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ASSESSMENT OF SERVICE QUALITY AND CUSTOMER
SATISFACTION IN BANKING SECTOR:
A CASE OF LOCALLY AND INTERNATIONALLY OWNED
BANKS IN TANZANIA
ASSESSMENT OF SERVICE QUALITY AND CUSTOMER
SATISFACTION IN BANKING SECTOR:
A CASE OF LOCALLY AND INTERNATIONALLY OWNED
BANKS IN TANZANIA
By
Peter Leah
A Dissertation Submitted to Mzumbe University in (Partial) Fulfillment of the
Requirements for award of the Degree of Master of Science Human Resource
Management
2013
i
CERTIFICATION
We, the undersigned, certify that we have read and hereby recommend for
acceptance by the Mzumbe University, a dissertation titled “Assessment of service
quality and customer satisfaction in banking sector, A case of Locally and
Internationally owned banks in Tanzania in partial fulfillment of the requirements
for award of Master‘s degree in Human resources Management (MSc Human
Resources Management) offered by Mzumbe University.
___________________________
Major Supervisor
___________________________
Internal Examiner
Accepted for the Board of …………..……………………
____________________________________________
DEAN/DIRECTOR, FACULTY/DIRECTORATE/SCHOOL/BOARD
i
DECLARATION
I, Leah declare that, this dissertation entitled “Assessment of service quality and
customer satisfaction in banking sector, A case of Locally and Internationally owned
banks in Tanzania” is my original work and that; it has not been presented and will
not be presented to any other university for a similar or any other degree award.
Signature________________________
Date____________________________
ii
COPYRIGHT
©
This dissertation is a copy right material protected under the Berne Convention, the
Copyright Act 1999 and other international and national enactments in that behalf on
intellectual property. It may not be reproduced by any means in full or in part, except
for short extracts in fair dealings, for research or private study, critical scholarly
review or discourse with an acknowledgement, without the written permission of
Mzumbe University on behalf of the author.
iii
ACKNOWLEDGEMENT
My first and foremost gratitude goes to the Almighty God for giving me the strength
and courage to pursue my studies and conducting this research study. I also thank my
family that is my mother Mrs. Maria Lago. Naman and my cousin brother Prof.
Kirway and his wife Dr. Elizabeth Lulu; my beloved husband Frank Mughwai and
my daughters Faith, Saraphine and Roselyn for supporting me morally and spiritually
during the whole period of my studies and during the research study. Their
encouragement, advice and support enabled me to put in effort which enabled me to
conclude the study successfully.
My sincere appreciation to my Supervisor, Dr. Tripathi, who guided me from
proposal writing up to the preparation of this dissertation. His criticism, invaluable
patience, intellectual guidance and support helped me not only to accomplish this
study, but also to come up with the expected standards. Sincerely, he deserves all
kinds of credits and appreciation.
Furthermore, my appreciation also goes to all those who have contributed to this
research in one way or another, such as my fellow students and others in the
preparation of this paper. Kindly receive my gratitude.
iv
DEDICATION
I dedicate this dissertation to my husband and my daughters. Thank you for
supporting me and bearing with me during the whole period of my studies.
v
LIST OF ABBREVIATION
ATM Automated Teller Machine
CRDB
BOT
NMB
Corporate and Rural Development Bank
Bank Of Tanzania
National Microfinance Bank
DCB Dar es salaam Commercial Bank
SPSS
TQM
Statistical Package for Social Sciences
Total Quality Management
vi
ABSTRACT
This study presents service quality as what customer says it is, as in the case of the
banking sector because the ―product‖ generated by the banks is not visible, tangible
that cannot be held, analyzed and inspected for defects. The study anticipated to offer
insight on how banks in Tanzania have managed service quality and customer
satisfaction.
The study had a total of 150 respondents who were involved in data collection
process using questionnaires and interviews on customers, administrative staff and
departments to be selected at random. The study used descriptive cross sectional
research design. The study on customer satisfaction has based on service quality
attributes of service responsiveness, reliability and availability.
