The Impact Of Segmentation On Customer Satisfaction
The broad objective of this study was to examine the effect of market segmentation on customer satisfaction in GTB. The study adopted cross-sectional survey method. The population of the study included all GTB customers within Lagos, Nigeria. Through a purposive sampling method 100 customers were selected to participate in the research Statistical Package for the Social Sciences (SPSS) was adopted for data analysis. The results of correlation analysis indicated that Geographical segmentation, Demographic segmentation, Psychographic segmentation and Behavioural segmentation were all positively and significantly correlated with customer satisfaction. The result of regression analysis revealed that geographic segmentation tends to have negative impact on the customer satisfaction while demographic, psychographic and behavioural segmentation were found to have positive effect on customer satisfaction. However, only geographic, demographic and psychographic segmentation were found to have statistically significant effect on customer satisfaction in GTB. The study concludes that market segmentation has the potential to predict customer satisfaction.
Table of Content
- 1.1 Background of the study
- 1.2 Statement of the problem
- 1.3 Objective of the study
- 1.4 Research questions
- 1.5 Hypothesis of the study
- 1.6 Significance of the study
- 1.7 Scope of the study
- 1.8 Limitation of the study
- 1.9 Definition of terms
- 1.10 Organizations of the study
Review of Literature
- 2.1 Conceptual Framework
- 2.2 Theoretical Framework
- 2.3 Empirical Review
- 3.1 Research Design
- 3.2 Population of the study
- 3.3 Sample size determination
- 3.4 Sample size selection technique and procedure
- 3.5 Research Instrument and Administration
- 3.6 Method of data collection
- 3.7 Method of data analysis
- 3.8 Validity of the study
- 3.9 Reliability of the study
- 3.10 Ethical consideration
Data Presentation and Analysis
- 4.1 Data Presentation
- 4.2 Analysis of Data
- 4.3 Answering Research Questions
- 4.4 Test of hypothesis
Summary, Conclusion and Recommendation
- 5.1 Summary
- 5.2 Conclusion
- 5.3 Recommendation
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:
- To examine the Impact of demographic segmentation on customer satisfaction.
- To determine the Impact of geographic segmentation on customer satisfaction.
- To establish the Impact of psychographic segmentation on customer segmentation.
- 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:
- What is the Impact of demographic segmentation on customer segmentation?
- What is the Impact of geographic segmentation on customer satisfaction?
- What is the Impact of psychographic segmentation on customer satisfaction?
- What is the Impact of behavioral segmentation on customer satisfaction?
1.5 Hypothesis of the Study
The following null hypothesis will be tested by the study
- H01: Geographical segmentation has no significant effects on customer satisfaction in GTB
- H02: Demographic segmentation has no significant effects on customer satisfaction in GTB.
- H03: Psychographic segmentation has no significant effects on customer satisfaction in GTB
- H04: Behavioural segmentation has no significant effects on customer satisfaction in GTB.
1.6 Significance 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.
1.9 Definition of Terms
This is a unique group, which has all its segmentation variables and characteristic. (Hayes, 2020)
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)
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)
Is described as STP marketing namely – segment target marketing and positioning. (Belyh, 2015)
It is the act of establishing a variable, completive positioning of the firm and its offer in each target market. (Lee, 2017)
It divides customers into segments based on geographical areas such as nations, states, regions, counties, cities or neighborhoods. (Gray, 2010).
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).
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).
The psychological variables derive from two principal types of customer; personality profiles and lifestyle profiles. (Armstrong & Kotler, 2010).
1.10 Organizations of the Study
The chapter one consist of the introductory part of the study which includes the study background, the statement of the research problem, the study objective and scope of the study.
The second chapter is a critical review of other literatures relevant to the study and its objectives including the theoretical framework for the study. While the third chapter is methods of data collection, sampling and data analysis used in conducting the study. The fourth chapter centres around the research findings including an analysis of how it relates to previous findings. The fifth chapter consists of the summary of findings, conclusion and recommendations base on the study objectives.
Summary, Conclusions and Recommendations:
This chapter summarizes the findings on the impact of market segmentation on customer’s satisfaction, GTB as case study. The chapter consists of summary of the study, conclusions, and recommendations.
5.2 Summary of the Study
In this study, our focus was on the impact of market segmentation on customer’s satisfaction, GTB as case study.
The study is was specifically focused on examining the Impact of demographic segmentation on customer satisfaction; determining the Impact of geographic segmentation on customer satisfaction; establishing the Impact of psychographic segmentation on customer segmentation and examining the Impact of behavioral segmentation on customer satisfaction.
The study adopted the survey research design and randomly enrolled participants in the study. A total of 100 responses were validated from the enrolled participants where all respondent are Staff and management of GTB branches in Lagos state.
With respect to the analysis and the findings of this study, the following conclusions emerged;
The results of correlation analysis indicated that Geographical segmentation, Demographic segmentation, Psychographic segmentation and Behavioural segmentation were all positively correlated with customer satisfaction. The study found that while geographic segmentation tends to have negative impact on the customer satisfaction, demographic, psychographic and behavioural segmentation were found to have positive effect on customer satisfaction. However, only Demographic and psychographic segmentation were found to have statistically significant effect on customer satisfaction in GTB. Therefore, it was concluded that market segmentation can predict customers’ satisfaction. It is therefore recommended that GTB adjust its marketing strategy to reflect the findings of this study as doing so will not only increase their customers’ satisfaction, but also improve their operational efficiency, improve customer retention, reduce marketing expenses, and ultimately increasing their profitability.
Based on the responses obtained, the researcher proffers the following recommendations:
- That companies should be familiar with modern and strategic principal and must draw their attention to the aims and interests of the people and not just company’s.
- That organization should improve on their marketing segmentation in other for a successful production planning
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