Full Project – IMPACT OF MARKET SEGMENTATION ON CUSTOMER SATISFACTION – A STUDY OF GUARANTY TRUST BANK, LAGOS, NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1. Background of the Study

All marketing initiatives in the services business, which includes the banking industry, are centered on the customer. As a result, organizations are forced to redefine their goods not as what they create or produce but as what they do to please consumers. Market segmentation, according to Kotler and Armstrong (2010), is the process of breaking a market into discrete groups of customers with various wants, features, or behaviors who may need distinct goods or marketing mixes. Gray (2010) goes on to characterize market segmentation as perceiving a heterogeneous market as a collection of smaller homogeneous markets in response to customers’ varied choices for more exact fulfillment of their different demands. According to the criteria, market segments should be defined in response to true heterogeneity in customer demands and desires. Market segmentation should be utilized to increase consumer happiness, retention, and loyalty.

According to Valary (2013), contentment is the fulfillment of the client. It is the determination that a product or service’s feature or terms have fulfilled the customer’s demands and expectations. Customer satisfaction, as defined by Oliver (2005), is the customer’s perception of the value obtained for a certain product or service. Customer pleasure fosters loyalty to a single service provider. According to a research conducted by Krishna, Mary, and Daniel (2013), customer satisfaction may help companies develop long-term, lucrative connections with their consumers. Additionally, they emphasized that although generating pleased and loyal consumers is expensive, it would be advantageous in the long term for a business. As a result, the banking sector should focus on improving market segmentation and implementing suitable strategies in order to please their consumers, who will eventually contribute to the firm’s profitability (Gray, 2010).

The critical significance of an efficient banking sector in a growing country such as Nigeria cannot be overstated. Banking and other financial intermediaries support the flow of cash for people, small and medium-sized businesses, and other corporate organizations that use banks’ long- and short-term credit facilities for a variety of objectives, including investment and socioeconomic development (Best, 2009).

Segmentation is a critical idea in the financial services business. The customer segmentation process establishes the “mode of operation” for all customer-facing operations. A critical component of growing market share and profitability in a fragmented market like the Nigerian banking sector is market segmentation, since increased competition in the financial services industry has necessitated banks identifying several survival strategies. According to Jenkins (2015), the fundamental goal of segmentation should be to determine the best strategy for acquiring and retaining clients. Financial services sector players must focus their efforts on acquiring new consumers and, more crucially, on retaining existing ones; market segmentation provides a chance to do so. Regrettably, the financial services sector has been sluggish to embrace market segmentation, despite the fact that it provides certain advantages to such firms. However, the majority of businesses across several sectors use market segmentation to achieve customer service excellence.

Companies have many variables to use, alone or in combinations, when trying to find the best way to view their markets. Often researchers group the different segmentation variables into four broad categories; geographic variables, demographic variables, psychographic variables, and behavioural variables. Players in the banking industry segment their market into more or less homogeneous groups, in terms of their needs and expectations from the banking industry. Marketing strategy of a bank should involve dividing or categorizing the market into major segments; targeting the segments to be catered by the bank; and finally, developing the products and marketing programs to take care of the selected segments (Hinson, 2011). Each segment of the market may demand different products and require different marketing mix to address the demand. Banks should, therefore, develop the profile of different market segments and then the targeted market segments should be selected based on their attractiveness. After banks have identified the market segments that they might address, the next steps will be positioning of the product into the targeted market segment. Retail market can be segmented on the basis of demography, geography, social class and cultural value.

According to Parasuraman & Berry (2013) there is an established positive relationship of customer satisfaction to customer retention in retail banking. Recent studies on marketing segmentation propose that customer satisfaction influences customer loyalty which in turn affects profitability (Reicheld, 2003). Yin (2016) carried out a critical review of customer satisfaction and concludes “many studies found that customer satisfaction influences purchase intentions as well as post purchase attitude.”

1.2. Statement of the Problem

Competition in the Nigerian banking industry as a result of the proliferation of the banks in Nigeria means customers now have a choice. Dissatisfied customers are therefore more likely to close their accounts and to take their accounts to competitors.

According to Shapiro (2009), poor customer satisfaction causes considerable damage to the goodwill of service industry players like banks and this eventually leads to financial loses and dwindling market share since excellent customer satisfaction on the other hand has a positive correlation with profitability, growth and customer loyalty. To achieve excellent customer satisfaction in the financial service industry, banks must design products and services that meets the needs of various market segments of customers and more so exceeds their expectations. Achieving customer satisfaction will be very difficult if financial service providers like banks fail to provide tailor-made products and services to high valued customers while simultaneously having a good package for the average customer (Bhatty, 2007).

In this era of shrinking markets, banks can gain competitive edge over rivals by devoting resources to improve customer satisfaction in order to retain existing customers instead of wasting useful time and resource to win new customers. In the various categories or market segments of banks, the needs of customers are diverse. It is therefore impossible for banks to access the needs of each and every specific customer separately since meeting the needs of customers on one-on-one basis is impossible. Banks therefore must adopt market segmentation strategy to overcome this problem by specializing to satisfy the needs of various segments of the market rather than addressing the requirements of individual customers separately (Moriaty, 2013).