The study discovered that there is a relationship between customers‘
expectation/perception from the services of the banks and customer satisfaction.
Henceforth, the higher the customer expectations/perceptions are met the greater the
level of satisfaction in the services provided by the bank. It also recommends on job
training of staff is also recommended as this will a brace the staff with different ways
of handling customers‘ complaints and also have an understanding of the different
types of customers that they have.
vii
TABLE OF CONTENTS
Certification................................................................................................................... i
Declaration.. .................................................................................................................. i
Copyright… ................................................................................................................. ii
Acknowledgement....................................................................................................... iii
Dedication.. ................................................................................................................. iv
List of Abbreviation ..................................................................................................... v
Abstract….. ................................................................................................................. vi
Table of Contents ....................................................................................................... vii
List of Tables................................................................................................................ x
List of Figures ............................................................................................................. xi
CHAPTER ONE : INTRODUCTION ...................................................................... 1
1.1 Background Information to the Problem ................................................... 1
1.2 Statement of the Problem ........................................................................... 5
1.3 Research Objectives ................................................................................... 6
1.3.1 General Objective ...................................................................................... 6
1.3.2 Specific Objectives .................................................................................... 6
1.4 Research Questions .................................................................................... 7
1.5 Significance of the Study ........................................................................... 7
1.6 Scope of the study ...................................................................................... 7
1.6.1 Geographical scope .................................................................................... 7
1.6.2 Time scope ................................................................................................. 8
1.7 Limitations of the Study ............................................................................ 8
1.8 Delimitations of the study .......................................................................... 8
1.9 Organization of Dissertation ...................................................................... 8
CHAPTER TWO : LITERATURE REVIEW ...................................................... 10
2.1 Introduction .............................................................................................. 10
2.2 Theoretical Review .................................................................................. 10
2.2.1 Service Quality ........................................................................................ 10
viii
2.2.2 Customer Satisfaction .............................................................................. 18
2.2.2.1 Disconfirmation Theory ........................................................................... 18
2.2.2.2 Expectation disconfirmation theory ......................................................... 19
2.2.2.3 Satisfaction............................................................................................... 19
2.2.2.4 Dissatisfaction .......................................................................................... 21
2.2.2.5 Customer‘s Perception of Quality............................................................ 22
2.3 Customer Satisfaction in the Banking sector ........................................... 23
2.4 Empirical Studies ..................................................................................... 34
2.5 Conceptual Framework ............................................................................ 37
2.6 Analysis of Literature Review ................................................................. 38
CHAPTER THREE : RESEARCH METHODOLOGY ...................................... 40
3.1 Introduction .............................................................................................. 40
3.2 Research Perspective ............................................................................... 40
3.3 Research Paradigm and Design ............................................................... 41
3.4 Study Area ............................................................................................... 41
3.5 Nature and Source of Data ....................................................................... 42
3.5.1 Primary data ............................................................................................. 42
3.5.2 Secondary Data ........................................................................................ 42
3.6 Sample and Sampling Procedure ............................................................. 42
3.7 Data Collection Methods and Instruments............................................... 43
3.7.1 Questionnaires Administration ................................................................ 43
3.7.2 Interviews................................................................................................. 44
3.7.3 Documentary Review .............................................................................. 45
3.8 Data Management .................................................................................... 45
3.8.1 Data cleaning ........................................................................................... 45
3.8.2 Validity .................................................................................................... 45
