Transforming customer meetings of local banks from traditional office buildings to alternative locations. An exploratory research

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Transforming customer meetings of local

banks from traditional office buildings to

alternative locations

An exploratory research

Radboud University of Nijmegen

Nijmegen School of Management

Master Thesis Economic Geography

Student Supervisor

Dr. R.A.H. Hoekstra-Pijpers (Roos)

Internship Rabobank Tilburg 13th_{of January – 17}th_{of July 2020}

Rindert Alexander Vos s4627938

Date

17th_{of August 2020}

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Preface

Before you lies the master thesis ‘Transforming customer meetings of local banks from traditional office buildings to alternative locations’, which is conducted in the light of the Rabobank Tilburg. This research was written to fulfil the graduation requirements of the Human Geography master track, with the specialisation in Economic Geography at the Radboud University in Nijmegen. During this research, I undertook a research internship at the Rabobank Tilburg from January to July 2020. This research is aimed to constitute alternative location practices for meetings between the local bank and their customers. To obtain the necessary data for these practices, several Rabobank experts and clients of the Rabobank Tilburg were interviewed. Although this research has had several

inconveniences because of the coronavirus, it has had a soft landing due to a resilient and flexible attitude.

However, I could not have done this research without several people I want to thank. First, I would like to thank my supervisor at the Radboud University, Roos Hoekstra-Pijpers, for her valuable guidance, critical feedback, and support during my research. And secondly, I would like to thank my supervisor at the Rabobank Tilburg, Carola Geerts-van der Pol, for her constant enthusiasm and engagement with not only this research, but also with me personally.

I would also like to thank all of the respondents, without whose cooperation I would not have been able to conduct this research. Finally, I would like to thank my family for their unconditional support and wise counsel.

Rindert Vos

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Abstract

The digitalisation of banking services rapidly developed over the past years and is still expected to increase. An increasing number of bank customers are able to arrange more and more banking affairs online, which reduces their need to visit bank branches. This forces banks to change their traditional business models on customer meetings if they want to benefit from this process. Although the banks increasingly offer online services to meet the ever-evolving client requirements on banking, it does not include any physical relationship with the bank. Besides the digitalisation of banking services, the change in the ATM policy which is called ‘cash2020’, also affects the customer visits. Cash2020 entails that the three largest banks in the Netherlands join their efforts by transforming their private ATM’s into universal ATM’s. These new cash machines will, however, not be in or against a bank branch, which is expected to reduce the number of physical customers in bank branches. It can thus be stated that the importance of bank branches has dropped considerable due to the digitalisation of banking services, cash2020 and the changing client requirements. Due to the decrease in physical customer meetings, it is imperative for the local banks to reconsider the position of their traditional, often large, and centrally located branches as they are very unpractical and costly to establish and maintain.

The Rabobank has the highest amount of local bank branches in the Netherlands as their goal has always been to be close to their customers. It is a challenge for all banks, but especially for the locally rooted Rabobank, to stay close to their customers due to the aforementioned processes. This causes the Rabobank Tilburg to create a vision on customer meetings that is first, more efficient for the bank and second, better matches the needs of their customers. To constitute this vision, the Rabobank constituted a so-called ‘Cold Vision’ that displayed a list of local bank branches across the

Netherlands that should be closed. However, a ‘warm vision’ is needed to determine what customers find important in meeting the bank in the future. This research serves as an addition to this ‘warm vision’ for the Rabobank Tilburg as it explores alternative location practices and their requirements to stay close to the customers due to the digitalisation of banking services.

In doing so, this research contributes to both practical implications and theoretical literature. The alternative location choice for the Rabobank Tilburg is an essential decision where there is a lot at stake due to the large, costly, and centrally located office buildings. The aforementioned processes call for a transformation from traditional bank branches, which are not the most sustainable and useful choices anymore, to creative, flexible, and innovative alternatives. This research provides a guideline for local banks, but especially the Rabobank Tilburg, to constitute this transformation. Next to that, this research contributes to various insights on (modern) location theories and local banking alternatives as the traditional location can no longer explain locations choices for local banks due to the rapidly changing processes of digitalisation, cash 2020 and the client requirements. As there is little to no literature existing on what impact these processes have on the location choices, the need for (modern) location theories for local banking alternatives is high.

The critical literature review discusses several concepts that are of importance to this research. Based on this review, three online focus groups consisting of Rabobank customers and nine elderly customers of this group were interviewed as the latter could not participate in the online focus groups. In these focus groups and individual interviews, participants were asked about various topics related to the bank in the future, the relationship with the bank and important factors when visiting a bank branch physically. In addition, five Rabobank experts were questioned regarding their experiences with alternative projects on customer meetings.

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Based on the data derived from the focus groups and the interviews, several conclusions regarding this research were drawn. Desk research showed that traditional existing location theories

emphasise the proximity to clients, parking facilities and therefore accessibility. In addition, the large, centrally located bank branches used to be a representation of the health and position. However, the constant innovation of technology and therefore digitalisation in the banking services, affects the client requirements for physical meetings with the bank. These changing client requirements were identified and summarised in the need for 24/7 (digital) access to the bank, easy and safe banking. In addition, seamless service and tailored banking services can be seen as the new client requirements. The digitalisation in banking services and the shifting client requirements also renegotiates the relationship between the customer and the bank. The unique position of local branches enabled the bank in the past to stay close to their customers as relationships are mainly build with face-to-face contact. With the decreasing customer visits at local banks, the ‘moments of truth’, as they are defined in marketing literature, are becoming scarce. Without these moments of truth, the client becomes less attached to their local bank as that they were in the past. Two concepts are introduced wherein the local should invest in order to stay close to their customers. First, the local banks should invest in customer loyalty which indicates investments in problem management (seamless service of problem handling), customer education (educate customers as much as possible so that they become more independent on the long term) and customer participation (recruit memberships in order to build a relationship). Second, the local banks should invest in relationship marketing. The results of this research show that the bank should aim to achieve a proactive relationship with their customers wherein the bank proactively attempts to understand and satisfy their needs. It is imperative to distinguish the important values that are of importance to relationship marketing and customer loyalty as these values influence the relationship with the bank.

