EFFECT OF CUSTOMER RELATIONSHIP

MANAGEMENT EFFECTIVENESS ON
CUSTOMER SATISFACTION

BY: HAREGEYIN DIGFE

ADVISOR: ASSEFA GARBI (ASST. PROF)

CPU BUSINESS AND INFORMATION TECHNOLOGY

COLLEGE IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE AWARD OF THE DEGREE
OF MASTER OF BUSINESS ADMINISTRATION (MBA)

JULY /2022
ADDIS ABABA, ETHIOPIA

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 Table of Contents

CHAPTER ONE............................................................................................................................1
INTRODUCTION.........................................................................................................................1
1.1 Background of the study........................................................................................................1
1.2 Statement of the Problem.......................................................................................................4
1.3 Research Objective................................................................................................................4
1.4 Research Question.................................................................................................................5
1.5 Research Hypothesis..............................................................................................................5
1.5 Definition of Terms...............................................................................................................6
1.6 Significance of the Study.......................................................................................................7
1.7 Delimitation/ Scope of the Study...........................................................................................8
1.8 Limitation..............................................................................................................................9
1.9 Organization of the Research Report.....................................................................................9
CHAPTER TWO.........................................................................................................................10
REVIEW OF RELATED LITERATURE................................................................................10
2.1 Chapter Overview................................................................................................................10
2.1.1Customer Relationship Management...............................................................................10
2.2 CRM Effectiveness and Evaluation Dimensions.................................................................11
2.2.1 Organizational Commitment........................................................................................12
2.2.2 Customer Experience....................................................................................................13
2.2.3 Process-Driven Approach.............................................................................................14
2.2.4 Reliability.....................................................................................................................15
2.2.5 Technology Orientation................................................................................................15
2.3 Customer Satisfaction..........................................................................................................16
2.4 CRM Research in Financial Service Industry.....................................................................17
2.5 The Importance of Customers’ Perception towards CRM Implementation........................18

2.6 CRM in Financial Services and in the AB...........................................................................20

2.7 Conceptual Framework........................................................................................................22
CHAPTER THREE.....................................................................................................................23
RESEARCH DESIGN AND METHODOLOGY.....................................................................23

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 3.1 Research Design..................................................................................................................23
3.2 Sample and Sampling Techniques.......................................................................................23
3.3 Source of Data.....................................................................................................................25
3.4 Instruments of Data Collection............................................................................................25
3.5 Methods of Data Analysis...................................................................................................26
3.6 Ethical Consideration...........................................................................................................28

COST BUDGET
BIBLIOGRAPHY

Acronyms:

AB – Awash Bank
ATM- Automatic Teller Machine
CRM – Customer Relationship Management
SPSS- Statistical Package for Social Science
MIS- Managementinformtionytem

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 CHAPTER ONE

INTRODUCTION
This chapter will introduce the reader to the study of the effect of CRM for
contact office practice on loyalty in Awash Bank. In addition the statement of
the problem, basic research questions, objective of the study, and significance
of the study, scope of the study, limitation of the study and organization of the
study will be discussed.

1.1 Background of the study

In today’s intensely competitive, rapidly changing and highly complex

business environment characterized by diminishing customer loyalty, the need
to be market focused and customer centric is more critical than any other time
for any organization. With increased knowledge of customers, globalization,
presence of large number of competitors providing almost comparable service
and customers demanding more than just core service or product; firms
specially the financial sectors are deploying Customer Relationship
Management (CRM) to customize their service to capture new customers,
retain the existing ones and win back lost customers by building relationship
and maximize customers life time value (Onut, Erdem and Hosver, 2006).

The importance of Customer relationship management (CRM) is highly

increasing to firms as they seek to improve their profits through long-term
relationships with customers. Customer Relationship Management is a vital
and an essential business strategy for the banking sector. Therefore banks, with
the need to be more customer-centric have taken efforts to design and
implement CRM as a step towards success and achievement in their business.

Nevertheless marketers’ responses to CRM implementation appear to have

neglected customers’ opinion in relation to understanding consumer attitudes,
even as an indirect target audience. Kim, Park, Dubinsky and Chaiy (2012)
argue that to date there remains a lack of attention regarding the customer’s

3
point of view vis-à-vis CRM activities of firms. Although extant literature
does provide helpful insight into the company’s point of view, researchers
have shown little concern regarding customers’ attitude toward customer
relationship management activities (Kim, et al., 2012). For those companies
already participating in CRM initiatives, the information provide for the
consumer about their involvement may be limited or non-existent, missing the
opportunity to assist the consumer to think clearly or abstractly about the
extent relationship they make with their suppliers.

Most of the studies done on CRM are from supplier perspective. Some of these
empirical works have focused on CRM strategy and its outcomes such as the
causal relationships between CRM strategy and customer satisfaction,
customer loyalty, and company performance (example: Kamakura et. al.,
2002; Verhoef, 2003; Reinartz et al., 2004; Stein and Smith, 2009; Arkoush et
al., 2011). Despite the importance of input from these studies, surprisingly
overlooked area in CRM research has been the customer (Kim, et al., 2012). In
fact according to Padmavathy, Balaji and Sivakumar (2012) only few studies
have investigated and measured CRM effectiveness from customer
perspective.