3.8.3 Reliability................................................................................................. 45
3.9 Data Analysis ........................................................................................... 46
ix
CHAPTER FOUR : DATA PRESENTATION AND ANALYSIS ...................... 47
4.1 Introduction .............................................................................................. 47
4.2 Demographic profile of respondents ........................................................ 47
4.3 Descriptive statistics ................................................................................ 50
4.3.1 To assess the customers‘ perception of the service quality in the selected
banks in Tanzania ....................................................................................................... 50
4.3.1.1 Customer support ..................................................................................... 51
4.3.1.2 Good manners and hospitality ................................................................. 51
4.3.1.3 Imposing of service charges and fines ..................................................... 51
4.3.1.4 Convenience business hour ...................................................................... 52
4.3.2 Impact of different service quality dimensions on customers‘ level of
satisfaction 52
4.3.3 Gap between customers‘ expected and perceived service quality of
banking services in Tanzania ..................................................................................... 54
CHAPTER FIVE : DISCUSSION OF THE FINDINGS ...................................... 56
CHAPTER SIX : CONCLUSIONS AND RECOMMENDATIONS ................... 59
5.1 Introduction .............................................................................................. 59
5.2 Implications of the findings ..................................................................... 59
5.4.3 Conclusions .............................................................................................. 60
5.5.4 Recommendations .................................................................................... 60
5.6.4 Directions for future research .................................................................. 61
REFERENCES ......................................................................................................... 62
JOURNALS .............................................................................................................. 65
APPENDICES .......................................................................................................... 74
x
LIST OF TABLES
Table 4. 1 Demographic Profile of Respondents ................................................... 47
Table 4. 2: Age Distribution of respondents ........................................................... 48
Table 4. 3 : Respondent level of education .............................................................. 49
Table 4. 4 : Descriptive Statistics for local and international banks ........................ 53
Table 4. 5 : Responses to if gap exists ..................................................................... 54
xi
LIST OF FIGURES
Figure 4, 1 Gender Profile of Respondents ................................................................ 48
Figure 4, 2 Age Distribution of respondents .......................................................... 49
Figure 4, 3 Responses to if gap exists .................................................................... 55
1
CHAPTER ONE
INTRODUCTION
1.1 Background Information to the Problem
Customer satisfaction refers to what the customer perceives to attain from a given
service delivery in order to meet his or her expectations. Customer satisfaction
results from the degree of correspondence between the customer‘s true quality
characteristics and substitute characteristics (William, 1999). Service Quality
assurance and relevance in the banking sector is complicated. A number of authors
have put forth definitions based on both customer benefits as well as customer
burdens. Quality is meeting and exceeding customer needs and expectations; quality
is fitness for use; (Juran, 1989). This has not left the banking sector as they have tried
to maintain service quality in order to meet the customers satisfaction, it has in turn
resulted into competition amongst public and private banks world over, also is the
case of Tanzania.
The issue of customer satisfaction in the banking sector of Tanzania is broad and one
that requires some clarification. There are many difficulties involved in managing a
customer‗s satisfaction, and these are particularly complicated in the banking sector.
Because banking is a service, it is often challenging to increase both customer
satisfaction and productivity concurrently (Anderson et al. 1997).
Commercial banks—assaulted by the pressures of globalization, competition from
non-banking financial institutions, and volatile market dynamics—are constantly
seeking new ways to add value to their services. Because financial services compete
in the marketplace with generally undifferentiated products, service quality becomes
a primary competitive weapon (Stafford, 1996). Currently technological changes are
causing banks to rethink their strategies for services offered to both commercial and
individual customers (Hossain and Shirely, 2010). Moreover, banks that excel in
quality service can have a distinct marketing edge since improved levels of service
quality are related to higher revenues, increased cross-sell ratios, higher customer
retention (Bennett and Higgins, 1988), and expanded market share (Bowen and
2
Hedges, 1993). Therefore, banks should focus on service quality as a core
competitive strategy (Chaoprasert and Elsey, 2004).
Within this background customer satisfaction and service quality are compelling the
attention of all banking institutions around the world and in recent years,
academicians and practitioners give more attention in this area as it assumed that
service quality is a critical measure of firm performance (Yavas, 2001; Bick et al.
2004; and Olsen, 2008).
According to Ashutosh et al (2007) the globalization and liberalization of the
economy, the competition has increased in the banking sector. Therefore, the
banking companies have now shifted towards the quality management as one of the
basis for the source of competitive advantage in the rapid changing scenario. It has
been observed that the banking sector companies have also changed their approach to
manage their customers.
