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Customer Satisfaction and Service Quality

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INTRODUCTION

Identifying the topic of research and formulating questionnaire for the research are the main objectives of this section. This chapter consists of explanation of the title, background of the research, introduction of the company, customer satisfaction and service quality, significance of the research and problem statement, research questions and objectives, preliminary literature review, methodology and framework along with limitation. Structure of this entire report has been included at the end of this chapter.

Explanation of the title:

The title of the research is ‚ÄúImportanceof customer satisfaction and service quality in the business performance of banking industry: A case study of Prime Commercial Bank Ltd. (Biratnagar Branch).‚ÄĚ (Gufff guff guffguffai ta ho)

Background of the research:

Identifying the relationship between customer satisfaction and quality of service provided by a bank and tracking how they are important to the banking business is the main intention of this research. This research will also work as a guideline on what banks can do in order to satisfy their customer with the facilities they provide through their system. Sample from Prime Commercial Bank Ltd (Biratnagar-branch) has been taken as the reference in this study in order to check the hypothesis in the title of the research.

Every sector has constantly been looking for its growth among customers, so the sector of banking is not alone. For a bank to grow its reach, satisfaction of the customers is vital which can be achieved by providing services that make the customers happy.

The expectation of the customers (the common people) from the banking sector has also increased alongside the recent developments and thus banking industry has been dedicating itself in providing easier, faster, and more convenient services than ever before through the up-to-date technologies. The number of banks have been increasing along with the expansion of the world economy. With the increasing number of banks, it has become easy for people to chance their choice of banks and shift from one to another when they do not like the services of the bank.

Thus, retaining customers for long time has become a challenge for most of the banks and here comes the role of service provided by the banks. Higher the quality of services provided by the banks, more the people like and trust the bank. So this research identifies different ideas, tools, and strategies that will help the Prime Bank and other banks of similar nature increase the customer satisfaction and retain them in the long run.

Introduction to Prime Commercial Bank Ltd.:

Prime Commercial Bank Ltd. was incorporated in September 2007 as the 21st commercial bank in Nepal. It is a Category ‚ÄėA‚Äô Financial Institution registered under the ‚ÄúBanks and Financial Institutions Act‚ÄĚ of Nepal. It has been established by prominent business personnel and professionals from diversified areas with a prime objective of providing ‘Banking Services to Everyone’ in the country where still large number of population are deprived of Banking Services.

The bank has established itself as an emerging player in financial sector with focus in customer service excellence maintaining excellent relationship with valued customers. It is counted among the top 10 commercial banks in Nepal by independent raters and publications in the country.

The Bank’s shares are listed and actively traded in the Nepal Stock Exchange (NEPSE).

There are 66 working branches clients all over Nepal including 17 inside Kathmandu valley and 49 outside the valley. The bank has set up 39 ATM Booths throughout the country, which includes 21 within Kathmandu valley and 18 outside Kathmandu valley.

Customer Satisfaction and Service Quality:

There are various factor that determine the success of services/products, among those factors customer satisfaction and service quality are most important factor which creates long-term relationship with customer it is necessary to keep them satisfied and happy. Once the people become satisfied they become loyal towards the services/product.

It is a fact that if the company does not think about customer satisfaction then sooner or later the company will lose its customers. According to Kotler, et al (2013) ‚Äúcustomer satisfaction means how the expectation of the customers are met and it is directly connected to the customers need.‚ÄĚ Satisfaction is the result that a consumers gets through the consumption of the services/products. Heskette, et al(1997) believes that customers are highly satisfied by the proper quality service is given to them which has a direct impact on the customer loyality.

Cronin and Taylor (1992) also added that it is the customer satisfaction that decides the purchase decision. If they are highly satisfied then they become loyal customer and vice- versa. Banking is the customer oriented service industry in which customers are the base and hence customer satisfaction has become a vital aspect for any kinds of banking industry due to more competitors and also more competition among them.(Kumar and Sharma, 2016).

Today’s customers are more educated and desires the best service because of the availability of the wide range of options to choose. In order to be a global leader, today, price is not the single factor to compete in the market. Banking industry are using the cost-leadership strategies along with the differentiation strategies. Hence, with the help of customer satisfaction a firm can compete in the market because customers are the base to any kinds of firms. (Pyc.edu.np, 2018)

Significance of the research:

The significance of this research is to identify the importance of customer satisfaction through quality service in the banking sector of Nepal. Business organizations run because of customers, so it is important for businesses to take their services to a level that makes the customers happy and satisfied. Apart from using the services of the banks, customers can also have a great role in publicity and advertisement of the bank; customers surely praise a bank if the services provided by the bank are satisfactory and they may even criticize the bank if it does not provide satisfactory services.

This research will also help Prime Commercial Bank Ltd. to identify the weak and strong points of their service system and look for the improvements in consumer relationship by satisfying the customer’s needs and expectations from the bank. This paper will also be useful for the bank and other similar banks to find the gaps and accordingly provide services to the customers so that they maintain the relationship with the bank in the long run.