Based on the focus groups and individual interviews, several location factors are of importance to the customer of the Rabobank Tilburg. First, a safe environment is important which is influenced by aesthetic value, visibility, and a trusted location. Second, the concept of function mixing is imperative for alternative locations as this diversity will have a positive impact on the customer meetings. Third, creating and maintaining a certain ‘Rabobank Identity’ which can be seen as the image of an

organisation and is influenced by their service. After a location has been selected, it is important for the local bank to acknowledge several principles. First, it should identify the kind of environment in which the alternative practice is located with regard to the customers, facilities, and other branches. Second, the costs of the alternative practice should be considered resulting in investments of flexible location practices. Lastly, it is important to involve all participating parties before, during and after the implementation of these alternatives.

With regard to the important location factors, client requirements and the relationship with the customers, four alternative location practices are presented as concrete solutions to first, tackle the decrease in the relationship between the bank and the customer, and second, to meet the changing client requirements for banking services. First, the flexible multifunctional branch is an alternative that should be centrally located within other activities and facilities, should be easy to build, break down or move and should provide the organisation of seminars. Second, the mobile advisory teams that are already implemented among several local banks. Mobile advisors are bank employees who come to the customer’s homes or locations near their homes to help with daily banking. Third, the concept of the mobile office consists of a mobile bus that positions itself on different locations at a specific fixed date or time. Lastly, the concept of a roadshow which can be defined as a round tour in which at different locations throughout the district of the local Rabobank every few months different activities will be organised.

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Chapter 1: Introduction

The digitalisation of banking services rapidly developed over the past years and is still expected to increase (Kucherenko, 2016). When discussing digitalisation, it is important to distinguish the difference between digitisation and digitalisation as they are closely related concepts. Digitisation is defined by Andersson & Boström (2019, p. 1) as ‘Originally the process of converting analog

information to a digital representation’ whereas Brennen & Kreiss (2016, p. 4) define digitalisation as ‘the way in which many domains of social life are restructured around digital communication and media infrastructures’ which undoubtedly impacts the banking services. The distinction of these two concepts can thus be found in that digitalisation focusses on the effects on society (Andersson & Boström, 2019). Digitalisation of banking services already started in the late 1990s and is rapidly developed over the years (Andersson & Boström, 2019). This rapid digitalisation process forces banks ‘to change their traditional business models’ (Olanrewaju, 2013, p. 5) if they want to benefit from this process.

The banks are providing an increasing amount of online services to meet the contemporary

customer’s wishes. Despite facilitating digital banking themselves, local banks struggle to stay close to their customers (OECD, 2018). These digital services however, ‘do not include any physical

relationship with the bank’ (OECD, 2018, p. 25). Customers, for example, no longer ‘need to abide by the bank’s opening hours’ (Zook and Smith, 2016, p. 298) as they have the ability to check their account balance at any time or have the possibility to ask their mortgage advisor for personal advice while they are at home. The importance of physical local bank branches has thus dropped

considerable as many routine transactions can be executed by the customer at a distance (OECD, 2018).

Beside the digitalisation of banking services, the change in the automated teller machine (ATM) policy also affects the banking services in the Netherlands. This policy is called ‘cash2020’ and it entails that the three largest banks in the Netherlands; de ABN AMRO, ING & de Rabobank join their efforts by creating a universal ATM. These three banks are together accountable for around 8.000 ATM’s, which are used 5% less each year than the year before (Accenture, 2015). Mostly due to the decrease in cash money, these three banks join forces to transform all ATM’s into a collective network of ATM’s that is being managed by an independent company: ‘Geldservice Nederland’ (Eggerink, 2018). The ‘Nederlandsche Bank’ (DNB) supports this transformation as it is beneficial for both consumers and entrepreneurs. The current situation is that bank customers can only withdraw a maximum of 250 euro’s, and entrepreneurs can only deposit their earnings at their own bank (Eggerink, 2018). Besides that, the ATM’s of different banks are often located closely to each other which causes unneeded security risk and unnecessary use of space (Rabobank Tilburg, 2019). Because of this transformation, many of these inconveniences will be solved (Banken NL, 2017). The appearances of the new ATM’s will all be the same yellow colour and carry the same name of ‘Geldmaat’. It is scheduled that from January 2020 every week 75 ATM’s will be conversed to

‘Geldmaat’ and is expected to be finished in the third quarter of 2021 (Rabobank NL, 2020). With this transformation, the three cooperating banks aim to tackle the decrease of cash money and increase the safety and customer service of their customers. However, due to this transformation it is

expected that the number of physical customer visits will decrease as the new cash machines will not be in or against a bank branch (Rabobank Tilburg, 2019).

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Due the combination of digitalisation of banking services and the change in ATM policy, it is expected that in 2020 in the Netherlands the physical meeting with customers will decrease with 30%

(Rabobank Tilburg, 2019). These processes cause the Rabobank Tilburg to create a vision on customer meeting that will be futureproof in staying close to their customers.

The banks in the Netherlands are leading in providing and using digital banking services. However, even in the most digitalised markets the need for personal contact remains (Client Global Insights, 2014). This can be labelled as ‘the digitalisation paradox’ which states that it is remarkable that although the banking services are becoming more digital, the need for personal contact remains desirable. However, there are different types of transactions that influence the customer’s wish for customer meeting. A division can be made between routine and non-routine banking transactions. Routine transactions can be defined as transactions that are relatively simple and that are repeatedly the same such as withdrawing money, making small payments & viewing their bank accounts. Non-routine transactions are more complex transactions where there is often a lot at stake such as applying for a mortgage or personal advice on investments (Accenture, 2015). It can be seen that customers prefer digital channels for routine transactions such as mobile payments and online banking. Online banking, for example, is becoming the standard for most of the people (Rabobank Nederland, 2019).

Because of the complexity and major interests of non-routine banking, there will, beside online banking, always be a need for personal, face-to-face contact and advice (CGI, 2014). These non-routine transactions are twenty times more costly for local banks than full digital transactions (Rabobank Tilburg, 2019). In the digitalisation of the banking services and therefore the customer experience, the necessity of personal contact should not be overlooked. It is important for the local banks to provide the right mix of digital and personal interactions to meet the customer’s wishes. Omnichannel strategy is therefore critical to provide a consistent customer experience (CGI, 2014). This strategy aims to seamlessly coordinate different channels of customer meeting (both digital and physical) with each other (Rabobank Tilburg, 2019), which ensures that ‘the bank meets the

consumer’s lifestyle, rather than forcing the consumer to adapt to its organisational ways’ (CGI, 2014, p. 10). It can be said in short that customer prefer digital channels and services for routine

transactions, whereas personal and physical contact is rated the highest for non-routine, emotional customer experiences such as sales, issues and complains.