The increasing benefits to the customers in terms of flexibility, access, customized
solutions through innovative banking product mix are few of the examples of how
the banking companies are geared towards the change. But all these steps can be
effective only if the perceptual gap of quality is carefully assessed on regular basis
and then used as a basis for planning and delivering the services to the end
customers. To effectively enhance banking service quality, bankers are first required
to understand the attributes customers use to judge service quality.
There has been extensive literature linking the service quality with the customer
satisfaction that leads to the decisions of future purchases (Donovan and Samler,
1994; Heskett, Jones, Loveman, Sasser and Schlesinger, 1997). What is important
here is service quality as it decomposes over a period of elapsed time since the
performance of a service. An individual's time-elapsed perception of service quality
is related to the level of cognitive dissonance experienced over the same time frame
(Neil and Palmer, 2001). This calls for continuous monitoring and measurement of
the perceptual gap in service quality as it helps the service providers to tune their
3
offerings with the fast changing customers' expectations in highly vibrant industry
requirements.
In the process of ensuring the quality and customers' satisfaction, the service
provider is required to assess the customers' perception of the expected level of
service quality, which in turn largely depends upon the service provider's perception.
Therefore, the primary task of any TQM application requires the correct
measurement of the perceptual gap between the service provider and the customer.
The measurement of service quality requires a great degree of precision and accuracy
due to the intangible nature of the services (Ennew, Geoffrey and Martin, 1993)
The banking Industry in Tanzania has tremendously changed its dynamics for the last
one decade. Many banks have joined the industry both local and foreign. Notably,
the nobanks financial institutions have been mushrooming by an alarming speed. For
this very reason the players in the banking industry need to consider their
competitive positioning and repositioning strategically. In mid 1960s the industry
had only one bank, National Bank of Commerce. It can therefore be said that in
1960s the industry had a monopolistic structure. In 1986, Corporate and Rural
Development Bank (CRDB) was established hence to make the industry to
experience a duopolistic market structure. In any industry, including the banking
industry, the nature of competition is always a function of the market structure. The
trend today is a perfect competition and the central bank has withdrawn from
managing the market forces. Banks are now working on their own about what are
relevant products and rates to be offered to the market (Elisante, 2006).
The total assets have increased from $ 2.7 billion at the end of 2004 to $ 9.6 billion at
the end of 2012 (BOT, 2013). Because of this, new merchant banks, commercial
banks, bureau de change, insurance companies, a stock exchange and related
financial units have entered the market. With a total of 27 banks and a few non-
banking financial institutions, which are not allowed to open current accounts, the
market is characterized by a few big players and several small banks. In Tanzania,
90% of deposits are in the hands of eight banking institutions, namely three local
banks and five foreign banks.
4
Local banks primarily service local customers while foreign banks tend to operate as
subsidiaries of large groups, such as Citigroup and Barclays, using strategies oriented
to the international market. As a consequence, foreign banks focus on international
customers and national clients who prefer to keep their deposits in foreign currencies.
There are four categories of banks, oriented towards different markets and clientele
operating in Tanzania: local private banks, regional banks, international banks and
multinational banks. Overall, the outlook for the banking industry in Tanzania is very
positive and there are appealing opportunities for new comers to the sector.
Schumpeter and, more recently, Porter (1985) have attempted to move the
understanding of industry competition from a static economic or industry
organization model to an emphasis on the interdependence of forces as dynamic, or
punctuated equilibrium, as Porter terms it. In Schumpeter's and Porter's view the
dynamism of markets is driven by innovation Barnes, J G. (2001). The banking
industry of Tanzania is equally facing a lot of dynamism and the dynamics will keep
on changing over time at an increasing speed.
The economic liberalization of the financial sector started in 1991 laid a foundation
for the formation and expansion of private banks in Ethiopia (Hansson, 1995). This
coupled with rapid technological advancement and improved communication
systems, have 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 (Harvey, 2010).
Banks operating in Tanzania is consequently put into lot of pressures due towards
increase in competition. Various strategies are formulated to retain the customer and
the key of it is to increase the service quality level.