It is essential to know for firms how effective their CRM activity perceived by
customers and its effect on customer satisfaction as the “C” in CRM stands for
Customer towards whom the CRM activates is directed. Such information will
help the organizations to better understand Customers and tailor their activities
to meet customers’ expectations and deliver high customer values and also to
focus on the dimensions that will enhance customer satisfaction. Padmavathy,
Balaji and Sivakumar (2012) in their study identified five key dimensions of
Customer Relationship Management Effectiveness that should be
implemented to enhance a bank business performance.

These five key dimensions are organizational commitment, customer

experience, process driven approach, reliability and technology orientation

4
which measure the effectiveness of customer relationship management from
customer perspective. These dimensions emphasize that CRM efforts should
focus on crucial areas that require attention for successful CRM
implementation which are strategy, process, technology, management and
people (Crosby and Johnson, 2001; Yim, 2002; Sin et al., 2005). As it has been
pronounced by Onut et al., (2006) in their study, today many businesses such
as banks, insurance companies and other service providers realized the
importance of customer relationship management and its potential to help
them acquire new customer, retain existing ones and maximize their lifetime
value.

In realization of this fact the banks in Ethiopia have deployed customer

relationship management besides serving their customers with range of
services, to create lifetime value for customers, enhance customer relationship
quality, and retain their existing customers and becoming more customer-
focused. Despite the fact that CRM has emerged as a major business strategy,
little research has been conducted to evaluate its effectiveness (Kim et al.,
2003) and effect on customer satisfaction.

To address this concern this study conducted to examine bank customers’

perception towards CRM effectiveness and its effect on customer satisfaction.
Specifically the study was conducted in Awash Bank by assessing the bank
customers’ attitude towards the bank CRM implementation effectiveness and
their satisfaction. The study regarded the customer as a major factor to
consider for effectiveness of the CRM implementation at the bank. Thus
the study will focus on evaluation of CRM dimensions in terms of determining
customer satisfaction based on the five dimensions identified by Padmavthy,
Balaji and Sivakumar (2012).

1.2 Statement of the Problem

CRM has emerged recently and has become competitive advantage for firms in
financial sector. Even though customer relationship management activities are

5
in the infant stage in Ethiopian banking industry, knowing the customers’ view
and perception towards the effort is an essential for the development and
growth of CRM in Ethiopia. However, most of the studies done on CRM
are from supplier perspective. Only few researches have been done in
evaluation customer relationship management effectiveness from customer
perspective (example: Kim et al., 2012; Padmavathy et al., 2012).

Customers are the engine of any organization moving towards winning and
becoming a profitable business. What customers feel and think about a
company and/or its offering is key aspects of its success. Banks have realized
that managing customer relationship is an essential factor for their success as
CRM is one of the best strategies that can help them build long lasting
relationships with their customers and increase their profits through efficient
management system and application of customer focused strategies (Nyarku et
al., 2013).However for the success of these efforts besides the organization
commitment on implementing CRM, customers’ attitude should be considered.
Knowing the customers attitude towards the effectiveness of the implemented
CRM activities and its behavioral outcome on the customer satisfaction is
crucial for the success of CRM activity. Thus this study will provide an insight
to customers’ perception towards the effectiveness of CRM activities and its
relationship with customer satisfaction.

The purpose of the study is to check the effectiveness of customer relationship

management (CRM) in retaining and satisfying customers with reference to
Awash international bank. The study will analyze the effect of customer
satisfaction on customer relationship management systems. This will be
explained as there may be an adverse effect on customer relationship
management satisfaction that has not been tested in other study. The study will
also analyze that there is an effect on the quality of service on customer
satisfaction systems affecting the relationship between customer relationship
management and quality of service.

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 The study will also contribute for AIB to identify the dimensions of CRM
which are done properly and which need further improvement to a successful
implementation of CRM across the five dimensions(organizational
commitment, customer experience, process driven approach, reliability and
technology orientation) and their effect on customer satisfaction.

== Clearly put your study==

1.3 Research Objective

General Objective:
The main aim of this study will focus on examining effect of Customer
Relation Management on customer satisfaction.

Specific Objectives:
1. To determine effect of organizational commitment dimension on customer
satisfaction
2. To assess how customer experience dimension affect customer satisfaction
3. To examine effect of process-driven approach on customer satisfaction
4. To examine how reliability affect customer satisfaction
5. To evaluate how technology orientation dimension effect customer
satisfaction

1.4 Research Hypothesis

1. Organizational commitment dimension has a significant and positive effect on

customer satisfaction
2. Customer experience dimension has a significant and positive effect on customer
satisfaction
3. Process-driven approach has a significant and positive effect on customer
satisfaction Reliability has a significant and positive effect on customer
satisfaction

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4. Technology orientation dimension has a significant and positive effect on
customer satisfaction

1.5 Significance of the Study

CRM will be developing to manage customer relationship effectively. Thus to

build and manage customer relationships effectively, organizations should
establish a customer-centric culture. While most of the researches done in
evaluating CRM implementations so far are from marketers’ perspective. This
research will provide an insight in to customers’ perception towards CRM
activities effectiveness and its effect on customer satisfaction. Through
converting customer information in to usable data, CRM can increase the
overall performance of a company (Stein and Smith, 2009; Yim et al., 2004).
The research also provides managers insights into development and
implementation of CRM activities based on customers’ evaluation and enables
the bank to identify the dimension that have impact on customer satisfaction
and those which needs further enhancement. By doing so, this research will
have implication on bank managers and will contribute to the CRM literatures.

