Customer orientations and usage of financial distribution channels

Customer orientations and usageof financial distributionchannelsJennifer ThorntonAssociate Lecturer, University of Wollongong, Wollongong,New SouthWales, Australia

Lesley WhiteAssociate Professor, Marketing Department at the University ofWollongong, Wollongong, New SouthWales, Australia

Keywords Financial services, Customer orientation, Distribution channel, Segmentation

Abstract This research examined the survey responses of 801 financial customers whoprovided information regarding their usage of, and attitudes towards, financialdistribution channels. The study found that there were distinctive segments within thefinancial market that had significantly different levels of usage of financial distributionchannels. Financial customers were asked to indicate their orientation towardsconvenience, service, technology, computers, change, knowledge about methods ofaccessing money, and confidence in using electronic banking. Financial customers' usageof human tellers, automated teller machines, electronic funds transfer at the point of sale,credit cards, cheques, Internet banking and telephone banking was investigated, and thisinformation was used to determine if relationships exist between customer orientationsand the usage of financial distribution channels. Further results and implications of thestudy for financial services are addressed.

IntroductionFinancial institutions are starting to perceive distribution to be a competitive

weapon as the number of alternative strategies by which a financial institution

can competitively differentiate itself are disappearing (Friars et al., 1985, in

Easingwood and Storey, 1996). With the introduction of new delivery

channels, such as telephone and Internet banking, many financial institutions

are viewing distribution channels as an opportunity for differentiating

themselves in the market. First Direct, a new entrant in the British financial

industry, has been very successful in differentiating itself in terms of the

distribution element of its marketing mix (Ennew, 1997). First Direct has no

branches and conducts all of its transactions with its customers by telephone.

Developing alternative distribution channels is important not only in terms of

reducing costs and improving competitiveness but also in terms of a financial

institution's ability to retain the existing customer base (Kimball and Gregor,

1995) and to attract new customers. A major factor of consideration when

determining a financial distribution strategy is consumer preferences.

Soldatos (1995) proposes that consumers, and not service providers, choose

the appropriate distribution channel and place of delivery. Similarly

Lovelock (1991) states that a firm's delivery system needs to be consistent

with the target market's preferences.

This study looks at customers' attitudes and links this with their usage of

financial distribution channels to determine if there are particular attitudinal

segments of customers who exhibit similar patterns of access to financial

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Distribution as acompetitive weapon

168 JOURNAL OF SERVICES MARKETING, VOL. 15 NO. 3 2001, pp. 168-185, # MCB UNIVERSITY PRESS, 0887-6045

An executive summary formanagers and executivereaders can be found at theend of this article

services. This should enable financial institutions to more effectively and

efficiently manage and market their delivery of financial services.

BackgroundIn the past, the branch network of a financial institution was the main

competitive weapon used to protect market share and profits. However the

current market environment allows for new competitors to emerge and

different methods for accessing a financial institution's services have also

been developed. Additionally, deregulation has seen the market entry of

financial service providers who offer mortgage products and do not have the

cost burden of a large branch network. Such providers are placing even more

pressure on existing financial institutions to find other avenues for revenue or

profit growth (Howcroft, 1993).

As the financial industry has become more competitive the ability of a

financial institution to compete on price has become increasingly difficult

(Zenoff, 1989). The main price offerings of financial institutions are the

interest rates offered on savings and charged on loans (Llewellyn and Drake,

1997). Competition within the financial industry has forced many of the

players in the market to offer similar prices on deposits and loans. This

competitive environment is likely to intensify in future years, particularly

when considering the trends of rapid technological change and globalisation

of financial markets (Brown, 1992). The implications of this for financial

institutions are that it is of increasing importance that new, non-price factors

be found which can be used as a means of differentiation, to achieve higher

revenue growth and improved market share.

Financial institutions are also looking at ways of cutting costs. It is widely

recognised that one of the largest expenses incurred by financial institutions

is the branch network and its associated staff and overhead costs. It is

therefore understandable that financial institutions are currently reviewing

the way in which their customers are able to access their money from the

institution (Howcroft, 1993; Devlin, 1995; Wood, 1997). A further means by

which financial institutions are attempting to differentiate themselves is

through an improved use of financial services marketing.

The traditional tangibilising powers of bank branches continue to be of

importance within financial services marketing (Greenland, 1995). However

the extent of the branch network's advantage, in terms of tangibility, is

diminishing as new financial institutions, such as First Direct in the UK, can

effectively compete within the market without requiring the tangible cue of a

branch (Ennew, 1997). Due to the relative expense of the branch network in

comparison to alternative forms of distribution channels, financial

institutions can no longer afford to adopt a mass services marketing approach

of being all things to all people.

Additionally the distribution needs of financial customers are becoming

increasingly diverse with the advent of newer forms of delivery channels

such as telephone and Internet banking (Easingwood and Storey, 1996).

Financial institutions are realising that they can `̀ no longer afford to perform

every operation and provide every service in every physical location''

(Moutinho and Meidan, 1989, p. 26). It is argued that market segmentation is

therefore essential.