Problem statement:

The problem statement taken for this study is the impact of customer satisfaction in the business performance of Prime Bank in Biratnagar. According to the research done by ThaneshworGautam and SanjayaDhital(Gautam and Dhital, 2004), Nepali customers were more satisfied with joint venture banks and the joint-venture banks grew after restoration of democracy after Mass Movement-II. Currently, services of the banks is not optimum since the customers have to wait for a long time in order to get services of the bank. Moreover, the behavior of the employees of the bank is also not good enough to retain customers in the long run. Customers are the heart of the business, so it is important to retain them in the long run which is possible only if they are satisfied. (Man, 2018)

 Research question and objectives of the research:

Research question:

The research paper attempts to answer a few questions. They are:

  • ¬∑ What are the types of services that customers get through the banking system of Nepal?
  • ¬∑ How do the customers of the Prime Bank view the services provided by the bank?
  • ¬∑ What are the services provided by the Prime Bank to its customers?
  • ¬∑ How can the satisfaction of customers affect the business performance of the Prime Bank?
  • ¬∑ Are customers happy on the services they are getting from the Prime Bank?
  • ¬∑ What are the gaps or fallacies in the services provided by the Prime Bank? What can the bank do in order to improve its services and increase the satisfaction level in the customers?

Objective of the research:

The objective of each and every commercial bank is to retain the customers for a long time by increasing the customer satisfaction through delivery or improvised and convenient services. This research’s objectives are also based on the same objective of the commercial banks. To point out, the major objectives of this paper are as follows:

  • ¬†To discover the role of customer satisfaction in the business performance of Prime Commercial Bank Ltd.
  • ¬†Recognizing various ideas, tactics, and strategies to make customer satisfaction better for the bank that can give advantage to the Prime Bank in order to compete with other players in the banking business.
  • ¬†Identifying the factors that affect customer satisfaction i.e. the facts regarding services provided by the banks that have made customers happy and also those which have upset the customers.

Definition of the term (Preliminary literature review):

At this point, it is useful to introduce preliminary literature review of customer‚Äôs satisfaction to improve the performance in banking industry. Work done by Berry, Bart Allen and Brodeur between 1990and 1998 defined ten ‘Quality Values’ which influence satisfaction behavior, further¬†expanded by Berry in 2002 and known as the ten domains of satisfaction. These ten domains of satisfaction include: Quality, Value, Timeliness, Efficiency, Ease of Access, Environment, Inter-departmental Teamwork, Front line Service Behaviors, Commitment to the Customer and Innovation.(Aanjaaygroup.com, 2012)

Customer satisfaction has a positive impact in the business performance of any firm. Anderson, Fornell and Lehmann (1994) attempted to explore the relationship between customer satisfaction and financial returns using a national customer satisfaction index (NCSI) and ROI (return on investment). Moreover, Yu S. (2007) found that ‚Äúhigher customer satisfaction leads to higher customer revenue and higher customer costs at the same time, and thus customer profits remain unaffected‚ÄĚ.

It is very difficult to identify what exactly customers wants and what makes them satisfied because it is difficult to understand what customer have in their mind. In order to know customers, various exercise must be conducted which will be beneficial for firms to know what exactly customer wants. The information gathered from customers will be useful to find what kinds of improvements are necessary to satisfy customer and retain them for the long-term. In order to satisfy customers, the potential area of improvement must be identified and implemented. Thus, Lord¬†William Thomson Kelvin (1824-1907) rightly said ‚Äúif you cannot measure it, you cannot improve it‚ÄĚ. (Indianmba.com, 2018)

Conceptual framework and methodology of the research:

Conceptual framework means the way the overall research is about and how it is organized which is also called theoretical framework. The main objective of this framework is to make research meaningful. Moreover, constructing acceptable theoretical research is also the other objective. According to Grant and Osanloo (2014) conceptual framework is ‚Äėblueprint‚Äô for a research.

There are various benefits that a framework provides however, the most important benefit is that it provides the structure about how a researcher defines the study analytically, literature review, presentation and discussion of the finding and also the conclusion drawn. The framework of this research is given below:

Methodology: The main objective of this study is to identify the importance of customer satisfaction in the business performance of Biratnagar-Branch. In order to carry out this research the research methodology used are:

  • ¬†Sample and data collection:

In order to conduct this research, 50% of data will be collected through face-to-face interview of customers of Biratnagar- Branch 50% of data will be collected through questionnaire and sample questions.

  • ¬†Data collection:

In order to collect, data primary sources such as questionnaires and interviews will be used.

  • ¬†Sample size:

Sample will be taken through random sampling method. 50 respondents are used in this research.

