The Cusp Catastrophe Model in Describing a Bank's Attractiveness as Measured by its Image

Banking has always been an extremely competitive industry and competition has become tougher over the last years. Every bank has two sides to consider, customers and investors. Customers, however, are clearly the most important part of a bank as they provide the basic raw materials of deposits and the demand for loans, which are the revenue streams of net interest income but also provide the fee income. The bank offers an intermediation service between customers with excess funds and those with a funds deficit. It borrows and lends wholesale funds to keep the two piles in some kind of balance. The drivers of customer behaviour are complex. Understanding the needs of their customers and reacting to the changes of their behaviour, aid banks and financial institutions to face the hard competition. Clearly then, the success of a bank is subject to its ability to attract and retain its customers, and a large part of their business. This ability depends on what is called the image of a bank. In highly competitive sectors, like the banking sector, the image represents an asset which allows firms to differentiate and increase their success chances. However, although its impact on consumer behavior is of primary importance, a bank's image is a difficult asset to value and quantify. The concept of image has been given considerable attention in the literature over the past years. Image has been defined as the total impression that an entity makes on the minds of people and as the net result of the interaction of beliefs, ideas, feelings and previous experiences with an institution, which are stored in memory and transformed in concepts. Especially a bank's image can be seen as the perception that customers or potential customers have for a specific bank, based on the messages they received by the examined financial institution. Image is a strategic tool since it helps banks to achieve long-term objectives and it can be shown as a source of competitive advantage. The present paper builds on the previous work on the subject and focuses on the definition and measurement of a bank's image. It introduces image as a variable which expresses a bank's current state of development and future prospects. It identifies the factors affecting this variable, suggests ways of measuring them and uses image as the basis for the building of a non-linear model expressing a bank's development. The image of a bank, as defined in this paper, may prove a very useful tool for planning purposes, since it doesn’t only give an early diagnosis of possible changes, sometimes discontinuous, in the bank's pattern of progress, but also indicates the reasons for them. Hence, it may be used as the basis for designing appropriate measures to assist a bank's evolution. The theoretical findings are applied to a group of banks operating in Greece and the results are presented and discussed.