How the Global Recession has changed Consumer Behavior
One of the greatest effects of the global recession reflects on the change in loyalty of customers. Research shows that customers have developed a new sense of scouting for the best goods or services with the intention of spending less(Bohlen et al. 2010, 4). Researches reveal that they go as far as researching on the prices of the goods sought before buying. This demand for quality with lesser spending has therefore eroded the once rich culture of customer loyalty in the interest of quality despite the costs(Flatters &Willmott 2009, 2).
Customer loyalty refers to the nature of clients to remain faithful to one service provider or company. This goes as far as having a culture of maintaining relations with the company despite mistakes and errors here and there, often on a minor occurrence basis(Kincaid 2003, 10). This often comes by way of relationship marketing that helps in building strong relationships with the customers (Cahill 2007, 6). Customer loyalty falls into two categories, which include behaviouristic and neo behaviouristic loyalty (Peppers and Rogers 2004, 57). The behaviouristic kind of loyalty refers to the actual behaviour of customers including their intentions to purchase services. Neo behaviouristic loyalty refers to the attitudes of customers to the sold services (Peppers and Rogers 2004, 57).
This situation proved a strong marketing strategy for most banks in the United States and Europe until the onset of the global recession. This is because the recession has caused a sudden change in the behaviours of the consumers to the disadvantage of the baking sector. The shift in consumer behaviour stems from the negative effects of the recession on their income(Assadourian 2010, 12). Therefore, global economic recession in 2008 and 2009 majorly calls for increased research in the field of marketing. This is because of the seeming shift or trends of the perspectives of the consumers. This is especially important the banking sector since customer loyalty has greatly declined. The study would help them come up with robust marketing strategies (Bryman& Bell 2008, 4).
Aims and objectives of the report
This report aims at giving the reality on the impacts the global recession has brought on the consumer in terms of behavior and attitudes. This further offers a special focus on the impacts onthe baking sector. The objectives of the study remain focused on issues such as the theoretical framework of customer loyalty and the evaluation of the satisfaction of customers insofar as services of the banks are concerned. In addition, this report intends to evaluate the changing behavioral patterns of the customers in relation to their loyalty. This will help in formulating realistic recommendations that would aide in rebuilding and improving the much-needed loyalty of the customers.
The global recession and its causes
The global financial crisis refers to a phenomenon that threatened to bring the economies of the world to a grinding halt. It became known in the United States at the fall of 2008, which was the starting point of the recession (Imbs2010, 2). Immediately after this announcement by the National Bureau of Economic Research, the recession soon spread over to other economies that had links with the United States (Ferrantino& Larsen2009, 171). Countries in Europe and other parts of the world felt the pangs of the recession in almost every sector of the economy. Great economies such as the United States had to increase their borrowing in order to survive the hard times. Furthermore, they had to apply bailouts for financial institutions as a survival mechanism(Ferrantino& Larsen 2009, 171).
The result was a downturn and failure in businesses, housing and stock markets. This consequently resulted in the global recession that lasted from 2008 to 2012. It saw many countries counting their losses and going through an austerity period, a season that equally threatened the very existence of governments. Rising economies received a bigger blow during the economic recession, a situation that was worsened by the mass industrial actions in such countries as Greece (Berkmen 2009, 3). The real estate sector proved the biggest cause of this turn of events in the global economy (Leinwand et al. 2008, 3). Issues such as the fall in the values of property and homes and a fall in the retirement fund characterized this. In addition, there was a rise in food prices characterized by job insecurity.
However, the billion-dollar question seemed to find out why some countries got harder hits. In their research, Berkmen and his companions (2009, 1) pointed out the fact that the emerging markets experienced a harder time as compared to the developed economies. In addition, vulnerability to the recession had more inclination on the countries that had previously had credit booms. There arose evidence that countries that had poorly conducted their fiscal policies before the crisis also experienced confidence crisis. This caused a big problem in the adoption of appropriate stimulus measures as the recession intensified. Consequently, their public debt gap widened, which caused major setbacks. Research also reveals that only countries that export food maintained their trade linkages while the countries that exported other goods experienced a fall in the linkages.