Market segmentationIrons (1997) believes that market segmentation allows a concentration of

resources to match specific customer expectations `̀ rather than dissipate

Need for non-price factors

Mass services approach nolonger affordable

JOURNAL OF SERVICES MARKETING, VOL. 15 NO. 3 2001 169

them across too many different and undifferentiated sectors of the market''

(Irons, 1997, p. 71). Similarly, Yorke (1994) notes that an organisation can

then commit its limited resources more efficiently by catering to target

markets rather than using a mass market approach. The value of

segmentation for a financial institution is to determine which customers are

currently using which distribution systems (Devlin, 1995) and also to

identify the relative costs of serving each segment (Bauer, 1995).

Market segmentation will be of increasing importance as new competitors in

the financial industry, such as First Direct, are pressuring financial institutions

to develop a much clearer understanding of market segmentation and the

profitability of customers (Mercer, 1995). A financial institution can benefit

from establishing not only what type of distribution channels customers use

but also why customers prefer to use certain distribution channels.

Consumer preferences present a major challenge due to the variation of

preferences amongst different consumer groups. For example, whilst the

branch may remain the best form of service delivery for a particular market

segment, other segments may wish to use other channels when interacting

with their financial institution. Whilst the satisfaction of particular segments

will be enhanced by distribution channel changes, other segments may be

dissatisfied, thus making segmentation a very important consideration for a

financial institution when selecting an appropriate distribution mix.

Previous studiesA means of segmenting financial customers into smaller, homogeneous,

accessible and profitable target markets could be through the use of

attitudinal segmentation. Previous studies have used perceptual or attitudinal

variables to determine the usage or non-usage of ATMs (Swinyard and Ghee,

1985; Moutinho and Meidan, 1989; Leblanc, 1990; Iversen and Rugimbana,

1994; Rugimbana, 1995).

Swinyard and Ghee (1985)

Swinyard and Ghee (1985) found that ATM cardholders differed from non-

cardholders on several attitudinal characteristics. `̀ ATM card holders were

found to have more favourable attitudes towards ATMs, towards change, and

towards computers, and to be more venturesome and have more self-

confidence'' (Swinyard and Ghee, 1985, p. 41). Swinyard and Ghee's (1985)

study demonstrates the importance of attitudinal characteristics in terms of

determining usage or non-usage of a financial distribution channel. A study

of this nature could be applied to the different forms of distribution channels.

Swinyard and Ghee (1985) also investigated demographic characteristics that

had been previously investigated by other researchers. It is important to note

that replication of previous studies is justified as it determines if the factors

affecting usage and non-usage of types of distribution channels have

remained constant over time. Additionally, when conducting a study in a

different country or market environment to those of previous studies, it is

often important to ensure that a new study replicates one previously

conducted so as to capture the relationships between variables within the

new population under investigation (Swinyard and Ghee, 1985).

Moutinho and Meidan (1989)

Moutinho and Meidan (1989) conducted a study which involved determining

`̀ the dimensions of bank customer's current usage of financial services, as

well as the level of usage of new and more sophisticated bank services, in

particular those related to electronic funds transfer and automated teller

Importance ofsegmentation

Differences betweencardholders andnon-cardholders

170 JOURNAL OF SERVICES MARKETING, VOL. 15 NO. 3 2001

machines'' (Moutinho and Meidan, 1989, p. 23). Moutinho and Meidan

(1989) also attempted to classify users of various channels in terms of their

attitudes towards such constructs as convenience, technology, and

helpfulness of staff. New technologies such as Internet banking and

telephone banking have been introduced since Moutinho and Meidan's

(1989) study. It may be that the customer classifications have changed in the

last decade or that an increasing number of customers can be classified under

such headings as `̀ on-the-move'' or `̀ hi-tech value/cost oriented'' customers.

Marr and Prendergast (1993)

Research by Marr and Prendergast (1993) identified customers' usage of, and

reasons for using, alternative delivery mechanisms, in particular human

tellers. A main finding from this study was that the main reason for using a

human teller ahead of an automated teller machine (ATM) was a `̀ preference

for dealing with humans in banking''.

Leblanc (1990)

Leblanc's (1990) study analysed the perceptions of users and non-users of an

automated service, using ATMs as the automated service. Leblanc (1990)

found that the main reason for using ATMs was an accessibility factor

involving the perceptions of being fast, easy to use, improving the quality of

service, and reducing costs. The main reason non-users gave for not using

ATMs was a preference for human tellers over machines, which is similar to

Marr and Prendergast's (1993) finding. Non-users perceived ATMs as too

complex, and felt that they were too risky to use.

Iversen and Rugimbana (1994)

Iversen and Rugimbana (1994) conducted a similar study to Leblanc (1990),

but they used different perception variables. The study found that there was

an association between consumer ATM usage patterns and their perceptions

of ATM attributes. The variables that distinguished ATM users and non-

users were the attributes of convenience, reliability and suitability.

However, studies regarding financial customers' usage of, and attitudes

towards, other self-service technologies have been largely neglected with the

exception of studies conducted by Prendergast (1993) and Barczak et al.

(1997). Prendergast's (1993) study investigated the usage of ATMs,

telephone banking and electronic funds transfer at point of sale (EFTPOS).