  • ¬†Data sources:

In order to conduct this research, both primary and secondary data are used. (Scribd, 2018)

 Limitation of the research:

Prime bank is a private bank which has 131 operating branches. It is difficult to study about all those branches so, in this research I will focus more on Prime bank, Biratnagar-Branch. The major limitation of the research are listed below:

  • ¬†The time-frame to conduct this study is very limited and so the minute and detailed study cannot be done.
  • ¬†Prime bank is present all over Nepal, but this research concerns only about Biratnagar Branch of .
  • ¬†Every person has different concept about satisfaction so all the consumers rates the service differently though getting the same service.
  • ¬†Some of the customer might not give the truth answer which might affect the result of the study.

 Structure of the research paper:

This paper was written on the basis of an organized research. So the structure of research is an important part to mention here. The research has been structured into five chapters to make it clearer and more comprehensive. They are:

  1. Chapter 1: This chapter incorporates the topic or theme of the research, background of the research and introduction of Prime Commercial Bank Ltd., significance of the research, problem statement, research questions and objectives of the research, preliminary literature review, conceptual framework and the methodology used for the research, and limitations of the research.
  2. Chapter 2: This chapter has review-selected literature about the Theories and concepts related to the topic. The theories and concepts have been extracted from the works of renowned researches in the related fields of banking, service delivery, and customer satisfaction.
  3. Chapter 3: This chapter contains methodology of the research detailing on the study type and the type of methodology used in proving the topic statement or the hypothesis. It would explain details regarding the study design, Conceptual Frame work and Operationalization, how the research instrument was constructed, and how the sample was selected. Finally the chapter will elaborate on how the data was collected and analyzed.
  4. Chapter 4: This chapter will include analysis of findings derived from the collected data, and start with an analysis of the demographics of the respondents, and then continue with a detailed analysis with regard to the objectives of this research.
  5. Chapter 5: This chapter is a summarizing chapter where conclusions of the study and the following recommendations will be mentioned in order to generalize the finding of the research.

References, sample questionnaire and appendix have been mentioned at the end of this paper.

References

  1.  Anderson, E., Fornell, C., & Lehmann, D. (1994). Customer Satisfaction, Market Share, and Profitability: Findings from Sweden. Journal of Marketing, 58(3), 53-66.http://dx.doi.org/10.2307/1252310.
  2. http://www.primebank.com.np (2018) For the Introduction of the Bank. Information on history of the bank, organizational structure of the bank, and its presence across Nepal, were taken from the site.
  3. Grant, C. &Osanloo, A. (2014). ‚ÄėUnderstanding, Selecting, and Integrating a Theoretical Framework in Dissertation Research: Creating the Blue print for House‚Äô. Administrative Issues Journal: Connecting Education, Practice and Research, 12-22.
  4. Indianmba.com. (2018) Measuring Customer Satisfaction in The Banking Industry [online]. Available from: http://www.indianmba.com/Faculty_Column/FC328/fc328.html
  5. Kumar, M. and Sharma, D. (2016) Customer Satisfaction trends in Banking Industry-A Literature Review [online]. Researchgate. Available from: https://www.researchgate.net/publication/311913355_Customer_Satisfaction_trends_in_Banking_Industry-_A_Literature_review
  6. Man, J. (2018) Proposal for Research {Customer satisfaction in Nepalese Commercial Bank} [online]. Academia.edu. Available from: http://www.academia.edu/35386597/Proposal_for_Research_Customer_satisfaction_in_Nepalese_Commercial_Bank_
  7. Pyc.edu.np. (2018) Competitive Strategy and Performance of the Nepalese Banking Industry [online]. Available from: http://www.pyc.edu.np/index.php?option=com_content&view=article&id=419:competitive-strategy-and-performance-of-the-nepalese-banking-industry-&catid=85:volume-iii-2010&Itemid=447
  8. Scribd. (2018) Customer satisfaction in Banks | Customer Satisfaction | Survey Methodology [online]. Available from: https://www.scribd.com/doc/26556623/Customer-satisfaction-in-Banks
  9. Yu, S. (2007)‚ÄėAn Empirical Investigation on the Economic Consequences of Customer Satisfaction‚Äô. Total Quality Management & Business Excellence 18(5), 555-569.

LITERATURE REVIEW

This chapter will develop the strength of the topic of the research based on the works of researchers in the field of baking service and customer satisfaction. tHe interrelationship between customer satisfaction and service quality have been explained with citation of various reviews and journals in this section. The chapter begins with definition of customer satisfaction and service quality given by various scholars at various times of history. The dependency of the customer satisfaction with the service quality of any business will be clear from this section.