Service quality is particularly essential in the banking services context because it
provides high level of customer satisfaction, and hence it becomes a key to
competitive advantage (Ahmossawi, 2001). In addition, service quality has a
significant impact on a bank‘s success and performance (Mouawad and Kleiner
5
1996). Nowadays, service quality has received much attention because of its obvious
relationship with costs, financial performance, customer satisfaction, and customer
retention.
Different meaning could be attached to the word quality under different
circumstances. It has been defined in a different way by various scholars. Some of
the prominent definitions include "Quality is predictability" (Deming, 1982),
―conformance to specification or requirements‖ (Crosby, 1984), ―fitness for use‖
(Juran, 1988) and "customer's opinion" (Feigenbaum, 1945). These initial efforts in
defining quality originated largely from the manufacturing sector. A solid foundation
in defining and measuring service quality was emanated in the mid-eighties by
Gronroos (1984) and Parasuraman et al.
This study aimed at investigating the different measures that local and international
banks have taken in a bid to satisfy perceptions of the customers.
1.2 Statement of the Problem
Measuring customer satisfaction is a relatively new concept to many companies that
have been focused exclusively on income statements and balance sheets. Many
companies in the less developed countries recognize that the new global economy
has changed things forever. Increased competition, crowded markets with little
product differentiation and years of continual sales growth followed by two decades
of flattened sales curves have indicated to today's sharp competitors that their focus
must change.
With the increasing competition amongst banks to attract customers, ―quality‖ has
emerged as a theme to be adopted by both the local and international banks world
over. In an effort to stay competitive in Tanzania banks are trying to develop new
ways to improve their service delivery. Service Quality has emerged as an important
theme adopted as a competing factor. Competitive pressures have forced banks to
search for strategies to retain their customers. Among them being maintenance and
improved services, at the same time attempting to balance their budgets.
6
Research shows (Kayita, 2010) that service quality and customer satisfaction are two
things that move single handedly if the quality of services is not all that good then it
means that customers will not be satisfied with the services that are provided by the
institution. Different studies regarding service quality and customer satisfaction have
been carried out in different sector say in education (Kayita, 2010 and Hussein,
2008), telecommunication (Mboma, 2005 and Urio, 2008) to mention but no in-depth
study has been carried out for the case of the banking sector in Tanzania which thus
creates the research gap which this study intended to establish how service quality
attributes have been employed by banks in order to meet the expectations of
customers. Basing on the above background the study was more of a necessity to be
carried out by the researcher. No study has ever been done to make an assessment of
service quality and customer satisfaction in the banking sector in Tanzania hence a
motivation to this researcher to undertake the study in this area.
1.3 Research Objectives
The general and specific objectives which governed this study are stated in parts
1.3.1 and 1.3.2 respectively.
1.3.1 General Objective
The objective of the study was to analyze service quality and customer satisfaction in
the banking sector in Tanzania.
1.3.2 Specific Objectives
The specific objectives of the study were:
To assess the customers‘ perception of the service quality in the selected
banks in Tanzania
To measure the customers‘ expected service quality in the selected banks in
Tanzania
To analyze the impact of different service quality dimensions on customers‘
level of satisfaction
To suggest improvements for banking service quality in Tanzania
7
1.4 Research Questions
What is the customers‘ perception of the service quality in the selected banks
in Tanzania to measure the customers‘ expected service quality in the selected banks
in Tanzania?
What is the impact of different service quality dimensions on customers‘
level of satisfaction…
What are the suggestions for improvements for banking service quality in
Tanzania?
1.5 Significance of the Study
The findings will be useful to banks, similar institutions and the general public.
The findings do benefit all stakeholders including bank management in
formulating strategies that capture customer needs and expectations and enhance
service satisfaction amidst other things.
The study does help to develop an understanding of contributors to customer
satisfaction to retain and attract more customers.
The information will enhance policy makers to design regulations that do
foster service quality and customer satisfaction in the different banks.
The study will further provide information that enhances government and
other stakeholders to invest in the banking sector.
The study will also give an understanding to the different institutions of how
service quality is important in satisfying customers‘ expectations.