Similarly, Barczak et al.'s (1997) study incorporated the usage of ATMs,

telephone banking, EFTPOS and debit cards. The findings of these previous

studies found attitudinal variables to be useful indicators of usage or non-

usage of financial distribution channels. Rugimbana (1995) suggested that

perceptual variables were better indicators of ATM usage or non-usage in

comparison to demographic variables.

Table I provides an overview of the methodology used in previous studies

whilst Table II summarises the possible contributions and shortcomings of

the studies previously mentioned. It can be seen that whilst there are many

studies on ATM usage and non-usage, little is known in regard to other

financial distribution channels. Furthermore many of the attitudinal variables

in previous separate studies have been combined in this study to form a more

comprehensive array of attitudes.

Aims of the studyThe purpose of this study is to investigate whether particular attitudinal

variables affect the current usage levels of ATMs, EFTPOS, credit cards,

Use of automated services

Other self-servicetechnologies


cheques, human tellers, Internet banking and telephone banking. The

attitudinal segmentation variables investigated in the current study are largely

derived from Swinyard and Ghee's (1985) study of the use or non-use of

ATMs. These included attitudes towards technology, change, computers,

knowledge about methods of accessing money, and confidence in using

electronic banking. Additionally attitudes towards convenience and service

were incorporated into the current study as `̀ segments based on a convenience

orientation versus a service orientation have been recognized for some time''

(McDougall and Levesque, 1994, p. 15). These variables were chosen because

they were believed, from preliminary exploratory research, to encompass the

motivations for usage of the various financial distribution channels.

Development of hypothesesDue to the numerous combinations of the types of customer orientations and

types of distribution channels that will be tested in this study the researchers

have decided to present the expected relationships in summary form, as

detailed in Table III. For example the hypotheses would be:

H1: A customer's convenience orientation is associated positively with their

usage of ATMs.

Author/s

Distribution

channel/s

studied

Data gathering

instrument

No. of

responses/

country Additional information

Swinyard and

Ghee (1985)

ATMs Self-

administered

questionnaire

183/

Singapore

Random systematic sample/

factor analysis/discriminant

analysis/chi-square/t-tests

Moutinho and

Meidan (1989)

New

technology

Interviews 200/

UK

Stratified sample/ effect of

age and gender studied

14 attitudinal statements

towards banking, 7-point

scale

Factor analysis used

Marr and

Prendergast

(1993)

Human

tellers and

ATMs

Mail survey 803/

New

Zealand

Random sample/customers

who were cardholders

LeBlanc (1990) ATMs Mail survey 208/

Canada

Systematic random sample/

Credit union customers/ 40

attitudinal statements, 7-

point Likert scale (agree

disagree)

Prendergast

(1993)

ATMs/

EFTPOS/

Telephone

banking

Telephone

interviews

302/

New

Zealand

Random sample/chi-square

analysis used

Iversen and

Rugimbana

(1994)

ATMs Branch-floor

intercept

questionnaire

630/

Australia

Convenience sample

Bank and credit union

customers sampled/5-point

Likert scale/ 14 statements

Rugimbana

(1995)

ATMs Branch-floor

intercept

questionnaire

430/

Australia

Convenience sample/

Likert scale ± 14 questions/

factor analysis and

regression

Barczak et al.

(1997)

ATMs,

telephone

banking,

debit cards

Mail survey/

USA

331 Factor analysis

Table I. Methodologies of previous studies

Types of customerorientation


H2: A customer's service orientation is associated negatively with their

usage of ATMs.

H3: A customer's technology orientation is associated positively with their

usage of ATMs.

H4: A customer's change orientation is associated positively with their usage

of ATMs.

Author/s Shortcoming Contribution

Swinyard and

Ghee (1985)

Changes have occurred since 1985/

Study conducted in Singapore, therefore

this may represent a different market

environment/Only investigated use and

non-use of ATMs

Attitudinal characteristics used

to determine users and non-

users/particularly attitudes

towards change and computers

Moutinho

and Meidan

(1989)

Changes have occurred since 1989/

Study conducted in another country (not

stipulated)/Only investigated EFTPOS

and ATM

Classifying consumers by their

orientations, e.g. convenience

and importance of technology

etc.

Marr and

Prendergast

(1990)

Changes occurred since 1990/Study

conducted in New Zealand/Only

investigated tellers and ATMs/Biased

sample using only ATM cardholders

Main reason for using tellers/

main reason for not using

ATMs

LeBlanc

(1990)


conducted in Canada/Only investigated

ATMs.

Main reasons for using ATMs/

main reasons for using ATM

using perceptual variables ±

similar to attitudinal variables

Prendergast

(1993)


conducted in New Zealand/Only

investigated EFTPOS, ATMs and

telephone banking

Looked at other self-service

technologies in terms of both

current and future usage

Iversen and

Rugimbana

(1994)

Changes occurred since 1994/Only

investigated ATMs/Convenience sample

using branch-floor intercept technique.