The above figure shows the relationship between customer satisfaction and service quality and also identifies the potential gaps that must be filled in order to satisfy the customers. There are five GAPs in this model however three Gaps i.e. Gap1, Gap2, and Gap3 are considered most important because they have a direct relationship with each other which are further explained below:

  • Gap1: Customer expectation versus management perception: this Gap occurs when there is lack of communication and too many levels of management.
  • Gap2: Management perception versus service specification: this Gap occurs when the organization is not able to fulfill the expectations of the customers as stated.
  • Gap3: Service specification versus service delivery: this gap occurs as a result of poor management team, use of outdated technology, lack of proper supervisory control. It can also be the result of improper teamwork.
  • Gap4: Service delivery versus external communication: this gap is the result of improper communication done from top to button.
  • Gap5: Difference between customer expectation and their expectation of service: this gap occurs when the customers are not satisfied with the service. However they may be influenced by word of mouth and their personal requirement. (Shahin, 2018).

Customer satisfaction

Customers are the recipients of certain goods or services produced by a company or a firm. Customers buy the products and services because of the need or desire. And while buying the products and services, they look for satisfaction on using them. Customers should not be confused with consumers. There is a difference between consumers and customers. Customers are not just consumers but are also the stakeholder of the company. Customers are the stakeholders of the company producing goods and services because they influence the activities of the company in a direct or an indirect way. A customer can be a consumers but not all the consumers are customers. According to Saunders, M., Lewis P. and Thornhill A. (2009) consumers and customer are different. Customer just buys the product whereas consumer finally consumes the product.

For any business to succeed and thrive in the market, continued satisfaction of customers on the goods and services produced by the business is needed. There can never be a universal definition of customer satisfaction since the word ‚Äėsatisfaction‚Äô has different meanings to different people. A few people may be satisfied in a certain level of service while some others may need higher level and quality of service in order to be satisfied. However, customer satisfaction is one of the chief factors affecting performance and success or failure of a business. In every kinds of business, customers are treated in the best possible manner and Prabhakaran and Satya (2003) also had mentioned that customers are ‚Äúking‚ÄĚ.

Customers are satisfied when their expectations about the products or services are met.Kotler and Keller (2009) identified that satisfaction can be a pleasure or disappointment after the use of certain products or services with their expectancy. Satisfaction can be taken as synonymous to the economic concept of ‚Äėutility‚Äô. There is a saying‚ÄĒ‚ÄėOne man‚Äôs meal can be another man‚Äôs poison.‚Äô It is true since something that does good to a person may not do good to another. So satisfaction is a subjective matter that differs from person to person. Ensuring the happiness and well-being of the employees is a way of ensuring customer satisfaction since the employees of a business are those people who interact with the customers.

Bad behavior of employees can directly hamper customer satisfaction. Thus, employee-employer relation can have impact on business-customer relation indirectly.Customer satisfaction according to Tse& Wilton (1988, p. 204) is ‚Äúthe consumer‚Äôs response to the evaluation of the perceived discrepancy between prior expectations and the actual performance of the product or service as perceived after its consumption‚ÄĚ. It is vital for firms and business to focus on perception of customers towards their products and services in order to know how satisfied they are. This can help the businesses decide strategies for their growth and improvement in the future including expansion of market in some cases.

When someone is satisfied with a service provided by a business, they are loyal to that business. They praise about the service provided by the business. Thus, customer satisfaction increases customer loyalty which eventually motivates the performance of the business. According to Anderson et al (1994), customer satisfaction and quality service are the two vital elements for the success of any firm or business and they are important since they generate a link between the satisfaction level of the customers and performance of the firm or the business.

Arnold et al (2005); Parasuraman et al (1985); Reichheld and Sasser (1990); Rust and Zahorik (1992, 1993) also believed that satisfaction of the customers largely influences the performance of a firm or a business. Early scholars have argued that satisfaction of the customers has a core role in the performance of a business (Drucker, 1973).

Companies are putting optimum efforts to make their customers satisfied and happy with their services and what they are expecting in return is the recommendation to others. According to a study, an increase of 5 percent in the customer retention rate increases profit of a company from 25 to 80 percent (Reichheld and Sasser, 1990). Customer retention also means the regular use of the company’s goods and services, they also create positive word-of-mouth, and also customer become loyal to the serve or product. (Amiemt-journal.com, 2018). In various such ways, we can conclude that customer satisfaction can have a huge impact on the performance and success of a business or a firm.

Customer satisfaction measurement tool

Satisfaction cannot be measured exactly. It is actually a feeling of a customer. Although it is already evident that there is no measuring rod for human emotion, an attempt to measure can obviously bring positive results. So, asking the customers about what they feel about the product, good or service, is the best way of determining customer satisfaction. In order to measure customer satisfaction, Levy (2009, p. 6) suggested three ways which are listed as follows:

  • ¬†Identify the customer‚Äôs grievances and conduct a survey to get a feedback which can be converted into measurable quantitive data.
  • ¬†In order to know about what customer thinks focus group or informal should be conducted by a trained mediator.
  • ¬†Talking directly to the customers.

