Relationship Marketing Through Employee Satisfaction

By Marketing Research Team, 3EA
Relationship Marketing Through Employee Satisfaction

Nota Bene:To maintain confidentiality of the bank a pseudonym federal bank of India,in lieu of the original name of the bank has been used throughout the case study:

Indian banking industry is embracing technology in the phenomenal way. Leading the fray are big players in the private and public sector banks .Who are reengineering and automating theircore banking processes. The three prime questions facing the Indian banks are:

  • Are these banks are doing enough to sustain themselves in the future?
  • Is the current level of technological evolution enough to improve bottoms line five years from now?
  • Will they deliver better value for the increasingly demanding and finicky customers?

The Pareto principles suggest that 20% of the customers of Indian banks bring forth 80% of the profits. To achieve this, effective management of the employees is an important task for the banks today .This case study is focused on the private banks whose motto is to act as afriendand confidante. Private banking services are availed by individuals from all walks of life. Private banking is about bonding, which is created only when the employees develop a relationship with the customers. For developing relationship, it is very important that the employee itself is satisfied . Our endeavor in the case study is to bring out the salient features (technically speaking the variables )which plays an important role in developing this relationship between the customers and the employee.

Today with the banking sector growing in India,banks need to retain customers. The environment is competitive and challenging -if a customer is dissatisfied with the services of the Banks,he has several other options to choose from.Therefore the challenge for the Indian banking sector is to retain the older customers. Today customers are better informed about their decision have better purchasing power and are skeptical about the average concern of the firms for their business.Consequently, today, customers usually take note of organization that engage in customers' retention practices and these customers become loyal of this organization via repeat purchase.The effect of the customer retentions leads to profit the organization.Studies suggest that 95%of the profits come from older customers via profit from sales.The existing customers are willing to pay more for an offering of the firm.This occurs because customer becomes accustomed to the firm its employees and the manner in which services are delivered.

Function of a bank

This fundamental operation is among the most complicated of the various corporate operations. Since banking involves dealing directly with money,governments in most countries regulate this sector rather stringently.The process of financial reforms, which started in 1991, has helped in clearing the cobwebs,but a substantial amount of change remains to be implemented.The multiplicity of the policies and regulation that a bank has to work with makes its operations even more complicated.

Banking regulation act of India 1949 defines Banking as "accepting for the purpose of lending or investment of deposit of the money from the public repayable on demand or otherwise and withdrawal by cheque,draft or otherwise." Deriving from this definition and viewed solely from the point view of the customers banks essentially perform the following major activities -

  • Accepting deposits
  • Being custodian of public money

Basically the money is accepted as deposit for safe keeping but since the banks use this money to earn interest with the depositors.Banks have to provide the following services in order to ensure an effective branch network to reach the targeted customers base:

  • A system intra branch accounting with separate accounts(s)for each customer.
  • A system of reconciliation at the end of the day
  • Availability of adequate funds at each branch
  • Trained staff for effective customer service
  • Infrastructural input like space stationary,comfortable environment etc.

Lending money to the public

This is one of the two major activities of the banks.In a way, the banks act as an intermediary between the people who have the money to lend and those who have need for money to carry out business transactions. These activities places its own requirement on the resources of the banks for effective functioning of this a bank must possess:

  • Sufficient deposits
  • Skills to appraise the potential borrowers and the activity
  • Legal skills for documentations
  • Legal skills for recovery of its dues through the courts
  • Skills to follow up and monitor the end use of money lent by it
  • An effective credit delivery system
  • Review of credit portfolio

To deliver these all services banks must have:

  • An effective branch network system or correspondent relationships
  • A system of inter branch reconciliation
  • A system of the reconciliation with the correspondents
  • Availability of funds at all centers

Banking in the New Age

The most expeditious and comprehensive change in the banking industries in recent times took place, thanks to modern communications and information technologies.Operational cost of many financial activities came down by technologies, adoption and modern banks like HDFC and ICICI thrived on the use of internets to provide information on the fingertips.Reserve Bank of India (RBI)also pushed technologies changes and advances infrastructures in banks to facilitate transparent money market along with the reform on liquidity adjustment facility.Export credit refinances assets –liability management and cash reserve ratio.As many as 23public sector banks (PSB)met the Central Vigilances commission directive to computerize 70% of banking business before January 1, 2001.The latest mantra today is universal banking.The trends reflect a maturing industry, which offers a combination of commercial banking, investment banking and other strategic activities. The business profiles of financial institutions are going under a profound change. Indian Financial institutions are in a hurry to merge or acquire new banks to gain a bigger foothold and larger business volumes.The new generation's private sector banks had a head start over other Indian banks in terms of technology.