Perception concept ± tied to

attitudinal/usage figures and

reasons for using/Study

conducted in Australia

Rugimbana

(1995)

Changes occurred since 1995/ Only

investigated ATMs/ Convenience

sample using branch-floor intercept

technique

Investigates demographic

variables and perceptual

variables/ Study conducted in

Australia

Barczak et

al. (1997)

Only looks at self-service technologies

of ATMs/ Telephone banking/ EFTPOS

and debit cards/ Study conducted in the

USA

Investigates motivations for

usage/ very detailed

information produced

Table II. Shortcomings and contributions of previous studies

Type of financial distribution channel

Type of orientation

ATM

(a)

EFTPOS

(b)

Cheque

(c)

Credit

card

(d)

Human

teller

(e)

Telephone

(f)

H1: Convenience + + + + ± +

H2: Service ± ± ± ± + ±

H3: Technology + + + + ± +

H4: Change + + + + ± +

H5: Knowledge + + + + ± +

H6: Computer + + + + ± +

H7: Confidence + + + + ± +

Table III. Expected relationships between customer orientations and financial

distribution channels


H5: A customer's knowledge about methods of accessing money is

associated positively with their usage of ATMs.

H6: A customer's computer orientation is associated positively with their

usage of ATMs.

H7: A customer's confidence in using electronic banking is associated

positively with their usage of ATMs.

MethodologyExploratory research, in the form of four focus groups, was initially

conducted to provide clarification of the research problem and assist with the

formulation of the questionnaire. These focus groups were formed according

to the age of participants (18-25, 26-35, 36-55 and 55 and over).

A quantitative, single cross-sectional study was subsequently selected to

obtain data regarding the usage of, and attitudes towards, financial

distribution channels. A mail-out questionnaire was chosen for the

quantitative study as it was seen to allow for a larger sample size to be

selected, improved geographical accessibility of customers, increased

flexibility for the availability of the respondents' time, ability to maintain the

anonymity of the respondent, and comparative inexpensiveness and

efficiency (Zikmund, 1994).

A cluster sample of 3,392 financial customers was selected from a sampling

frame of customers of a large credit union located in the Illawarra region of

New South Wales on Australia's south eastern coast. To evaluate the

hypotheses of this thesis, 801 responses were examined. A further 243

responses were received but could not be used as they were incomplete.

Hence the study had a response rate of 31 per cent.

Swinyard and Ghee's (1985) study received a very high response rate of 66

per cent. The possible reasons for a lower response rate for the current study

may be that Swinyard and Ghee had an eight-week return period whereas the

current study only had a three-week return period. Additionally the time

difference of 12 years between the studies might reflect some market

research wear-out of the general population or the differences in countries in

which the studies were undertaken.

The size of the sample was 3,392 customers making the sample size

proportion of the sampling frame to be approximately 10 per cent. It is

suggested that a study's sample `̀ should be large enough so that there are

100 units or more in each category of the major breakdowns and a minimum

of 20 to 50 in the minor breakdowns'' (Sudman, 1976, p. 30). The major

breakdowns for this study relate to the various forms of distribution

channels; these are: human tellers, ATMs, cheques, credit cards, EFTPOS

and telephone banking. Applying Sudman's (1976) guideline means that 600

responses would be required. The minor breakdowns for this study relate to

the 14 different types of customer orientations and therefore 700 responses

would be required if Sudman's (1976) upper value of 50 is used. A response

rate of 35 per cent was forecast for this current study based upon the results

of previous external studies and the response rates of previous studies of

similar length conducted which had surveyed the credit union's customers.

Therefore approximately 3,400 questionnaires were mailed out to customers.

The questionnaire collected data on respondents' opinions of various

attitudinal statements which sought to identify those customers in the market

who were convenience-oriented, service-oriented, change-oriented,

Focus groups

Cluster sample

Sample size


technology-oriented, computer-oriented, confident about using electronic

banking or knowledgeable about the methods of accessing money. Likert

scales were used to measure the level of agreement with each attitudinal

statement. Table IV details the scale items used in the study.

The data was analysed using Statistical Package for Social Sciences (SPSS),

a computer software package. Descriptive statistics were used to develop the

demographic profile of the study's respondents. This demographic profile is

summarised in Table V. Analysis of variance (ANOVA) was used to

determine if orientation groups, for example convenience oriented groups

versus non-convenience oriented groups, have different current usage levels

of the various distribution channels. Current usage of the different

distribution channels was determined by asking respondents to indicate how

often they had used particular distribution channels within the past seven

days.

ResultsAn analysis of the data revealed that particular orientations are related to a

financial customer's current level of usage of different financial distribution

channels.

The findings in Table VI show that as the respondent becomes more

positively oriented towards convenience, the usage of ATMs and EFTPOS

increases. The opposite occurs for average usage of tellers, that is, as the

respondent becomes more convenience oriented, the average usage of human

tellers decreases. The analysis demonstrates that a customer's convenience

orientation does affect his/her usage of ATMs, EFTPOS and human tellers.

These findings support previous findings that identified a convenience

orientation to be associated with desiring less personal service and greater

use of self-service technologies.

As shown in Table VI, the use of ATMs, EFTPOS, and telephone banking

decreases, as the respondent becomes more service oriented. The use of

tellers, however, increases as the respondent becomes more service oriented.