An alternative location to traditional offices where customers can physically meet with the bank employees is needed to comply with the constantly changing customer needs. These traditional local bank branches are often large, centrally located branches (Lambooy, Atzema, van Rietbergen & van Hoof, 2012) which are very unpractical and costly to establish and maintain (OECD, 2018). It is however a challenge to find locations which can meet the high standards of banking branches with issues of safety, privacy, and security of the networks (Swapna, 2019). Because bank customers use more digital banking, it becomes more difficult for the bank to stay close to their customers as the customers are becoming less loyal to their banks (Kucherenko, 2016). To tackle the issue of how to stay close to their customer, it is imperative for the local banks to transform their customer meetings according to contemporary criteria.

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1.1 Internship

This research has been conducted simultaneously with a research internship at the Rabobank Tilburg from the 13th_{of January until the 18}th_{of July. Due to the digitalisation of banking services, the change}

in ATM policy (‘Geldmaat’) and therefore changes in customer behaviour, it is predicted that customer meetings of the Rabobank Tilburg will decrease with 30% at the end of 2020. To tackle these processes, Rabobank NL constituted a so-called ‘Cold Vision’ based on ‘Strategic Location Planner’ where a list derived of which local bank branches across the Netherlands should be closed based on their available data. However, a ‘Warm Vision’ is required to take other factors such as the opinion of the customers into account. The warm vision can be used to compose other decisions about which local bank branches should stay open or should be closed.

This research serves as an addition to the warm vision as it aims to search for alternative locations and their requirements to stay close to the customer as traditional local bank branches will decrease. With this research, the Rabobank Tilburg will have an overview of the most importance location factors and important opinions of their customers which can be used to constitute alternative locations for customer meetings.

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1.2 Project Framework / Context

To understand the existence of local bank branches of the Rabobank Tilburg, it is necessary to learn the history of the Rabobank Tilburg and its context. The Rabobank has its roots in agriculture as it started with the creation of a farmers’ bank to provide loans to farmers with the savings of

countryside dwellers (Rabobank NL, 2019). In Tilburg, which used to be a collective name for an area of loosely connected squares and settlements, the farmers controlled the political and economic situation. At the start of the industrial revolution, Tilburg became the centre of the textile production in the south of the Netherlands what resulted in a decrease of farmers as tenants claimed interest and repayment (Akkermans & Verhoeven, 2015). Because of this suppression, on the 17th_{of 1896 the}

‘Noord-Brabantse Christelijke Boerenbond’ (NCB) was founded, what soon to turned out to be a blessing for the poor and powerless farmers. The NCB was founded with the aim to ‘give more power by taking economic and social circumstances to a higher level’ (Akkermans & Verhoeven, 2015, p. 11). This farmer’s union was soon transformed in the ‘Raiffeisenkassen’ (which is a communal cash register) that later in 1905 resulted in the founding of the ‘Boerenleenbank Tilburg’. This farmers’ loan bank, as it is freely translated, stood for bringing money in-house so that it can service

customers in an ‘honest and human manner, and in this way, in the long term, put usurers out of the game’ (Akkermans & Verhoeven, 2015, p. 12). At this farmers’ loan bank, one could become a member and member’s councils were organised. This idea, which came over from Germany (from Friedrich Wilhelm Raiffeisen) was eventually manifested in a cooperative bank in which members could help determine what course the bank should take. In 1972 it was decided to change the name of the farmers’ loan bank to the ‘Raiffeisen Boerenleenbank’ abbreviated to the ‘Rabobank’, the Rabobank Tilburg was constituted.

From 1972 on, the Rabobank Tilburg continued to grow; in 2001 it merged with ‘Rabobank Goirle’ and in 2005 the ‘Rabobank Dongen-Rijen’ was added (Akkermans & Verhoeven, 2015). Both mergers were not obvious for the two local Rabobank’s, but due to the digitising world around them, the local Rabobank became too small to operate independently and a merger with a larger Rabobank such as that of Tilburg became necessary (Akkermans & Verhoeven, 2015). As a bank of the ‘people’ the Rabobank consists of circa 400 independent local Rabobank branches (Rabobank Nederland, 2019). For that reason, the Rabobank, more than any other bank in the Netherlands, is effected by the digitalisation of banking services as all the local branches in small places and rural areas no longer reach the thresholds anymore with shrinkage and the disappearance of branches as a result. Due to this digitalisation of banking services and the shift in client requirements, the Rabobank NL decided to recalibrate the vision for local bank branches on customer meeting. Rabobank NL, and particularly Rabobank Vastgoed (Rabobank Real Estate) were charged with the task to recalibrate this vision and facilitate the transition of decreasing local bank branches and initiating alternatives. Local banks, such as the Rabobank Tilburg must adhere to the imposed rules, although the local banks are allowed to decide for themselves which local branches are to be addressed.

Rabobank Vastgoed can be seen as a project developer specialised in housing and other real estate (J. Van der Kuip, personal communication, 3rd_{of February 2020). Rabobank Vastgoed used to act as}

an independent company within Rabobank NL although there was a link with banking. The

relationship between Rabobank Vastgoed and the local banks of the Rabobank can be described with Rabobank Vastgoed in an advising role. In this advising role, local banks can give their own input and ‘local sauce’ in order to find a better connection with the customer (J. Van der Kuip, personal communication, 3rd_{of February 2020). However, the last years the Rabobank is undergoing a}

reorganisation where the role of the Rabobank Vastgoed is changing from an advising role to a leading role.

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1.3 Societal relevance

The location choice for businesses, companies and organisations is an essential decision where there is a lot at stake due to high investments and irreversible interventions. As already mentioned in the introduction, the digitalisation of banking services, the changes in the ATM policy in the Netherlands and the change in client requirements causes the reasons for bank customers to physically go to bank branch, to decrease. The large, costly, centrally located traditional office buildings are often not the most sustainable and useful choices anymore. These processes call for a new vision on customer meeting and with that the transformation of customer meetings in traditional office buildings to customer meetings on creative, flexible, and innovative locations. This transformation is very difficult for local banks as they can be considered as rigid structures (Moseri, 2015). This makes the

interventions very costly and it requires a lot of effort and courage to step out of the comfort zone of the obsolete traditional office buildings.

