Double jeopardy in Kuwait banks: a focus on mutual funds.

Pleshko, Larry P. ; Wugayan, Adel Al-

INTRODUCTION

A company needs to focus at least a proportion of marketing efforts on the development, maintenance, or enhancement of customer loyalty (Dick and Basu, 1994). This emphasis is important because a company with a large number of brand loyal buyers will be more secure in its markets and should have a higher market share than other firms without this vital customer asset (Raj, 1985; Robinson, 1979; Smith and Basu, 2002). Competitors are at a disadvantage when some firms have a larger number of brand loyal buyers than they have. The many advantages of relatively higher numbers of brand loyal buyers include: a greater response to advertising (Raj, 1982), larger purchase quantities per occasion (Tellis, 1988), and reduced marketing costs (Rosenberg and Czepial, 1983). The advantages garnered from loyalty are especially important since, as markets become more mature, increases in share become more expensive and improvements in the loyalty base might be a viable means of increasing and maintaining share (Gounaris and Stathakopoulos, 2004).

The fact that competitive markets oftentimes exhibit similar market structure characteristics (market share), which in turn was found to be correlated with the number of brand loyal buyers, was first noticed by McPhee (1963). This observance that brands with large market shares usually had the most brand loyal buyers (and vice versa) was termed "doublejeopardy" (DJ) because it seemed unfair for smaller brands to suffer in both ways. Previous research related to DJ suggests its' applicability to a variety of consumer brands and setting. Additionally, other consumer-specific variables exhibit a similar relationship to market share as does consumer loyalty (Ehrenberg et al, 1990).

This study applies the aspects of DJ to the area of mutual fund services in Kuwait. The setting is relevant because few have investigated the DJ phenomenon in Asia (Yang et al, 2005). Plus, only one investigation to this point has studied double jeopardy in the Kuwait market (Pleshko and Al-Wugayan, 2008). Nor have there been many studies in the retail services industries. Most research has focused on brand-level relationships rather than service-level or store-level relationships, as would be necessary in retailing or banking (Meyer-Waarden and Benavent, 2006, Rafiq and Fulford, 2005).

Additionally, the DJ topic is extremely relevant to the banking sector in the Middle East, where markets are opening to global competition as a result of the Arabian Gulf coast country (GCC) members joining the WTO. The presence or absence of the DJ phenomenon in financial services may be critical to companies' decision making, since it would be difficult for small-share firms to grow and show long term success with evidence of a strong DJ effect. Additionally, it may be difficult for foreign or other new firms to enter a geographical market with strong DJ effects. The authors attempt to identify whether the DJ phenomenon is evident through a survey of investors in Kuwait by analyzing the relationship of loyalty to market share as they pertain to mutual funds.

THE DOUBLE JEOPARDY PHENOMENON

A firm's long-term success depends on both its ability to attract customers and its capability to retain these customers (McDowell and Dick, 2001). Jones (1990) points to this fact by stating that manufacturers should regard sales volume and market share as keys to the future, given that both involve sources of repeat business and scale economies. McDowell and Dick (2001) rightfully remind us that a brand's market performance is driven by both the number of individuals buying a particular brand and the frequency of repeat purchases from these customers. The ability to manage these two factors determines the extent to which a firm maintains and sustains its customer base, as well as its market share. Indeed, Robinson (1979) and Raj (1985) state that the larger the number of loyal customers, the more secure will be the brand's market share. Therefore, as a priority, all companies must both find ways to attract new customers to an existing user base and to retain these buyers over the long term. So, it must be that firms constantly battle with competitors to maintain or increase both the number of buyers and the loyalty of these customers. When a firm fails to hold a strong relative competitive position, it runs the risk of a widespread phenomenon called "double jeopardy" (DJ).

Double jeopardy is broadly characterized as a phenomenon whereby small-share brands attract somewhat fewer loyal consumers, who tend to buy the brand in smaller quantities, while larger-share brands are purchased more often by customers who exhibit more loyalty (Ehrenberg and Goodhardt, 2002; Badinger and Robinson, 1997, Donthu, 1994; Martin, 1973; Michael and Smith, 1999). Thus, less popular brands are punished twice: (i) they have fewer buyers who show (ii) less loyalty to the brands they buy. McPhee (1963) explained that DJ occurs when consumers select between two brands of equal merit, one having a larger market share and the other having a smaller market share. This does not necessarily signify a weak small brand or a strong large brand. Rather, it reveals that the smaller share brand is less popular than the larger share brand for some reason (Pleshko and Souiden, 2007, Ehrenberg and Goodhardt, 2002, Ehrenberg et al, 1990).