As shown in Table VI, the use of ATMs, credit cards, EFTPOS and

telephone banking increases as respondents become more technology

oriented. The use of tellers, however, decreases as the respondent becomes

more technology oriented. Whilst Swinyard and Ghee (1985) identified such

a relationship to be apparent for technology oriented customers and their

usage of ATMs, they did not explore other distribution channels. Therefore

Strongly

disagree

Strongly

agree

I prefer convenience over personal service (convenience) 1 2 3 4 5

I prefer dealing with a human teller (personal service) 1 2 3 4 5

I feel comfortable using technology (technology) 1 2 3 4 5

I don't like changes from the usual way I do things* (change) 1 2 3 4 5

I am knowledgeable about the various methods for accessing

my money (knowledge)

1 2 3 4 5

I don't like things that are automated or computerised*

(computer)

1 2 3 4 5

I feel confident using electronic banking methods for

accessing my money (confidence)

1 2 3 4 5

Note: * Scale items are reversed for analysis

Table IV. Scale items for measuring customer orientations

Analysis of data

Convenience orientation

Technology-orientedcustomers


this finding and the following findings in relation to other customer

orientations extends the understanding of associations between distribution

channels and customer orientations.

As shown in Table VI, the use of ATMs, EFTPOS and telephone banking

increases as respondents become more change oriented. The use of ATMs,

credit cards and telephone banking increases as respondents become more

knowledgeable about methods for accessing their money.

Demographics Percentage

Gender of respondents:

Female 48

Male 52

Age of respondents:

18 to 25 21

26 to 35 24

36 to 45 18

46 to 55 16

56 and over 21

Income of respondents

less than $25,000 per year 43

$25,000 to $40,000 28

$41,001 to $60,000 20

Greater than $60,000 9

Education of respondents

Left before completing high school 14

High school 37

Certificate or diploma 33

University 16

Occupation

Clerk 22

Professional 20

Tradesperson 16

Retirees 14

Home duties 8

Labourer 7

Manager 6

Student 3

Self-employed 2

Unemployed 2

Type of employment of respondents:

Full-time 58

Part-time 10

Casual 8

Retired 14

Unemployed 10

Marital status

Single 26

Married 60

Divorced 6

De facto relationship 8

Number of financial institutions used :

1 19

2 46

3 26

4 or greater than 4 9

Table V. Demographic profile of respondents

Usage patterns


It was also found that the use of ATMs, EFTPOS, and telephone banking

increases as the respondent moves towards a computer orientation. The use

of tellers, however, decreases as the respondent moves towards a computer

orientation.

As represented in Table VI, the use of ATMs, credit cards and telephone

banking increases as respondents become more confident with using

electronic devices. The use of tellers, however, decreases as the respondent

becomes more confident with using electronic devices.

Table VII provides a summary of the relationships between the types of

orientations and current usage of various financial distribution channels. Again

due to the large numbers of hypotheses for this study Table VII summarises

the associations. Table VII can be compared to Table III, which detailed the

hypothesised relationships prior to the statistical analysis. Many of the

hypotheses have been accepted, with all of the directions of the associations

being supported. However some orientations had no effect on current usage of

some financial distribution channels, particularly on cheque usage.

Comparison to previous findingsThe findings of this study supported Swinyard and Ghee's (1985) findings in

relation to the influence of a respondent's change orientation and technology

orientation on ATM usage or non-usage. Respondents with these types of

orientations were more likely to be users of ATMs. Swinyard and Ghee's

Type of Financial Distribution Channel

Type of Orientation ATM EFTPOS Cheque Credit

card

Human

teller

Tele-

phone

Internet

1. Convenience F-Ratio

p-value <

Direction of change

in channel usage with

increasing orientation

5.54

(0.0002)

+

2.75

(0.0274)

+

0.88

(0.477)

0.51

(0.729)

4.79

(0.0008)

±

0.57

(0.681)

1.50

(0.199)

2. Service 21.87

(0.0000)

±

9.80

(0.0000)

±

0.82

(0.510)

0.59

(0.672)

16.01

(0.0000)

+

2.50

(0.0414)

±

7.12

(0.000)

3. Technology 12.25

(0.0194)

+

8.57

(0.0146)

+

1.13

(0.341)

2.76

(0.0266)

+

2.68

(0.0309)

±

7.93

(0.0000)

+

1.50

(0.202)

4) Change 10.80

(0.0000)

+

6.74

(0.0000)

+

0.88

(0.478)

2.257

(0.061)

1.68

(0.153)

3.78

(0.0047)

+

0.94

(0.441)

5. Knowledge 4.30

(0.0000)

+

1.34

(0.253)

0.36

(0.837)

2.93

(0.0200)

+

1.46

(0.213)

3.78

(0.0047)

+

0.70

(0.594)

6. Computer 10.12

(0.0000)

+

5.96

(0.0001)

+

1.08

(0.364)

0.99

(0.410)

3.02

(0.0173)

±

4.09

(0.0028)

+

0.85

(0.491)

7. Confidence 16.61

(0.0000)

+

6.93

(0.0000)

+

1.067

(0.372)

0.91

(0.456)

2.63

(0.0335)

±

7.71

(0.0000)

+

0.57

(0.682)

Note: A plus sign (+) represents a positive change and a minus sign (±) represents anegative change. Thus for example, as the respondents become more positivelyoriented towards convenience their usage of ATMs increases. Those relationships thatwere found to be statistically significant are indicated in bold. Results regarding usageof the Internet comprise responses from only ten respondents)

Table VI. Type of orientation and current usage of financial distribution

channels

Confidence in usingelectronic devices


study was focussed upon usage and non-usage of ATMs and therefore other

comparisons cannot be made for other forms of distribution channels which

have been included in this study.

