Influence of service quality on customers’ satisfaction and loyalty: The case of Commercial Bank of Ethiopia, Shashemene District

Influence of service quality on customers’ satisfaction and loyalty: The case of Commercial Bank of Ethiopia, Shashemene District

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Abstract

The main objective of the study was to investigate the influence of quality service on customers’ satisfaction and loyalty in five selected branch banks found under CBE, Shashemene district. Since, BANKSERV model was especially developed to examine the services quality of banking sector; researchers selected this model to extensively test retail banking industry. The current study measured customer services quality and its relation with customer satisfaction and loyalty in the selected branch banks. Survey method used as the research method of the study. The sample consists of 398 respondents selected based on convenience sampling procedure. The dimensions of the study were staff conduct, credibility, communication and access to teller services. Study data were collected using self administered questionnaire and the questionnaire consisted of 17 items categorized under four dimensions of the BANKSERV model. Correlation and multiple regressions were used to investigate the relationship between dependent and independent variables. The correlation results indicate that there is a positive correlation between the dimensions of service quality and customer satisfaction. The results of the regression test showed that offering quality service have positive impact on overall customer satisfaction. The research proves that staffs conduct and communication plays the most important role in customer satisfaction level followed by access to teller service and finally the bank credibility. The research findings also indicate offering high quality service increase customer satisfaction, which in turn leads to high level of customer commitment and loyalty.

Key words: Staff conduct, credibility, communication, access to tellers services, customer satisfaction, loyalty, BANKSERV model.

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CHAPTER ONE

INTRODUCTION

This chapter consists of background of the study, statement of the problem, research hypotheses, general and specifics objective of the study, significance of the study, scope of the study, limitation of the study and organization of the paper.

1.1.      Background of the study

The government of Ethiopia has launched economic reforms, financial liberalization measures and restructuring of financial institutions with the aim of promoting a competitive environment and efficient banking services to the public. The financial sector, with implementation of flexible interest and exchange rates that are market-lead, shows sign of improvement. In addition, the coming in to effect of the Licensing and Supervising Banking and Business Proclamation No. 84/1994 propels the mergence of many private banks in the market since 1994 (Kiyota et.al, 2007). This joined by rapid technological advancement and improved communication systems, has contributed to the increasing integration and resemblance amongst banks in the financial sector. As a result, banks are now faced with very high and intense competition amongst them (Harvey, 2010).

Hence, in order to win this intense competition and maintain their market share of the bank industry; they must give attention to the existing and potential customers need, want and preferences to maximize their satisfaction and loyalty plus to that they must make continues customer service quality improvement program. Since the importance of making continuous customer service quality improvement program is to make profit, build good images, lead the market, and retain customers which lead customer loyalty.

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In this context, the subject of service quality in relation to customer satisfaction and loyalty

needs a fresh understanding in the current business scenario. Service  quality  is  particularly

essential  in  the  banking services  context  because  it  provides  high  level  of customer

satisfaction and wins customer loyalty, for this reason  it  becomes

a

key

to competitive

advantage (Ahmossawi, 2001).

Customer satisfaction is also crucial

in

the banking sector because of

the special nature

of

the

service which

is characterized

by

intensive

contact with customers who

have different

needs and require

customized solutions and it is

known to be one of the most important

and

serious issues

towards  success

in

today’s

competitive  business

environment,  as

it

                   

affects company market shares and customer loyalty (Clemes, 2008).

Similarly, service loyalty is one of the most important structures in service marketing, due to its final effect on customers’ repeated purchases, and in fact, those loyal customers who purchase repeatedly are considered as the base of any business (Mohsan, 2011). Although these concepts have been used so many times in the marketing literature, but the relations between these three concepts still remain ambiguous and this calls for investigation to find the relation of these three concepts.

Avkiran (1994) developed a utilitarian multi-dimensiona





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