UNIVERSITY OF LAGOS DEPARTMENT OF BUSINESS ADMINISTRATION THE EFFECTIVENESS OF PRICING AS A MARKETING TOOL IN BANKS– CUSTOMERS PERCEPTION APPROACH IN NIGERIA. A THESIS SUBMITTED TO THE SCHOOL OF POST GRADUATE STUDIES, UNIVERSITY OF LAGOS, IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF DOCTOR OF PHILOSOPHY (Ph.D.) IN BUSINESS ADMINISTRATION BY MBAH, CHRIS. CHUKWUEMEKA M.SC. MBA, B.SC. 25 JULY, 2012. 1 SCHOOL OF POSTGRADUATE STUDIES UNIVERSITY OF LAGOS 2 CERTIFICATION This is to certify that the thesis THE EFFECTIVENESS OF PRICING AS A MARKETING TOOL IN BANKS– CUSTOMERS PERCEPTION APPROACH IN NIGERIA. Submitted to the School of Post Graduate Studies. University of Lagos For the award of the degree of Doctor of Philosophy (Ph.D.) Is a record of the original research carried out By MBAH, CHRIS. CHUKWUEMEKA In the Department of Business Administration ………………………………………… …………………………………. ………………….. NAME OF AUTHOR SIGNATURE DATE ………………………………………… …………………………………. ………………….. 1ST SUPERVISOR‟S NAME SIGNATURE DATE ………………………………………… …………………………………. ………………….. 2nd SUPERVISOR‟S NAME SIGNATURE DATE ………………………………………… …………………………………. ………………….. 1st INTERNAL EXAMINER SIGNATURE DATE ………………………………………… …………………………………. ………………….. 2nd INTERNAL EXAMINER SIGNATURE DATE ………………………………………… …………………………………. ………………….. 3 EXTERNAL EXAMINER SIGNATURE DATE ………………………………………… …………………………………. ………………….. SPGS REPRESENTATIVE SIGNATURE DATE DEDICATION This work is dedicated to my late parents who paid the initial price and laid the foundation for my education. May the Lord Almighty grant their souls eternal and blissful rest-Amen. 4 5 ACKNOWLEDGEMENTS The writing of a university thesis, especially at Ph.D level, is very demanding in terms of time, energy and other resources of the writer and some other persons. In this vein, I am greatly indebted to numerous authors whose work were cited, read and other persons who had time to read this work at various stages, especially my supervisors: Prof. B.E.A. Oghojafor Ph.D, who beside being the Dean of the Faculty, coupled with internal and external academic commitments, had time to give me quality supervision. Similarly, Dr. O.J.K. Ogundele, my second supervisor, was immensely very helpful; the most amazing thing about him was his ability to read the same work all over again each time it was presented to him for evaluation. I am very grateful to Prof. S.A. Banjoko, Prof. R.K. Ojikutu , Dr. E. A.Oyatoye, Dr. P. Ladipo, Dr. J. Mojekwu, Dr. J. Ezike, Dr. F. C. Anyim, Dr. M.A. Adebankin, Dr. (Mrs) B. Dickson-Ogbeche, Dr. Hammodu Dallah and his friend Dr. I. Adeleke who read through this work severally and made useful suggestions. Some other members of the Faculty of Business Administration University of Lagos who were at the Faculty defence session and made useful comments deserve my warm regards. Furthermore, my thanks are due in three other prominent quarters. The secretarial staff in my office that helped, in no mean way, to type and retype this work whenever I asked to do so: Miss Egbeonu, Ijeoma, Emmanuel Oderinde and A. O. Ochonogo. No other group other than my family members, especially my children and my wife, bore the brunt of the true sacrifices made to produce this research work. Finally, Glory be to God the Father, the Son and the Holy spirit without whom no man can achieve anything. 6 ABSTRACT This work investigated the effectiveness of pricing as a tool for marketing banking services in Nigeria. This has become necessary in view of the persistent altering of Nigerian banking landscape since the advent of Federal Government Structural Adjustment Programme (SAP) in 1986. Structural Adjustment programme ushered in a period of bank market liberalization that lowered the industrial entering and exit requirements, introduced deregulation in the industry and offered banking model tending towards universal banking. Consequently, the number of banks in the economy rose from 41 to 118. Eighteen years after, (in 2004), the number of banks had shrunk to 89. That was followed by another period of consolidation that saw the emergence of 25 much bigger banks from the 89 in 2005. The Banks had large capital base, this enabled successful ones among them to pick bigger tickets while offering facilities to multinationals and other high net-worth firms in Nigeria. In less than five years, that is in 2009, over a third of these banks were declared seriously sick by the industrial regulator-Central Bank of Nigeria. The subsequent Audit of all the banks highlighted some of the abuse prevalent in the old system. One of the main abuses is the waste of fund by banks in an ineffective and efficient manner towards achieving corporate goals. A good example is the excessive promotion of banks pricing regimes. This research aims at determining the