1.1 Background of the Study

Customer retention refers to customer’s stated continuation of a business relationship with the firm (Timothy et al, 2007). The banking industry is highly competitive, with banks not only competing among each other, but also with non-banks and other financial  institution alike (Hull, 2012) most banks product development are easy  to duplicate and when banks provide nearly identical services, they can only distinguish themselves on the basis of price and quality.

Therefore, customer retention is potentially an effective tool that banks can use to gain a strategic advantage and survive in today’s ever-increasing banking competitive environment (Bara, 2001).

In the last five years, the European banking market has witnessed unprecedented turmoil as it has undergone a period of massive uncertainty and change, with the Deposit Money Banks (formally known as commercial banks) that had enjoyed record profit in 2007 now the subject of intense public scrutiny and, in impact on customer retention seem inevitable (Ernest and Young 2011).

Successful customer retention starts with the first contact an organization has with a customer and continues throughout the entire lifetime of a relationship (Atieno, 2001). A bank ability to attract and retain new customers is not only related to its products or services, but strongly related to the way it serves its existing customers and reputation it creates within and across the market place. In New Zealand, customer retention is an important element of banking strategy in its increasingly competitive environment (Gale and Wood 2003) and this also applies to Nigeria. Meanwhile financial institution management in Nigeria always identifies and improves upon factors that can limit customer defection.

Organizations worldwide have various ways of enhancing their customer retention although the ways vary from one organization to another depending on the actual functions of each organization; this is done in a bid to improve customer satisfaction with the organization.

Customer retention strategy has emerged as the most important phenomenon in organization in that it enables mangers to harness the energies of all customers to determine their strength and maximize both customer retention and satisfaction, the success of any of Deposit Money Bank involved in the process of credit services and lending money to its customers should rely on its credit policy which in any case  should be developed with customer needs and expectation at the back of their mind, the neglect of which can lead to lending disaster, it is probable that Deposit Money Banks should follow a logical approach taking each important factor in financial services one at a time and assessing with the pending preposition (Alareon 2008). As Kelvin (2006) points out, customer locally is all about driving perceived value, whether that is rational (functional, quality, cost etc) emotional (trust, services, communication, information and brand equity) or a combination of these two dimensions.

First, identify what leverage top-end customer commitment and advocacy behavior and then build customer experience around it. According to Loulenstain (2001) there is no standard schedule for how often to communicate with customers to build locally. In his research, customers reported on interest in receiving communication from suppliers as long as they could see personal value in each message.

In Nigeria, Deposit Money Banks operate with a view to realize profit on the services advanced to the customers and for the recipient to better her economic life in terms of breaking the poverty cycle. However, for this to happen, the cost involved either side has got to be analyzed, measured and translated into the strategy affected in the performance of the Deposit Money Banks. Over the last few years in Nigeria, banks have continued to grow in assets, deposits profitability and products offered. The growth has mainly been attributed to festering local customer. It cost retails banks as much as six times more to attract a new customer as it does to retrain an existing one, and yet for many years the industry has not always focused on customer loyalty and the opportunity among its existing client base, (Ernest and Young 2011) Deposit money banks such as Access Bank, Diamond Bank, United Bank for Africa and Zenith bank in Nigeria advance credit to customers with a view to make profit.

Thus delivering high quality services to client is just as important as delivering performance that meets or exceeds their expectation. Customer’s naturally gain a sense of security placing their money in an institution they believe to share their need to know those interests are being cratered for. It is therefore of utmost importance that deposit money banks in Nigeria understand and appreciate those services attributes that appeal to their customers in order to satisfy them and ultimately retain them for continuous business. Therefore, it is against this background that this paper is based in order to assess the effect of customer retention strategy on performance of deposit money banks in Nigeria.