Internal and External Marketing: Effects on Consumer Satisfaction in Banks in Thailand
Post on 27-Jan-2017
Internal and External Marketing: Effects on Consumer Satisfaction in Banks in Thailand* by Patriya Tansuhaj, John Wong and Jim McCullough Washington State University, Pullman
Introduction The concept of services marketing is relatively new to the banking industry, and bankers have traditionally focused their attention on customers within selected segments of the market, taking a primarily internal or production perspective. In addition to a more consumer-oriented perspective, the successful operation of banks in today's competitive marketplace requires greater orientation towards employee development since the success of the marketing effort depends, to a large extent, on the interaction between the employee and the customer. The recognition of the importance of the employee in marketing and the direction of effort towards the improvement of employee activity in the marketing programme has been termed "internal marketing". This management philosophy with the idea of treating employees as customers so that they are happy with their job and serve customers in a more satisfying manner is attractive but it has not been adopted consciously among service businesses except in northern Europe (Gronroos, 1985). The internal marketing concept is defined as "viewing employees as internal customers, viewing jobs as internal products, and then endeavouring to offer internal products that satisfy the needs and wants of these internal customers while addressing the objectives of the organization" (Berry, 1984, p. 272). Recent studies in services marketing that have dealt with the concept discuss it in isolation from external, traditional marketing. This denies the essential rationale for examining internal marketing the fact that the success of the external marketing
* The authors wish to thank Tara Silpakit for his assistance in the data collection process of this study.
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programme depends on the internal marketing programme. Therefore, to achieve a high performance, services managers need to be well co-ordinated in both types of marketing practices. The role of internal marketing in a service firm is presented in Figure 1. In addition to differences in external marketing programmes, internal marketing components such as managerial style, communication, motivation, and training vary across cultures as discussed extensively in Adler (1986) and Nagandhi and Estafen (1965). It would seem worthwhile to compare such practices cross-culturally. The purpose of this study is to investigate managerial orientations towards employees in banks by examining the development of external and internal marketing practices for foreign and domestic banks in Thailand. The focus is on the relationship between the two types of practices and how they impact on customer satisfaction. The cultural values of management and employees are expected to explain differing degrees of the practices, and consequently customer satisfaction, across domestic and foreign banks in Thailand.
Employee-Customer Interactions in Services The importance of employee-customer interactions to services marketing has been recognised by service scholars and practitioners for some time. The simultaneous production and consumption nature along with relatively higher human contacts in services makes it more difficult to manage internal and external marketing activities. Gronroos (1981, 1985) coined the term "interactive marketing" to describe the importance he places on employee-customer or buyer-seller interactions in services marketing. He argued that interactive marketing is responsible for perceived service quality, customer satisfaction and repeat purchase behaviour of services customers. Meanwhile, Berry (1983) introduced the concept of "relationship marketing" which describes how service marketers should learn how to attract, build, and maintain relationships with their customers. The importance of employee-customer interactions was also addressed by Grove and Fisk (1983) with the sociological concept of dramaturgy that is based on the metaphor of stage acting; that services marketers,
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having to interact to a great extent with customers, should pay attention to "staging" the performance or how to provide services, "rehearsing" the performance team or training and carefully determining which activities might best be performed in an out-of-sight backstage area and which might be displayed frontstage. In addition, to increase productivity, to decrease costs, and to increase customer satisfaction, sometimes customers should be encouraged to participate more in the production and delivery of services as emphasised in the Silpakit and Fisk (1985) study.
To obtain a higher degree of customer satisfaction through internal marketing, perhaps one should extend the employee-customer interactions to two-stage interactions of management-employees and then employees-customers as:
management employees customers.
Internal Marketing In a service firm with high customer-employee interactions, the practice of internal marketing cannot be over-emphasised as George (1977) states,
. . . to have satisfied customers, the firm must also have satisfied employees. By satisfying the needs of the public contact personnel, the firm upgrades its capabilities for satisfying the needs of its customers. Thus to serve the needs of the market, the firm must first serve the needs of its internal market (p. 91).
Gronroos (1985) describes internal marketing further as . . . holding that an organization's internal market of employees can be influenced most effectively and hence motivated to customer-consciousness, market-orientation and sales-mindedness by a marketing-like internal approach and by applying marketing-like activities internally (p. 42).
Accordingly, two major components of internal marketing include motivation and the marketing-like characteristic of managerial styles, with a focus on high customer-orientation.
External Marketing External marketing encompasses the traditional marketing activities of the firm. These generally are categorised into those activities of production and product development, price setting, communication, and distribution which provide a link between the firm and its customers. Although many organisations regard marketing as basically a selling activity designed to move products from the producer to the consumer, current theory indicates a need for a more consumer-oriented marketing approach designed to satisfy the needs of the consumer.
