To Understand the Current User Profile of Leeds City Credit Union and Examine the Reasons for Usage by Sharon Kathleen Sewards Submitted in accordance with the requirements for the degree of Doctor of Philosophy The University of Leeds Leeds University Business School October 2011 The candidate confirms that the work submitted is her own and that appropriate credit has been given where reference has been made to the work of others. This copy has been supplied on the understanding that it is copyright material and that no quotation from the thesis may be published without proper acknowledgement. -i- Acknowledgements I would like to thank all those who have been of assistance to me throughout the preparation of this thesis. Special thanks to Professor Nicholas Wilson for his guidance and time during this process and also to Professor Peter Moizer and Professor Jon Reast for their involvement in key stages of this work. Their input has ensured that this thesis has been completed. Special mention must go to Leeds City Credit Union and all the users and non-users who took part in my data-gathering - without this assistance my thesis would not have been possible. In addition, the support provided during the KTP from the Keyworth Institute was second to none. I gained a lot of valuable experience during the KTP programme. Thanks, also, to my parents for their support and practical assistance throughout this journey and to my husband, Damian, for his encouragements. There were times when I couldn't imagine ever finishing this but you have all helped me see it through to the end. Special thanks are extended to Eve Allibone-Dredge who has willingly given up many afternoons to babysit whilst I attended meeting with my supervisors. Finally, this thesis is dedicated to my son, Edward, my little ray of sunshine, who has brought joy and mischievous laughter to my life during the last three years of this study. -ii- Abstract The aim of this thesis is to understand, using detailed modelling, the users and their reasons for use of Leeds City Credit Union (LCCU) with implied application for other UK credit unions. With the initial aims resulting from a Knowledge Transfer Programme (KTP) between LCCU and the University of Leeds, this study has been performed using a case-study (LCCU) with the intention that the findings can be adapted to suit the needs and understanding of other UK credit unions, thus answer the broader research questions around credit union usage. The original contribution to knowledge is therefore the modelling relating to the users and usage of LCCU so that a detailed understanding of the user profile can be tailored and applied to other UK credit unions as niche financial service providers. The main source of data for this thesis was the analysis of a user and non-user questionnaire and this was supported by the use of focus groups. This data was then analysed using a range of techniques: qualitative analysis through the focus groups; descriptive analysis; factor analysis; and regression. From this analysis it was discovered that users are motivated to join LCCU for three key reasons. There are those who: use providers offering the best rates of return; support the ethical stance that the credit union movement offers; and who are financially excluded and unable to access credit elsewhere. Each of these three segments displayed unique profiling characteristics. In addition responses between users and non-users were also compared to identify the significant characteristics of users. These findings were contrary to the expectation that credit unions are just for the poorest sectors of society. This provides not only a unique academic insight in this niche financial services provider but also practically, in the development of a marketing strategy as defined by the KTP programme. -iii- Table of Contents Table of Figures ..............................................................................................................xii 1 Introduction...............................................................................................................1 1.1 Background ........................................................................................................1 1.2 Motivation for Study ..........................................................................................3 1.3 KTP Project and Structure..................................................................................3 1.4 Combining PhD Research with Credit Union Relevance...................................6 1.5 Broad Research Questions..................................................................................6 2 Literature Review......................................................................................................9 2.1 Introduction ........................................................................................................9 2.2 Role of Credit Unions.......................................................................................10 2.2.1 What are Credit Unions?...........................................................................11 2.2.2 Purpose......................................................................................................12 2.2.3 Products.....................................................................................................12 2.3 Sources of Competitive Advantage..................................................................13 2.3.1 Common Bonds.........................................................................................13 2.3.2 Reputation .................................................................................................15 2.3.3 Customer Service ......................................................................................16 2.4 Target Membership ..........................................................................................16 2.5 Governance.......................................................................................................17 2.5.1 Regulatory Structure in the UK ................................................................19 -iv- 2.6 Conclusion........................................................................................................20 3 History of the Credit Union ....................................................................................22 3.1 Introduction ......................................................................................................22 3.2 History and Development of the Credit Union Movement ..............................23 3.2.1 Movement Origins ....................................................................................23 3.3 Present Situation in the UK ..............................................................................25 3.3.1 ABCUL .....................................................................................................26 3.4 The Future of Credit Unions.............................................................................28 3.5 Factors Affecting/Impeding Growth of Credit Unions ....................................30 3.5.1 Product Offering .......................................................................................31 3.5.2 Strategic Vision.........................................................................................31 3.5.3 Legislation.................................................................................................32 3.5.4 Reputation .................................................................................................32 3.6 International Comparisons ...............................................................................33 3.7 Conclusion........................................................................................................34 4 Background to Financial Services...........................................................................36 4.1 Introduction ......................................................................................................36 4.2 UK Financial Services......................................................................................37 4.2.1 The Development of Financial Services in the UK ..................................37 4.2.2 Key Factors in the Development of Financial Services in the UK ...........38 4.3 Current Market Situation..................................................................................38 -v- 4.3.1 Credit Unions Within the UK Financial Service Market..........................39 4.3.2 Financial Exclusion...................................................................................40 4.4 Relationship Marketing within Financial Services Markets ............................42 4.4.1 Relationship Marketing Using Segmentation ...........................................44 4.4.2 Segmentation of Financial Services Customers........................................45 4.4.3 Previous Research Into The Financial Services Consumer.......................61 4.5 Customer Behaviour.........................................................................................62 4.5.2 Other Dimensions/Appeal.........................................................................72 4.6 Conclusions ......................................................................................................73 5 Leeds City Credit Union - The Case Study.............................................................75 5.1 Introduction ......................................................................................................75