It is essential to comprehend which dimension of CRM effectiveness impacts

customer satisfaction. The information gained on how customers perceive the
effort of the organization to create long term relationship with them and it
effect on customer satisfaction enables firms to implement their CRM
activities to meet customers’ expectations and thereby enabling them to benefit
more from CRM implementation activities and direction. Moreover such
information gives the ground to identify and improve the dimensions that have
relationship with customer satisfaction and positively affect customer
satisfaction.

Customers are the primary beneficiary from CRM activities of organization.

More over to achieve CRM effectiveness in an organization, a firm should
develop customer-focused learning and an interaction orientation culture
(Kumar and Ramani, 2003; 2006). Customer relationship management is now

8
growing in Ethiopia especially in the banking industry. Therefore customers,
whom are the primary beneficiary of CRM activities, view should be assessed
in order to know their perception and the effect it has on their satisfaction.
Otherwise winning the new, retaining the existing and winning back lost
customers will be difficult in the banking industry where the competition is
stiff and customers switching cost is low.

As the number of service providers in the banking sector is increasing in

Ethiopia the competition is getting stiffer. Among other factors the decrease
in customer loyalty and shifting of customers to competitors easily with lesser
or no switching costs, have impact on the declination of the market share of
the players in the industry. Banks have realized this and are implementing
CRM to win, retain and gain back customers. However the view and
perception of customers, towards whom CRM is applied, should be
considered. Evaluation of customers will help the bank to design the
application in accordance to customers need to create long lasting relationship
by creating value to customers.

Thus this study gives an insight how customers perceive the effectiveness of
the CRM implementation and its impact on customer satisfaction which in
return helps the bank to identify gaps between customers’ needs and the
current customer relationship activity of the bank and dimensions which
contributes to customer satisfaction. Moreover based on this kind of studies
managers can get insights into the development and implementation of CRM
activities based on customers’ evaluations. Such information enables the bank
to review the current CRM activity and to know the needs of the customers.
Furthermore, this study will contribute to the CRM literature. It will also
contribute in providing a ground for future research area to assess customers’
view of CRM implementation activities in large scale and in different industry
as well.

1.6 Delimitation of the Study

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The study will intend to assess CRM effectiveness and its effect on customer
satisfaction from customer perspective upon which customers will evaluate the
CRM activities of the Bank from five dimensions. However due to time and
budget constraint the scope of this study is limited to the information that was
gathered from selected into Special class, first class of AB in Addis Ababa.
This limits the realm of the study by discriminating those branches in Addis
Ababa but with lower grades. Hence it does not address all customers ofAB.
Therefore in this study the view of the customers other than the selected
branches not addressed.

1.7 Limitation of the study

The findings of this study will not be generalizable to the entire population as
only the views of selected branch customers will be taken. The other limitation
is inaccessibility of the current customer data from the selected branches for
privacy and other reasons. Additionally related literatures to this study area are
very limited. Therefore, getting appropriate related literatures was very time
taking. Despite these limitations, the study can help in arousing more future
research in the area.
1.8 Definition of Terms

Customer Relationship Management (CRM) is a set of customer-oriented

activities supported by organizational strategy and technology, and is designed
to improve customer interaction in order to build customer loyalty and
increased profit over time (Padmavathyetal., 2012, p. 249).
Organizational commitment dimension refers to the efforts by a bank and its
employees to serve customers with the desired levels of performance. It also
reflects the bank’s values, attitudes and beliefs in terms of the customer
orientation and CRM efforts (Padmavathy et al., 2012, p. 260).
Customer experience dimension describes how well the banks conform to
CRM efforts by promptly attending to complaints and efficiently solving
problems through proactive customer support (Padmavathy et al., 2012, p.
260).

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Process-driven approach dimension refers the ability of the bank to fulfill
customer requests with speed and astuteness (Padmavathy et al., 2012, p. 261).
Reliability dimension signifies the extent to which an organization is
consistently and accurately delivers services to its customers as promised
(Padmavathy et al., 2012, p. 261).
Technology orientation addresses operational performance of the banks
with the use of the latest technology such as automatic teller machines,
internet banking and mobile banking (Padmavathy et al., 2012, p. 261).
Customer Satisfaction is the degree to which business’s product or service
performance matches up to the expectation of the customer (Roberts-Lombard,
2009).
1.9 Organization of the Research Report

The study will comprise five chapters. In chapter one, background of the
study, statement of the problem background of the study, statement of the
problem, basic research questions, objective, definition of terms, significance,
delimitation/scope and limitations of the study are discussed. While the second
chapter covered related literatures reviewed on the study area. The research
design and methodology is covered in the third chapter. Whereas in the fourth
chapter the analysis, interpretation and discussion of primary data gathered by
questionnaire is presented. In the last chapter, chapter five, the summary of the
research findings, conclusion and practical recommendations are discussed.

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 CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 Theoretical Framework on Customer Relationship Management

CRM is born from relationship marketing and is simply the practical application of
long standing relationship marketing principles which have existed since the dawn of
business itself (Gummesson, 2004). Most marketers view the concept of customer
relationship management in a broader sense. Although CRM has become widely
recognized as an important business approach, there is no universally accepted
definition of CRM (Rigby et al., 2002; Yim et al., 2004; Zabhal et al., 2004; Sin et al.,
2005). As such, there is still much debate over exactly what constitutes CRM. Broader
perspectives began to emerge in a number of definitions that started to focus on
considering CRM as an organization-wide effort that centered on building and
maintaining profitable customer relationships (Akroush et al., 2011).

Broader Customer relationship management is the overall process of building and

maintaining profitable customer relationships by delivering superior customer value
and satisfaction. It deals with all aspects of acquiring, keeping, and growing customers
(Koteler and Armstrong, 2012, p.12). Hence, CRM tools are activities by business
organizations to manage customer interactions across channels and department,
including marketing, sales, customer service and technical support (Chaney, 2013).

As stated by Kotler and Armstrong (2012), customers buy from the firm that offers the
highest customer perceived value, the customer evaluation of the difference between
all the benefits and all the costs of market offering relative to those of competing
offers. Importantly, customers often do not judge values and costs “accurately” or
“objectively.” They act on perceived value (Kotler and Armstrong, 2012, p.12-13).
Though the competitive advantage for any enterprise can be gained only by leveraging
knowledge of customers’ expectations, preferences and behavior which involve
creating an ongoing dialog with customers and exploiting the information and insight
obtained at every customers touch points as argued by Payne (2005). Kotler and
Armstrong (2012) indicated that mostly companies try to increase customer

12
satisfaction by lowering price or increasing the service which results in lower
profit. However, firms through effective CRM tools can generate customer value
profitably without giving away their profit. The philosophical rationale behind the
importance of and the need for CRM lies in the importance of cooperative and
collaborative relationship between buyers and sellers (Akroush et al., 2011). Another
view of CRM is that it is technologically orientated. Sandoe, Corbitt and Boykin
(2001) argue that advances in database technologies such as data warehousing and
data mining, are crucial to the functionality and effectiveness of CRM systems.

2.2 CRM Effectiveness and Evaluation Dimensions

Only few studies have investigated and measured CRM effectiveness despite the
practical relevance of operationalizing and measuring CRM effectiveness for business
performance variables (Padmavathy et al., 2012). Mithas, Krishnana & Fornell (2005)
argued that marketing has moved from a brand-centered focus to a customer-centered
approach. Hence, managing customer relationships is important and valuable to
businesses. The effective implementation of CRM requires a cross-functional
integration of marketing, sales, customer service and supply- chain to enhance value
delivered to customers (Parvatiyar and Sheth, 2001, p.5). As noted by Das (2012)
the effective relationship between customers and banks depends on the understanding
of different needs of customers at different stages.

Even though measuring the effectiveness of customer relationship will measure the
relational efforts or activities that impact customer and business performance variables
as stated by Padmavathy et al., (2012), metrics for assessing CRM effectiveness are to
date inadequate. Most of the proposed metric system for measuring CRM
effectiveness are developed to assess the effectiveness from the supplier perspective
not the customers perspective (example: Yim et al.,2004; Sin et al., 2005; Bohling et
al., 2006; Onut et al., 2006; Shafia et al., 2006; Chen et al., 2009; Oztaysi et al., 2011;
Nguyen et al., 2012).

Many definitions of CRM have been emerging, with each successive definition
supplementing the previous ones and adding more focus to the concept and
delineation of its underlying principles and dimensions (Akroush et al., 2011).

13
Accordingly Padmavathy et al., (2012) came up with five dimensions from which
customers can evaluate and reveal how effective the CRM activities and efforts of
their banks are. These dimensions which are: Organizational commitment, customer
experience, process driven approach, reliability and technology orientation, let
customers evaluate and measure the effectiveness of CRM activities of their
banks from the five perspectives. Furthermore it enable the banks to take due
consideration of their CRM activities. Each of these dimensions discussed later in this
section as described by Padmavathy, Balaji and Sivakumar (2012).

2.2.1 Organizational Commitment

Multiple definitions of organizational commitment are found in the literature. As
operationally defined by Beteman and Strasser (1984) organizational commitment
is multidimensional in nature, involving an employee’s loyalty to the organization,
willingness to exert effort on behalf of the organization, degree of goal and value
congruency with the organization, and desire to maintain membership. The
organizational commitment dimension in this study indicates to the efforts by a bank
and its employees to serve the customers with the desired levels of performance
(Padmavathy et al., 2012). It also reflects the bank’s values, attitudes and beliefs in
terms of the customer orientation and CRM efforts (Padmavathy et al., 2012). For
CRM success, there also must be an organization-wide commitment of resources
(Yim et al., 2004).Khan and Bajaj (2012) emphasized that commitment implies that
partners forgo short-term alternatives in favor of long term benefits associated with
their current partners. The variables of this dimension consist of assessing; the use of
personal information, interaction with customers, customer satisfaction and evaluation
of customer evolving needs.

According to Mithas, Krishnan & Fornell (2005) CRM applications enable firms to
customize their offerings for each customer by accumulating information across
customer interactions and processing this information to discover hidden patterns.
CRM applications help firms customize their offerings to suit the individual tastes of
their customers. Customized offerings enhance the perceived quality of products and
services from a customer’s viewpoint (Mithas et al., 2005). Thus collecting customers

14
demographic and behavior data makes precision targeting possible. This kind of
targeting also helps when devising an effective promotion plan to meet tough
competition or identifying prospective customers when new products appear.
Interacting with customers consistently means businesses must store transaction
records and responses in an on- line system that is available to knowledgeable staff
members who know how to interact with it (Rygielski et al., 2002). With this
dimension the bank’s employees’ activities to interact with customers to assess their
service performance, the bank’s initiation to assess customers satisfaction regularly
and the commitment of the bank to carefully evaluate customer evolving needs will be
evaluated and revealed.