Additionally, the findings of this study concurred with two of the findings of

Moutinho and Meidan's (1989) study, which had identified a group of

convenience oriented customers who were heavy users of ATMs, and a

group of service oriented customers who placed more emphasis on the

`̀ human factor'' within financial institutions.

Direct comparisons cannot be made between McDougall and Levesque

(1994) as whilst they identified convenience oriented versus service oriented

customers they did so by asking respondents to rank in importance the

various factors of a financial institution such as location, hours of operation,

and helpfulness of the staff.

Iversen and Rugimbana (1994) and Rugimbana (1995) also used the

perceptual variable of convenience to help distinguish between users and

non-users of ATMs. Barczak et al. (1997) referred to respondents with a

higher level of convenience orientation as `̀ instant gratification'' customers

who exhibited the highest level of usage of all forms of distribution channels

investigated within the study except for automatic withdrawals.

Overall, the findings of this current study indicate that the customer

orientations, expressed in each study as either attitudinal or perceptual

variables, do affect the usage of financial distribution channels. Whilst many

of the findings do reinforce the findings of previous studies in relation to

ATMs the current study extends this understanding by exploring a greater

number of relationships between a greater number of orientations and

financial distribution channels.

Marketing implicationsDistribution as a means for differentiation

Financial distribution channels are capable of providing an opportunity for

differentiation by offering delivery services to customers in ways that are

unique and valued by customers. Furthermore, Devlin (1995) believes that a

financial institution's distribution mix, such as the appropriate mix of branches,

ATMs and telephone banking, rather than its product/s, such as savings and

loan rates, could be used to differentiate itself in the financial industry. This

study provides insight into the possible market segments that a financial

institution could target if it were to select a particular distribution mix.

Type of financial distribution channel

Type of orientation ATM EFTPOS Cheque

Credit

card

Human

teller

Tele-

phone

a) Convenience + + n n ± n

b) Service ± ± n n + ±

c) Technology + + n + ± +

d) Change + + n n n +

e) Knowledge + n n + n +

f) Computer + + n n ± +

g) Confidence + + n n ± +

Notes: n = not statistically significant(+) or (±) = Direction of change in channel usage with increasing orientation

Table VII. Summary table of relationships between customer orientations and

financial distribution channels

Human factor

Instant gratification

Distribution mix


Attitudinal segmentationThis study revealed that financial customers' current usage of financial

distribution channels is affected by many different types of customer

orientations. Self-service distribution channels have higher current and

future usage rates amongst those customers who have favourable attitudes

towards convenience, change, computers, technology, and who feel more

confident using electronic banking and knowledgeable about methods of

accessing their money. Human tellers have higher usage rates amongst those

customers who have a favourable attitude toward service.

The findings also demonstrate that the usage of human tellers is not

autonomous in that it is affected by customer orientations. Convenience

oriented, computer oriented and technology oriented customers do not have

as much of a need to use human tellers as do non-convenience, non-

computers and non-technology oriented customers. However there is still a

need for convenience-oriented customers to use human tellers as customers

are unable to open accounts without visiting a branch and also the majority

of ATMs in Australia do not accept deposits.

Knowledge of the types of orientations that affect current levels of usage of

distribution channels is useful to a financial institution when formulating

their distribution mix. The trend of an emerging generation who are more

computer literate and comfortable with the use of technology (Devlin, 1995;

COFC, 1995; Sraeel, 1996; Marr and Prendergast, 1993) presents a potential

market segment for financial institutions. This study indicates that if a

financial institution wanted to attract technology oriented customers then

they may wish to invest more resources into improving their ATM, credit

card and telephone banking distribution offerings.

It is understandable that respondents who are convenience oriented would

want to use channels that provide fast and easy access, such as ATMs and

EFTPOS, whereas human tellers, who have limited hours and are

geographically constrained, would be less attractive to convenience oriented

customers and therefore would not be used to the same extent. The next step

for financial institutions is to identify the attitudinal characteristics of their

more profitable customers and then to make the appropriate changes to their

distribution mix to ensure that they retain these customers and perhaps attract

similar customers.

Customers who like computers, feel comfortable using technology, and who

feel confident using electronic banking are more likely to use automated and

technical forms of distribution channels that require the customer to have

more technical abilities and confidence to complete the transaction. On the

other hand, human tellers are more likely to be more frequently used by

those customers who dislike computers and technology, and who do not feel

confident using electronic banking. It can be seen that a customer who

dislikes computers, technology, and lacks confidence in using electronic

banking, will attempt to limit his/her usage of distribution channels that

demand computer literacy and confidence.