1.6 Scope of the study
1.6.1 Geographical scope
The study was carried out in locally owned and internationally owned banks head
offices located in Dar es Salaam region.
8
1.6.2 Time scope
The study is applicable to the period 2009-2012. This period was considered long
enough to enable the researcher to analyze service quality and customer satisfaction
in the banking sector.
1.7 Limitations of the Study
The research process is was very complex, it involved a lot of stages and each stage
had its own limitations and delimitations.
Finance and time limitation:
These constraints did have an impact on both the field work and final results. The
time set for the completion of the research work was too short for one to undertake a
comprehensive literature review and thorough study.
Reluctance to provide information:
Some of the respondents were reluctant in providing information for reasons of
confidentiality.
1.8 Delimitations of the study
In the process of conducting the research, the researcher faced a number of
limitations; these were overcome in the following ways; on the limitation of
respondents being too busy this was overcome by revisiting these officials and
calling them for appointments at their time of convenience. The researcher tried to
utilize the specified time effectively and did not use research assistants in order to
minimize costs. The researcher did spell out clearly that the research was for
academic purpose and also respondents were not required to disclose their names.
1.9 Organization of Dissertation
This research report is divided into five major parts which include: The Introduction
part which is just ending conquers the background information and a setting to the
problem of the research; it introduces this research work in terms of its research
matrices and organization. The introductory aspects of this work such as the
9
background information, statement of the problem, research objectives and
questions, rationale for the study, and scope are keenly elaborated in the introduction
part. The Literature review part covers the relevant and significant issues related or
pertaining to the study to ensure proper tracking of the research work by enabling the
researcher gaining insights from other researchers on related topic and documents.
The Research Methodology part covers the research philosophies, research designs,
and data collection methods, sources of data, sampling issues and data analysis
techniques as they were employed in conducting the study.
Chapter four discussed the findings of the study and their appropriate interpretations
and thus giving way forward for conclusion, summary and recommendation.
The last chapter includes the conclusion, summary and recommendations from the
findings. It was tailored to the statement of the problem, objectives of the study as
well as research questions; this part ended by suggesting areas for further research.
10
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter reviews the theoretical and empirical literature relating to service
quality and customer satisfaction. The aim of this chapter is to provide a framework
to be employed when analyzing service quality and customer satisfaction in the
banking sector in Tanzania. The theoretical aspect highlights issues relating to
service quality and customer satisfaction in general. The empirical section waters
down service quality and customer satisfaction in the banking sector.
2.2 Theoretical Review
Customer satisfaction can be defined as the extent to which what the customers
perceived to attain from a given service delivery meeting their expectations.
Customer satisfaction results from the degree of correspondence between the
customer‘s true quality characteristics and our substitute characteristics (William,
1999).
2.2.1 Service Quality
To understand what Service Quality is, we need to understand what Quality means
and it‘s concept as a whole. Understanding the term ―Quality‖ will reveal that the
concept has been defined in many different ways and with different emphasis by the
various writers on the subject. Quality is an elusive and indistinct construct. Often
mistaken for imprecise adjective like ―goodness, or luxury, or shininess, or weight‖
(Crosby 1979), quality and its requirements are not easily articulated by consumers
(Takeuchi and Quelch 1983).
As mentioned before that Service quality has been wildly used to evaluate the
performance of banking services (Cowling and Newman, 1995). Moreover service
quality can be defined as the difference between customers‘ expectations for service
performance prior to the service encounter and their perceptions of the service
11
received (Asubonteng et al., 1996). Gefen (2002) also defined service quality as the
subjective comparison that customers make between the quality of the service that
they want to receive and what they actually get. The banks understand that customers
will be loyal if they receive greater value than from competitors (Dawes and Swailes,
1999) and on the other hand, bank can earn high profits if they are able to position
themselves better than their competitors within a specific market (Davies et al.,
1995). Therefore, banks need focus on service quality as a core competitive strategy
(Chaoprasert and Elsey, 2004). Moreover, customers evaluate banks' performance
mainly on the basis of their personal contact and interaction (Grönroos, 1990).