There can barely be a company that claims providing inferior services to its customers. Every business claims providing top quality services to its customers but according to the Helpscout study, only 80% of the company provides superior service. A notable figure is that 8% out of those 80% of the customers believe that are getting the excellent or promised service. Thus, knowing the status of customer satisfaction helps businesses to look for improvements in their goods and service and increase the number of customers gained from the consequent satisfactionand loyalty from the customers(Customer Experience & Cloud Call Center | Aircall Blog, 2018).

Service quality

Whenever a business or firm provides service, quality of the service is th main factor noticed by the customers. Quality of a service refers to the totality of characteristics and features which are capable of satisfying the customers by fulfilling their needs or wants. Quality of service is the main factor determining whether a customer is satisfied or dissatisfied with the customers. Zeithaml et al. (1990) has defined ‚Äúservicequality in the management and marketing literature is the extent to which customers’ perceptionsofservicemeet and/or exceed their expectations.‚ÄĚ Quality service is a must for any business in order to retain the customers for long term. Another author Parasuraman defined service quality as ‚ÄúThe differences between expectation of services from the customers and their perception towards the service after receiving it. (Parasuraman, 1988).

These authors also noted that the gap can be determined after considering the customers’ expectations and their perception towards the service. And businesses and firms can fulfil that gap by providing the services expected by the customers in the market.

Customers are the major targets of any business and number of customers can directly be increased by satisfying the existing customers through qualitative services. Whether the customers are getting good or bad services can be determined through service quality measurement. Finding out whether the customers are getting good or bad services can help understanding whether the customers are satisfied or not. Simply, customers are satisfied if the service is good. According to one of Haywood there are ‚Äúthree components of service quality, called the 3 ‚ÄúPs‚ÄĚ of service quality‚ÄĚ which are listed below:

  • ¬†‚ÄúPhysical facilities, processes and procedures;
  • ¬†Personal behaviour on the part of serving staff, and;
  • ¬†Professional judgment on the part of serving staff but to get good quality service.‚ÄĚ (Haywood 1988, p. 19-29).

Better service quality is possible only through the balance among the 3 P’s. Moreover, the factors determining these three P’s are degree of labor intensity, interaction with the customers and the customization of the servicesrespectivley.

Service quality measurement tool

A number of service quality measurement tools are used in various research, but I will be presenting about SERVQUAL scale model in this study. SERVQUAL scale model is the best tool in measuring the service quality and it is also known as gap model. This model was created for the very first time by Parasuraman et al. (1985) where they identified 97 contributing factorsaftecting service quality which were later shortened into ten factors. Those ten factors included tanes, reliability, responsiveness, competence, courtesy, credibility, security, access, communication and understanding the customer.

These ten factors were later reduced to five dimensions which are: tangibility, reliability, responsiveness, assurance, and empathy.(Diva-portal.org, 2018). In the beginning, SERVQUAL scale model had 22 pairs of Likert-type items. One part measured the perceived level and other measured expected level of service provided by the organization. Kuo-YF (2003, p. 464-465). Zeithaml et al (2006), stated that ‚Äúservice quality is a focused evaluation that reflects the customer‚Äôs perception of reliability, assurance, responsiveness, empathy, and tanes‚ÄĚ (Zeithaml et al, 2006, p. 106-107).

After the introduction of the SERVQUAL model, two large banks of India were tested in order to check the accuracy and reliability of this model. The result indicated that measurement were unequal in explaining variances in the overall service sectors. However, the most dimensions were found out to be responsiveness and reliability, empathy, tane dimensions and assurance simultaneously. Hence, SERVQUAL method turned out to be the best method to measure service quality especially in the retail banking industry. Angur et al (1999).

Mathematically,

According to this model, service quality is the function of perception and the expectations which can be presented as:

Where,

  • SQ = overall service quality;
  • K = number of attributes;
  • P ij = performance perception of stimulus iwith respect to attributej; and
  • E ij = service quality expectation for attribute j that is relevant norm for stimulus i.

When the perceived value is less than expected service then the result says that the customers are dissatisfied with the service provided and vice-versa. (Sangeetha and Mahalingam, 2015).

Relationship between Customer satisfaction and service quality

Customer satisfaction is the positive outcome of services provided by a business or firm to its customers. The negative outcome is customer dissatisfaction. Quality of the service is the determining factor for satisfaction since it is the form in which a service is delivered from the provider to the customers. According to Lewis, ‚Äúdefinitions of consumer satisfaction relate to a specific transaction (the difference between predicted service and perceived service) in contrast with ‚Äėattitudes‚Äô, which are more enduring and less situational-oriented,‚ÄĚ Lewis (1993, p. 4-12).

Despite the existence of the fact that there lies interrelationship between customer satisfaction and service quality, Oliver (1993) initially recommended that service quality needs to be primarily considered by businesses and firms because if there is no proper service, customers will obviously be dissatisfied. Meanwhile, some other scholars stressed that customer satisfaction is the result of service quality and service quality can also be influenced by the satisfaction of the customers. Anderson & Sullivan (1993); Fornell et al (1996); Spreng&Macky(1996). (Pdfs.semanticscholar.org, 2018).