Although long established, the DJ phenomenon has a variety of issues as yet unsettled (Ehrenberg and Goodhardt, 2002). For instance, though previous research has found an obvious relationship between brand share and loyalty in many instances, whether loyalty is a cause or a result of high share remains unclear (McDowell and Dick, 2001). Likewise, previous research has focused mainly on the issue of DJ for the product brand while the relevancy for the company brand, the retail brand, or the service brand is rarely discussed. Thus, the main issue--'why two equally regarded brands or products differ in their relative shares of the market?'--is still not truly defined in most settings. Three possibilities may be drawn from the literature as explanations for double jeopardy: (i) a familiarity effect, where buyers are loyal to popular brands (c.f. Ehrenberg et al, 1990; McPhee, 1963), (ii) an experience effect, where satisfied customers develop loyalty (c.f. Tellis, 1988; Raj, 1982; Brown and Wildt, 1992; Johnson and Lehman, 1997; Narayana and Markin, 1975; Nedungadi, 1990; Pleshko and Souiden, 2007), and (iii) a design effect, where the better product wins (c.f. Ehrenberg et al, 1990; Keith, 1960). Of these three, which are most relevant will depend on the industry and circumstances.

DATA COLLECTION AND SAMPLE

The data for the current study are gathered from a group of consumers who are mutual fund investors at banks in the state of Kuwait. It was important to select a type of service that would add to the study of double jeopardy, as we would expect to find differences based on product-classes (Chaudhuri and Holbrook, 2002). In most cases, financial services may be considered a shopping product because consumers make decisions about these services using extended decision-making to choose between many similar offerings (c.f. Murphy and Enis, 1986).

The sample, comprised of bank customers in the State of Kuwait, is derived from a sampling frame provided by the Ministry of Planning. The data are from self-administered questionnaires collected from visits to households of both local citizens and foreign residents. This process results in a total of seven hundred and seventy respondents, of which three hundred and thirty are mutual fund investors and thus included in the study. Note that the sampling methods employed a multi- stage approach in order to ensure the sample proportions closely matched the actual proportions of bank users in Kuwait. The sample also reflects the distribution of residence over the six districts of Kuwait. Non-Response was lower than ten percent, a seemingly acceptable number given the sensitive nature of the information gathered. The quality of data was ensured by the field data collectors who disqualified respondents unwilling to share information about their banking activities. Additionally, all questionnaires in Kuwait must be approved by a government ministry, thus lending credibility to the research and enhancing response rates.

Many financial services companies exist in Kuwait in a variety of categories; however, only those companies offering mutual funds are investigated in this study. At the time of this study, foreign banks were not permitted to operate in the market and are therefore not included in the study. Currently there are thirty-six companies offering mutual fund services, with most of the activity handled through the ten major banks of Kuwait. Thus, the ten banks are each included in the study as individual entities, while the remaining twenty-six providers are grouped together into an 'other' category due to the small market shares. Therefore, there are eleven 'banks' that will be included in the analyses regarding mutual fund investors; the ten major banks by market share, along with an 'other' category which includes the averages of twenty-six banks and financial services companies. Table 1 summarizes the banks and investors data derived from the respondents.

From Table 1 many items are noted regarding the sample: (i) the banks are identified in the first column, (ii) the number of investors for each bank from the sample are shown in the second column, (iii) the number of investors from the sample pertaining to the banks where the investors have the largest proportion of money invested is shown in column three, (iv) the total number of mutual fund accounts held by the investors in the sample is shown in column four, and finally (v) the total mutual funds investments in Kuwaiti dinars (Kd) is revealed in column five. It is noteworthy to see that investors may have more than one mutual fund investment account. Additionally, the investors may have mutual fund investments at more than one bank. Thus, the numbers will show that there are more investors (column two) and accounts (column four) than total investors. However, column three shows the bank where the customer has the majority of their investment money and those numbers will add approximately to the number of respondents (330): two hundred forty seven (three not grouped) associated with the ten major banks and eighty with the other banks.

When one considers investments with multiple banks, the three hundred thirty respondents in the study count as five hundred and thirty investors across the thirty six banks (see Table 1, column two). Additionally, these investors have a total of seven hundred and thirty-two mutual fund investments in Kuwait (see Table 1, column four). These mutual fund investments total approximately Kd16,538,179. Eighty-four percent are associated with the ten major banks and the remaining sixteen percent invested in the other twenty-six banks.

