CHAPTER ONE

INTRODUCTION

One thing that is permanent, in this world is change. Due to the fact that the world is dynamic, things must keep on changing. For this, the Nigerian Commercial Banking Industry has witnessed tremendous changes within a century of its existence. There has been a noticeable change in the number of banks and their branch networks. At independence in 1960, there were only eight commercial banks with 190 branches in the country. There are now 81 of such banks with about 1,711 branches nationwide. In like manner, the number of bank customers has continued to grow over the years.

The introduction of the Structural Adjustment Programme (SAP) by Babangida’s administration has brought far more significant changes into the industry. With it came the deregulation of operations in the commercial banking industry.

One obvious effect of these developments is the emerging of aggressive competition for survival among the individual banks. Nwankwo (1990) has attributed this development to the multiplicity of banking services and the spate of technological innovation new persuading the industry.

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It is an indispensable marketing fact that increasing competition creates awareness among suppliers of economic goods and services in the market place. Aware that consumers of bank products may discriminate more meaningfully under a competitive environment, the banks are currently evolving new and varied strategies to grapple with these new challenges. There have been in the form of the extension of banking operations to weekends (Saturday banking), and public holidays. In the same vein, new products and services are continually being conceived and developed within the industry.

Such products as the Automated Teller Machine (ATM), Up Front Payment of Interest on Deposit, Zero Coupon Investment Certificate (ZCIC) etc, are all part of the banks reactions to these new challenges. Nwankwo (1990) sees this development as “The task of evolving new customers, new markets, and new segments”.

Ideally, this scenario is designed to attract more customers to the banks, provide these customers with better satisfaction and in the process afford the banks with more opportunities to compete favourable in the industry. But how well any particular bank performs under this new dispensation would depend greatly on the quality of its services, the promotional strategies it adopts, its distributive networks and more importantly on how well it prices its products.

Pricing is therefore, an important factor in a bank marketing activity. It is one major determinant of consumer choice on what, when and how to buy. An eddential theme in the price of banking services should however hinge on the need to balance bank profit with consumer satisfaction. A high profit at the expense of a customer’s satisfaction obviously will boomerang against future prospect of any bank. A low profit on the other hand will provide customer’s satisfaction quite alright, but only at the expense of insufficient use of resources and reduced future funding of

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new services. Either of these conditions will not be in the best interest of banks and their customers. There is therefore the need of understanding the dynamics of product pricing in banks as a means to setting optimum pricing for the benefit of all the concerned parties i.e banks and their consumers.

1.1 STATEMENT OF PROBLEM

Among the many functions of commercial banks is the mobilization of domestic savings, provisions of loans and advances, current account, overdraft, bank draft facilities etc through various sectors of the economy.

Under the new de-regulated economic environment in Nigeria, achieving these objectives has been stalled by political interference, instability in the foreign exchange market, and the recent CBN deregulatory measures which occasioned the new Prudential Guidelines on banks.

At one time, banks haven been called upon to incorporate the marketing concept philosophy in various facets of their operation, as a way out of these constraints. At other times, they have been advised to de-emphasize their hitherto to armchair banking practice in order to compete effectively under the new economic dispensation. The banks have responded through the development of new bank products to complement existing ones, establishment of numerous rural branches and the tracing and re-training of bank personnel.

Whilst these practices have become common-place among the various Commercial Banks in Nigeria, the prices they charge for a large variety of their products and services appear to vary greatly. A cursory look at

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the banking practices within the industry tends to give an ample evidence of these price variations. For example, interest rate chargeable on loans of equal amount differs among banks. Disparity also exists in the amount chargeable on customer’s cheques and passbooks, as well as on interest rate earned on savings.

An important research question therefore is why do these price variations persist among the Commercial Banks? Specifically, this research will attempt to find satisfactory answers to the following questions:

-                Do prices actually vary (and to what degree) among the Commercial Banks in Enugu?

-                To what extent are the consumers of bank products aware of the diversity of bank products and the variations in their prices across the banks?

-                Does price exert a significant influence on a consumer’s patronage of any particular bank?

-                What is the degree of customers susceptibility to price influence as to what to buy, where to buy and when to buy a given bank products?

-                What is the influence of ownership and size in the pricing of bank products?

1.2 OBJECTIVE OF STUDY

With the above stated problem in mind, this study intends to compare the prices of selected Commercial Bank products in Enugu to determine the degree of price variation and the influence of this on consumer buying decision making processes.

The specific objectives of the study however include the following:

(i)              Identification of some Commercial Bank products.

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(ii)            Enumeration of the various prices of bank products and their price factors among the banks.

(iii)         Determination of the level of price variation awareness among consumers of bank products.

(iv)          Determination of the sources of price information for consumers of bank products.

(v)            Identification of factors that influence consumer’s ability to shop around for and respond to price difference in their product purchase and consumption decisions.

(vi)          Determination of the influence of price on consumer’s behaviour, before, during and after purchase actions in the consumption of banking services.

(vii)       Determination of the relationship between price change and consumer switch-behaviours.

1.3 FORMULATION OF HYPOTHESES

In pursuance of the objective of the study and to avoid a blind research for information as well as indiscriminate data collections, the following hypotheses have been formulated for this study.

1.         Significant differences exist in the prices of banks products among Commercial Banks in Enugu.

2.         Significant differences exist in prices of bank products between the state-owned banks and banks with substantial Federal Government equity participation.

3.         Significant differences exist between the degree of customer awareness of price variation among the banks before, during and after every bank transaction.

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4.         Significant differences exist among consumers to bank products on the degree of price influence on what to buy, where to buy and when to buy a particular bank product.

5.         Price change has significant influence on the product switch and bank switch behaviours of consumers of bank products.

1.4  METHODOLOGY

Data for this study were obtained from both primary and secondary sources. Exhaustive review of existing materials relating to the marketing of banking services constituted the bulk of the secondary sources of data.

In addition, the primary data used were the outcome of questionnaires and interview schedules administered to a sample of staff customers. In the end, the data were subjected to various statistical treatments, analyzed and used in testing the hypotheses formulated for the study.

1.5  SCOPE OF STUDY

The study is limited to six Commercial Banks in Enugu Urban Area. They include three state-owned banks and three banks with substantial Federal Government interest. From the selected banks, a sample of cheque book and passbook carrying customers is used for the study.

The study covered the following five types of bank products: