AN ASSESMENT ON THE LEVEL OF CUSTOMER

RETENTION OF AMERICAN EXPRESS CREDIT CARD OF

THE NATIONS TRUST BANK

By
Prasanga A.W.R.P.S

An Integrated Research Project submitted to the Sri Lanka Institute of Marketing in partial
fulfilment of the requirements for the Postgraduate Diploma in Marketing

Supervisor: Mr. Nalin Munasinghe

Sri Lanka Institute of Marketing

Colombo
June, 2016

Research Proposal Evaluation IRP

Marking Scheme
Student Name

Prasanga AWRPS

Registration Number

0000017969

Criteria

Allocated
Marks

Awarded
Marks

The background of the problem

10

The significance/rationale of the exploration of the problem

10

The objective/s of the report

15

Brief Literature Review

10

Methodology of perspective
5

5.1

Conceptual framework

15

5.2

Operationalisation

10

The approach to data collection

Delimitations of the study

The Time Plan

References (Harvard Reference System)

10

Adherence to stipulated format

Total

10

100

Special Remarks:

Signature of Examiner

AN ASSESMENT ON THE LEVEL OF CUSTOMER

RETENTION OF AMERICAN EXPRESS CREDIT CARD OF
THE NATIONS TRUST BANK

By

Prasanga A.W.R.P.S
0000017969

This is to certify that I have examined and supervised the above integrated research project
and have found that it is complete and satisfactory in all respects and that all revisions
required by the evaluation/examination committee have been made.

(Mr. Nalin Munasinghe)

(Signature of supervisor & date)

Head of Education - SLIM

Sri Lanka Institute of Marketing
June, 2016

TABLE OF CONTENT
1. Background of the company.......8
2. Background of the problem....9
2.1 Problem statement......11
3. The significance of the exploration of the problem.... 12
4. The objective of the research... 14
5. Brief literature review......16
5.1. Customer Retention...16
5.1.1 Relationship marketing and customer loyalty.........17
5.1.2. Relationship Marketing and Customer Satisfaction.......17
5.1.3. Relationship Marketing and Customer Trust ....18
5.1.4 Customer Satisfaction, Customer Trust and Customer Loyalty.18
5.1.5 Customer loyalty influences customer retention.........19
6. Methodology perspective.20
6.1. Operationalization.21
7. The approach to data collection....22
7.1. Quantitative design22
7.2. Primary data......22
7.3. Secondary data..22
7.4. Sampling design22
7.4.1. Research population...22
7.4.2. Sampling techniques..23
7.4.3. Sampling size.....23
7.5. Research instruments.23
7.6. Method of data analysis.....24
8. Delimitations of the study... 25
9. References... 26

LIST OF FIGURES
1. Customer satisfaction index rating . 10
2. Credit card usage limit.12

LIST OF TABLES
1. Hypothesis testing .. 15
2. Methodology framework. 20
3. Operationalization customer retention.....21

1. BACKGROUND OF THE COMPANY

Nations Trust Bank PLC is one of Sri Lankas fastest growing licensed commercial banks,
offering a multitude of solutions across Sri Lankas consumer, SME, corporate and institutional
markets. A relatively new entrant to the countrys licensed commercial banking industry, the
Banks innovative perspectives on customer convenience has enabled it to rapidly capture
market share through a superior value proposition to customers. With an asset base of Rs. 176.3
Bn and a deposit portfolio of Rs. 129.1Bn as at end-December 2015. Bank have grown at an
average of 19% over the past few years, outperforming industry expansion. With network of
92 branches, 131 ATMs and 54 leasing centers spread across 22 districts enables bank to serve
over 500,000 customers and has provided them a strong platform to capture growth
opportunities.
In 2003, Nations Trust Bank became a sole issuer & acquirer of one of the world's most
prestigious credit cards, American Express Cards. Since then, Nations Trust Bank has issued
a diverse type of American Express Cards to satisfy customer requirements
With an active user base exceeding 183,000, Nations Trust Bank is the largest local issuer
of credit cards in the country and is also the largest merchant network operator. During the year
bank fortified their market position in this segment with the issue over 60,000 new cards, a
growth of 14% for the year compared to the previous year.