MEASUREMENT

The study includes a variety of constructs pertaining to market share and consumer loyalty. The overall numbers for the three market share indicators and the single loyalty indicator are derived by summing across the respondents to arrive at aggregate sample totals for each bank. These overall measures are percentages for the market shares and a frequency for loyalty. The indicators are described below and are derived from research in other industries where similar measures are shown to be reliable and valid for aggregate measures within services retailers (Pleshko, 2006). The aggregate market share and loyalty indictors are revealed in Table 2 for each of the banks. Note that these are the data used in the DJ analyses to be described later. Note that to gather the data, the respondents were asked to write the bank, investment amount, and year initiated for each mutual fund investment.

The first market-share indicator (MSFI) refers to the share of investors that each bank holds. As previously noted, there are more investors than sample respondents due to multiple accounts held by each investor (see column two, Table 1); the total investors are actually five hundred and thirty. Thus, MSFI is calculated as follows: MSFIi = Si/530, where 'S' refers to the data from column two in Table 1 and 'i' refers to the specific bank. So, regarding Bank 33 for example: MSFI33 = 74/530 = 13.96%. From Table 2, it is noted that the range of MSFI is from a low of 0.78% for 'other' banks to a high of 17.74% for Bank 17.

The second market-share indicator (MSFA) refers to the share of mutual fund accounts/investments that each bank holds. As noted previously, there are more accounts than respondents (see column four, Table 1); the total accounts are seven hundred thirty-two. Thus, MSFA is calculated as follows: MSFAi = [T.sub.i]/732, where 'T' refers to the data from column four in Table 1 and 'i' refers to the specific bank. So, regarding Bank 33 for example: [MSFA.sub.33] = 99/732 = 13.52%. From Table 2, it is noted that the range of MSFA is from a low of 0.76% for 'other' banks to a high of 19.13% for Bank 17.

The third market-share indicator (MSVA) refers to the share of money invested that each bank holds. Recall from the previous paragraphs that the total value of the respondents' investments in mutual funds is Kd16,538,179. Thus, MSVA is calculated as follows: [MSVA.sub.i] = [Z.sub.i]/16,538,179, where 'Z' refers to the data from column five in Table 1 and 'i' refers to the specific bank. So, regarding Bank 33 for example: [MSVA.sub.33] = 3,083,503/16,538,179 = 18.64%. From Table 2, it is noted that the range of MSVA is from a low of 0.61% for 'other' banks to a high of 23.61% for Bank 17.

The three market share indicators appear to be reliable equivalent forms of the same concept, as they are significantly and positively related as analyzed by the Spearman rank-order test. The relationships are as follows: MSFI-MSFA (rho=0.97, p<.01), MSFI-MSVA (rho=0.90, p<.01), and MSFA-MSVA (rho=0.88, p<.01).

The loyalty indicator (LOYF) refers to the number of mutual fund investors at each bank. Specifically, LOYF is defined as the number of investors at each bank, where the investors are assigned to a specific bank only when they have the largest investment from their total mutual fund monies at that bank. You may recall from previous paragraphs that the total number of classified respondents is three hundred and twenty-seven. So, regarding Bank 33 for example: [LOYF.sub.33] = 45, which are 13.76% (45/327). From Table 2, it is noted that the range of LOYF is from a low of three (0.91%) for 'other' banks to a high of forty-six (14.06%) for Bank 17.

ANALYSIS/RESULTS

The Spearman (1904) rank correlation coefficient is used to analyze the association between market share and the variables under investigation. Spearman's test statistic, rho or "r", is calculated with data taken from 'n' pairs (Xi, Yi) of observations from the respondents on the same objects, the retail brand outlets. In this study, market share makes up one of the observational items in the pair, while loyalty is the other item. The observations within each pair of variables is then ordered from smallest to largest and assigned the respective ranks from one to n, where n refers to the number of banks: eleven in this case. The construct values, rankings, test statistics, and '//-values are shown for each construct of interest in Table 2 and Table 3. Ties are assigned the average ranking value. These "rankings pairs" are then used to calculate the test statistic, "rho", which is also represented in this study as "r".