2.2.2 Customer Experience

In an effort to provide customers with the “perfect customer experience” CRM has
become the sine qua non for many organizations as a means of enhancing performance
(Payne and Frow, 2005, 2006; Javalgi et al., 2006). According to Padmavathy et al.,
(2012) customer experience is described by how well the banks conform to CRM
efforts by promptly attending to complaints and efficiently solving problems through
proactive customer support which increase the customer comfort levels and ensures
their needs and requests are satisfied on a continual basis. Concerns on how the
bank promptly attend customer complaints, whether it takes genuine interest in
customer problems, whether the bank effectively communicate to its customers and if
the bank is cooperative in solving the problems customers face while getting the
service will be assessed with this dimension.

A complaint can be defined as a conflict between the customer and the organization in
which the fairness of the resolution procedures, the interpersonal communications and
behaviors and the outcome are the principal evaluative criteria of the customer (Tax et
al., 1998). Complaints are also considered as a response to a service failure. As
indicated by Blodgett, Hill and Tax (1997) complaints present an opportunity to
remedy product or service related problems and to positively influence subsequent
customer behavior. How businesses deal effectively with complaints could have a
dramatic impact on customers’ evaluations of their retail experiences (Blodgett et al.,

15
1977). The philosophical rationale behind the importance of and the need for CRM
lies in the importance of cooperative and collaborative relationship between buyers
and sellers (Akroush et al. 2011).
2.2.3 Process-Driven Approach
Process driven approach to customer service enables the banks to fulfill customer
requests with speed and astuteness. Under this dimension the customers evaluate the
effectiveness of the bank with respect to promptness in delivering services, design of
the service process in satisfying its customers, whether accuracy and rapidness in
conducting transactions is very common with the bank and whether the bank provides
value adding information along with its services will be revealed. Korner and
Zimmeramann (2000) argue that offering value-added information for the customer is
a way of increasing customer loyalty. In addition, potential customers can be informed
about a new product, since the new product may now cover the needs of the
prospective customer. In return a prospective might become customer. Likewise if a
customer is satisfied with the information provided that might be a source of
competitive advantage (Kroner et al., 2000).

2.2.4 Reliability
This is the fourth dimension that enables customers to assess the banks effectiveness
in providing service with regard to; maintaining consistent service standard and
reliable service. Reliability refers to the extent to which banks consistently and
accurately deliver services to their customers as promised. As mentioned by
Padmavathy et al., (2012) and consistent with the findings of Zinedlin (2005)
reliability is one of the necessary conditions for banks to deliver superior customer
value than competitors and thereby fulfill customer expectations and requirements.
Customers expect organizations to anticipate their needs and provide consistent
service at levels above their expectations. In return, customers are loyal to the
organization for longer periods of time (Chen and Popovich, 2003). Chen and
Popovich (2003) also stated that companies with efficient facilities and greater
resources were able to satisfy customer needs with standardized products, reaping
advantages through productivity gains and lower costs. Mithas et al., (2005) argue that
CRM applications enable firms to improve the reliability of consumption experiences

16
by facilitating the timely, accurate processing of customer orders and requests and the
ongoing management of customer accounts.

2.2.5 Technology Orientation

The technology orientation dimension addresses the operational performance of banks

with the use of the latest technology such as Automatic Teller Machines (ATM),
internet banking and mobile banking. Information technology and Information system
play an important role in the development of CRM (Ling and Yen, 2001; Kincaid,
2003). Bank’s CRM technology allows collection of customer information across
various points of contact and thereby delivers personalized services to maximize
customer value. Hence, the technology has an important role in CRM in adding to
firm intelligence (Boyle, 2004). Accurate customer data is necessary to successful
CRM performance (Abbott et al., 2001).CRM technology augment the customer
information processes and enables effectiveness of relational efforts. It is important
for banks to be technology oriented to cope up with evolving customer needs.

The bank’s effective usage of latest technology like ATM, mobile and internet baking
addressed with this dimension. Boulding et al. (2005) suggest that CRM is a
consequence of the continuing technology evolution and integration of organization
marketing approach. CRM technology is adopted by companies for the specific
purpose of building and maintaining better customer relationships (Kim et al.,
2012). The rapid advancement in communication technology has greatly
transformed the way relationship between companies and their customers are managed
(Bauer et al., 2002). As denoted by Kim et al., (2012) even though CRM technology
increase the overall performance of a company, only adopting CRM technology does
not mean that such benefits will easily accrue to the firm.

2.3 Customer Satisfaction

Customer satisfaction defined by Roberts-Lombard (2009) as the degree to which
business’s product or service performance matches up to the expectation of the
customer. It is a substantial issue in relationship marketing, particularly those in
service industries (Taleghani et al., 2011). It has significant implications for the

17
economic performance of firms (Bolton, Lemon, and Verhoef 2004).

Banking is one of the service industries characterized by high customer contact with
individually customized service solutions where customer satisfaction has been an
increasing focus of research (Molina et al., 2007). Despite substantial investments in
CRM applications, there is a lack of research demonstrating the benefits of such
investments (Mithas et al., 2005). According to Mithas et al., (2005) CRM
applications are likely to have an effect on customer satisfaction for at least three
reasons. First, CRM applications enable firms to customize their offerings for each
customer. By accumulating information across customer interactions and processing
this information to discover hidden patterns, CRM applications help firms customize
their offerings to suit the individual tastes of their customers.