Consumer behavior refers to the study on the processes people use in selecting their products or brands of use. This includes their rating on the products after the use, otherwise known as consumer satisfaction (Mullen& Johnson 2013, 1). Consumer behavior depends on such things as external forces and internal forces. Internal forces comprise tastes and preferences, educational level and social and economic status of the individual consumer(Wanke 2008, 7). External forces include the influence from family and friends, nature of the product in addition to prevalent economic conditions. These factors constitute and predetermine the behavioral pattern and attitudes of the consumer(Hermann 2009, 5).
However, the recent economic situations such as the recession have greatly influenced the behavior and attitude of consumers (Solomon 2009, 1). In fact, market researchers argue that the changes have gone out of hand since it is no longer easy to predict the behavioral pattern of consumers (Kumar et al. 2002, 10). This has rendered the historical ability to predict the behavior of consumers especially in the banking sector a hard endeavor (Flatters &Willmott 2009, 2). Most banks and other businesses have indicated that sales have increasingly become unpredictable. This gives the marketing professionals a hard time to crack the puzzle on the new trends of consumers (Bohlen et al. 2010, 4).
Influence of global recession on consumer behavior
The reactions of consumers automatically reflected on state of the economy. The economic crisis laid pressure on the consumers to change some of their old habits as a way of adapting to the new conditions(Flatters &Willmott 2009, 2). This is because the declining state of the wealth of the consumers. The consumers automatically preferred using their wealth and income on fundamental issues such as food, accommodation and education whose rates had equally increased. Studies on consumer spending in the United States confirmed that the cuts in consumer spending reflected uniformity across the social and economic segments of the population (Booz & Company, 2). The researches further revealed that the consumers accepted to planning to initiate further cuts on their spending in the future. Some of the major spending cuts focused on leisure activities and high expenditure on products and services(Bohlen et al. 2010, 2).
The changing economic environment
The economic environment turned out harsh to the spending culture of the consumers. The political and technological environments proved unfavorable to continue with the spending culture (Obstfeld&Rogoff2009, 30). Banks and financial institutions for instance initiated changes in the interest rates for money lending. The financial institutions further reduced their rates on remunerations to investors in the industry. This automatically changed the purchasing power of the customers to the detriment of the banks that similarly had no other option at that time. This is because change in interest rated is directly proportional to the purchase power of customers (William et al. 2006, 24). They registered a decline in the purchase of loans, mortgage especially on credit basis. Other financial institutions such as insurance companies further experienced a fall in subscription on property insurance such as vehicles. This is because of the general decline in the purchasing power of the consumers (William et al. 2006, 24).
In as much as consumers in different social and economic levels display a difference in their spending patterns, major economic issues such as the global recession have a uniform effects on their spending. The moment they register a fall in their income, they automatically change their spending patterns to reflect on their income. This helps them to remain on the safe side and avoid total economic crush. This proves a valid statement given the decline and change in spending of consumers since the global recession.
The economic recession had psychological effects on consumers. This is reflected on the increase in rates of job insecurity among people. Constant arguments on financial matters and the need to embrace hard work as the only option from the crisis characterized this psychological environment. The normal habits and patterns during shopping also received a psychological adjustment because of the recession (Köksal&Özgül, 2007). This strict management of property stems from the fear of the future turn of events for the consumers. They became more prone to rationalization when making purchases. The consumers developed interest on products in the market. This has created a behavioral pattern where the consumers spend more time than ever researching on the products before making purchases. The purpose of the search centers on finding a cheaper product that relatively displays quality. This means that the price of a product, in addition to its emotional appeal becomes a major selling point for the product (Leinwand et al. 2008, 6).