2. BACKGROUND OF THE PROBLEM

Nations Trust Bank PLC has come into the card business in 2003 and currently it is
considered as the market leader and the highest credit card issuer in local context among the
11 competitive financial companies. As there are many competitive financial companies to
NTB it is important to keep the position further as it is.
But the recent statistics of the company is showing that there is a consecutive drop of
customer retention while the number of cards issuing of the bank is been increasing 14% prior
to year 2014.
To frame it out and prove the above statement clearly researcher has presented the data of most
profitable customers to bank also only primary card customers has taken out from the set of
data due to relativity of target audience.
The following charts represent statistics of new entrants and exits of professionals segment
by taking a strata of charted accountants and IESL engineers issued under the promo of
professionals.

CUSTOMERS
2260,
26%
6290,
74%

Charted
Accountants
IESL Engineers

Source: internal annual portfolio report of NTB plc (primary card holders)

CHARTED ACCOUNTANTS
600
400
200
0
2013

2014

New Customers

2015
Discontinued Customers

Source: internal annual portfolio report of NTB plc (primary card holders)

CHARTED ACCOUNTANTS
600
400
200
0
2013

2014

New Customers

2015
Discontinued Customers

Source: internal annual portfolio report of NTB plc (primary card holders)
Figure No. 1

So to keep the position and dominate the market share, it is important to track the customer
feedbacks and take appropriate actions to develop business. Be the best one is not the hardest
part, but keeping the position as it is, the hardest. Customer retention is a series of activities
and/or strategies aimed at keeping customers from defecting to their competitors.
This research study is mainly focused to find out the factors which are affecting to the decline
of customer retention level of Amex Card of Nations Trust Bank. The satisfaction of the
customer is directly affected to the Customer Loyalty and it leads to customer retention in the
period of the service economy, improving the service quality has always been considered as
one of the effective ways to improve customer satisfaction.

10

2.1 Problem statement

The yearly decreasing trend of the customer retention of American express card led this
study which will assess the factors affecting the decline of customer retention to increase the
revenue which will loss from the bank to acquire new customers
The banks main interest is on the bank premier card product centurion platinum which is
the most profitable product from card categories. Along with the 2015 portfolio statistics from
total card sales, 3% represent the charted and IESL professionals and from centurion platinum
card holders, 24% represents charted and IESL professionals.
It is obvious that customers are important to every business and customer retention is a main
objective of every organization. The research will be focused to find out factors led to the
decline of retention for cards. With the conclusion of the research the bank will be able grasp
the reasons to the problem and take necessary steps to avoid the same. This will increase the
revenue of the bank as well as it will grab new customers to Nations trust bank.

11

3. The significance of the exploration of the problem

This research paper is important to several parties in different ways.
Importance of research to the industry
It is obvious that customers are important for the business and their satisfaction is a priority
to management of the organization. Customer satisfaction has been a subject of great interest
to organizations and researchers alike. In recent years, organizations are obliged to render more
services in addition to their offers. The quality of customer service has become an aspect of
customer satisfaction. It has been proven by some researchers that service quality relates to
customer satisfaction, and also uses service quality dimensions to evaluate service quality.
A lot of financial companies think pumping more and more customers into their company
will sustain their position in the market. But according to the model of churn it is important to
keep a low rate of customers who discontinue a service during a specified time period divided
by the average total number of customers. Churn rate tells you how quickly your customers are
leaving.
Customer satisfaction, loyalty and retention can be achieved through consistently delivered
level of customer service that exceeds and still anticipates the customer's expectations for worth
and also Customer retention is significant to most companies as the cost of acquiring a fresh
client is faraway superior than the cost of maintaining a bond with an existing client."
(Ro King - 2005)
This research paper worth to the industry to understand those are major factors to retain
existing customers while increasing the market share. And this is a practical relevance to
managers in similar firms.
Importance of research to the company
The Sri Lankan credit card market consists of 11 card issuers and Just five years ago, there
were 824,309 card users in the country, with a total outstanding debt of Rs. 29.99 billion. A
pretty low penetration compared to global standards, particularly in comparison to the
advanced economies, economist Deshal de Mel told Roar.