This thesis presents a clear vision on a new approach of customer meetings to stay close to the customers’ needs in a sustainable, futureproof manner. Local banks in the Netherlands do not have sufficient handles and guidelines to deal with these rapidly developing processes of digitalisation and the changes in the ATM policy. This thesis provides guidance for local banks for this inevitable transformation, presenting different approaches and options for customer meetings on alternative locations.

The Rabobank Tilburg, a district of one of the largest banking corporations in the Netherlands, is struggling with the issue of customer meeting. Due to the mentioned developments, questions arise which are related to the future of the traditional office buildings and with the focus on which approach to use for customer meetings in the future. This research has been done in the context of the Rabobank Tilburg and is therefore applied to this specific case. The Rabobank Tilburg can use this thesis as a base for their own vision on customer meetings and their banking locations in the future. Eventually, the customer is king, also in banking services. Client requirements are ever-shifting and the traditional customer meetings cannot meet these criteria anymore. As already elaborated in the introduction, even in the digital age with the digitalisation of banking services, personal face-to-face contact remains critical in non-routine transactions. This research contributes to innovative and improved customer meetings that matcher better with the client requirements with respect to customer service. The Rabobank Tilburg will thereby manage to stay close to their customers in a time were the digitalisation of banking services only will increase.

At last, this thesis indicates the importance of the interaction between an organisation and their location environment. Not only the business operation (i.e. how the organisation runs) is important, also the social interaction that an organisation has in relation to its direct environment has to be identified. This sense of placemaking, in which an organisation contributes to the identity of a place is examined in this thesis.

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1.4 Scientific relevance

Location theory is a well-known concept in the scientific literature debate as there is a wide collection of classical and neoclassical location theories (Lambooy et al., 2012). These location theories describe and explain the location choices of businesses and organisations. Next to the classical and neoclassical location theories, a variety of applications and approaches of these theories can be found in the scientific literature (Lambooy et al., 2012), which will be collectively named in this thesis as traditional location theories. This thesis therefore contributes to various insights on (modern) location theories and local banking locations which are more relevant than merely for the Rabobank Tilburg as they can also be applied to other local banks in the Netherlands.

This thesis applies the traditional location theories to explain the location choices of existing bank branches of the Rabobank Tilburg. However, it can be said that traditional location theories can no longer explain location choices of local banks as the rapidly changing processes of digitalisation and the changes in the ATM policy in the Netherlands forces the local banks to rapidly change their behaviour on customer meetings. However, these processes are not new. Financial innovation has been there for hundreds of years (Dekkers, 2009). The rapidness of the changes and the potential impact on customer meetings make it a relatively new phenomenon (Bijlsma & Overvest, 2017). This rapidness causes the local banks to adjust and transform as soon as possible to the client’s new needs and wishes.

Due to these processes, the need for (new) location theories for local bank branches is high. There is however little to no scientific literature existing on what impact these processes have on the location choices of local banks. The lack of scientific literature on this topic is mainly caused due to the rapidness of digitalisation processes whereas the scientific community has not developed their literature in this field further. This lack of development is presumably caused by the idea (originated in the 90s) that the classical location theories were outdated for service-related industries.

Because of the changing client requirements that comes with the digitalisation processes, it is now imperative for local banks to transform their customer meeting location. Because there is a great need for the banking world to look at alternative locations, more recent data on location factors can be found in the consultancy literature. The consultancy industry is namely directly linked to the banks resulting in a stronger incentive to develop new location theories for local bank branches than the scientific community. This dichotomy in the use of literature between scientific literature and grey literature presents an alternative scientific perspective which can be seen throughout this thesis. Next to examining and describing the impact of these processes on location choices of local banks on customer meetings, the criteria for alternative locations are needed to create a vision on these locations. Location factors as criteria can be divided into hard and soft location factors. Whereas hard location factors directly relate to the banking office and are easily measurable (Lambooy et al., 2012) , soft location factors are not directly related to the banking office and are mainly determined by social and cultural processes (Dziembowska-Kowalska & Funck, 2000). In this research soft location factors are of most importance as they are often overlooked or not taken into account by traditional location theories and policy makers as they are often not tangible. Both hard and soft location factors in this research have been incorporated in the concept of client requirements. Client

requirements are the criteria that the customers of the Rabobank set to physical customer meetings. Hard location factors have become less relevant to banking in practice as the client requirements change and alternative ways of customer meetings are needed. The scientific literature has not been sufficiently taken this process into account, resulting in that most of the existing literature on location factors for banking is found in marketing and consultancy literature.

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In addition, examples and data on alternative location for bank branches such as co-working spaces, flexible working spaces and creative locations with mixed functions (Marous, 2019; Burns, 2019; Macheel, 2018; Zhen, 2017) can be found in the same grey literature as again, the scientific literature on alternative location for the bank’s customer meetings can be neglected. Nevertheless, it is

important to acknowledge the importance of diversity of activities and functions on alternative locations as they positive effect on the location of high-end related services such as the banking industry (Legros et al., 2016), which will be done in this research.

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1.5 Research Objective

Due to the rapidly developing processes of digitalisation of the banking services, the transformation of customer meetings for local banks is inevitable. It is therefore challenging for local banks to stay close to their customers as the reason for physical visits to bank branches decrease and traditional offices will eventually transform into alternative locations.

Derived from this issue and to provide insight into this issue the research objective is formulated as: This research aims to create a vision of how local banks such as the Rabobank Tilburg, due to the digitalisation of banking services, can transform customer meetings from traditional office buildings

to alternative locations in order to stay close to their customers.

1.6 Research Questions

Distilling from the research objective, the main question is formulated:

What are alternative promising location practices for Rabobank Tilburg to transform its customer meetings, due to the digitalisation of banking services, from traditional office buildings to alternative

locations in order to stay close to their customers?

In order to operationalise and answer the main question, it is divided into four sub-questions: Sub-Question 1:

How do traditional location theories explain the existing banking locations of the Rabobank Tilburg, and where do these theories fall short in the search for alternative banking locations?