Marketing researches carried out on the change in consumer behavior and attitude indicates that expectations of layoffs characterize the stringent measures adapted by the consumers. They therefore cut their spending while focusing on saving for purposes of avoiding hard economic times ahead (Ang et al. 2000, 45). Apart from the increase in the comparing of prices during purchasing, consumers have further resorted to switching to low end brands and focusing on the durability and functionality of the product. In addition, they have displayed an affinity for informative advertisement as a basis of appeal for a product. They further have a tendency of buying brands that have an added advantage such as discounts or better interest rates (Ang et al. 2000, 45). The global recessionoffered the researchers with more elaborateinsights on the changing consumer behavior. This is because of financial reasons asrelayedby the observations of Kotler et al. (2010, 5).
Customer loyalty stands as a phenomenon developed by researchers during the early 1990s to help companies retain their customers (Cahill 2007:6). In the ensuing period, the formulation of the four Cs helped in classifying the levels of customer loyalty. The four Cs include captive, convenience seeker, contented and committed customers (Rowley 2005: 547). The captive segment of loyalists represents the customers who repeatedly purchase the same product. This is because of the limitation of choice despite the willingness to switch to other products. Their levels of commitment always remain high to their brand of preference courtesy of their inability to sustain the switching costs to more expensive products (Peck et al., 1999: 172). Therefore, such customers exist on a safe round because their behaviors have a flat attitude (Knox 1998, 729)
The convenience seekers only ascribe their loyalty in relation to convenience. This includes issues such as the location of the bank, the hours of operation and the size of the package to which they have vested their interest. This would further include issues such as the cost effectiveness of the brand. It is important to note that most loyal customers first find attraction from the convenience of services, products in addition to access (Birgelen et al. 1997, 1255). However, these loyalists prove the most temporary in their commitments. This is because any slight change would destroy their loyalty. Therefore, this commitment cannot fully determine customer loyalty in its totality (Hallowell 1996, 27).
Contented customers on the other hand display characteristics of positivity towards the provided services and products. They form the category of customers who have attachment to a product or brand because of the underlying advantages. Therefore, they display no willingness to expand their use of the brand (Rowley 2005, 547). Customer contentment can equally come by way of introducing extensions to an already existing brand. However, brand extension might equally have detrimental effects on the brand and cause the withdrawal of customers (Kronich and Petty 1995, 22).
Committed customers sit at the epitome level of customer loyalty. Though hard to find, they have a long-term purchase potential or experience. In addition, they form the group that willingly markets services and products to friends and relatives. Such customers automatically add value to the products they consume in addition to solidifying their relationship with the service providers (Foss and Stone, 2001, 73). However, this kind of a loyal customer largely exists in large companies, which deal in pronounced products. In addition, developing such levels of customer loyalty with new brands proves a challenging task (Peck et al., 1999, 193)
Factors influencing customer loyalty
Customer loyalty just like other issues in marketing has influencing factors. The factors, both internal and external have a profound effect on the behavior of the customers.
This refers tofactors that arise from customer related issues. The customer related factors arise from the individual behavioral pattern of the customers (Cahill 2007, 15). These factors include the psychographic patterns of the customers. In addition, it addresses the demographics of consumers. Issues that directly influence the psychographics of the consumers include age and social status of the individual. Gender and level of education also play a critical role in determining this behavior (Duffy 2003, 480).
External factors influencing customer loyalty
This refers to the factors that arise in relation to the company or even the nature of relationship between the company and the customer (Cahill 2007, 15). The relationship related factors arise from the nature and levels of interaction between the customers and the service providers. Factors that enhance or diminish the relationship include the quality of products or brands, levels of trust and the emotional closeness (Cahill 2007, 15). Company related factors that determine customer loyalty include the reputation of the company. Other major factors include quality of customer loyalty programs and price quality ratio. In addition, the nature of companies to use defensive marketing strategies in a bid to shield their customers from competitors falls as one of the external factors that determine customer loyalty (Singh and Waddell 2004, 100).