Customized offerings enhance the perceived quality of products and services from a
customer’s viewpoint. Because first, quality is a determinant of customer satisfaction,
it follows that CRM applications indirectly affect customer satisfaction through their
effect on perceived quality. Second, in addition to enhancing the perceived
quality of the offering, CRM applications also enable firms to improve the reliability
of consumption experiences by facilitating the timely, accurate processing of
customer orders and requests and the ongoing management of customer accounts. An
improved ability to customize and a reduced variability of the consumption experience
enhance perceived quality, which in turn positively affects customer satisfaction.

CRM applications also help firms manage customer relationships more effectively
across the stages of relationship initiation, maintenance, and termination (Reinartz et
al., 2004). In turn, effective management of the customer relationship is the key to
managing customer satisfaction. Armstrong and Kotler (2009) considered relationship
marketing as a kind of index for customer satisfaction, and they believed that the
maintenance of excellent relationship marketing between the firm and customers
would be beneficial in increasing customer satisfaction. According to Jamal and Naser
(2002) customer satisfaction is based not only on the judgment of customers towards
the reliability of the delivered service, but also on customer’ experience with the
service delivery process. High level of customer satisfaction leads to increased

18
customer loyalty, intention to purchase, word-of-mouth recommendation, profit,
market share, and return on investment (Heskett et al., (1994) as cited by Nguyen, et
al. 2007).
2.4 CRM Research in Financial Service Industry
The implementation of CRM is widespread (Peppard, 2000) and more advanced
(Ryals and Payne, 2001) in the financial services industry than in other industries.
However, to date few studies have examined the effectiveness of CRM in financial
services industry from customer perspective (Padmavathy et al., 2012, p. 250).
According to Crosby (2002) in financial services, the idea of relationship banking was
receiving considerable attention as a means of acquiring, retaining and improving the
profitability of customers. However little is known about customers’ perceptions of
CRM implementation activities and efforts (Kim et al., 2012). This is due to the fact
that focus of researches on the company side of CRM implementation (example:
Bohling et al., 2006; Onut et al., 2006; Jallat and Anacarani, 2008; Malik and Wood-
Harper, 2009; Akroush et al., 2011).

Malik and Wood-Harper (2009) tried to identify the problems and challenges in the
banking sector of Pakistan using CRM. Bohling et al., (2006) concluded that linking
CRM strategy and implementation more tightly with the overall marketing strategy of
a business will lead to greater CRM implementation effectiveness. Chen et al. (2009)
proposed a metric system for measuring CRM effectiveness from the supplier
perspective. Akroush, Dahiyat, Gharaibeh and Abu-Lail (2011) examined the
generalizability of the CRM scale originally developed by Sin et al. (2005) to
investigate the strength of linkages between CRM implementation components and
business performance in Jordan financial service organizations.

Hence, they conducted survey in financial service organizations located in Jordan.

From the customer perspective, Jain et al. (2007) proposed a two-dimensional
measure of CRM effectiveness. Reinartz et al. (2004, p. 294) conceptualized CRM
from the customer perspective as: systematic process to manage the customer
relationship initiation, maintenance, and termination across all customer contact points
in order to maximize the value of the relationship portfolio. Though the researches,

19
conducted on CRM from customer perspective, are few valuable researches are
available on the subject matter. Kim et al., (2012) assessed customer’s viewpoints to
explore the gap between actual bank CRM implementation and customers’
expectoration. Kwamena (2013) in his study assessed the CRM practices at National
Investment Bank in Ghana and also recommended win-back and retention strategies to
meet the needs of customers in a highly customized and responsive manner. Whereas
Padmavathy, Balaji and Sivakumar (2012), developed five dimensions, namely
organizational commitment, customer experience, process-driven approach, reliability
and technology orientation, to measure the effectiveness of CRM from customer
perspective.

2.5 The Importance of Customers’ Perception towards CRM Implementation

The customer has always been a part of a firm’s activities (Nguyen et al., 2012).
However, little is known about customers’ perceptions especially of CRM
implementation. As noted by Kim et al., (2012), research has focused on the
company side of CRM implementation. Customers’ perceptions (positive or
negative) of the CRM tools, activities of firms, the relationship between those
perceptions and customers’ intention to remain in the relationship with the marketer
are very crucial for firm to achieve its objective of CRM strategy. Without customers
willingness to remain in the relationship with the marketer the several CRM activities
and efforts will be just expenses for the firm.

While CRM activities are regarded as an investment. Vefhoef (2003) argues that CRM
implementation activities are directed at generating current customers’ interest in new
offerings and fostering personalization. As noted by Kwamena (2013) consumers can
perceive no advantage, beyond location convenience, for selecting one bank over
another. For marketers to alter perceptions and create consumer preference, banks
need to evaluate their customer management strategy so as to be capable of delivering
consistent and cost-effective customer service, customer-aligned products and
services, and enhance customer loyalty and long-term value (Kwamena, 2013).

Trust is considered a central construct in relationship marketing (Verhoef, 2003;

20
Tsarenko and Tojip, 2009) and has been explored in such areas as customer behavior,
expectations and attitudes (Mayer et al., 1995; Liu et al., 2005). Milne and Boza
(1999) ascertained that trust and customer concern are highly interrelated for banking
customers (the target industry in the present study). Companies should adopt a
customer orientation when implementing CRM efforts (Teo et al. 2006). Moreover
customers should also be considered as an important factor before investing on CRM
activities. Although logical as well as obvious, firm nonetheless often fail to include
the customer in CRM initiatives (Kale, 2004).