Sub-Question 2:

How can the concepts of relationship marketing and customer loyalty used to stay close to the bank’s customers, and how can these concepts help to determine suitable alternative locations for customer meetings?

Sub-Question 3:

What are the location factors and client requirements that alternative locations for physical customer meetings should meet?

Sub-Question 4:

How can the transition from traditional to alternative locations for the Rabobank Tilburg be implemented?

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Chapter 2: Location criteria for banks and related services

Due to changes in markets, client requirements, technological processes, environmental issues and so on, organisations and businesses constantly have to adjust to new situations which often suggests a change in the spatial dimension (Van der Windt, 2012). In the case of local banks, the current branch locations are often not the most sustainable anymore or they do not fit in the requirements of the ever-evolving preferences of the bank. This often results in the search for a suitable location. To get insight into the location choice patterns of businesses and organisations, theories of location were developed over the years in order to ‘shed light on the economic geography of firms’ (Van der Windt, 2012, p. 11). These theories can be labelled as location theories which in general aim to ‘explain why firms and facilities choose to locate at one location and not another’ (Legros et al., 2016, p. 144). In location theories, factors that make a location attractive for business or organisations and that of the factors that foster the decision of leaving the current location are central to the theory (Van der Most, 2013). The factors are labelled in this research as location factors which will be elaborated in section 2.3. In this research, location theories will be used to explain the made location choices for the existing bank branches of the Rabobank Tilburg. As already mentioned, these location theories can no longer explain the location choices for alternative locations for physical customer meeting due the aforementioned processes. In discussing these traditional location theories, it will help to understand different approach to location choices made in the past. The traditional location theories will first be discussed on the basis of scientific literature and second, supplemented with marketing and consultancy literature. Where scientific literature becomes outdated and insufficiently focussed on service-related organisation, grey literature takes over the debate on location factors in the banking industry.

2.1 Traditional location theories

Over the years, five main location theories were developed which are labelled in this research as ‘traditional location theories’ as in the past, many business and organisation based their location decisions on these theories (Atzema & Lambooy, 2012). The origin of the location theories lies in the ideas of Johann von Thünen. Together with the publications of Adam Smith, the classical location theory was founded (Atzema & Lambooy, 2012). Next to the classical location theory, there are several variants and different approaches on location theory which can be divided in the neoclassical, behavioural, institutional, and evolutionary location theory. First, the five location theories will be briefly elaborated and explained and second, the location factors that influence the location choice will be derived from these location theories.

2.1.1 Classical location theory

The classical location theory should be seen in the context of the 19th_{century and the first half of the}

20th_{century in Western-Europe. The classical location theory has two main concepts with the starting}

point that the availability of factors of production determine the production possibilities of businesses (Louw et al, 2004). A central role in the classical location theory is that of the transport costs as they state that the best location for a business is that with the lowest transport costs. A second concept is supposing that every demand creates its own supply. It is therefore said that every business should minimalize their cost and maximize their profit; the allocation problem (Atzema & Lambooy, 2012). The basis of this theory of minimalizing transport and production costs lies in several presuppositions. The first is that the market consists of full competition which can be defined as a transparent, accessible, and homogenous market where suppliers cannot influence the price of the product (Schaap, 2013). The second presupposition is that the theory is based on an isotropic world where social-cultural differences are missing (Schaap, 2013).

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The third and last presupposition is that every business acts as an ‘homo economicus’ who is perfectly informed and ‘acts autonomous and rational based on this information’ (Van der Windt, 2012, p. 12). The classical location theory received quite some criticism, the presuppositions were considered not realistic as ‘imperfect information and bounded rationality are more likely to occur’ (Van der Windt, 2012, p. 12).

2.1.2 Neo-classical location theory

On the basis of critiques on the classical location theory, the neo-classical location theory was constituted. The classical and neo-classical theories are related to each other as they both assume the concept of the homo economicus and the isotropic space. The main difference of these two theories is that the neo-classical location theory acknowledges the presence of multiple market forms. This assumes that the market does not consists of full competition and that therefore the market position of an organisation or firm can be influenced which can be seen as concurrence. Besides that, the neo-classical location theory states that firms strive for the maximalisation of profit. Walter Christaller can be seen as one of the main thinkers in the neo-classical theory with his ‘central place theory’ where he sees the service sector as starting point. He states that consumers of services and products always choose for the nearest supplier as they aim to travel as less as possible for their products or services (Atzema & Lambooy, 2012). He introduces two important concepts that are still used in contemporary location choices: the scope and the threshold value of suppliers. The scope of services is defined as the maximum distance that consumers are willing to travel, whereas the threshold value is defined as the minimum number of customers for the suppliers to be economically profitable in order to function.

Despite that the central place theory of Christaller is widely used, the neo-classical theory received criticism on the same concepts as that of the classical location theory. The ‘real-world situation’ would be understood poorly in order to be of use in location choices.

2.1.3 Behavioural approach

To tackle the criticism voiced against (neo-) classical location theories, the behavioural location theory was developed in the 1960s. In the behavioural approach the decision-making process is determined by the firm itself and not based on cost reduction (Schaap, 2013). The actions of the supplier are subject to it social environment and personal experiences. The behavioural approach states that the decision-making process is determined not only by economic factors as internal business factors (age, size) and personal circumstances play an equally important role in location choice (Van der Most, 2013).

The behavioural approach consists of several presuppositions. The most important presuppositions are a reaction on the ‘homo economicus’ from the (neo-) classical theories and considers it as an illusion (Van der Most, 2013). The behavioural location theory assumes that suppliers act as the ‘homo psychologicus’ that have to deal with imperfect information and bounded rationality (Atzema et al., 2009, p. 43). However, this does not assume that firms act completely irrational: ‘according to behavioural theory, firms consider only a limited number of choices and evaluate alternatives in a ‘strongly sequential’ way, where firms will often choose the first alternative that will satisfy a certain standard’ (Elgar & Millar, 2010, p. 64).

In this theory the push and pull factors play a central role as factors that influence the decision to stay or to relocate. These factors however will be treated extensively in section 2.3.