Universal Banking

Universal banking refers to financial institutions offering all types of the financial services under one roof.Thus for example besides borrowing and lending for the long term the development financial institutions will be able to borrow /lend for short term as well

Most banks have taken recourse to the states of the art modes for the benefits of the customer:

  • ATM(automatic teller machines)
  • Net banking
  • Phones banking
  • Mobile banking

Thus it can be seen that savvy banks are tapping the entire above alternatives channel to cut cost improve customers satisfaction.Value added services include payment of telephone bills utility service and special assistances like taxes and credit and card payments.The essential features of the net banking are saving on banks cost and customers time.

With the increasing access to internet more and more people will be using net banking facilities .Banking surveys have shown that the cheapest way of banking is through the internet.The new generation banks have forced many giants in the banking arena to snap out of their slumber. These banks saw an exponential deposit growth over 50% annually reflected by a phenomenal 43%growth in profits.

On the direction of Indian banking sector

The Indian banking sector is going through an exciting phase. Banks like ours are growing at a fast clips. Public sector banks and foreign banks are also responding well to competition and change hence the customer biggest beneficiary in terms of the quality services and efficiency.Banks have been endeavoring to provide a one stop financial shop to customers with a bouquets of services realizing the customer aspirants well. In future Banks will have become more customer centric Enabling technology to fulfill customer needs and conveniences. Amid all these cost effectiveness is the key and only those that can achieve all can survive.

With Indian markets opening up to foreign competition customers becoming more demanding and foreign institutional investors on the watch the Indian banking industry will have to markedly improve its performances in the coming years.

The Bank you bank upon -Federal Bank of India

"Customers buy for their reason, not yours"-Orvel Ray Wilson


FBI is one the leading private sector banks in the country. It has established its position further through the acquisition of Bank of Madura in March 2001.The Bank now has a presence in 17 states in India with a branch network of 395 and over 3.7 million customers' accounts.It has the largest ATM network in the country (546 as on June 30 2001).The promoter FBI divested part of its stake (8.8%) in the Bank of FY01to to comply with RBI's bank licensing condition.

The banking sector has witnessed a sea change during last few years.The domination of public sector banks has declined over the years with the entry and aggressive expansion of the private banks.Banks no longer provide on the financing function but compete with each other in as many segments. Margins in the traditional find based business have come under pressure due to a sharp fall in interest rates.With disproportionate reduction in cost of deposits, banks are increasingly focusing on generations of fee based incomes and have been expanding the range of retail product.

FBI has transformed itself at a fast place, making effort to take the first mover advantage in the technology-related businesses. The Banks has been in the forefront in the rapid expansion consolidation technologies infrastructures including data centers. Telephone banking has been made available from the customer base of internet banking has seen a phenomenal rise to more than 0.5 mn customers base of internet banking has seen a phenomenal rise to more than 0.5mn customers up from mere 0.1mn FY00.The equity of the FBI brand and the diversification of business portfolio have enabled the bank to emerge as the leading player in retail as well as corporate banking products.

FBI has strengthened its position in the banking industry through the Millennium bank of India acquisition.The acquisition gives the merged entity advantages of:

  • Larger balance sheet size
  • Extensive geographic reach through branch network
  • Increased customer base with cross selling opportunities
  • Foothold in the small and medium enterprise (SME)segment of market :and
  • Opportunity for expanding agro-business and micro credit

FBI was promoted by the government the World Bank and a steering committee of 5 prominent businesses in 1955 to cater to private sector needs to long term financing.Due to the increasing competition in the financial market and fund based business getting affected by lower margins and higher level of NPAs. FBI has been attempting to get a major share in retail segments where the margins are better. This has been made possible through the various subsidiaries, which the company has floated.

About Relationships

Quality of our relationship with any person largely determines whether we receive any positive response or support from that person.At work if our personal rapport or relationship with our boss or colleague is good then they will help us to perform better in a peaceful atmosphere with minimum hassles. Even a mediocre executive can make it to the top because of his positives relationship with his boss. Peers and subordinate, individual relationship building skills have a significant contribution to their growth and achievements.Building relationship requires understanding of basics of human nature -why people behave as they do and how you can make them behave happily as you wish them to.