Fig No.2- Credit card usage limit

(www.roar.lk/2016/01/creditcard)
12

Going by Central Bank of Sri Lanka data, however, there is an observable upward trend. As
of September 2015, there are 1,115,299 active credit cards in use. Of these, 31,289 are accepted
only locally, while 1,084,010 (over 97%) are accepted globally.
As well as, professional customer segments demand better quality service from banks; it has
bested the competition among various credit card issuers particularly those private sectors.
Therefore, this study found outs will helpful to find out factors caused to the decline of retention
of product and ways to maintain it without dropping of existing customers.

Importance of research to the researcher

After the research work the researcher should be able to identify key factors to create the
loyal customers and retain through customer service in the credit card industry. And it will be
important for newcomers to the industry as well as to the top management in the industry to
identify the facts important to maintain higher customer retention ratio. And through this study
researcher will get recognition from employer and researcher will equipped with new subject
knowledge

13

4. The Objectives of the research

This study will be undertaken an assessment of level of customer retention of American
express card of the Nations Trust bank.
To explorer and understand the importance of customer retention
To identify customer expectation with regards to a credit card facility
Evaluate reasons impact on the drop of customer retention
To propose long term recommendation to increase customer retention
Also it will focus on the relationship of four independent variables of customer satisfaction,
customer, trust, customer loyalty, and relational marketing tactics with the identified dependent
variable.

Hypothesis
H1

Relationship marketing influences customer loyalty

Relationship marketing not influences customer loyalty

H2

Relational marketing tactics influences customer satisfaction

Relational marketing tactics not influences customer satisfaction

H3

Relationship marketing tactics affect customer trust

Relationship marketing tactics not affect customer trust

H4

Customer satisfaction influences customer loyalty

Customer satisfaction not influences customer loyalty

H5

Customer trust affect customer loyalty

Customer satisfaction not influences customer loyalty

H6

Customer loyalty influences customer retention

Customer loyalty not influences customer retention

14

The researcher should focus the following model of hypothesis testing:

H2

RELATIONAL
MARKETING
TACTICS

H3

CUSTOMER
SATISFACTION

H1

CUSTOMER TRUST

H4

CUSTOMER
LOYALTY

H5

Table No. 1

Relationship Marketing and Customer Loyalty: Do Customer Satisfaction and Customer Trust Really Serve as
Intervening Variables? Mohamad Rizan1, Ari Warokka2 and Dewi Listyawati

15

5. Brief Literature Review

This is presents the overview of current literature in the frame of the presented research
problem. Each of the bodies of literature is discussed which is focus on the specific nature of
the relevant literatures that relates to this study.
A literature review is a step by step process that involves the identification of published and
unpublished work from secondary data sources on the topic interest, the evaluation of this work
in relation to the problem and the documentation of this work (Sekaran and Bougie 2010).
Therefore, in this study, each independent variables and a dependent variable will be reviewed
on previous studies that are related to this topic.

5.1. Customer retention

Customer retention is a series of activities and/or strategies aimed at keeping customers from
defecting to competitors and also Customer Retention marketing is the kind of approach that
is tactically-driven and is based on customer conduct or attitude.
Services are a continues process of on-going interactions between customers and service
providers comprising a number of intangible activities provided as premium solutions to the
problems of customers and including the physical and financial resources and any other useful
elements of the system involved in providing these services (Gronroos, 2004).
Customer satisfaction, loyalty and retention can be achieved through consistently delivered
level of customer service that exceeds and still anticipates the customer's expectations for
worth.
Relationship management is superfluous if customers defect as there is no longer a
relationship to deal with. In order to retain clients, merchants should keep them pleased. When
clients are pleased, they stay loyal longer, purchase more, talk kindly about the corporation and
its products, and cost a smaller amount to service because the transactions become more regular
(Kotler, 2000).
Keeping customers content is cost effective, as it costs more money to draw a customer away
from the competition than to maintain an existing one (Kotler, 2000).
Acquiring fresh clients can charge five times more than the costs caught up in pleasing and
retaining existing clients (Reichheld, 1996a).
A content purchaser tends to tell at least three other individuals regarding their shopping
experience while a discontented purchaser tends to complain to at least nine other individuals.
Content shoppers also tend to become loyal clients (Sheth, Mitral, & Newman, 1999).
Through the following research framework the researcher has discussed how the factors of
hypothesis testing affects to the customer retention.
A brief explanation of these dimensions is given below.

