.24
0.68
0.12 0.16 0.02 0.12 -0.16
VAR028 0.21 0.39
0.51
0.09 0.19 0.00 0.01
VAR029 0.24
0.63
-0.01 -0.09 -0.18 0.08 0.16
VAR030 0.27
0.68
0.03 -0.13 0.13 0.16 0.18
VAR031
0.49
0.48 -0.02 0.33 0.04 -0.12 0.22
VAR032
0.57
0.56 0.03 0.11 0.13 -0.07 0.17
VAR033 0.38
0.61
0.11 0.09 0.06 -0.04 0.14
VAR034
0.54
0.44 0.04 -0.05 0.20 0.14 0.20
Eigen Value 11.52 2.85 1.67 1.43 1.19 1.15 1.11
Table 2: Dimensions of bank choice criteria.
To determine which of the 7 factors are important and which are non-important, initially mean
importance ratings were computed for each factor by considering criteria with highest loadings
on that factor and adjusting for the number of items comprising it. Because factor 7 was
comprised of one item, the mean of that item represented the factor mean. These mean scores
were summed across factors and divided by 7. The factors whose averages exceeded the grand
mean were designated as “high importance” and those which had lower means compared with
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the grand mean were labeled as “low importance” factors. From this analysis, 4 factors emerged
as being important. As can be seen from Table 4, these were factors 1, 2, 6, and 7.
In dichotomizing the 7 factors into low and high performer categories, a similar procedure was
used. That is, each factor’s performance score was compared to the grand mean. The factors
whose averages exceeded the grand mean were designated as “high performance” and those
which had lower means compared with the grand mean were labeled as “low performance”
factors. As can be seen from the data presented in Table 4, based on this procedure, four factors
were designated as high performers. These were the same factors, which were deemed important
by the consumers.
By simultaneously considering each factor’s importance and banks’ performance in terms of
these factors, placements of each of the 7 factors were determined. As can be seen from Table 4,
four factors (1, 2, 6, and 7) fell into the keep up the good work cell of the grid. Three factors (3,
4, and 5) were designated as low priority.
High Importance
Concentrate Here Keep up the Good Work
(Quadrant II) (Quadrant I)
Low
Performance
(Quadrant III) (Quadrant IV) High
Performance
Low Priority Possible Overkill
Low Importance
Table 3: Importance-performance grid.
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DISCUSSION
At a time when the competition between banks and other financial institutions intensifies, the
study reported here identified the underlying configurations of bank choice criteria employed by
consumers and assessed the performance of banks in meeting these criteria. The results are
enlightening in several ways. First, they show that bank choice criteria for consumers can be
reduced to seven underlying factors. Second, they indicate which of these factors are important
and which ones are relatively unimportant to consumers when they choose a bank. Third, they
highlight banks’ performance in terms of these factors.
For instance, the results suggest that banks should keep up the good work in terms of their staff
quality, being trustworthy, fees and locational convenience. All of these factors are important to
consumers and the banks seem to be successful in meeting the demands of their customers in
these areas. By the same token, banks must take decisive steps to improve their performance in
other areas such as their exteriors, auxiliary services and hours of operation. While these are
relatively unimportant to customers, any changes in the saliencies of these factors coupled with
the banks’ poor performance, would move them into the undesirable concentrate here cell.
It is interesting to note that many of the factors emerging from the study and the items
comprising them closely parallel service quality dimensions widely discussed n the literature.
By instituting policies to improve their performances in areas where they are already perceived
in a favorable light as well in those factors where they are found deficient, banks can enhance
their standings in the eyes of their clients. One viable strategy, for instance, entails improvements
in staff quality, which is a significant determinant of customers’ subjective perceptions of
individual service encounters. While all the disparate elements of a banking organization may
combine to collectively deliver the service to the client, it is usually the one-on-one encounter
between a boundary spanner and a client that will ultimately determine the outcome, good or
bad, in the client’s mind. In this context, to improve clients’ perceptions of the competencies
and skills of their staff, banks can establish service quality support departments to provide
training. On a closing note, it should be noted that this study was conducted among consumers in
one city. This may delimit generalizations. Replications in other localities would be
illuminating in cross-validating the findings.
Average Score
Recommended
Importance Performance Outcome/Action
FACTOR 1 6.28 4.95 KEEP UP GOOD WORK
FACTOR 2 6.26 4.90 KEEP UP GOOD WORK
FACTOR 3 4.89 4.65 LOW PRIORITY
FACTOR 4 5.01 4.36 LOW PRIORITY
FACTOR 5 5.04 4.17 LOW PRIORITY
FACTOR 6 6.16 4.69 KEEP UP GOOD WORK
FACTOR 7 6.21 4.95 KEEP UP GOOD WORK
AVERAGE 5.69 4.66
Table 4: Importance-performance analysis.
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