Today, there is a fierce competition in the SMEs in Nigeria, and one of the key issues is the company‟s ability to practice effective Customer bonding to achieve customer satisfaction in order to retain its existing customers and look for more. The subject of Customer bonding, Customer Satisfaction and Customer loyalty  has become a global issue. The study sought to examine the effect of customer bonding on customer loyalty , with customer satisfaction playing the mediation role.




1.1 Background to the study

Several organizations including small and medium enterprises spend a significant part of their time, energy and resources chasing new business ideas. Even though it is important to replace lost business, grow the business and expand into new markets, one of the primary goals is to keep existing customers and enhance customer bondings (Weinstein, 2002). Thus, the cost of acquiring new customers can be up to 10 times the cost of retaining existing ones, and even a small increase in retention rates can add thousands of cedis to premium revenue.

Experience shows that a customer holding two policies with the same company is much more likely to renew than a customer holding a single policy and – it is impossible to determine which types of customers are profitable and should try to retain. Although finding new customer is very important, the emphasis is shifting towards retaining profitable customers and building lasting relationship with them. Companies have also discovered that losing a customer means losing not just a single sale but also a life time’s worth of purchase and referrals. In effect, the double goal of marketing is to attract new customers by promising superior value and retain current customers by delivering satisfaction (Kotler & Armstrong, 2011).

Most insurance product developments are easy to increase and when SMEs provide nearly similar services, they can only distinguish themselves based on effective customer relationship management (CRM) and customer satisfaction practice. Customer loyalty is the central concern for CRM. Customer satisfaction, which refers to the comparison of customers‟ expectations with his or her perception of being satisfied, is the essential condition for retaining customers (Kracklauer et al., 2004). Therefore, customer loyalty is an effective and importance tool that small and medium enterprises can use to gain a strategic advantage and survive in today’s ever increasing insurance competitive environment.

CRM represents an activity to developed full-knowledge about customer behavior and preferences in order to initiate programs and strategies that encourages customers to continually enhance their business relationship with the company (Parvatiyar A & J. N. Sheth, 2001). The strategies of customer bonding management are anticipated to curtail occurrence of service failures that motivate customer to switch in the insurance industry (Crosby et al., 1990; Jones & Farquhar, 2003; Best, 2002; Mithas et al., 2005; Uppal, 2008 and Sharma et al., 2011). Furthermore Verhoef (2003), study demonstrates that, CRM positively affect customer loyalty. Verhoef & Donkers (2001), confirm that CRM allows small and medium enterprises to employ strategies with the help of customer databases in administrating personal customer bonding effectively towards retention. Customer bonding has typically been viewed as an important determinant affecting customer loyalty. The connection between customer bonding and customer loyalty is worth studying in the competitive Nigerian insurance market.

1.2 Statement of Problem

Small and medium enterprises offer inimitable financial services which promotes the growth of every nation. The services range from the underwriting of risks common in economic entities and the mobilization of large amount of funds through premiums for long term investments. The risk absorption role of insurers ensures financial stability in the financial markets and provides a sense of security to economic entities. The business world without insurance is unsustainable since risky business may not have the capacity to retain all kinds of risks in this ever changing and uncertain global economy (Ahmed et al., 2010). Indeed, a well-developed and evolved insurance industry is a boon for economic development as it provides long- term funds for infrastructure development of any economy (Charumathi, 2012). The National Insurance Commission, the regulatory body of the Nigerian insurance sector, has therefore intensified its supervision, field visits, and has adopted a risk-based assessment of insurer’s activities. All of these regulatory measures are to ensure that the performance of small and medium enterprises is in sound condition.

In spite of the important role of the insurance industry, there is little information in the industry to help professionals to work to make good policies and address the needs of customers and formulate effective policies. Availability and easy access to accurate statistics on the Nigerian insurance market remains a big challenge to the sector today. Most Nigerians therefore are totally at a loss about what actually transpires in the industry. This has affected insurance penetration negatively in Nigeria. For instance, in 2008, insurance penetration in Nigeria was 1.57%, whiles South Africa recorded 12.7% (National Insurance Commission [NIC] Annual Report, 2008).

Most of the Nigerian insurers argue that, the insurance business is drenched however there is high participation of foreign small and medium enterprises indicating the unexploited opportunities in the country (Ansah-Adu et al., 2011). The core argument is that,

CRM practices can support organizations to achieve marketing productivity through establishing strong relationship with the customers in competitive markets (see Parvatiyar & Sheth, 2001; Sheth & Parvatiyar, 1995; Sheth & Sisodia, 2002). Thus, when organizations concentrate on customers by practicing CRM strategies, they can understand their needs and provide greater value which will improve company’s position in the competitive market. However, the effectiveness of CRM to achieve customer satisfaction and influence customer loyalty remains skeptical. Organizations perceive CRM operations as purely technological (see Payne & Frow, 2005) rather than delivering customer needs through organizational plans, staffs and procedures of service (Sharma et al., 2011).