To calculate the "r", the "rankings pairs" are compared: this would include each of the market share indicators being compared separately to customer loyalty (LOYF). The test statistic, rho, is calculated as follows: r=1-6[Sum(d2)/n(n2-1)]. In the equation, W equals the number of paired rankings (in this case, eleven) and 'd equals the absolute differences between the rankings for each bank. The test statistic ranges between +1 (perfect positive association) and -1 (perfect negative association).

In this study, two-tailed tests are performed, giving the general hypotheses for the paired variables: Ho: independently ranked pairs (no relationship between the rankings of loyalty and share) or Ha: related ranked pairs (relationship between the rankings of loyalty and share. Table 3 reveals the results of the analysis.

As noted in Table 3, the rank ordering of the loyalty indicator is significantly related to the rank orders of all three market share indicators. The test of LOYF-MSFI (rho=+.7932, /?<01) shows a significant positive relationship. The test of LOYF-MSFA (rho=+.6795, /><05) shows a significant positive relationship. Also, the test of LOYF-MSVA (rho=+.8523, /?<01) shows a significant positive relationship. Thus, three out of three statistical tests support the existence of double jeopardy in Kuwait banks' mutual fund investment services, as tested across banks.

DISCUSSION/LIMITATIONS

The findings of this study reveal that the concept of double jeopardy (DJ) does apply to banks which are mutual fund providers in the state of Kuwait for the given sample. The rank orders of market share and loyalty are significantly and positively related in all three statistical tests, revealing a strong DJ effect. The use of multiple indicators (and thus the multiple tests) allows greater confidence in the conclusions of the study than would be possible without multiple equivalent measures. Thus, we can conclude that banks with larger shares in mutual fund services also have larger percentages of loyal buyers and vice versa.

This finding adds additional support to the relevance of Double Jeopardy in retailing and/or service providers, which are distinct from the brand names which they market. Regarding other retail categories, research using similar methods has shown DJ to be strongly evident in other banking services (consumer loans) and fast-food outlets (Pleshko and Al-Wugayan, 2008; Pleshko et al, 2006). Thus, it appears that double jeopardy is an important strategic issue for managers not only dealing with FMCG products, but also for service and retail providers.

The presence of DJ in banking services may be related to the generally well-recognized brand names that are evident in the banking industry. Or the DJ effect might be a result of the high involvement levels associated with these types of services. In other words, maybe DJ is more prevalent with shopping or specialty products than with convenience or preference goods (Murphy and Enis, 1986). This would be contrary to the findings of Lin and Chang (2003), who suggest the DJ relationship to be stronger in low involvement products.

The readers must wonder if the current findings are indicative of general tendencies or simply a characteristic of this limited study in the Kuwaiti market. More and varied studies taken over time are probably needed to truly identify the scope of the double jeopardy phenomenon in banking. Additionally, this study only addressed mutual fund investments: no evidence is provided that these findings apply to other banking services, such as business loans or money transfers. Future research might also include both different target respondents (commercial banking) as well as different product-markets, both in the banking sector and elsewhere.

IMPLICATIONS

As double jeopardy is shown to be evident in this part of the banking sector, there are definite implications for the competitors within the industry. As the DJ name implies, this may reveal a future problem for the smaller Kuwaiti banks which offer investment services. Smaller Kuwaiti banks are faced with, not only lower market shares, but with smaller numbers of brand loyal buyers. The result of having fewer loyal buyers is that the smaller-share banks will (theoretically) gradually lose market share to the larger banks as time progresses. This digression in share occurs as buyers switch among the banks from small-share to large-share and vice versa (c.f. Bandyopadhyay et al, 2005). But with fewer buyers switching to the smaller share banks, in the long run these small banks may end up with even smaller shares. This long-term digression may be prevented with an active marketing program aimed at increasing loyalty within the users of the smaller banks. In this way, even though the banks have smaller shares, they will be able to rely on an equally strong loyalty base for future business.

The prognosis for larger banks is the opposite. Larger share banks, assuming continued high-quality managerial decision making, should end up growing even larger in the long-term. The large-share banks are facing a much better situation. Due to the advantages of having a large share to begin with (familiarity, stronger brand names, better performance, etc.), these larger banks do not face the digression in market share expected with the smaller banks. On the contrary, the large-share banks should ideally increase market share, due to gaining switchers from the small banks and a larger share of newcomers, as long as loyalty levels remain high relative to the smaller banks. Thus, large banks can focus, as might normally be expected, on expanding the market size. This focus on market size for larger-share banks should lead to a larger percentage of growth than smaller-share banks would expect.