There exists a positive relation between service quality and customer satisfaction in the banking business (Avkiran, 1994). This implies that increase in service quality increases the satisfaction in customers and vice versa. Caruana (2002) also conducted a study where he took 1000 retail banking customers and the result was found that satisfaction plays a leading role in effecting service quality on customer loyalty.

Meaning and measurement of service quality is not an easy job, but various scholars have attempted in making it as simpler as possible. Service quality and satisfaction are interrelated and they have many things in common, however, service quality has fixed dimensions whereas satisfaction is not easily determined (Wilson et al., 2008, p. 78). Satisfaction depends not only on service quality but also on many other factors like price, environment, technology, and many more, however, it is assumed that service quality the major factor affecting customer satisfaction (Zeithamlet al. 2006, p. 106-107). Customer’s perception on service quality and satisfaction of customers share a relation which can be described by the flowchart below.

The figure above has attempted to relate customer satisfaction with service quality. Referring to the chart, customers assumption about reliability, responsiveness, assurance, empathy and tanes whereas customer satisfaction is influenced through service quality, product quality, price, situational factor, customer loyality and even the personal factors. (Wilson et al., 2008, p. 78).

The connection between service quality and customer satisfaction can also be understood from the following figure. According to the figure, customer satisfaction are largely affected by personal factors as well. Situational factors like behavior of the employees of a firm or a business and the customer’s financial condition also affect the level of satisfaction in the customers.

Importance of service quality and customer satisfaction

It is now evident that for a success and good performance of any business, customer satisfaction plays a vital role. Various researches are done about customer experience. Zairi (2000) said ‚ÄúCustomers are the purpose of what we do and rather than them depending on us, we very much depend on them. The customer is not the source of a problem, we shouldn‚Äôt perhaps make a wish that customers ‚Äėshould go away‚Äô because our future and our security will be put in jeopardy.‚ÄĚ This statement clearly puts light on importance of customer satisfaction in the performance of a business.The statement explains why companies are focusing customer satisfaction, loyalty and retention. Satisfaction of customer directly results in loyalty of customers towards the service provider which in turn can be useful for the service provider in increasing revenue.

Loyal customers indirectly help in the publicity of the business through their appreciation. More the publicity, more is the chance for a business to receive more customers and eventually generate more revenue. According to Ennew and Binks (1999), the inter-relation between customer satisfaction and service quality proves that better service quality enhance the customer satisfaction which will lead to increase in customer base as well as success. The retention rate of current customers can be used to calculate the quality of the services provided by the businesses. (Yavas et al., 1997). Although ervice quality is the cause of customer satisfaction, the satisfaction is not affected by material objects. (Jamal and Naser, 2003).

Factors that influence service quality and satisfaction

Banking services and the quality of services vary from a bank to another and accordingly the influence of banks.While service delivery is important in business, other aspects of the service like compatibility customer needs and wants, quality of the service, and efficiency in solving the existing problems of the market are also equally important (Katwalo&Muhanji, 2014).

SERVQUAL is used in order to determine the quality level of the service provided by the firms and the corresponding satisfaction generated in the users of the service i.e. the customers (Parasuraman et al, 1985). It is evident that service quality and customer satisfaction and related. According to the model some of the factors affecting the closely interrelated customer satisfaction and service quality are: reliability, responsiveness, assurance, empathy and tangibility. These factors have been explained in detail below:

Reliability

One of the major factors customers consider while choosing banks for their financial activities. The reliability of banks continues to have role even after customers choose the bank. Customers want their bank to be reliable in terms of safety of the financial transactions, stability of the bank’s performance, and more (Liberati et al, 2012). Moreover, the timing of service provided also has a great role in the reliability of banks. According to a research conducted by Tesfom and Birch (2011), there exists a direct relationship between reliability of servicesand customer satisfaction, making the relation significant enough to be considered by the businesses and firms.

The study revealed that customers were satisfied in term of service satisfaction due to the easy access of ATMs, ease of transferring money from one bank to another, and easy access of paying their bill. With the recent developments in the sector of technology, mobile and internet banking have become quite popular due to the convenience they provide to the customers. On the other hand, mobile and internet banking are equally prone to hacking.

Banks need to regularly check the security of their systems in order to present themselves as reliable service providers to the customers. Customers of banks in developing countries like Nepal have been facing hurdles since banks have overloaded queues, low number of employees in teller service, faults in ATMs and even careless staffs. If the banks continue with the pitfalls, it is obvious that they dissatisfy the customers and score low in the reliability index. It is important for banks to keep up the trust of the people in order to keep up their performance in the market. Hence, identification of the level of reliability is important in order to take necessary actions in increasing the satisfaction in customers of a bank (Gupta and Dev, 2012).