Kim, Park, Dubinsky and Chaiy (2012) stated that CRM has been developed to
manage customer relationship effectively. Hence, to build and manage customer
relationship effectively, organizations should establish a customer-centric culture.
This will enable organizations to implement CRM service efforts that are compatible
with customers’ expectations. The foregoing as argued by Kim et al. (2012) support
firms to identify customers who have favorable attitudes toward the firm’s CRM
implementation activities and those who do not have. An enhanced relationship with
one’s customers can ultimately lead to greater customer loyalty and retention and also
profitability (Ngai, 2005). If a company wants to achieve the benefits of CRM
implementation, one of the factors that require due consideration is the customer.
Customers must be considered as an important factor before and after investing on
CRM activities.

2.6 CRM in Financial Services and in the Awash Bank

The banking industry is one of the first sectors which deployed CRM solutions as
described by Khan & Bajaj (2012). Today, many financial services organizations are
rushing to become more customer focused (Peppard, 2002). Eriksson & Mattsson
(1998) argue that banks are known to have stable and long lasting relations with their
customers, which is why development of customer relations is a crucial strategic issue
in banking. However, a basic problem in banking is that the customer base is
heterogeneous, ranging from homogenous segments of customers with the same
preferences to customers with individual demands for customized services.

21
CRM is a sound business strategy to identify the bank’s most profitable customers and
prospects, and devotes time and attention to expanding account relationships with
those customers through individualized marketing, re-pricing, discretionary decision
making, and customized service-all delivered through the various sales channels that
the bank uses (Onut et al., 2006). As indicated by Kwamena (2013) with so many
different financial institutions to choose from, customers are now more
knowledgeable, sophisticated, assertive, continuously demand higher levels of
customer service, less loyal, and more inclined to switch to a competitor. In this
consumer economy, attracting and crucially keeping customers for the long term is a
key challenge for all businesses and more especially the banks. Hence banks have
realized that managing customer relationships is a very important factor for their
success as CRM is a strategy that can help them build long lasting relationships with
their customers and increase their profits through efficient management systems and
the application of customer-focused strategies.

CRM in the banking sector is of strategic importance since exceptional customer

service is a major indicator for customer retention leading to high profitability.
According to Das et al., (2009) CRM in the banking industry is entirely different from
other sectors, because banking industry is purely related to financial service, which
needs to create trust among the people.

Awash Bank S.C. was established in 1995 G.C by 486 founding shareholders with
a paid up capital of Birr 23,123,917. It is the first private bank to be established after
the liberalization of the banking sector after the fall of the Dergue. On February 13,
1995 G.C, it opened its first branch named Head Office Branch at a building located
at Bole.

The name AWASH was selected to be the name of the bank from many
alternatives tabled for the founding shareholders. The bank was named after the
river Awash as the name is famous among the Ethiopian people and it contributes a
lot for the development of the country.

Currently there are 18 private banks operating in Ethiopia. The overall standing of
the bank in the private banking industry of the country is second next to Dashen

22
Bank. As noted above the key success factor for the private banks is to attract and
retain customers.

Awash Bank has 730 branches out of this 94 branches are located in Addis Ababa
and 44 branches are out line branches. The bank classifies these branches into 5
grades (Special class, first class, second class, third class and forth class) based on
volume of transaction, variety of services provided, site location, amenities and staff
strength, cash holding limits and other similar considerations. Almost all private
banks in Ethiopia provide similar services to their customers. New products
developed by each bank are easily copied by its competitors. With the joining of
new private banks and the huge expansion of the state owned and private banks in
the country the competition is becoming stiffer each year. Therefore to win this
competition AB needs to apply CRM in its full dimension.
To be successful by implementation of CRM financial and banking organizations
must define and develop a business strategy as well as a supporting infrastructure for
that strategy (Kwamena, 2013). From this stance the bank is facilitating its CRM
activities by deploying recent banking technologies which include ATM, mobile
banking and internet banking. Deploying these technologies enable the bank
customers to withdraw, transfer and check their account 24 hours a day easily. The
quality of business activities is very high and price competition is easily imitated,
whereas non-price competition inevitably increases service quality and introduces new
financial goods. Hence the bank also honors its customers particularly those who
displayed in earning considerable foreign currency on yearly basis and awards
certificate and trophies and arranges contest for those who deposit more than certain
amount which enables customers to win electronics materials and vehicles.

23
 2.7 Conceptual Framework
In this section the emerged conceptual framework of the reviewed literature is
presented. This framework is used as a guide for the rest of the thesis.
Figure 1: Conceptual Model
Source: Padmavthy, Balaji and Sivakumar (2012)

Independent Variables Dependent Variable

Organizational Commitment

Customer Experience

Process-driven Approach Customer Satisfaction

Reliability

Technology Orientations

24
 CHAPTER THREE
RESEARCH METHODOLOGY
This chapter deals with the methodology of the study where the research approach, the
research type, sample and sampling techniques, source of data collection, data
collection instruments and method of data analysis will be discussed.

3.1Research Design
The researcher will use descriptive analytical approach. The research is categorized
under applied research that depends mainly on data collection from primary source
through distributing designed questionnaire for the research purpose. Adopted
questionnaire will be used as research instrument to from customers’ of Awash Bank.
Quantitative survey methods is undertaken to collect data from the targeted group
and analyzed to determine effectiveness of customer relationship management of the
bank and its influence on customer satisfaction from customer perspective. Mainly
survey data on five dimensions of CRM effectiveness as well as on customer
satisfaction will be collected from customers of all Awash Bank to evaluate the
effectiveness of the current CRM activity of the bank from customer perspective and
its effect on customer satisfaction.