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The banking industry has historically taken a production or sales approach, concerning itself with the provision of banking services on terms convenient to the producer rather than the consumer. Increased competition has forced banks to re-evaluate their external marketing programmes and to develop more consumer-oriented programmes. These include more branches, longer and more convenient hours, wider ranges of service with competitive prices, and innovation in services such as electronic banking and ATMs. In a previous study by McCullough, Lim and Gan (1986) customers of "marketing-oriented" banks were found to be significantly more satisfied with their banks than customers of other banks. The authors suggest that marketing orientation of the bank determined customer satisfaction. They examined objective characteristics of the marketing operations of banks, including locational convenience, range of services and innovativeness, hours, and prices, but found the most important "marketing" attributes were efficiency and courtesy.
External marketing consists of the activities of the firm directed at satisfying the needs of the consumer. This is normally reflected in a marketing plan developed by management to determine the product offering of the organisation, the price level, promotion, communication and distribution strategies. For manufactured goods, it is generally believed that the marketing offering, that is the programme of marketing activities offered by the firm, determines consumer satisfaction. In a service organisation the implementation of this plan depends, to a great extent, on the activities of the employees who determine the quality level of service, communicate personally with customers, often determine the speed of service, and may even negotiate prices (e.g., service charges, interest on loans).
Research Hypotheses To investigate these concepts of marketing practices across foreign and domestic banks, the following hypotheses are proposed.
Hypothesis 1: there is a difference between foreign and domestic banks in the practice of internal marketing. Hypothesis 2: there is a difference between foreign and domestic banks in the practice of external marketing. Hypothesis 3: there is higher customer satisfaction with the banks that have a higher level of internal marketing practice. Hypothesis 4: there is higher customer satisfaction with the banks that have a higher level of external marketing practice.
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Participating Banks Two domestic banks and one foreign bank participated in the study. Approximately ten to 15 bank managers, assistant managers, and supervisors from each bank were surveyed. In addition, 40 to 50 customers of each participating bank were also asked to respond to a short questionnaire for measuring their satisfaction with bank services. Questionnaires were hand-delivered to the banks that agreed to participate in the survey, some of which were returned to the researchers by mail. The response rate for the bank manager/employee sample was 31 out of 45 managers contacted (69 per cent). Of these, 19 responses came from the domestic banks and 12 represented the foreign bank. For the customer sample, 123 out of 150 customers responded (82 per cent), with 93 customers from the domestic banks and 30 from the foreign bank. In addition to the use of questionnaires, the researchers also gathered background information and conducted informal interviews with representatives of each bank.
Construct Measurement To measure the external marketing practice, a modified Kotler's (1977) marketing orientation scale including nine Likert items was used. The scale consisted of the following components of the marketing function:
marketing philosophy, integrated marketing organisation, adequacy of marketing information, strategic orientation, operational efficiency.
Some examples of the external marketing scale are: the bank does not conduct customer survey and market analysis
on a regular basis; management develops a detailed annual marketing plan that is
updated regularly; the marketing activities of the bank are not effectively integrated; the marketing resources are adequate and are deployed efficiently
within the bank. This construct was measured with a seven-point scale where 7 means strong agreement and 1 means strong disagreement with the statement. Negatively worded statements were recorded to reflect the consistency
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of scores. A high score on the statements would imply good practice of marketing principles. The internal marketing construct was measured by using a 12-item scale developed by the researchers based on an extensive review of literature. The scale contained items related to:
employee training programmes, communication between management and employees, reward systems, employee-customer interaction, employee motivation.
It included such items as whether the bank provides adequate training programmes for all
employees; whether management recognises that each employee is a
representative of the bank; whether management provides rewards for employees that receive
customer praise; and whether management makes sure that every employee gets
a total view of the customer relations policy of the bank. The statements were measured with a seven-point Likert scale, with "strongly agree" and "strongly disagree" as the two bi-polar adjectives. Those negatively worded statements were recoded in order to be consistent with interpretation. A high score would represent a good practice of internal marketing as perceived by the employees. The customer satisfaction construct was measured with an 11-item scale adapted from McCullough, et al. (1986) and Gwin and Lindgren (1986). The scale included customers' rating of the following basic attributes:
banking hours, range of services, courtesy of staff service, efficiency of staff, security, friendliness of staff, respect for customers, deposit rates, understanding of customers' needs, location competence of staff.
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The statements were measured with a seven-point scale with "very satisfying" and "very dissatisfying" as the bi-polar adjectives. A low score on the satisfaction scale meant a high level of customer satisfaction. In addition, an overall satisfaction statement was included in the scale to capture other aspects of satisfaction/dissatisfaction. Furthermore, the scale was recoded for consistency of data analysis.
Data Analysis Data analysis included several steps. First, summed scores and average scores were calculated for the external marketing scale, the internal marketing scale, and the satisfaction scale. Second, t-tests were used to examine the differences in practices of external and internal marketing across the domestic and foreign banks. Third, the strength of relationships between such practices and the degree of customer satisfaction were examined.
Results When comparing domestic versus foreign banks on the internal marketing scale, there was a significant difference between them in the practice of internal marketing (Table I). The mean sum-score on the internal marketing scale for domestic banks was 48.47 and 34.70 for the foreign bank. Domestic banks were perceived as having better practices of internal marketing by their employees. In addition, domestic banks were also perceived as having a better grasp of the practice of external marketing towards the customers. The mean sum-scores on the external marketing scale for the two types of bank were 66.73 and 50.33, respectively. There was also a significant difference in the level of customer satisfaction between the two types of bank. The domestic banks received a higher level of customer satisfaction than the foreign bank.