16

5.1.1. Relationship marketing and customer loyalty

The basic philosophies of relationship marketing are based on the assumption that companycustomer interactions and strategies can earn and keep the loyalty of customers (Berry, 1995).
Relationship marketing refers "to all marketing activities aimed at forming, increasing, and
maintaining winning relational contacts". The management of customer relationships is
precious for the company (Morgan &Hunt, 1994; Webster, 1992).
Relationship marketing is targeted at improving long run profitability by deemphasizing
captivating fresh clients and emphasizing customer retention through efficient management
of customer relationships (Christopher, Payne, & Ballantyne, 1991). Relationship marketing
refers "to all marketing activities aimed at establishing, budding, and maintaining booming
relational exchanges" (Morgan & Hunt, 1994).
Prior studies confirm that service companies have received incredible benefits of loyal
customers (Bagherzad, Chavosh, and Hosseinikhah, 2011). Moorman, Zaltman, and
Deshpand (1992) stated that customer loyalty was an intention to keep a valued relationship.
In the banking sector, it is the main job of manager and marketers to create and develop
customer loyalty if they want to maintain their company and increase its profitability.
Therefore, we hypothesize the association between relationship marketing and customer
loyalty as follows:

H1: Relationship marketing influences customer loyalty.

5.1.2 Relationship Marketing and Customer Satisfaction
Doyle (2002) argues that the three cornerstones of relationship marketing are: planning and
controlling of customer satisfaction, building and maintaining stable relationships (customer
loyalty) and customer value management. Satisfaction is a feeling that surfaces from an
evaluation process, i.e. when the consumer of a good or service compares what is received
against what is expected from the utilization of that good or service (Kotler et al., 2009). The
customer will be satisfied if the performance matches or exceeds the expectations, and in
contrary, the customer will be dissatisfied if the performance falls short of the expectation.
Each organization wants to know how to retain their clients, even if they show to be satisfied.
Richards refers that a few unsatisfied clients may wish not to defect, because they do not look
forward to be given improved service somewhere else and that some satisfied clients may look
for other options if they think they can get improved services in another place
So, some techniques to maintain and improve satisfaction must be considered. An effective
complaint handling system is an excellent defensive tool. Ongoing surveys to measure
customer satisfaction and loyalty, and capture the voice of the customer are also essential. The
well-satisfied customer will bring the repeat sale that counts. James Cash Penney
Therefore, based on those empirical findings, hypothesis 2 is proposed as below:
H2: Relationship marketing tactics influence customer satisfaction.
17

5.1.3. Relationship Marketing and Customer Trust

The final concept necessary to build relationships is trust. In business, trust refers to the
confidence that one partner, the customer, has in the businesss reliability and integrity to
deliver goods and services (Proctor, 2000).
Branding is not merely about differentiating products; it is about striking emotional chords
with consumers. It is about cultivating identity, attachment, and trust to inspire customer
loyalty. Chinese brands score low on attributes such as 'sophisticated,' 'desirable,' 'innovative,'
'friendly,' and 'trustworthy.' (Nirmalya Kumar)The development of trust between salespeople
and their customers has traditionally been considered a critical element in developing and
maintaining a successful sales relationship.
Relationships with customers and in maintaining a companys market share. Therefore,
based on the prior empirical findings, hypothesis 3 is proposed as below:

H3: Relationship marketing tactics affect customer trust.

5.1.4. Customer Satisfaction, Customer Trust and Customer Loyalty
Satisfied customer is the best source of advertisement (G.S. Alag) A customer talking
about their experience with you is worth ten times that which you write or say about yourself.
(David J. Greer, Wind in Your Sails)
As business marketers placed greater emphasis on building long term relationships, trust has
assumed a central role in the development of marketing theory (Dwyer,Schurr and OH
1987:Morgan and Hunt 1994)and practice (Dertouzos,Lestr and Solow 1989)
"Unless you have 100% customer satisfactionyou must improve." ~ Horst Schulze, Ritz
Carlton
According to Doyle (2002), a highly satisfied customer will exhibit the following
characteristics: (1) stays in loyal longer, (2) buys more, (3) talks favorably about the company,
(4) pays less attention to competing brands and advertising, and (5) the company will cost less
to serve than new customers.
Loyalty cannot be blueprinted. It cannot be produced on an assembly line. In fact, it cannot
be manufactured at all, for its origin is the human heart-the center of self-respect and human
dignity. It is a force which leaps into being only when conditions are exactly right for it-and it
is a force very sensitive to betrayal. Maurice Franks
If people believe they share values with a company, they will stay loyal to the brand.
Howard Schultz
Based on those empirical findings, we proposed the following hypothesis:

H4: Customer satisfaction influences customer loyalty

18

More than half of bank customers believe that having a relationship of trust with their
financial institution is more important than getting the best value for money according to the
study of Coulter and Coulter (2003). It describes that when the customers have trust on the
services and products of a company, then it will lead them towards loyalty (Ribbink, Liljander,
and Streukens, 2004).
Get closer than ever to your customers. So close that you tell them what they need well
before they realize it themselves (Steve Jobs).
We see our customers as invited guests to a party, and we are the hosts. Its our job every
day to make every important aspect of the customer experience a little bit better. Jeff Bezos
The role of trust is a crucial one (Harris and Goode, 2004). It affirms that customer loyalty
begins with trust. Based on those prior findings, the hypothesize the relation between customer
trust and customer loyalty can be mentioned as follows,

H5: Customer trust affects customer loyalty.

5.1.5. Customer loyalty influences customer retention

Loyal customers have a positive effect on customer retention, but customer loyalty is not
customer retention. Loyalty is only a valid concept in situations where customers have options
to choose from. The main issue is that retention should not be taken as a substitute for loyalty
and this suggests that banks need to understand why their consumers choose to stay and should
not assume that it is a positive conscious choice (Colgate et al., 1996).
A service recovery effort is also necessary, where a service provider is notified that a
problem has occurred (Trubik and Smith, 2000). A service recovery processes encompasses all
the actions taken to get a disappointed customer back to a state of satisfaction. The plethora of
literature on service recovery, both management and academic suggests that service recovery
is the most important factor in driving a customer to exit or stay after a service failure. As a
result, switching behavior can increase, as do complaints, cynicism toward the concept of
loyalty, and litigious activities (Schriver, 1997).
Retaining customers also make it difficult for competitors to enter the market or to increase
their market share, and loyal customers often refer new customers to the service provider,
which is very beneficial, as there is no expenditure in gaining the new customers (Du Plessis
2010: 63; Kuusik 2007: 5; Rootman 2006: 36).

19

6. Methodology of Perspective
Survey method will be used for this study using questionnaire as data collection instrument.
The questionnaire will be adapted from scales already used for previous studies in the literature.
Systematic sampling technique used to select the individuals from membership directory data
collection was done through telephonic questionnaire survey.

Table No. 2

The framework above shows proposed framework to serve as foundation of this study. The
purpose of this study is to examine how above mention factors affect to customer retention of
Nations Trust bank American Express card.

20

6.1. Operationalization
Operationalization of customer retention

Table No.3

21

7. The approach to data collection

In this study, the researcher will be gathering data through primary data, but also will be
used secondary data to gather research population and industry analysis.

7.1. Quantitative, Design

Quantitative research will be applied based on the nature of studies to gather a
representative data from the targeted respondents.
The advantage of using quantitative research is that it produces reliable data that are usually
qualified to some large population (Wyse, 2011). In this study,
A questionnaire will be used to collect the data from the respondents.

7.2. Primary data

Primary data will be organized for the specific purpose of addressing the problem at hand.
In this research, the primary data will be used is questionnaire survey through telephonic
conversation while delivering the questions researcher need cooperation and clarification from
the respondents. Besides that, primary data refer as first-hand information or data obtained
originally by the researcher on the variables of interest for the specific purpose of the study.
The respondents (professionals) will be selected as per a systematic manner.

7.3. Secondary data

Secondary data refer to information gathered by other parties that already conduct a previous
study. It helps researchers to get better understand to obtain research population for
questionnaire survey and collect financial data to analyze primary data. To obtain secondary
data, can be obtained the relevant articles and other sources through internet and online library
are aiding in the research. The researcher should collect customer information from IESL
directory and the directory of charted institute of accountants since it is the interested
population for the study

7.4. Sampling design

There are few steps under sampling design as follows;
7.4.1. Research population
Research population is the group of people where the researcher is interested in analyzing to
get relevant information for research purpose.
The population refers to the entire group of people, events, or things of interest that the
researcher wishes to investigate. (Sekaran & Bougie, 2009, p. 262). On the other hand,
22

systematic sampling has been chosen in order to select professionals which is the respondents
in this study. , systematic sampling is one of the probabilities sampling, which researcher first
randomly picks the first item or subject from the population. Then, the researcher will select
each not subject from the list.
The sample has been selected from the charted accountants and IESL engineers who have
obtained their memberships after 2006, stratified sampling and the sample compromised 150
individuals from each segment 75, who have obtained card facility regardless existing or cancel
the facility. When choosing the sample researcher will select every 3rd individual systematically
along with membership nos issued after 2006 because each individual in the population has
an equal likelihood or chance to be chosen.

7.4.2. Sampling techniques

In this study, stratified sampling and systematic sampling technique was selected. To assess
customer's perceptions on quality of service in American express credit card researcher has to
get organized sampling frame. To accomplish this, the researcher will go through the
directories of IESL engineers & charted accountant to collect the customers information such
as contact no and home or office address.
Then should have to draw the sample can could be selected the particular sample through
MS Excel spreadsheet functions.

7.4.3. Sampling size

Before distributing the real questionnaire to the selected respondents, the researcher needs
to pre-test the questionnaires to the other people such as friends and family members. It will be
important to ensure the respondents understand the questionnaires and to avoid
misunderstanding occurs in the future. Researcher distributes 5 questionnaires for this pre-test.
Any misunderstanding about the questions, then researcher needs to redo the questionnaire
until it suits with the purposes of the study.

7.5. Research Instruments

Questionnaire survey has been used in this study. Questionnaires are defined as the series of
questions aim to gather prompt and accurate information from respondents. Thus, in order to
perform a good research, a good questionnaire must be designed. Hair, Babin, Money, and
Samuel (2003) mentioned that effectiveness and high response rate are the reasons for
researchers use questionnaire widely to collect primary data if the population of respondents is
well-educated. The main data collection instrument of this study is structured questionnaire
based on the literature review.

23

7.6. Method of data analysis

The data analysis starts with an exploration of the response, the respondents and the
reliability of the item indicators of service quality and customer satisfaction.
Descriptive Statistics; are used to describe the basic features of the data in a study. They
provide simple summaries about the sample and the measures. Together with simple graphical
analysis, they form the basis of virtually every quantitative analysis of data. The Standard
Deviation is a more accurate and detailed estimate of dispersion because an outlier can greatly
exaggerate the range. The findings will be calculated by using SPSS and ANOVA.
(www.socialresearchmethods.net, 2015)

24

8. Delimitations of the study

The research population of this study will be limited to 150 individuals because of the cost and
time limitation.
Difficult to contact and get information due to busy life schedules of professionals.

25

9. References
Sekaran, U. and Bougie, R. (2009). Research Methods for Business: A Skill Building
Approach. A John Wiley and Sons, Ltd, Publication
Sekaran, U. and R. Bougie (2010). Research methods for business: A skill building approach.
Wiley, London.
Aydin, S., & zer, G. (2005). The analysis of antecedents of customer loyalty in the Turkish
mobile telecommunication market. European Journal of Marketing, 39(7/8), 910-925.
Blery, E., Batistatos, N., Papastratou, E., Perifanos, I., Remoundaki, G., & Retsina, M.
(2009). Service quality and customer retention in mobile telephony. Journal of Targeting,
Measurement and Analysis for Marketing, 17(1), 27-37.
Ismail, I., Haron, H., Ibrahim, D. N., & Isa, S. M. (2006). Service quality, client satisfaction
and loyalty towards audit firms: Perceptions of Malaysian public listed companies.
Managerial Auditing Journal, 21(7), 738-756.
Grnroos, C. (2004). The relationship marketing process: communication, interaction,
dialogue, value. Journal of Business & Industrial Marketing, 19(2), 99-113.
Kotler, P., Keller, K. L., Koshy, A., & Jha, M. (2009). Marketing management: A South
Asian perspective (13th ed.). New Delhi, DL: Pearson Prentice Hall.
Liu, Y., Li, Y., Tao, L., & Wang, Y. (2008). Relationship stability, trust and relational risk in
marketing channels: Evidence from China. Industrial Marketing Management, 37(4), 432446.
Mark N.K. Saunders. (2009). Research Methods for Business Students (5th Edition). Prentice
Hall.

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