Meeting the needs of attitudinal segmentsThe introduction of more self-service channels and reductions in the number

of human tellers indicates that many financial institutions will be better able to

satisfy customers who are more convenience, change, and technology

oriented, and who feel confident, and knowledgeable, about using all methods

for accessing money. However customers who are more service-oriented could

potentially `̀ find the shift away from personal service to self-service

Usage affected by variousorientations

More profitable customers

Technical ability andconfidence


disconcerting'' (Lovelock, 1991, p. 15). Howcroft (1993) also believes that

customer loyalty of some market segments could be tested by changes in the

distribution mix.

Mass market approachEasingwood and Storey (1996) believe that due to the varying service needs

of customer segments, financial products will have to be delivered through a

broad range of channels as providing numerous channels ensure, that all

segments' needs are met. For this reason, many financial institutions employ

ATMs, cheques, credit cards, EFTPOS, human tellers and telephone banking

as their financial distribution channels. Drive-thru ATMs, touchscreens and

Internet banking are not as frequently used as the previously mentioned

financial distribution channels as they are the newest forms of distribution

channels introduced into the market. A wider variety of financial distribution

channels increases the opportunity for financial institutions to attract

different segments in the market. For example, by offering greater access to

ATMs and human tellers, a financial institution is likely to attract and retain

convenience oriented customers as well as service oriented consumers.

Target market approachIf a financial institution wanted to optimise its distribution mix and target

only one particular target market, for example a market segment of

customers who were seeking the benefit of convenience, and therefore

concentrate its resources (Yorke, 1994; Irons, 1997) it could improve the

availability of its self-service distribution channels and reduce the number of

human tellers for use in different types of transactions. However, it must be

noted that whilst the findings have shown that convenience oriented

customers generally have a higher current usage rate of self-service

distribution channels, these customers also have a need for human tellers.

These findings reinforce the argument that `̀ it's not bricks and mortar versus

technology. A strategic mix is the answer'' (Seigbert et al., 1996, p. 16).

The value of segmentation for a financial institution is to determine which

customers are currently using which distribution systems (Devlin, 1995) and

also to identify the relative costs of serving each segment (Bauer, 1995).

Howcroft and Keily (1997) believe that the emergence of new financial

distribution channels requires financial service marketers to think in terms of

distribution mixes rather than focussing upon one dominant channel as they

had done in the past. Whilst in the past the branch performed all of the

delivery functions of service provision, the concept that no one channel can

be best at all delivery functions is of relevance in recent years (COFC, 1995).

`̀ Alternative forms of distribution for financial services and products are

becoming increasingly popular with customers'' (Easingwood and Storey,

1996, p. 223). A financial institution needs to develop a distribution mix that

maximises their customer segments' satisfaction and limits the costs of

delivering the service.

Devlin (1995) supports the concept of `̀ multi-channelling'' as a means of

catering to the needs of various customer segments, allowing a financial

institution to use its distribution mix, rather than its product, to differentiate

itself in the market. Larger financial institutions in overseas markets are

already exhibiting this type of competitive strategy, `̀ establishing specific

market niches for themselves, aiming to outperform competitors in terms of

sophistication and effective/appropriate service delivery to those segments''

(Greenland, 1995, p.15). It may also be possible for smaller financial

institutions to employ similar competitive strategies as `̀ appropriate

Broad range of channels

Strategic mix

Multi-channelling


manipulation of channels employed can offer low cost access to alternative

segments'' (Easingwood and Storey, 1996, p. 223). It could be argued that

the transition to a distribution mix which places greater emphasis on self-

service delivery channels may be easier for smaller financial institutions who

have smaller branch networks and therefore lower overhead and staffing

costs.

ConclusionWhilst adopting multi-channelling to serve the needs of different market

segments does attempt to address the wide spectrum of financial customer

preferences it does still involve relatively higher costs. Previous researchers

have proposed that financial service marketers need to think in terms of

distribution mixes rather than focussing upon one dominant channel,

however a financial institution could benefit from specialising in the delivery

of particular groupings of distribution channels. A more in-depth analysis of

a financial institution's more profitable (or sought after) customers in terms

of their attitudinal characteristics could potentially reduce the operating costs

of financial distribution channels. For example, if it is found that the

profitable segment consists of service-oriented customers then a financial

institution may be best to really focus upon delivery of service through the

branch network and other similar channels, such as telephone banking that

can still involve personal attention from an employee. Alternatively if the

financial institution wishes to attract or retain convenience, technology, or

change oriented customers they may find that greatly reducing their

relatively expensive branch network and increasing availability and

accessibility of more self-service distribution channels may improve

customer satisfaction and the institution's bottom line.

Limitations of the studyThe sample was chosen from credit union customers. A limitation of

selecting this target population for the study is that they may not be

representative of customers of other financial institutions, such as banks and

building societies. The survey, however, explicitly asked the respondents to

answer the survey in terms of their use of, and attitudes towards, all financial

institutions, defined as credit unions, building societies and banks and 81 per

cent had accounts with more than one financial institution. Previous studies

investigating financial distribution channels have also used credit union

customers for their sampling frame (Leblanc, 1990; Iversen and Rugimbana,

1994). Furthermore, the credit union's financial distribution channels are

identical to leading banks in Australia. Finally, a significant percentage, that

is, approximately 33 per cent of Australian financial customers, have

accounts with credit unions (CUSCAL, 1997).