Responsiveness

Response is always taken positively, either it be in personal life or in business. Responsiveness of banks towards the issues and complaints of customers has vital role in satisfying the customers. Gritti and Foss (2010) defined responsiveness as ‚Äúthe coordinatedreaction towards the customers’ needsthat is timely, and within the expectation of the customer.‚ÄĚ Responsiveness does not mean just providing the services to the customers. It also includes receiving customer‚Äôs queries and complaints with promising actions, providing feedbacks and suggestions to the customers regarding their finance. The main objective of the banks‚ÄĒretaining customers‚ÄĒis not possible unless the bank becomes responsive enough to address the needs of the customers.

A study on Portuguese bank conducted by Fonseca (2104) identified that there is a positive relationship between responsiveness and customer satisfaction. According to the study done by Emst and Young (2014),responsiveness of a bank depends on the environment and culture in which the bank operates. We can take an instance of Nepal where customers interact mostly with the tellers and the tellers need to be responsive towards the needs of the customers. Moreover the study conducted by Gupta and Dev (2012) also emphasized that interacting with the customers is the better way of showing responsiveness, attention and gratitude.

Assurance

Assurance is closely related with the reliability and responsiveness of the banks. In fact, business can assure customers of their trustworthiness through a display of reliability and responsiveness (Jiang and Wang, 2008). Competence in service position is the modest way for banks to develop assurance in its customers. Banks can develop assurance by employing right people in the right place and in the right time, so that they can give undisturbed and smooth service to the customers.

Also consistency in decisions and schemes along with use of popular and safe technologies are also important for banks in developing assurance among the people. Moreover, these kinds of assurance builds confidence in customers (Arasli, Smadiand Katircioglu, 2009). Jing and Wang (2008) defined assurance as ‚Äúthe art of being polite and friendly when dealing with the customers.‚ÄĚ Hence, assurance can be built in the customers through display of friendliness in putting customer‚Äôs needs and voices first (Liberati and Mariani, 2012).

Tangibility

Jayarman, Shankar and Hor, (2010) defined tangibility as ‚Äúthe physical aspects of a product or service.‚ÄĚ Tangibility is an asset of banks where it includes building, waiting area, table‚Äôs chairs and furniture‚Äôs. Katwalo and Muhanji(2014) argue that banking facilities, equipment and fixtures all constitute tangibility. (Meyer et al., 2006) have also claimed that banking is a very sensitive sector where everything including from people, building, service, communication, appearance all matters. According to the study conducted by Wruuck (2013) in South Africa, there exists a positive relationship between tanes and customer satisfaction. (Erepo.usiu.ac.ke, 2018). Tangibility of the banks can also can great effect on the satisfaction of customers of a bank. Impressive physical aspects like building, appearance, organized office also play role in satisfying the customers. (Jayarman el at., 2010).

Empathy

Empathy is an important factor in almost all the business activities. Empathy is the respect for someone‚Äôs feelings, opinions, ideas, or views. It is important for banks to respect their customers if they want them to retain them. In the banking industry, empathy can also be taken as the way in which the employees of the bank behave with the customers. Rahman (2014) defined empathy as ‚Äúthe caring behavior that is usually extended to an individual in personalized manner.‚ÄĚ Banks can gain a lot of advantages from empathy.

Especially when a bank goes to a rural area with a project, it can easily win the trust of the people with its empathy increasing the number of customers alongside customer satisfaction. Such projects with empathy are obvious to satisfy the customers to a high level, heightening the image of bank. Gritti and Foss (2010) have concluded in a study that there is no direct relationship between customer satisfaction and empathy. However, it is important for banks to do Corporate Social Responsibility (CSR) programs which helps to increase reputation of banks and as well as enhance positive relationship between customers so that they are satisfied with the bank.

Factors that improve service quality in banks

Higher the quality of the service, higher the level of satisfaction in customers. But, there are again certain factors that affect the service quality itself. Retention rate is considered an important factor in the performance of banks. And service quality of the banks is directly related to the retention rate. Factors such as improvement in service, keeping right people in the right job and managing them, determining the gaps between perception of the bank and perception of the customers are some of the important factors which are described below:

Improvement in the service

Perfection is an ideal thing, so there are always the spaces for improvements. Banks need to constantly look for weak points in their service delivery and accordingly upgrade the quality of their service. In this technological era most of the banking activities are connected to the internet and thus the fallacies can also be found in the internet channels of the banks. Although it is the firm that needs to look for improvement in their services through identifications, customers are the ultimate judges of those improvements. Thus, such improvements should be noticeable for the customers in order to realize that some sort of change is happening.