However, it is important to note that customer loyalty greatly relies on a special fusion between their satisfaction and trust on the companies (Kracklauer et al. 2004, 116). This is because the two issues translate to commitment from the customers (Stone et al. 2000, 12). However, this is complemented by factors such as efficiency in relationship management and effective exchange of information. Other critical factors include enhancing the participation of customers coupled by a free and efficient flow of information. The size of the company involved and their product might affect the attitude of the consumers with specific consideration of the income (Stone et al. 2000, 12).
Some of the most critical external factors that determine customer loyalty such as the conditions of purchase and customer loyalty programs prove inevitable to a marketing research (Schweizer 2008, 183).
Customer loyalty in the banking and financial institutions
The banking sector remains one of the players in the industry that greatly depend on customer loyalty to flourish in business. Researchers have carried out investigations to estimate the effects of the above-mentioned factors on the customer loyalty to banks and financial institutions (Ehigie 2006, 494). The investigations revealed that customer satisfaction proved the highest factor influencing the loyalty of customers in banks and financial institution (Bloemer et al. 1998, 277). This is informed by the perception of the customers on the quality of service offered by the institutions, a factor that determines the levels of expectations from the services offered (Ehigie 2006, 494). Despite customer satisfaction ranking the highest, it is important to recognize that all the other factors, both internal and external have a critical role in in influencing customer loyalty (Ganguli and Roy 2011, 168).
The results from this investigation prompted the formulation of the question of relationship between customer satisfaction and customer loyalty. Several researches point to the fact that customer satisfaction helps in creating the appreciation of the value for money and time. Consequently, the customers register attachment to the institutions that offer them satisfaction (Bowen and Chen 2001, 213). In addition, the research findings further emphasized the significance of the other factors in influencing customer loyalty. However, the nature of customers to have a resistance to change also came up as a secondary factor influencing customer loyalty in the banking sector (Baumann et al. 2011, 247).
Technological factors have also proved major in determining customer loyalty. This gives more priority to the customers using online banking and electronic payment (Ganguli and Roy 2011, 168). This is because the postmodern consumers increasingly ascribe to the advanced technology in the banking sector. Research indicated that more customers prefer technologically advanced services as opposed to traditional banking processes. In addition, old generation customers exhibited unwillingness to change to other services once they mastered one (Ganguli and Roy 2011, 168).
Impacts of the global recession on Customer loyalty in banks and financialinstitutions
Customer loyalty in the banking sector experienced a major setback after the global financial crisis. This informed the initiation of research among different scholars to establish the reality about the changes (Williams and Naumann 2011, 20). The researches revealed that consumer loyalty in the banking world experienced a decline during this period. This inference applied across the board for all companies and enterprises. Some of the major indicators of this concept stems from the decline in financial and market performance. It is important to note that the financial performance of the financial institutions reflect on the nature of customer loyalty (Williams and Naumann 2011, 20). The reaction of consumers characterized a sharp fall in the trust of the financial institutions. Consequently, the consumer satisfaction levels declined to a great margin given the fear among the customers. The panic among consumers had come from the anticipation of the future solvency of the companies. This meant that both investors and consumers of products from the financial institutions held a pessimistic view of the future of the sector, perhaps a repeat of the great depression (Williams and Naumann 2011, 20).
As discussed above, the economic crisis caused a sharp fall in the spending of consumers, characterized by a major change in the behaviors and attitudes of the consumers. It is therefore rational to claim that the financial stability of a country directly determines the state of customer loyalty (Stone et al. 2000, 12). A study at the effects of the recession on the Chinese banking sector echoed the same inference as in other countries. It indicated that the customer loyalty greatly declined not only in the banking sector but also in other retail market (Chung et al. 2011, 14). Despite the attempts to extend the value of the brands as a way of enhancing quality, the loyalty levels continued to plummet. This is because the consumers experienced a lack of money for spending (Chung et al. 2011, 14).