Many scholars agree that service quality can be decomposed into two major
dimensions (Grönroos, 1983; Lehtinen and Lehtinen, 1982). The first is referred to
by Zeithaml et al., 1985 as ―outcome quality‖ and second by Grönroos (1984) as
―technical quality‖. However, the first dimension is concerned with what the service
delivers and on the other hand; the second dimension is concerned with how the
service is delivered: the process that the customer went through to get to the outcome
of the service. However, service quality can be also defined as ―a judgment about a
service‘s overall excellence or superiority‖ (Schneider & White, 2004, p. 51).
According to the prevailing Japanese philosophy, quality is ―zero defects – doing it
right the first time‖. Garvin (1983) measures quality by counting the incidence of
―internal‖ failures (those observed before a product leaves the factory) and ―external‖
failures (those incurred in the field after a unit has been installed). Crosby (1979)
defines quality as ―conformance to requirement‖. The search for quality is arguably
the most important consumer trend of the 1980s (Rabin 1983) as consumers are now
demanding higher quality in products than ever before (Leonard and Sasser 1982,
Takeuchi and Queleh 1983).
Service quality is a concept that has aroused considerable interest and debate in the
research literature because of the difficulties in both defining it and measuring it with
no overall consensus emerging on either (Wisniewski, 2001). There are a number of
different "definitions" as to what is meant by service quality. One that is commonly
12
used defines service quality as the extent to which a service meets customers‘ needs
or expectations (Wisniewski and Donnelly, 1996). Service quality can thus be
defined as the difference between customer expectations of service and perceived
service. If expectations are greater than performance, then perceived quality is less
than satisfactory and hence customer dissatisfaction occurs (Parasuraman and Berry,
1991).
Without any doubt, service quality is very important component in any business
related activity. This is especially so, to marketer a customer‘s evaluation of service
quality and the resulting level of satisfaction are perceived to affect bottom line
measures of business success (lacobucci et al., 1994). Customer expectations are
beliefs about a service that serve as standards against which service performance is
judged (Zrithaml et al., 1993); which customer thinks a service provider should offer,
rather than on what might be on offer (Parasuram et al., 1988). To some, service
quality can also be defined as the difference between customer‘s expectations for the
service encounter and the perceptions of the service received. According to the
service quality theory (Oliver, 1980), it is predicted that customers will judge that
quality as ` low` if performance does not meet their expectations and quality as
`high` when performance exceeds expectations. Closing this gap might require
toning down the expectations or heightening the perception of what has actually been
received by the customer (Parasuraman et al., 1985).
According to Gronroos (1982), perceived quality of a given service is the result of
an evaluation process since consumers often make comparison between the services
they expect with perceptions of the services that they receive. He concluded that the
quality of service is dependent on two variables: Expected service and Perceived
service. Quality spells superiority or excellence (Taylor and Baker, 1994) (Zeithaml,
1988), or, as the consumer‘s overall impression of the relative inferiority / superiority
of the organization and its services (Bitner and Hubbert, 1994; Keiningham et al.,
1994-95). Consumer behavioural intentions are also influenced by the standards of
service quality (Bitner, 1990; Cronin and Taylor, 1992, 1994).
13
However, understanding of quality in goods and its importunateness is not sufficient
to understand service quality. Four well documented characteristics of services
intangibility, heterogeneity, perishability and inseparability – must be acknowledged
for a full understanding of service quality (Parasuraman, Zeithaml and Berry 1985).
Intangibility
Services are activities or benefits or benefits that are essentially intangible, cannot be
prefabricated in advance and do not involve ownership of the title (York, 1993).
They may include the traditional personal assistance service, for instance, baby-sitter,
gardener etc. The fix-it service such as mechanic, repairman, etc. and finally the
value added service as the least tangible of all (Cotter, 1993). Most services are
intangible (Bateson 1977, Berry 1980, Lovelock 1981, Shostak 1977). Because they
are performances rather than objects, precise manufacturing specifications
concerning uniform quality can rarely be set. Most services cannot be counted,
measured, inventoried, tested and verified in advance of sale to assure quality
(Parasuraman, Zeithaml and Berry 1985). Because service is not an object but a
phenomenon, it is difficult for customers to evaluate the quality of services as they
evaluate physical goods. Because of intangibility, the firm may find it difficult to
understand how consumers perceive their services and evaluate service quality
(Zeithaml 1981).