Moreover, Relationship marketing literature is sated with studies that explores on effects of CRM to improve customer loyalty (Boulding et al., 2005; Mithas et al., 2005, Uppal, 2008 and Sharma et al., 2011); and the effectiveness of CRM from the customer’s perspective (Padmavathy, 2012; Palmatier et al., 2006 ), effects of customer satisfaction on customer loyalty (Reichheld & Teal, 1996; Best, 1998; Reinartz & Kumar, 2000; Reichheld & Kenny, 1990 and Khan 2012.) and the effects of CRM on customer satisfaction (Mithas et al, 2005; Faed, 2010;Hassan, 2015; Long et al.,2013;Izquierdoet al., 2005; Khedkar, 2015).

Additionally, the impact of CRM practices on different industries have been extensively studied as well in areas such as hotels (Lo et al., 2010), retailing (Gummesson, 2004; Long et al., 2013; Payne et al., 2005; Minami & Dawson, 2008), banking services (Dimitriadis, 2010; Anabila , 2010), tourism (Ozgener & Iraz, 2006), transport services (Cheng et al., 2008), cellular industry (Saadat et al., 2013) and public services (Pan et al., 2006). Despite these numerous studies, there is a relatively low literature on the effects of CRM on customer satisfaction in the insurance industry (Rastghalam et al., 2014; Verhoef, 2003) and to examine the influence of CRM practices on customer loyalty in the insurance industry. Furthermore, there is no research conducted to examine the mediation role of customer satisfaction on the relationship between the effect of CRM on customer loyalty in the insurance industry at large and particularly in Nigeria from the customer’s perspective (see Abu, 2011).


1.3 Research Objectives

The main aim of the study is to explore the effect of customer bonding on customer loyalty on SMEs in Nigeria with customer satisfaction playing the mediating role. The specific objectives would be as follows:

To examine the relationship between customer bonding and customer loyalty in SMEs in Nigeria

To examine the relationship between customer satisfaction and customer loyalty in SMEs in Nigeria

To examine the mediating role of customer satisfaction in the relationship between customer relationship management and customer loyalty in SMEs in Nigeria.


1.4 Research Questions

Based on the objectives set above, the study seeks to answer the following questions:

What are the relationship between customer bonding and customer loyalty in SMEs in Nigeria?

What are the relationship between customer satisfaction and customer loyalty in SMEs in Nigeria?

What is the mediating role of customer satisfaction in the relationship between customer relationship management and customer loyalty in SMEs in Nigeria?


1.5 Significance of the Study

The results of this study would hopefully be significant in the sense that it would enable small and medium enterprises to better understand why customers defect; the effect of customer relationship management and the various motivational factors which could be harnessed to inspire customers to retain them to increase and sustain productivity.

The study would also contribute to the little existing knowledge on customers’ loyalty in SMEs in relation to the effects of company’s profitability.


1.6 Scope of the Study

The study would be limited to the selected Small and medium enterprises in Abuja, Nigeria. The customers would comprise the study population and the study would be carried out in the space of 6 months.


1.7 Limitations of the study

In spite of the significant contribution of this study to literature, the study has some limitations. Firstly, this study used subjective measure for the variables in place of objective measures. Nonetheless, subjective measure appears to be most suitable measure for the variables in the context of this research. Lack of reliable company information from staffs with the doubt of such information reaching their competitors coupled with inappropriate documentation by the companies in the non-life small and medium enterprises in Nigeria do not make it possible to use objective measure. Despite the limitations, subjective measures of performance have been used extensively by researchers (Cosby et al., 1990; Padmavathy et al., 2012; Wong et al., 2007; Rai et al., 2013) to study large samples. Furthermore, Wall et al. (2004) confirms the validity of subjective measures as alternative for objective measures. Additionally, generalizing the outcome across African countries must be done carefully since the study was limited to an emerging economy in the sub-Saharan African country of Nigeria.


1.8 Overview of the Research Methodology

This section outlined the research methodology processes to be used in the study. A discussion of the study’s survey research design is presented and its adoption justified. The population and the sample strategies are all covered in the study. It also covers the sources of data which would be used to obtain the data for the study and the tool for the data analysis.

Furthermore, the study combined both primary and secondary data. The secondary data was collected from published literature, journals, brochures, company information etc. The primary data was collected through a survey questionnaire. Policy holders are the target population because they are homogeneous in their use of insurance services. Their opinions will be sought because they would be best to evaluate existing stage of SMEs. Data was collected from 450 customers of some selected SMEs in Nigeria, specifically Abuja, on convenience basis.


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