The decline in customer loyalty to financial institutions and banks received attention in other developed countries such as Europe (Jones & Farquhar 2009, 3). For instance, the documentation of the decline in loyalty was documented in the United Kingdom, which indicated a constant fall in the loyalty to banks (Longbottom& Hilton 2011, 2). However, the researches pointed out the role of different departments such as the marketing departments in contributing to the decline in loyalty. Some of the contributions included minor failures and mistakes as far as services to the customers are concerned.
The results of the researches indicated that the mistakes and failures of the banks especially to adjust to the changing behaviors of the consumers had detrimental effects on the loyalty of the customers. The prevalent conditions in the banks and financial institutions caused the customers to become more prone to disloyalty. This disloyalty had far-reaching implications on banks that indicated possibilities of financial problems. Marketing managers among other managers in the banking sector therefore have a tall order of ensuring an improvement of services and brands. This must characterize little or no financial implications on the side of the consumers. This is because improved services help in improving customer loyalty.
Advertisements and customer loyalty in banks
The banking institution uses advertisements to reach out to consumers. Advertisements form one of the marketing tools that inform the customers on new products and extension on existing products or brands (Assadourian2010, 22). Therefore, advertisements form a critical part in acquiring and retaining customers in the banking sector. However, research indicates that banks across the board reduced their spending during the global recession period (Lee et al. 2011, 150).
A comparison between the customer loyalty in banks before and after the recession indicated high levels of dependency on advertisements. Research indicated that the fall in the spending on advertisements echoed its effects by the fall of 2008. This did not necessarily cause a drop in the levels of customer loyalty to banks (Lee et al. 2011, 150). Instead, it influenced the decisions made by customers who prefer plenty of knowledge of a product before making a purchase. This means that the decline in information caused the loss of trust in the financial institutions, which had previously maintained a robust communication channel with the clients in the form of advertisements. Therefore, despite the conclusion that advertisement only forms a secondary influence on the loyalty of customers, it forms a critical prerequisite for building confidence (Lee et al. 2011, 150).
The impact of the economic recession on customer loyalty to banks has been measuredby the regression of the variables that represented the willingness of customer to change their primary bank on a number of factors that relate to demographics and economics (Jones& Farquhar2009, 163). The number of people willing to change banks before the recession barely reached a quarter of the banked population. Contrarily, by the beginning of 2010 an overwhelming percentage of customers had the willingness to change their loyalty to other banks. In addition, almost half the banked population had changed banks. This means that the rates of customer loyalty had greatly shifted.
The report found out that the recession had a great impact on the loyalty of customers to banks and financial institutions across the board. This follows the keen research and analysis on the behavioral pattern of consumers from as early as 2005 to as late as 2013. Recapturing the concept of the Four C’s of Customer Loyalty, issues such as consumer traits proved the central internal determinant of customer loyalty (Rowley2005, 577). Other determining traits included psychographics and demographics, individual expectations and previous experience. However, researchers disputed the place of demographics in developing customer loyalty. They instead argued that customer loyalty displayed characteristics of independence from demographics. Equally, the reputation of a company coupled by its endeavors in initiating the participation of the customers proved the most important external determinant (Baumann et al. 2011, 248). This is characterized by the ration of price to the quality of service. In the context of banking, it reflected on the rates offered by the banks.
The researches further revealed that customer loyalty in the banking sector flourishes courtesy of customer satisfaction, perceived service quality and individual expectations. In addition, previous experience of clients, customer involvement, availability of special services to regular clients, customer service, technology convenience, technology security and positive recommendations given by friends and relatives proved to have strong claims to customer loyalty. Given the overwhelming evidence of decline in customer loyalty during and after the global recession, it is factual to conclude that customer loyalty depends on the financial stability of a financial institution. This includes other factors such as the performance of the banks and personal income of the customers.