In addition, the mean scores of each item on the three scales were analysed; the results are reported in Tables II, III and IV. For the
Table I. Employee and Customer Evaluations of Banks in Thailand (scale scores)
Type of bank
a : p < 0.05.
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external marketing scale, domestic and foreign banks differed significantly in the effectiveness of integrating the marketing plans, in the adequacy of marketing resources and efficiency of their deployment, and in the clarity and innovativeness of marketing strategy. The domestic banks were perceived to be better in this area. For the internal marketing scale, it was found that domestic banks have better employee training programmes. The management of the domestic banks also recognised that employees are representatives of the bank. They were also perceived to be emphasising more skill and technique in training programmes. Employees also felt that the management emphasised the quality of how the bank employee interacts with the customer. Apparently, management places more emphasis on the employees. They are concerned with the marketing of the organisation to their employees through the various internal management policies, in addition to the practice of marketing to their customers. Domestic banks received significantly better mean scores than the foreign bank on all the eleven items of the customer satisfaction scale. The two banks also differed significantly on the overall satisfaction rating. Customers were more satisfied with the various services offered by the domestic banks. Therefore, all four hypotheses are supported by the empirical data. However, the reader is cautioned about possible confounding factors such as bank size, years of establishment, and reputation of management, which the researchers were not able to control. To investigate whether the "perceived" measures of internal and external marketing practices are actually implemented by the banks, comparisons
Table II. Employee Evaluations of External Marketing Practices
External Marketing Aspects
Customer needs Market research Marketing plan Plan integration Market segment Marketing strategy Management communication Resource deployment Service orientation
a: p < 0.05.
6.83 4.50 4.72 2.00 3.55 2.33 5.50 3.83 4.58
6.10 6.42 6.15 4.94a
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Table III. Employee Evaluations of Internal Marketing Practices
Internal marketing aspects
Adequate employee training programme Emphasis on technique and skills Employee representative Employee customer interaction Employee reward Satisfied employee is satisfied customer Communication channel Clear customer relation policy Employee knowledge on PR People oriented service Shared philosophy of service orientation Customer-employee interaction
a: p < 0.05.
Foreign bank Domestic banks
1.58 2.25 1.16 4.90 5.33 5.63 6.18 6.54 6.72 6.45 6.00 7.00
6.31 5.78 6.21 6.42 6.15 6.63 6.64 5.57 5.84
Table IV. Customer Satisfaction with Bank Services
Banking hours Range of service Courtesy of staff Efficiency of staff Security of bank Friendliness of staff Respect for customer Deposit rate offered Understand customer's need Location convenience Competence of staff
a: p < 0.05.
4.03 5.03 5.50 5.60 4.40 5.36 5.96 5.43 6.16 3.60 5.50
were made on some objective evidence. Specifically, it was found that domestic banks offer a more extensive line of services (e.g., automatic teller machines, charge cards, overdraft facilities, banking by telephone, credit authority) and try to make customers aware of these services through their extensive promotional programmes. It is not clear, however,
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whether the domestic banks have better employee training and benefit programmes than the foreign bank. At best, the researchers had to rely on responses from the employees.
Discussion There is a significant difference between a service firm and a firm that sells goods in its business orientation and operation. The service company sells intangible products which are difficult to control for quality. In addition, the consumption and production of services are simultaneous. Usually it requires constant interaction between the employee and the customer throughout the exchange process. Therefore, employees are an important ingredient in the marketing programme. If there were another "P" for the marketing principle of services, the fifth P would be personnel. Thus, for a service firm, the practice of external marketing alone is not sufficient for the fulfillment of consumer satisfaction. It is important to have satisfied employees who will in turn, be enthusiastic about implementing external marketing programmes. It is clearly shown from the results of the study that banks with better internal marketing practices to satisfy the employees also receive a higher rating of customer satisfaction. It is possible cultural values explain some of these differences. In this study it was found that domestic banks had stronger internal and external marketing programmes as judged subjectively by employees and customers, and as seen by an objective assignment of the market offering. Foreign banks appear to enter the southeast Asian market in search of market expansion or new outlets for their existing services without a deep commitment to employees or customers. Previous research (McCullough, et al., 1986) indicated that foreign banks had a greater understanding of the marketing concept. In this case, however, the foreign bank had not yet adapted its external marketing programmes to the needs of the retail consumers in the Thai marketplace. If its aim is to compete effectively in the retail marketplace, it will have to adopt a more consumer-oriented posture. Internally, the foreign bank appeared to have the same problem. It had not developed training programmes or effective internal marketing to stimulate the employees to provide services consistent with the marketing concept. If the theories behind internal marketing in services industries are valid, this will continue seriously to affect its performance in the market. Internal marketing appears to have a significant impact on consumer satisfaction. In this study it was found that domestic banks performed
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better in both internal and external marketing in the Thai market, leading to higher levels of consumer satisfaction. It is obviously not possible to generalise from such a small sample, but future research should attempt to validate these findings and identify the causes of the poor performance of foreign banks.
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