But this gradual movement within the industry to fewer and larger banks might take longer than expected in other industries due to the peculiarities of this type of service. Investment services generally have a longer purchase cycle. Considering this purchase cycle, it might be years before a second or third investment decision is made again and a switching decision might occur. Thus, the medium to long terms inherent with fund investments helps ensure that business remains with the originally selected bank, unless a problem occurs within the market or a specific bank. Again, these low levels of switching, once a bank service is selected, makes it more difficult for the smaller- share banks to gain share.

Finally, this study and the findings are particularly relevant for the Kuwait bank sector as the market opens up to foreign competition in line with WTO requirements. It may be that the local banks feel confident with their current shares, due to the existence of loyal buyers for each bank. This confidence may be folly. As the new multinational banks enter, and upon seeing difficulty in gaining share from the existing customer groups in current service areas, they may well focus on expanding the market size by targeting current nonusers or new segments of the industry. Even though DJ applies to mutual fund services in the existing markets of Kuwait, this will most likely not be evident in new segments of the market. Any carryover effect of DJ from one service to another for each bank has no support at the current time as no one is studying this issue. Therefore, local banks in the current segments should have advantages over new-entrant foreign banks within the current buying market. However, this DJ advantage may not be evident within new segments. The results of large global foreign banks entering new segments could be disastrous in the long run for not only the smaller-share banks, but maybe even for some of the larger-share banks as well. Therefore, while Double Jeopardy may be a viable barrier to entry or competitive tool for current markets, there are no guarantees that this phenomenon will protect large-share banks during future endeavors into new markets or new service areas.

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AUTHORS' NOTES

Dr. Pleshko received his Ph.D. from Florida State University. He specializes in marketing strategy research related to firm performance and consumer behavior as it relates to marketing strategy. He has taught at universities in Australia, Saudi Arabia, the USA, the United Arab Emirates, Kuwait, and Jamaica. His previous work experience includes managerial and consulting positions both in the USA and abroad.

Dr. Al-Wugayan received his Ph.D. from the University of Rhode Island. He specializes in Cross Cultural Consumer Behavior research and in Business Ethics. He is currently on leave from Kuwait University and is serving the State of Kuwait as the Secretary-General of the Supreme Council for Planning and Development.

Larry P. Pleshko, Kuwait University

Adel Al-Wugayan, Kuwait University

Table 1: Bank and Investor Account Information

                            #investors **   #mutual fund   total Kd
Bank# *        #investors    w/ most Kd       accounts      in MF

33                 74            45              99        3083503
17                 94            46             140        3905120
27                 45            40              50        1269456
20                 45            20              63        1677000
3                  30            20              41         700000
12                 20            16              24         692667
32                 22            16              26         633000
28                 26            15              39         448000
15                 24            14              34         504500
34                 42            14              71         995000
Others (avg)      4.2           3.0             5.6         101151
Others (tot)      108            80             145        2629933

* 36 total banks: 10 shown + 26 'Others'

** referred to as LOYF

Table 2: Aggregate Bank Loyalty and Market Share Statistics and Ranks

Bank# (i)           MSFI            MSFA         MSVA        LOYF

33             .1396 (10) (ii)   .1352 (10)   .1864 (10)   45 (10)
17             .1774 (11)        .1913 (11)   .2361 (11)   46 (11)
27             .0849 (8.5)       .0683 (7)    .0768 (8)    40 (9)
20             .0849 (8.5)       .0861 (8)    .1014 (9)    20 (7.5)
3              .0566 (6)         .0560 (6)    .0423 (6)    20 (7.5)
12             .0377 (2)         .0328 (2)    .0419 (5)    16 (5.5)
32             .0415 (3)         .0355 (3)    .0383 (4)    16 (5.5)
28             .0491 (5)         .0533 (5)    .0271 (2)    15 (4)
15             .0453 (4)         .0464 (4)    .0305 (3)    14 (2.5)
34             .0792 (7)         .0970 (9)    .0602 (7)    14 (2.5)
Others (avg)   .0078 (1)         .0076 (1)    .0061 (1)     3 (1)
Others (tot)   .2038             .1976        .1586        80

Notes: (i) - 36 total banks: 10 shown + 26 'Others'

(ii) - ranks are in parentheses

Table 3: Spearman Rho Statistics

              MSFI     MSFA     MSVA

LOYF   rho=   +.7932   +.6795   +.8523
       p=     <.01     <.05     <.01