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2.1.4 Institutional approach

Although the behavioural approach did not receive significant criticism, it sees ‘the firm as an active decision-making agent in a static environment’ (Pellenbarg et al., 2002, p. 9). However, the

environment is not static, ‘but shaped by the cultural institutions and value systems of society’ (Van der Windt, 2012, p. 23). Firms can only be seen in interaction with their environment (Van der Most, 2013), it can therefore be stated that firms are not directly inclined to relocate as they are locally anchored (Knoben & Oerlemans, 2008).

The institutional approach assumes that the behaviour of firms is embedded into the social and cultural context as ‘Firms have to negotiate with deliverers and suppliers, local, regional or national governments, labour unions and other institutions, about prices, wages, taxes, subsidies,

infrastructure and other key factors in the production process of the firm’ (Pellenbarg et al., 2002, p. 10). These external factors can be seen as institutions, which is divided into formal and informal institutions (Schaap, 2013). Formal institutions are for example laws and regulations whereas informal institutions are explained as norms and values (Atzema & Lambooy, 2012).

The institutional approach indicates that the firms which are operating in the institutional context are seen as large businesses and multinationals as they have enough leverage to influence laws and regulations (Schaap, 2013). However, this does not necessarily imply that small and medium sized companies cannot operate in such context. Although they cannot influence laws and regulations, they can use these institutions to limit their risks (Atzema & Lambooy, 2012).

2.1.5 Evolutionary approach

For over the past ten years, the evolutionary approach gained interest in the location theories within economic geography. This approach builds on the already existing concepts in economic geography as it bridges the gap between the discussed location theories above. The evolutionary approach also assumes the concept of bounded rationality and considers institutions as a main selection

mechanism of firms (Van der Most, 2013). It however criticizes the theories in the way they acknowledge and use technological processes in location choice.

The evolutionary approach states that the firm builds up relationships through the years and that current locations are subjected to sunken costs (Pellenbarg et al., 2002). This means that firms are not easily inclined to relocate and if they do, they are more likely to search for a location in the vicinity of the current location. This approach therefore sees path dependency and historical relation of the decision makers as a significant role in the decision-making process (Van der Windt, 2013). Next to path dependency, this approach assumes that companies that respond the best to change have the best chance of economic success (Atzema & Lambooy, 2012). It sees innovation as a coincidence which can be fostered by creativity and proximity of companies in clusters (Atzema & Lambooy, 2012).

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2.2 Location theories on the banking industry

The aforementioned location theories are very useful in the decision-making process of new locations for office buildings and local bank branches. However, these theories are mainly specified on the production of goods and not specifically focussed on the service orientated organisations such as banks. One of the differences between production and service orientated organisations is that according to the study of Legros et al. (2016) co-location (the concentration within the same industry), cannot be linked to location choices of service sectors. As it is very difficult to see services as tangible products, the location theories cannot be applied directly on the bank’s office locations. Therefore, additional literature on location theories for service providing organisations is needed. This literature can be found in the works of Legros et al. (2016), Eickelpasch et al. (2007), Suchacek et al. (2017) and Weon et al. (2010).

A study of bank profitability (Sung-Ryong Lee, 1985) concluded that the location of a bank affects the size of deposits, the level of customer satisfaction and the profit. Location choice is thus of

importance for the vitality of the bank’s local offices. As already mentioned in the introduction, in spite of rising electronisation and internetisation of banking, physical locations are still of primary importance (Eickelpasch et al., 2007). These physical locations in the form of local bank branches ‘includes both tangible, e.g. economic and intangible, e.g. image or prestige components’

(Eickelpasch et al., 2007, p. 4).

2.3 Location Factors

Location theory focusses on the best location choice at which the accent lies on factors that attract such a location (van der Most, 2013). These factors that can be both positive (pull factors) as negative (push factors) and are labelled in this research as location factors. Location factors are factors that influence people, firms and organisations in their locational decision making (Van

Gelderen, 2015). Location factors are often associated with economic factors such as transport costs, proximity to suppliers and economies of scale. However, location factors are more dynamic than often assumed.

As mentioned above, location factors can be divided into two types, namely hard location factors and soft location factors. In short, Eickelpasch et al. (2007, p. 4) explains the difference between hard location factors and soft location factors as follows: ‘Hard factors are defined by those factors that exert a direct impact on the business activities of firms. All other factors that indirectly influence the firms’ business activities are considered soft factors. However, the different varieties and forms that both hard and soft location factors can have, need further explanation.

2.3.1 Hard location factors

The research of hard location factors is derived from the classical and neo-classical location theories, which are elaborated in section 2.1.1 and 2.1.2. These traditional location theories assume that mobility, transport costs and economies of scale can be used to explain location patterns of

industries (van Gelderen, 2015). In more recent studies hard location factors such as qualified labour, attractive tax climate, access to the market and affordable accommodation are used to explain location choices of businesses (van Gelderen, 2015). Hard location factors relate often to physical aspects of the location and its environment and are easier to express in money than soft location factors (Dzembowska-Kowalska & Funck, 2000). Therefore, are hard location factors also described as rational location factors as they are not based on subjective arguments (van Gelderen, 2015).

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2.3.2 Soft location factors

Soft location factor cannot be defined unambiguously as they consist mainly of social and cultural processes which indirectly relate to the business or organisation (Dziembowska-Kowalska & Funck, 2000). Soft location factors include the spatial and esthetical quality of the environment such as the geographical location or image of the location (van der Most, 2013). In the research of Suchacek, Skalicova & Siroky (2017, p. 7), it is stated that soft location factors are often of more importance nowadays than hard location factors: ‘In real life, these soft location factors, such as sport or cultural amenities, are actually perceived more intensely than hard location factors’. The importance between hard and soft location factors have to be seen in context, as will be elaborated in section 2.3.5.

2.3.3 Location factors and location theory

As location theory developed over the years, the perspective on location factors evolved as well. When linked to the traditional location theories, it can be said that in the classical and neo-classical location theory the focus lied unquestionably on hard location factors such as the aforementioned transportation costs, labour costs and other economic variables (van der Windt, 2013). The

behavioural approach to location theory showed the importance of the soft location factors such as the image of the firm, the security, and the quality of working and living (van der Windt, 2013). The approach subsequently divides the location factors in push- and pull factors where they are seen as reasons for a business or organisation to leave a location or to explain the attractiveness of a location (van der Most, 2013).