Indian banking is now on a major technological upgradation drive after having successfully absorbed international standard in operating norms.It is perceived that human relation plays an important role in enhancing the quality of customer service and technology makes it customer friendly.Competition is intense in the banking industry because low product differentiation and easy replicability of most services.Banks are outdoing one another to attract customer with superiortechnology and much better service levels.

Motivation for research

FBI has been into commercial banking for a long time and objective of our study was to find out that does employee satisfaction contributes toward relationship building with the external customer and ultimately help the bank retain the quality customers.

Employee satisfaction plays an important role in building relationship with the customer ultimately leading to retention of the quality customer.In today's competitive environment where the consumer has a plethora of choice and option, this will ultimately lead to the genesis of loyal customers for the organization. Customer value, employee value and organization value together plays an important role in relationship marketing.Moreover, it was observed specifically there were distinctly two groups of employees' exhibition different satisfaction levels -namely satisfied and dissatisfied.

Objective of Study

In order toanswer the question specified above we were faced with the mammoth task of fathoming the feelings attitudes and behaviour of employees. This was an extremely ambiguous difficult and complex process.As a basic research it was sufficient to answer the few fundamental research questions identified as:

  • How to categorise these employees into two distinct groups -satisfied and dissatisfied?
  • In terms of macro and micro characteristics how do people who exhibit more satisfaction differ from those who do not?
  • What psychographic characteristic help differentiate between these two distinct group?

On the basis of answers to the above questions, what would be the optimum strategies that should be adopted in future so as to make every employees satisfied in order to retain quality customers.

A survey was conducted in different branch of the bank in the city of Delhi with a sample size of hundred employees working in these banks. The objective of the study was to find out the factors within the organization, affecting employees who are mostsignificant in building the relationship with the external customer.

In order to answer these fundamental research questions we recourse to a versatile Multivariate Statistical Technique called Discriminate Analysis. This is a technique for analyzing data when the criterion or the dependable variable is categorical - recipients and non-recipient and the predictor or the independent variables are interval in nature.This method helps us to further elaborate the fundamental research questions and answer more intricate questions:

  • Determining which predictor variables contributed to the most of the inter group differences.
  • Find functions (linear combinations) of these variables that will discriminate between the groups
  • Enable future unidentified individuals to be classified to their correct group with a better than chance accuracy.

The satisfaction of the employees was tested on the basis of 18 variables on a scale of the 1 to 7 where 1 stood for high level of dissatisfaction and 7 stood for highly satisfied.The variables studied were

  • Salary
  • Ambience of work
  • Working hours
  • Relationship with superiors
  • Relationship with subordinates
  • Relationship with peers
  • Performance appraisal
  • Overload of work (if any)
  • Incentive for long hours
  • Job rotation
  • No of customers the employee deals with
  • Relationship with customers
  • Time available to deal with customers
  • Automation in working styles
  • Training imparted in the organization
  • Degree of communication with customers
  • Promptness with customers
  • Customer complaint handling process

The data was subjected to the Principle Component Analysis, a method categorized under the broad area of factor analysis.The 18 variables were reduced to 6 Principle components through Varimax Rotation Method

The Six Principle Components (PC) indentified was:

PC 1: Relationship of the employees within the organization
PC 2: Communication with the customer
PC 3: Relationship with the external customers
PC 4: Incentives for working in the bank
PC 5: Satisfaction with the job being performed
PC 6: Motivation to work within organization

These six principles component were put through Discriminant Analysis which helped us to identify which Principle Component contribute to most of the inter -group differences.We derived two sets of employees; one who were satisfied and other that were dissatisfied. Discriminant Analysis rated the predictor variables in importance of their contribution toward satisfaction of the employees is that these employees can play a role in retaining the quality customers for the bank.

The Discriminant Analysis finally revealed the following results-

PC3: Relationship with the external customers contributed the most to the purpose of discriminating between the groups of employees

The next most important one was PC1 Relationship of the employees within the organization.

And so on and so forth
PC 4: Incentives for working in bank
PC5: Motivation to work within organization
PC 6: satisfaction with the job being performed was the least important one to create this inter- group difference


The strategy for FBI is that primary relationship with the external customers should be maintained, enhanced and nurtured and secondly relationship of the employees amongst each other within the organization should be healthy and harmonious.

The strategies for a later stage should be good communication with the customers' proper incentives to the employees for working late hours in the banks motivation for working and satisfaction with the job.

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Article by: Marketing Research Team, 3EA