The study therefore sought to take a critical look at how the banking industry in Nigeria seeks to achieve customer satisfaction excellence by using market segmentation. The author specifically narrowed the study to Guaranty Trust Bank (GTB) Lagos with the aim to discover, what are the Impacts of market segmentation on customer satisfaction?

1.3. Objectives of the Study

The main objective of the study was to establish the Impact of market segmentation on customer satisfaction in the banking industry.

The specific objectives of the study are to:

1. To examine the Impact of demographic segmentation on customer satisfaction.
2. To determine the Impact of geographic segmentation on customer satisfaction.
3. To establish the Impact of psychographic segmentation on customer segmentation.
4. To examine the Impact of behavioral segmentation on customer satisfaction.

1.4. Research Questions

The main research questions that were addressed by the study included the following:

1. What is the Impact of demographic segmentation on customer segmentation?
2. What is the Impact of geographic segmentation on customer satisfaction?
3. What is the Impact of psychographic segmentation on customer satisfaction?
4. What is the Impact of behavioral segmentation on customer satisfaction?

1.5 Justification of the Study

As Nigeria seeks to attain middle income status, the importance of the financial sector in facilitating the development of the economy cannot be under-estimated. Competition in the Nigerian banking industry has been triggered over the past decades after the passage of the universal banking law which caused the proliferation of banks nationwide. The Banking sector is now characterized by increased customer choice and new products and services development. The survival and profitability of financial intermediaries in Nigeria depends largely on what will drive customer choice. Players in the Nigerian banking industry must make efforts to attract the most profitable segments of the market and to forge closer relationship with such high valued customers whilst retaining the average customer who is part of the mass market. Most international banks all over the world, e.g. Citibank, Royal Bank of Canada, Barclays Bank Plc etc. have adopted market segmentation and customer relationship management as a strategy to serve their customers better and to increase customer loyalty in the face of stiff competition.

This study sought to contribute to the body of knowledge that can be used by scholars and researchers in the field of academia to develop further studies. The study adds to the body of knowledge in the area of marketing segmentation in the banking industry.

The significance of this study to the researcher included the depth of knowledge the researcher acquired in the area of market segmentation in the services and banking industry. This study also offered the researcher the platform to apply knowledge in the area of scientific research in the marketing field and other areas of academic pursuit. Among the stakeholders who benefited from the study include the following;

The management and staff of Guaranty Trust Bank, Lagos got to know of the impact of market segmentation strategy on customer satisfaction. The study identified problems customers encounter in the various segments for management to re-strategize by developing different products and services for Impactive customer satisfaction.

Customers who got access to findings from this study recognized the market segments that better address their banking needs in Guaranty Trust Bank (GTB) and hence made informed choice.

1.6 Scope of the Study

This study was geographically conducted in Lagos. It targeted the banking industry with attention given to GTB branches located in Lagos. The motivation for the specific choice of GTB was due to proximity and the fact that the bank has all the various departments, units and banking halls for all the market segments for the customer base and was considered among the chief pioneer of banking industries in East Africa. This branch therefore provides a good source of data for the study.

1.7 Limitations of the study

Financial commitment was involved in carrying out the whole exercise of conducting research. That is, transportation, buying stationery, communication, typing and printing costs hence the limitation of financial constraints.

The researcher being a student and not an employee of the organization, the management did not know exactly the implication of the research study thus hindering obtaining of full details of the research.

DEFINITION OF TERMS

Marketing Segment: This is a unique group, which has all its segmentation variables and characteristic. (Hayes, 2020)

Segmentation: This is the process of sub – dividing a heterogeneous market into homogenous subset or group of customers so that each group can conceivably be selected as a separate market target to be reached with a district marketing mix. (Hayes, 2020)

Segmentation Variables: These include: Geographic, Behavioural, Demographic and Psychographics to consumer market.  While to industrial market, it includes Demographic, Operating, purchasing an approach, situation factors and personal characterize. (Silverman, 2016)

Strategic Marketing: Is described as STP marketing namely – segment target marketing and positioning. (Belyh, 2015)

Product Positioning: It is the act of establishing a variable, completive positioning of the firm and its offer in each target market. (Lee, 2017)

Geographic segmentation:It divides customers into segments based on geographical areas such as nations, states, regions, counties, cities or neighborhoods. (Gray, 2010).

Demographic segmentation: The demographic segmentation divides customers into segments based on demographic values such as age, gender, family size, family life cycle, income, occupation, education, religion, race, generation, social class and nationality. (Armstrong &Kotler, 2010).

Behavioural segmentation: Is based on the customers’ attitude toward, use of, or response to a product with behavioural variables such as occasions, benefits, user status, usage rate, buyer-readiness stage, loyalty status and attitude.(Kotler and Keller, 2009).

Psychographic segmentation: The psychological variables derive from two principal types of customer; personality profiles and lifestyle profiles. (Armstrong & Kotler, 2010).

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Full Project – IMPACT OF MARKET SEGMENTATION ON CUSTOMER SATISFACTION – A STUDY OF GUARANTY TRUST BANK, LAGOS, NIGERIA