Appendix 41

1. Introduction

1.1. Research Background

Since 1970s, the Western management scholars and entrepreneurs have focused to the research on the customers’ loyalty and they has begun to realize that the main business profit come from the loyal customers. In the market of fierce competition, enterprises should maintain a relatively high customers’ loyalty in order to keep surviving. Peter Drucker once said that the essence of business is to obtain and retain their customers. After that, through the long-term analysis and observation of different industries, American economist Reichheld and Sasser (1990) found that the customers’ loyalty play extremely vital role for the enterprise to obtain its profit and market shares. The results showed that when the customers’ loyalty increased by 5 percent, the profit of the company would increase by about 25 percentage to 85 percentage. Relevant research found that the economic loss of the enterprises losing a mature customer was far greater than the profit they can earn from a new customer.

After China’s joining the WTO, the commercial banking industry in China is facing the “wolves’ effect” of the multinational financial conglomerates gradually coming into China, which would change the pattern of China’s traditional banking market competition fundamentally. On December 3^rd, 2005, the China Banking Regulatory Commission announced the implementation of a further opening up the banking sector related matters announcement, which pointed out that since December 5^th, 2005, the areas where the foreign financial institutions allowed to operate the RMB business were expanded from 18 cities to 25 cities in China. With the deepening of China’s financial industry, more and more foreign banks have entered the Chinese market. Along with the foreign banks’ strong economic strength and long-term advanced management, China’s local commercial banks have become facing huge threats. If China’s commercial banks ignored the importance of the customers’ loyalty instead of taking the initiative measures to retain customers, it must lead to the loss of a large number of customers which would form a serious impact on China’s commercial banks, including the decline in China’s commercial banks’ profits and also their long-term healthy development. In the meanwhile, the competition of China’s commercial banks has gradually become increasingly fierce and their financial products and services has become more and more similar with less characteristics. For instance, if one of China’s commercial banks launched a brand new product or service with its own features, other competitor commercial banks would imitate the product or service with the similar characteristics and after that, the entire commercial banking industry in China would show the competition situation, which could cause the problem of losing loyal customers.