The institutional approach on the other hand focused not particularly on hard and soft location factors as it discussed external factors such as the client requirements, knowledge centres and government institutions (van der Windt, 2013). The evolutionary approach at last, is just as the institutional approach focussed on external factors however it tends to be soft location factors as they are highly subjective and personal. These factors can be seen as the place or residence of the decision maker, social relationships, and the evolution of the business environment (van der Windt, 2013).

The shift in focus of location factors is summarised and is shown schematically in figure 1.

Industrial Revolution 1950 - 1990 > 1990

Transport costs Proximity to markets Government policies

Labour costs Proximity to suppliers Infrastructure

Costs of commodities Proximity to service providers Knowledge & ICT Other agglomeration factors Workforce

Environment aspects

Representative business locations

(Neo)Classical location theory - Behavioural & institutional

location theory

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2.3.4 Literature on location factors

A variety of significant literature will be discussed as they provide concrete examples of location factors and give insight in how these factors can be organised.

Jansen (2009) investigated which location factors are of importance in location choices for local office buildings in Amsterdam & Utrecht. He came up with a list of 91 location factors which are subdivided in Van der Windt (2013) into ten overarching categories:

1. Building 2. Direct surrounding

3. Location – proximity 4. Location – accessibility

5. Socio-economy surrounding 6. Residential and living environment

7. Financial 8. Government

9. Subjectivity 10. Supply side

Figure 2. Ten overarching categories of location factors (adapted from Van der Windt, 2013). In addition to these categories of location factors, ‘Twynstra Gudde’, which is a Dutch organisation consultant, concluded various criteria for a future proof location. It is stated that future local bank branches should be situated at ‘multifunctional locations where working, living and leisure can be integrated with working’ (Van der Windt, 2013, p. 17). Within the new local bank branches and office buildings it is of importance that it is designed for various activities and that it is suitable for new functions such as focussing, cooperation, socialising & relaxing (Twynstra Gudde, n.d.). Next to that, in order to have a future proof location, it is important that the building has a good appearance with extra attention to the lay-out and sustainability (Twynstra Gudde, n.d.).

If looked closely to the above-mentioned location factors and future proof criteria for location choices, it can be seen that these factors can be divided into two categories, namely building and location characteristics. Van der Windt (2013) subdivided these categories in the following location factors for a clearer and easier interpretation.

Building characteristics Location characteristics

Cost of accommodation Accessibility by car

Layout flexibility Accessibility by public transport

Exterior appearance Accessibility by bike

Interior appearance Status / representativeness

Representativeness Parking facilities

Space efficiency Facilities

User recognisability Business cluster

Technical state Multifunctional area

Security Nearby city centre

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2.3.5 Usefulness of location factors

Hard location factors were, as explained above, traditionally seen as the most important

determinants to attract businesses and organisations. However, Assink & Groenendijk (2009, p. 2) notices that the ‘location theory has shifted attention away from ‘hard’ (cost) factors, relating to the proximity of markets and suppliers, towards relatively ‘soft’ factors as the (perceived) quality of institutions, knowledge levels and environmental quality’. It can thus be said that the focus lies nowadays not only on the hard location factors as soft location factors gain more interested in the decision-making process. One of the points where the traditional location theories are lacking is that the approaches are based on mostly Western, developed countries, as Suchacek et al. (2007, p. 82) states: ‘Advanced countries enjoy sui generis ubiquitous hard location factors and concentrate nowadays rather on their soft counterparts’. Post-transformation economies, as they are labelled in Suchacek et al. (2007), are one step behind because they still focus on hard location factors. This is caused because these countries are recently transformed from centrally planned economy to a market economy and are still focussed on the physical infrastructure, proximity of clients and other hard location factors..

2.3.6 Location factors in the banking industry

In contrast with companies in the production industry, companies in the service sector are more focussed on parking facilities, the representation of the building and the environment (Louw et al, 2004, p. 38-39), which can be linked to soft location factors. The most important findings of the Legros et al. (2016) study, is that they claim that the diversity of activities will have a positive effect on the location of firms in service industries, at which ‘high-order services, such as finance and banking, exhibit the strongest positive relations with diversity of activities’ (Legros et al., 2016, p. 155). In the study of Weon et al. (2010, p. 28), numerous location factors are mentioned such as ‘the level of income, the level of spending, the quantity of businesses, and the number of workers’ as they were found to have a significant influence on the branch location selecting process. The most significant factor however was found to be the numbers of workers (Weon et al., 2010).

The study of Weon et al. (2010, p. 22) identified the following as the important location factors in deciding the success of a location: ‘population, income, branch function, competition, land value, and future development potential’. However, these factors are based on the study of Nelson (1960) that is lacking the significance of soft location factors. As Suchacek et al. (2007, p. 9) points out, ‘For Knowledge Intensive Services, soft locational factors are crucial; however, hard locational factors such as proximity to research establishments and universities are also relevant’. It can however be argued if every local branch of the bank provides knowledge intensive service firms as most of the services provided are routine transactions, this critique will be treated further in section 3.1.

Thus, when choosing a location for a branch, each bank takes various factors into account of which some deviate from the location factors discussed in the traditional location theory as they focus more on soft location factors than on the hard location factors.

2.3.7 Conclusion on location factors

As can be derived from the explanation above, hard location factors can be described much easier than soft location factors. This is because soft location factors are less tangible and thereby it is more difficult to measure them (van Gelderen, 2015). The interaction between the importance of hard and soft location factors have to be seen in context, as it can depend on the industry,

geography, and approach. It is however mentioned that in innovative, knowledge intensive service-related industries, such as the banking services in Western countries have to focus not only on hard location factors and certainly on soft location factors.

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2.4 Conclusion

Traditional location theories consist of a variety of usable concepts which can answer the question of why the Rabobank Tilburg used to have a wide network of local bank branches and why certain choices have been made. They also facilitate the answers of why some of the threshold values are not exceeded anymore, what the location criteria for hard and soft factors entails and how the scope of these local bank branches has shifted. However, some of the concepts and location factors used in the location theories cannot be applied to the location choice for alternative locations for customer meetings as these theories are outdated and mainly focussed on the production industry rather than on the service industry and therefore the banking industry. As aforementioned, the location theories are outdated and do not explain contemporary location choices for local bank branches anymore. In establishing up-to-date, fitting location factors for alternative locations, it is important to hold on to the distinction of hard and soft location factors. However, soft location factors are most influenced by the ever-shifting client requirements as they are closely related to each other. The contemporary client requirements are namely more focussed on the esthetical value and experience rather than on the proximity or the number of parking spaces. This shift is caused by the decrease of physical customer meetings as more transactions can be done online. The client requirements are seen in this research as examples of soft location factors which will be discussed and elaborated in chapter three. This will be done on the basis of both scientific and marketing literature on the two concepts of customer loyalty and relationship marketing.

