Customer orientation and business performance in community banks: A five year comparison

Abstract

Abstract:Prior studies involving the influence of market orientation on enhanced business performance have shown mixed results. The purpose of the 2011 study was to determine if over the five year period since the 2006 study, the market orientation of community banks in relationship to their business performance had changed. The authors theorized that this inconsistency may be caused by the investment in a market orientation having a diminishing returns when measuring enhanced business performance. To this end authors surveyed community oriented commercial banks in six states. The authors used the responses of the individual bank's CEOP as a proxy for the senior management measure of a commitment of market orientation. They used audited numbers from audited financial statements submitted by the individual banks to their governmental regulators to compute a return on assets which was used as the measure of business performance. The result of the study concluded that there was indeed a point of diminishing return on assets when investing in marketing orientation and identified such a point using a seven pint scale. The point of diminishing return was also identified for each of three components of market orientation using the same scale. It appeared that those banks who tended to control their customer orientation in the 2006 time frame, were better positioned to be successful in the stressed economic times. The participating banks corporate culture, relative to the value of a portion of its customer base that was unprofitable or marginally profitable, and the bank's willingness to move away from these customers, and their propensity to show profit level not enjoyed by their competitors, allows for their survival today.