3.2Sample and Sampling Techniques

The population of this study encompasses all customers of Awash Bank in Addis
Ababa. Though the intention of this research is to assess the effectiveness of CRM of
Awash Bank from customer perspective and its effect on customer satisfaction it is
impractical to assess all Awash Bank customers. Time limit and budget constraint
compel the student researcher to focus on selected branches of Awash Bank to
undertake the survey. Therefore it is necessary to survey a sample of the population
as an alternative in order to formulate predictions about the entire population.

In order to make generalizations with confidence about the constructs under

investigation, the appropriate sample size has to be considered. Sample statistics need
to be reliable and represent the population parameters as close as possible within a

25
narrow margin of error. Thus the sample size at 95% confidence level with +/-5%
confidence interval (margin of error) and expecting variance in the response to be 0.5,
account 384.
Necessary sample size = (z-score)2*StdDev*(1-StdDev)
(margin of error)2
=(1.96)2* 0.5*0.5
(.05) 2
Sample size= 384
 Where: 95% confidence level corresponds to value of 1.96 from Z-score table.
 Margin of error = +/-5%
 StdDev= 0.5


== this formula is useful for the unknown population /infinite

population==
==you have known figure= On average around 3500 customers visit
these branches= ?
Information obtained from MIS of Awash Bank indicates that the branches located in
Addis Ababa are categorized and leveled from Special class, first class, second class,
third class and forth class based on number of customers, volume of transaction,
variety of services provided, site location, amenities and staff strength, cash holding
limits and other consideration. Moreover the banking system design is more of
standard for the branches at the same grade level. Therefore, employing multiple stage
sampling technique is found appropriate for this study. Accordingly the student
researcher first selected Special class Awash Bank branches that are known for having
higher number of visiting customers on daily basis to conduct transaction. On average
around 3500 customers visit these branches. Hence questionnaire was distributed to
customers who were available and willing to participate during the data collection
period.

3.3Source of Data
As the aim of this study is to assess the effectiveness of CRM and its effect on

26
customer satisfaction from customer perspective the primary data was collected from
Awash Bank customers. Specifically, customers of the selected Special class Awash
Bank branches will be approached to fill the questionnaires to be administrated by the
researcher. The researcher primarily will use primary data source for this study.

3.4 Instruments of Data Collection

Self-administered questionnaire will be used to collect data from customers. The
questionnaire will be adopted from the developers Padmvathy et al., (2013) for this
study. Accordingly, in this study, bank customers examined customer relationship
management effectiveness from five dimensions: organization commitment, customer
experience, process driven approach, reliability and technology orientation which
were constructed and completely adopted from the developers of the scale,
Padmavathy et al., (2013). They proposed an instrument for measuring the
effectiveness of CRM from customer perspective. These dimensions are
evaluated using 16 items of measure of CRM effectiveness dimension and four items
to assess customer satisfaction with five likert scale points.

The questionnaire consists of two sections. Section one contains questions regarding
demographic characteristics of customers. While section two comprised positively
constructed twenty items on five Liker scale points from 1 “strongly disagree” to 5
“strongly agree” to evaluate the effectiveness of each dimensions and its impact on
customer satisfaction.

3.5 Methods of Data Analysis

Data collected from the study participants were initially managed in the way that
enables data entry. In this research the Statistical Package for Social Sciences (SPSS)
software version 20 is to enhance data analysis process. Data will be analyzed by
using descriptive statistics and inferential methods. In the first part demographic
variables of the respondent will be presented using descriptive statics. Then response
about the variables, i.e. organizational commitment, customer experience, process-
driven approach, reliability, technology orientation, analyzed and described using
descriptive statistic through percentage.

27
 3.6Ethical Consideration
Customers were approached and informed about the intent of the research.
Furthermore the customers were informed that their response will be kept confidential
and will be used for academic purpose only, in verbal communication and in writing.
After getting the consent of the respondents, they were provided with a self-
administered questionnaire designed for the purpose of this study, so that they
complete and return it back. The researcher did not forced customers to p

28
 WORK PLAN (TIME BUDGET)
The study is expected to be completed within time table explain each of the important phase of
the research as follows.
S. Activity Month
N June202 Aug202 Sep202
o 2 July202 2 2
2
1. Bibliographic Searches
2. Photocopy info from non-bibliographic
sources
3 Problem defining &literature finding, Title
selection
4 Submission of thesis proposal
5 Fine tune research question and methodology
6 Prepare research tools in detail

7 Make contacts for interviews/questionnaires

8 Data collection
9 Data analysis
10 Writing up of paper
11 Revision, editing and submission
12 Submission of research paper
13 Paper defense

COST BUDGET
A table that shows the expected costs to be incurred for the accomplishment of each activity is
presented below.
Budget heading Unit Quantity Cost Total Cost(Birr)
Per diem for Researcher Person 01 3000 3000
Per diem Data Collector Person 01 3500 3500
Stationery and Equipment
Photo copy paper Ream 400 2 800
Pen Pcs. 5 15 75
Flash disk Pcs. 1 300 300
Miscellaneous Birr - 5000 5000
Sub-total
Contingency 10% 1460

29
GRAND TOTAL 14,675

30
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