usefulness or otherwise of promoting banks pricing regimes. Survey method was used and data were sourced from primary (questionnaires) and secondary sources. In answering the research questions and testing the relevant hypotheses some statistical tools such as Simple and Multiple Regressions (processed with SPSS and Startgraphic softwares) were used. The findings of this work show that there are little or no relationship between some important variables – such as bank charges variations and demand for banks products, bank charges variation and profitability etcetera. Secondly, Customers hardly appreciate the disparity induced by 7 most price variations and financial rewards (or bets) offered during promotions because the differences do not attain the mandatory just noticeable difference (JND) level as par Weber‟s law. The application of Weber‟s law in a search for solution to marketing problems is regarded as a contribution to knowledge. Cogent and germane conclusions together with recommendations were made to key stakeholders- Banks and Marketers are advised not to promote stimulus with benefits less than the appropriate JND. TABLE OF CONTENTS PAGE NO Title Page i Certification ii Dedication iii Acknowledgements iv Abstract v Table of Content vi List of Tables x List of Figures xvi CHAPTER ONE INTRODUCTION 1.01: Background of Study 1 8 1.02: Statement of the Problem 4 1.03: Purpose of the Study 10 1.04: Research Questions 10 1.05: Research Hypotheses 11 1.06: Operational Definition of (unfamiliar) terms/concepts 12 1.07: Significance of the study 13 1.08: Delimitations of the Study 14 References 15 CHAPTER TWO REVIEW OF RELATED LITERATURE 16 2.01: Introduction 16 2.02: Historical Background 16 2.03: Literature Gap 18 2.04: Step by Step Development of Relevant Models 23 9 2.05 Pricing 32 2.05.1: Preamble 32 2.05.2: General Conceptualization of Price 32 2.05.3: Pricing of Banking Services 33 2.05.4 Nature of Bank Service Market 34 2.05.5: Factors that Influence Pricing Strategy 36 205.6: Pricing Strategies 38 2.05.7: Price Analysis 39 2.05.8 Price-Quality Relationship 43 2.05.9: Monetary Policy Rate 45 THEORETICAL FRAMEWORK 2.06.1: Weber‟s Law 46 2.07: Perception 49 2.08: Application of Perception in Marketing 53 2.09: Absolute and Differential Thresholds 53 References 55 10 CHAPTER THREE RESEARCH METHODOLOGY 59 3.01: Preamble 59 3.02: Research Questions 59 3.02.1: Research Hypotheses 60 3.03: Area of the Study 60 3.04: Population and Sample Size 61 3.05: Sample Design 62 3.06: Data Collection Instrument 63 3.07: Reliability and Validity Analysis 63 3.08: Administration of the Data Collection Instrument 64 3.09: Procedure for processing and analyzing collected Data 65 References 66 CHAPTER FOUR 11 PRESENTATION, ANALYSIS, INTERPRETATION OF DATA 67 4.01: Distribution of Respondents-Customers and Bankers 67 4.02 Respondents‟ Personal Data 68 4.03: Discussions on Research Questions 75 4.04: Summary of findings on research Question I and Hypothesis 1 87 4.05: Research Question 2 87 4.06: Research Question 3 105 4.07: Research Question 4 114 4.08: Research Question 5 124 4.09: Discussion on Research Questions 133 4.10: Statistical Evolution 137 4.11 Research Question 1 (Customer View) 137 4.12 Research Question 1 (Bankers view) 139 4.13 Research Question 2 (Customer View) 142 4.14 Research Question 2 (Bankers view) 143 4.15 Research Question 3 (Customer view) 146 12 4.16 Research Question 3 (Bankers view) 148 4.17 Research Question 4 (Customer view) 151 4.18 Research Question 4 (Bankers view) 152 4.19 Research Question 5 (Customer view) 155 4.20 Research Question 5 (Bankers view) 157 CHAPTER FIVE SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDAT 162 5.01 Introduction 162 5.02 Summary of Main Models 162 5.03 Summary of Findings. Conclusions and Implications (in a Tabula format) 165 5.04 Conclusion 167 5.05 Recommendations 168 5.06 Contributions to Knowledge 168 5.07 Suggestions for further Studies 169 REFERENCES 170 BIBLIOGRAPHY 176 JOURNALS/ARTICLES 190 13 APPENDIX 1 192 QUESTIONNAIRE 193 APPENDIX 2: RESPONSE RATE 199 APPENDIX 3: CBN‟s GUIDE ON BANK CHARGES 221 APPENDIX 4: NEWS PAPER ADVERTS ON BANK CHARGES VARIATIONS 222 LIST OF TABLES PAGE 1.1: CBN Directives for the First Quarter 2010 8 2.1 Ranking of Bank Performance by Customer Service Area-Corporate 21 2.2 Ranking of Bank Performance by Customer Service Area-Retail 22 3.1 Split-Half Reliability Analysis 64 4.1: Customer/Bankers Distribution of Respondents 68 4.2: Age Distribution 68 4.3: Respondents Gender Distribution 69 4.4: Respondent Educational Attainment Distribution 70 4.5: Respondents‟ Employment Relationship with Banks 71 4.6: Classification of Banks‟ Staff 72 4.8: A Distribution Showing Respondents‟ Job Experience 73 14 4.9: Respondents‟ Sectorial