Drivers of customer equity in the South African retail banking industry.

Abstract

ABSTRACT The South African retail banking industry is facing new competitive challenges. The Competition Commission and the Treasurer are currently investigating ways increasing competition in the South African banking industry. It is expected that recommendations will be made resulting in changes to some of the operational and pricing aspects of the industry to make it more competitive. Another challenge is that customers increasingly expect banks to offer value that is comparable to the high cost of banking. This research report investigates the drivers of Customer Equity in the South African retail banking industry, and ranks these in order of importance. The research focuses on the four big banks: Standard Bank, ABSA, First National Bank and Nedbank. A review of the literature on Customer Equity highlighted three key drivers, which are: value equity, brand equity and retention equity. The focus groups validated these drivers as well as identified 19 sub-drivers. 192 Respondents were asked to rate the importance of the sub-drivers on a scale of 1-5 and then rate the performance of their banks on these drivers. A Principal Components Analysis was used to analyse the results of the quantitative survey and determined the relative importance of each of the sub-drivers as well as the performance of South Africa’s Big Four banks. Value Equity was found to be disproportionately more important compared to Brand and Retention Equity. The most important sub-driver was Reliability of banking systems, which is a sub-driver of Value Equity. Recommendations are made on how South African Retail banks can improve their marketing strategies to maximize Customers Equity. These recommendations are based on the relative importance of the identified sub-drivers as well as the performance of the banks.