Developing a scale to measure the extent of customer engagement in the South African retail banking industry

Abstract

The retail banking industry of South Africa is currently facing various challenges due to the rapid growth of the market, new entrants, an unpredictable economic environment, escalating regulatory costs, changing customer behaviour, and the ease with which customers can switch between banks when they are unsatisfied with the products and/or services received. These changes in the retail banking environment are affecting the profitability and success of retail banks negatively. As the survival of South Africa’s core banks has a direct influence on the economic stability of the country, it is crucial for banks such as Absa, Capitec Bank, FNB, Nedbank and Standard Bank to remain sustainable during these challenging times. Based on the in-depth literature review, it became clear that retail banks need to develop enduring relationships with customers and that they have to focus on developing engaged customers, as these customers show positive behavioural intentions. Therefore, retail banks that are able to measure and improve customers’ engagement, could realise a strategic advantage above competing banks. The primary objective of the study was to develop a multi-item scale to measure the extent of customer engagement in the South African retail banking industry. In order to achieve this, the study provided insights into the South African retail banking industry within the services marketing domain, as well as an overview of relationship marketing as the foundation of customer engagement. The rudimentary customer engagement scale was further refined and tested in conjunction with other relationship marketing constructs. The study followed an exploratory research design. A quantitative research design was adopted, although qualitative research techniques were used to assist in the development of the initial customer engagement scale. Non-probability convenience and quota sampling was used to collect data by means of a self-administered questionnaire from the target population (Generations X and Y and baby boomers), who had been making use of the retail banking services of one of the main retail banks for two or more years. A total of 231 usable questionnaires were collected during the first data collection phase, and 152 usable questionnaires during the second data collection phase. A 14-item scale was developed, which measures customer engagement in the South African retail banking industry. This multi-item scale could guide retail banks to improve customer engagement so that they might enjoy the benefits of engaged customers and gain a competitive advantage in this changing industry. In addition, a customer engagement model was proposed that may be used as a measure to establish customer loyalty in the South African retail banking industry.