Even psychologically, when changes happen a customer feels that the bank is not a stagnant one and is constantly launching new things and upgrading them for them. A problem is that banks have been spending money in different new sectors rather than investing on the improvement of the existing services. In such conditions, the bank may become versatile, but its mediocrity in many sectors is not good. Excellence in the services, even if limited, can help the bank gain reputation based on the high quality of its services. According to a study conducted by Richard (2002), the strength and weakness of service can be identified by having knowledge of it. Service quality can be improved by following the below listed steps:

  • ¬†Determining which customers are loyal to the bank through regular study.
  • ¬†Carrying out studying and surveys in order to know the wants and needs of the customers. Wants and need of people may constantly change.
  • ¬†If the customers are dissatisfied, finding the reasons behind their dissatisfaction.
  • ¬†Comparing the services of the bank with other competitors in other to find the difference in trends and the corresponding reasons.

 Managing right people at the right job

In a service providing organization, employees have a great role in the business since the services are directly or indirectly delivered to the customers through the employees. All employees may not fit all the sectors of a business. Managing right people at the right job refers to the distribution of responsibilities among the employees in the service-supply chain based on their abilities, experiences and past record. This directly relates to the human resources management. Managing the human resources for the optimum functioning of the organization obviously makes the service delivery prompt i.e. in other sense qualitative. To make the customers happy, the happiness of the employees should also be considered.

The employees should be constantly given attention, promotion and other incentives to keep up their performance up in the bank. According to Frost (1991), it is beneficial when the organization has productive and skilled workforce. Customers are very sensitive towards the behavior of the employees so the firm should hire only the experienced worker rather than that of unexperienced. Hence, managing the right people in the right job helps a firm to satisfy its customers. (Caruso, 2018).

The gaps between organization perception and customer perception

A service being provided by bank with a purpose may be viewed differently by the customers. The difference in perception of bank and perception of peole towards a service can be defined as the perception gap. There can be errors in the service if the bank carries out the services only depending on its perception. Increasing the accuracy in the service delivery system can help balance the perception of customers and that of the bank. The banks need to know what they are providing in the eyes of the customers. Hence, it is vital to recognize the perception gaps and fulfill in order to optimize the quality of service being offered. (Parasuraman et al., 1985)

Literature summary

Service quality and customer satisfaction cannot be separated from one another; when one talks about quality the subject of the services i.e. the customers come along. It can also be said that customer satisfaction is directly proportional to the service quality since when one is high the other is also and vice-versa.

Banking industry is such an industry which provide same service to the customers and therefore service quality helps to gain competitive advantage to the firm. Cronin and Taylor (1992) originally hypothesized that satisfaction is an antecedent of service quality. They also argued the fact that customer satisfaction determines whether the service provided is of quality or not. Gil et al. (2007) revealed that, customer satisfaction in banking industry can only be achieved when service is of quality which have a direct relationship on the perceived service value.

With the advancement in technology and high competition, the only way to sustain in the market for long-term is to provide quality service and satisfy its customers. (Shemwellet al., 1998). (Mpra.ub.uni-muenchen.de, 2018). Perception differs from person to person; but the banks should consider the recurring and common perceptions of the customers. Human emotions cannot be assessed or calculated. Service quality can be measured by the help of one method called SERVQAL which has been mentioned earlier in this paper. This method hascome relevant in various case studies. In nutshell, when the customers have positive feeling about the service, it results into customer satisfaction which is important for the service provider because when customers are satisfied with the service then again it results into customer loyality. Deng, Lu, Wei and Zhang (2009).

References

  1.  Amiemt-journal.com (2018) [online]. Available from: http://amiemt-journal.com/test2/vol3-no2/1.pdf
  2.  Anderson, E., Fornell, C. and Rust, R. (1997) Customer satisfaction, productivity, and profitability: Differences between goods and services, Marketing Science [Online]. Available from: https://pubsonline informs.org/doi/abs/10.1287/mksc.16.2.129
  3.  Angur, M., Nataraajan, R. and Jahera, J. (1999) Service quality in the banking industry: an assessment in a developing economy. International Journal of Bank Marketing, [online]. Available from: https://www.emeraldinsight.com/doi/abs/10.1108/02652329910269211
  4. ¬†Arasli, H., Smadi, S. M. &Katircioglu, S. T. (2009) ‚ÄėCustomer service quality in the Greek Cypriot banking industry‚Äô. Managing Service Quality 15(1), 41-56.
  5. ¬†Arnold, M.J., Reynolds, K.E., Ponder, N., and Lueg, J.E. (2005)‚ÄėCustomer delight in a retail context: investigating delightful and terrible shopping experiences‚Äô. Journal of BusinessResearch 58(8), 11321145.
  6. ¬†Avkiran, N, K. (1994) ‚ÄėDeveloping an Instrument to Measure Customer Service Quality in Branch Banking‚Äô.International Journal of Bank MarketingVol. 12, No. 6, pp. 10-18
  7. ¬†Caruana A (2002) ‚ÄėService Loyalty: The Effect of Service Quality and Mediating Role of Customer Satisfaction‚Äô. E
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