The study was conducted within a limited geographical area. It is possible

that financial customers within the Illawarra region of New South Wales,

Australia, may not be representative of all financial customers. However the

population in this region of Australia is fairly representative of the remainder

of the country's population. Overall caution must be considered in regard to

the generalisability of this study to the application of results to either other

geographical regions. Care should be taken if attempting to extrapolate

results across countries. It is recommended that research be undertaken

within the country in question to identify similarities and differences across

cultures.

Cost and time limitations also had an impact on the type of data collection

instrument that was used in the study. A door-to-door collection technique of

Ways of reducing costs

Credit union customers

Generalizability of study


the survey might have increased respondent participation and survey

completion yet would have been too time consuming and expensive.

Potential biases also exist using a mail-out questionnaire due to refusals to

participate in the study and respondent non-cooperation (Jarboe, 1993).

Suggestions for further researchOther attitudinal factors, which were not included in this study, could be

explored in an attempt to explain the motivations behind the current and

future usage of financial distribution channels.

The study could be replicated using bank customers rather than credit union

customers for the sample to determine the representativeness of this study to

other financial institutions' customers. However the survey, as mentioned

previously, explicitly asked the respondents to answer the survey in terms of

their use of, and attitudes towards, all financial institutions, namely credit

unions, building societies and banks. Whilst 19 per cent of respondents in the

study used only the credit union for financial services, the remaining 81 per

cent of respondents used more than one financial institution.

A replication of this study in a different geographical region is a means for

confirming the level of representativeness of this study. Additionally it may

be interesting to conduct a similar study in an overseas market to determine

if the findings of the study can be applied to other market environments.

Additionally, the findings of this study will need to be updated regularly to

keep pace with the changes occurring within the financial industry,

particularly in regard to the potential introduction of new distribution

channels such as smartcards, or the spread of existing distribution channels

such as Internet banking.

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&


Executive summary and implications for managers andexecutives

Banks find it harder than ever to compete on priceThe number of ways in which a financial institution can differentiate itself

from the competition is falling. As the financial industry has become more

competitive a bank's capacity to compete on price ± through, for example,

offering higher savings rates or lower loan rates ± has diminished. With the

introduction of new ways of delivering banking to the customer ± such as

over the telephone or Internet ± financial institutions increasingly see

distribution channels as a way to mark themselves out from their

competitors.

The importance of market segmentationOne of the largest expenses of traditional banks is their branch network.

These employ large numbers of staff and have heavy overheads.

Deregulation has seen the market entry of firms which offer mortgages and

savings products without the burden of a large branch network. In Britain,

for example, First Direct has no branches and conducts all its transactions

with customers by telephone. Such developments are helping to convince

traditional banks that they can no longer afford to perform every operation

and provide every service in every physical location, and should instead

concentrate their resources to match specific customer expectations.

Modern distribution channels not only cut a bank's costs, but can also help it

to retain existing customers and attract new ones. Equally, some customers

and potential clients may be put off by having to use the latest technology in

banking. The way a bank delivers its service should ideally fit the

preferences of its target market. Market segmentation can help a bank to

determine which customers are using which distribution systems, and to

identify the relative costs of serving each segment. While many studies have

been carried out on the use (and non-use) of automated teller machines

(ATMs), little is known regarding other financial distribution channels.

Catering for customer preferencesThornton and White examine whether the particular attitudes of bank

customers affect their usage of ATMs, credit cards, debit cards, cheques,

human tellers, Internet banking and telephone banking. In particular,

financial customers were asked to indicate their attitude towards

convenience, service, technology, computers, change, knowledge about ways

of gaining access to money, and confidence in using electronic banking.

The research shows that the more people stress the importance of

convenience, the more likely they are to use ATMs, credit and debit cards,

and the less likely they are to use human tellers. Customers who are more

service oriented are less likely to use ATMs, credit cards, debit cards and

telephone banking, and more likely to use human tellers.

Use of ATMs, credit cards, debit cards and telephone banking increases as

people become more technology and computer oriented, more change

oriented and more knowledgeable about methods of gaining access to their

money. Use of human tellers falls correspondingly among these groups.

It's the distribution mix that countsFinancial institutions wishing to attract technology oriented and

convenience oriented customers should therefore invest more in their ATM,

credit card, debit card and telephone banking systems. But even these


This summary has beenprovided to allow managersand executives a rapidappreciation of the contentof this article. Those with aparticular interest in thetopic covered may then readthe article in toto to takeadvantage of the morecomprehensive descriptionof the research undertakenand its results to get the fullbenefit of the materialpresent

customers sometimes need the services of human tellers, for example to

deposit money or open an account.

Financial services marketers probably need to think in terms of distribution

mixes rather than focusing on a single dominant channel as they have in the

past. Financial institutions need to develop a distribution mix that maximizes

their customer segments' satisfaction and limits the costs of delivering the

service.

More research is, however, needed into which groups of customer are the

most profitable for a bank to court.

(A preÂcis of the article `̀ Customer orientations and usage of financialdistribution channels''. Supplied by Marketing Consultants for MCB

University Press.)


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