How small business firms select a bank: METHODOLOGY

How small business firms select a bank: METHODOLOGY

Data for this study were obtained by means of a nationwide mail survey of business firms in both countries. A total of 1,925 surveys were mailed in the United States and 2,500 were mailed in Australia. These surveys were conducted in 1992 and 1996. Each survey was personally addressed to the managing director or chief financial officer in order to increase the response rate. Names and addresses were obtained from commercial mailing list providers. Although firms were randomly selected, the lists were stratified to include firms in all industries (except financial services) and firms in all states.

All responses were kept anonymous and no follow-up mailing was conducted.

Each respondent was provided with a list of 14 possible criteria and asked to rank the three most important factors they consider in selecting a banking partner. (See Exhibit 1.) These individual selection criteria are related to the technical, functional, and relational needs of business owners. They were determined after an extensive review of bank marketing literature related to servicing business clients and after the authors had conducted personal interviews with both bank managers and business owners in the local community to get some ideas of the range of needs that small businesses actually have. (For a more detailed discussion of the factors considered important in the bank selection process see Zineldin, 1996a). Furthermore, the survey instrument was pre-tested in a mailing to over 400 family-owned businesses located throughout the United States.

In the process of completing the survey, respondents were requested to provide background information concerning their firm, such as area of operation, years of operation and number of banking organisations used. They were also given the opportunity to describe other selection criteria they considered important in the bank selection process to ensure that no important bank selection criteria had been overlooked.

In order to determine which of the various factors small business firms in each country consider most important in the bank selection process, weighted average rankings were derived. To determine the weighted average rank score, all factors that were ranked first were given a score of 3, factors ranked second a score of 2, and factors ranked third a score of 1. The total score obtained for each factor was then divided by the total number of country responses to arrive at the rank score. If all respondents in a country selected the same factor as being first, it would have a rank score of 3, the highest score possible. The rank scores for all 14 bank selection criteria were compared using a Student-t test to determine if there were significant differences between countries.

Exhibit 1 Factors affecting bank selection
A. Bank charges competitive prices for products and services
B. Bank can deliver all the products and services required
C. Bank is efficient in its day-to-day operations
D. Bank is innovative and provides new ideas/ products and uses current/new technology
E. Bank has a strong reputation in the community
F. Bank has the ability to provide a long-term business relationship
G. Bank provides a personal banking relationship
H. Bank is located in a convenient location
I. Bank is willing to accommodate your credit needs
J. Bank can make decisions quickly
K. Bank has knowledge of your company’s business
L. Bank provides some products and/or services at below market rates
M. Bank is financially healthy
N. Recommendations from business associate or friend

Since respondents were required to select only three of the 14 possible bank selection criteria, the measurement scale for the data can best be described as being a ‘truncated ordinal’ measurement. For the measurement scale to be ordinal, respondents would have had to rank all 14 criteria. As a result, it was necessary to select a simple statistical procedure for both reporting and analysing the data. A weighted average rank score and Student-t test satisfy this requirement.