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Chapter 3: Client requirements

The digitizing world around us is changing our needs and our expectations of products, services, and facilities. Banking services are no exceptions as their clients expect faster, better, and personal services from their local bank. As (local) banks answer this shift in client requirements with providing more and more online services, they ‘do not include any physical relationship with the bank’

(Boström & Andersson, 2019, p. 12). As physical customer meetings between the customer and the bank decreases, it is important to transform the traditional meeting locations such as local bank branches into alternative locations for these customer meetings. As the client requirements are shifting, the traditional location theories are not of use anymore. It is imperative to determine what criteria should be met in order to match the client requirements. This research distinguishes client requirements as an example of soft location factors and the new criteria for alternative locations. This chapter first discusses the shifting client requirements that can be derived from the existing literature on this topic. Information regarding changing customer needs can mainly be found in the marketing and consultancy literature. This was caused by the fact that many consultancy companies have been asked by large banks to investigate changing customer behaviour so that the banks can respond to this. However, this does mean that the scientific literature on this subject remains dated, which means that little use is made of this subject. Second, the importance of local bank branches and the relation to the customer will be elaborated. And third, this chapter introduces two concepts that the local banks can use to influence and meet these shifted client requirements.

3.1 Shifting client requirements

As Holmlund & Kock (1996, p. 291) clearly articulate in their article, ‘Banking is a personalized service-oriented industry and hence should provide services which actually matches with the need of customers. So, the bankers are expected to anticipate, identify, design, deliver and finally satisfy all the needs of customers effectively and efficiently’. In the banking industry the focus should, more than in other industries, be on relationship building with the customer and therefore identify the needs of the customers in order to meet these. In order to provide service quality in banking, Howcroft (1991, p. 13) argues that it implies ‘consistently anticipating and satisfying the needs and expectations of customers.’

Canoy (2019) states in his book about the Rabobank that customers only want three simple things: that they are listened to, that the lines are short and that they do not have to wait long if something is going on. Customers, as he continues, prefer a bank that they can contact at any time, that switches quickly when it is needed and that thinks along with them (Canoy, 2019). Although these three criteria seem easy to achieve, it is not that simple in practice as we can see in the struggle local banks have to stay close to their customers. Even though these three criteria can be seen as

overarching, numerous other client requirements can be distinguished.

As mentioned in the introduction, a divide in customer transactions can be made into routine and non-routine transactions. As non-routine transactions are more emotional customer experiences than routine transactions (as will be elaborated further), they score higher on customer experience and customer satisfactions. Personal assistance and physical meetings with the bank are most desirable for non-routine transactions due to their complexity and high stakes. The digitalisation of banking services decreases the number of physical meetings between the bank and the customers. The bank and the customer will have therefore less face-to-face contact while it has the most impact on the experience of the bank’s services. These two processes, the importance of non-routine transactions and the increasing pressure the decreasing physical meetings, are reasons to better match the banking services with the client requirements. In order to do so, it is imperative to know what these ever-shifting requirements are.

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The client requirements in banking services are shifting as the world becomes more digitalised. Both the use and the expectations with regard to the digital channels are increasing, even though the Netherlands is already one of the ‘front-runners’ in the digital field (Rabobank Nederland, 2019). As will be elaborated in section 3.3.3, the net promotor score for personal and physical contact is higher than that of digital rating what is conceptualised in ‘the digitalisation paradox’.

The focus on local banks should lie on the right mix of digital and personal interactions as that is what important to customers (Rabobank Nederland, 2019).

In the search for the client requirements of both routine and non-routine transactions, Accenture (2015) distinguished different types of the shifted requirements that the local banks should meet in order to score high on customer experiences. First of all, customers want banking to be easy and safe with a 24/7 access to their bank account. Next to that, customers want to be kept informed on importance changes with a responsive, transparent, and communicative customer service. Thereby it is important to help customers with their needs as ‘first-contact resolution is key to retention’

(Accenture, 2015, p. 1)., it is stated that 80% that left because of bad customer service ‘could have been retained if the issue was solved right away’ (Accenture, 2015, p. 1). At last, customers want to have individual attention in order to be better helped out and understood.

In addition to Accenture (2019), the research of Månsson (2019) distinguishes partly overlapping ways of client requirements on local banking. First, it is stated that customers want the best financial products, no matter who provides them. This ‘open banking’ can be linked to the decrease in

customer loyalty of local banks as customers become less attached to their own bank. Next to that, digital expectations of customers are growing as they expect more, better, and tailored banking services. The third change of client requirements is that customers want to have 24/7 access to their bank account and preferably cashless and fast. At last, if the local banks want to ‘understand

customers’ needs and desires through all of life’s stages, they should offer a seamless service that makes financial decision easier to act on’ (Månsson, 2019, p. 5). Ernst & Young (2010) however, note that the expected drivers of client requirements are focussed on price and product offering. They claim a more ‘selling product’ approach than Månsson (2019) and Accenture (2019), which indicates that Ernst & Young (2010) consider banking as a product rather than on the services which the bank provides.

However, a side note can be made about the above-mentioned client requirements. In the literature it is widely mentioned that a distinction can be made in the age of customers and their requirements (Accenture, 2015; Client Global Insights, 2014; Grigoroudis, 2012). Non-routine transactions are often linked to emotional transactions and therefore physical customer meetings (see chapter one).

However, the younger generation, in contrast with the older generation ‘become more willing to use the digital channel for these emotional transactions’ (Rabobank Nederland, 2019).Digital services will only increase in use if the local banks want to meet the client requirements of the newer generation: Accenture (2015, p. 1) states that ‘consumers between 18 and 34 are three times more likely than consumers older than 55 to want more digital interactions than companies currently support’.

Transforming customer meetings of local banks from traditional office buildings to alternative locations. An exploratory research