The scorecard on customer loyalty to banks and financial institutions remains low even after the global recession. Despite the growth in the number of customers in financial institutions, the rates of shifting of primary banks remained high across the board. This came from the decline in the ability of banks and financial institutions to meet the expectations of the customers, therefore their satisfaction. It is important to note that the stringent measures taken by the banks to cut on costs contributed to this. In effect, banks cut on costs such as advertisements while increasing rates. The cut on costs further contributed in cutting on jobs in the banking sector. This automatically stretched the ratio between service providers and customers. Therefore, in conditions where technology could not cover up for the low human resource levels, delays occurred. In addition, low spending on technology caused delays because of technical problems. This further contributed to the decline in customer satisfaction, which in turn affected the loyalty of customers. Therefore, according to Duffy et al. (2003, 480) customer satisfaction forms the prerequisite to customer loyalty.
The trend in customer loyalty suggests high chances in the continuity of the decline. This means that banking institutions should work on improving their performance to rebuild their status. This means that the trend on customer loyalty solely depends on the actions taken by the banking institutions. A drive towards improvement on customer satisfaction will pay in terms of customer loyalty. The researches helped in formulating comprehensive recommendations. This would help in rebuilding the fast fading concept of customer loyalty.
Inferences from the study indicate a decline in customer loyalty during and after the global recession. This finds explanation in the changes realized in consumer behavior. This is further evidenced in the changes in the economic life of households. Nevertheless, customer loyalty proved independent from demographic factors. Its dependence only reflected on the economic and company related issues. Therefore, this report recommends that the management of financial institutions should improve customer service (Dick&Basu1994, 113). The financial institutions should further make online banking easier to use and more secure in addition to expanding the types of deposits available to customers. Given that the global recession has passed, the financial institutions should spend more funds to improve the quality of the promotional offers to clients (Uncles et al. 2003, 3). Long-term consumers of products should stand a chance of enjoying benefits. These aspects prove important according to the responses received from the participants in the research (Day& Moorman2010, 12).
The staff should undergo further training to improve customer service. The main point of focus should concern treating customer with respect through helpful service. This helps in branding the staff as a marketing tool for the financial institutions. The institutions should further initiate a faster response system to the questions and concerns raised by the customers. This gives the customers a sense of belonging and appreciation for their input. For the questions answered in record time, customers get the impression that the institutions have quick services and competent customer care.
Online banking and mobile banking should undergo improvement to help increase customer loyalty. This should include the updating of software used in the banking system to reduce on congestions and delays. This will help in having a faster system that further guarantees safety of accounts and customer information (Hughes&Mester2008, 9). Efficiency in banking: theory, practice, and evidence.. This will automatically raise the levels of trust to the institutions. Furthermore, to help improve security for the customers, the banks should introduce temporary passwords for online banking. The passwords, sent via text messages to the customers during every online transaction of business, would help in tightening security strength (Anyasi&Otubu2009, 5). The research originally has shown no correlation between financial performance of the companies and the number of customers they attract. However, companies can introduce better customer service even when their financial performance declines and, in fact, that will even help them to improve profitability and performance in the future (Timm2007, 5).
Expanding offers in relation to loans and deposits can also increase customer satisfaction. This should characterize the introduction of more flexible loans. The loans should allow the customers to choose the best timing and terms for repayment. This gives the customer the impression that they have a choice on their payment strategy. Furthermore, banks should come up with different and diverse types of fixed deposits. In addition, the deposit options should display some increase in interest rates. This will motivate the customers to associate with such products. This should further focus on the flexibility on the terms on engagement on the deposits.
Social networks and marketing campaigns also form formidable strategies of improving customer loyalty. The ability to stay connected to the customers and offer solutions to their problems through these networks can help in creating a positive image. This further helps in creating trust in the customers, who might recommend the institution to other people (Peck et L. 1999, 13). The social networks further prove critical options of interacting with clients as well as platforms for evaluating the quality of services offered (Peppers& Rogers2004, 2).
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