Customer Loyalty to Banks: A Longitudinal Study

Abstract

Assumptions about customer loyalty underlie promotion, service, and location decisions of commercial banks. Young customers are sought through locations and special promotional programs on the premise that substantial continued patronage will result. Major advertising campaigns are launched, touting one bank as friendly, another as sincere, assuming such intangible appeals pull customers in, or, at a minimum, substantially reinforce current customers. Little is known about the bond between customer and bank, however, with the result that the payoffs of such marketing activities are uncertain. The purpose of this study is to provide basic information on that bond by addressing two main questions: (1) Do customers exhibit loyalty to their banks? and, if so, (2) What factors explain variations in the degree of loyalty observed? The results are based on a patronage tracking study conducted with graduates of a Canadian university. While the choice of sample somewhat restricts generalization, it made possible investigation of a third question: What is the influence of a campus branch location on subsequent bank patronage? The availability of banking facilities can clearly have an influence on customer loyalty. In this sense, the multibranch aspect of the Canadian banking system is important to appreciate. Canada's banking system is characterized by large national banks which operate branches across the country. Five major banks dominate. The three largest, the Royal Bank of Canada, the Canadian Imperial Bank of Commerce, and the Bank of Montreal, have over 1,000 branches each, while the two other majors, the Toronto-Dominion and Bank of Nova Scotia, each have about 750 branches. Although all banks are represented in every province, the regional coverage differs somewhat, particularly for the two smaller banks. These extensive branch systems can have opposing effects on customer loyalty. On the one hand, switching is facilitated since a customer who wants to change banks can easily locate a nearby alterna-