Heterogeneity
Services, especially those with high labor content, are heterogeneous; their
performance often varies from producer to producer, from customer to customer, and
from day to day (Parasuraman, Zeithaml and Berry 1985). Consistency of behaviour
from service personnel (ie. uniform quality) is difficult to assure (Booms and Bitner
1981) because what the firm intends to deliver may be entirely different from what
customer receives.
14
Inseparability
Production and consumption of many services are inseparable (Carmen and
Langeared 1980, Gronroos 1978, Regan 1963, Upah 1980). Services involve
simultaneous production and consumption. Inseparability implies that service is
simultaneously produced and consumed while physical goods are first produced, then
sold and finally consumed. Inseparability of production and consumption often
forces the involvement of the customer in the production process. Inseparability also
means that the producer and the vendor often compromise one economic entity
(York 1993). In labor intensive services for example, quality occurs during service
delivery, usually in an interaction between the client and the contact person from the
service firm (Lehtinen and Lehtinen 1982). In this situation, the customer input
becomes critical to the quality of service performance.
Perishability
The inseparability of production and consumption in turn results in an inability to
store service capability. Perishability means that services cannot be produced in
advance, inventoried and later made available for sale. Services are performance that
cannot be stored (Zeithaml, 1998). It is often difficult to adequately match up with
demand and supply such as those corrective maintenance works, for instance, heating
and cooling repairs.
In conclusion, both writers (Gronroos 1982; Lehtinen and Lehtinen 1982; Lewis and
Booms 1983; Saser, Olsen, and Wyckoff 1978) Parasuraman, Zeithaml and Berry in
1985 suggest three attributes of service quality:
• Service quality is more difficult for the consumer to evaluate than goods
quality.
• Service quality perceptions result from a comparison of consumer
expectations with actual service performance.
• Quality evaluations are not made solely on the outcome of a service; they also
involve evaluations of the process of service delivery.
15
Always there exists an important question: why should service quality be measured?
Measurement allows for comparison before and after changes, for the location of
quality related problems and for the establishment of clear standards for service
delivery. Babakus E, Boller GW (1992) state that, in their experience, the starting
point in developing quality in services is analysis and measurement.
Since quality has already been stated to play an important role in determining a
student‗s level of satisfaction, it was relevant to discuss a few of the various
dimensions of quality. Some of the more widely used criteria included reliability,
responsiveness, competence, access, courtesy, communication, credibility, security,
understanding the customer, and tangibles (Lagrosen et al. 2004). Research has
found that quality can be measured in a variety of different ways.
The SERVQUAL approach, which is studied in this paper, is the most common
method for measuring the quality of service. Service quality is more difficult for the
consumer to evaluate than goods quality. Perceptions of service quality result from a
comparison of consumer expectations with actual service performance. Quality
evaluations are not made solely on the outcome of a service; they also involve an
evaluation of the process of service delivery (Sesser et al. 1978). Service quality has
been described as a form of attitude, related but not equivalent to satisfaction, which
results from the comparison of expectations with performance (Parasuraman,
Zeithaml and Berry 1988).uring service quality. Service quality has been
conceptualized as a function of consumer expectations towards the service situation
and process, and of the output quality they perceived themselves to have received.
Service quality involves a comparison of expectations with performance: it is a
measure of how well the service level delivered matches customer expectations of a
consistent basis.
Previously, Parasuraman (1985) identify ten determinants for measuring service
quality which are tangibility, reliability, responsiveness, communication, access,
competence, courtesy, credibility, security, and understanding/knowledge of
customers. Later these ten dimensions were further purified and developed into five
16
dimensions i.e. tangibility, reliability, responsiveness, assurance and empathy to
measure service quality, SERVQUAL (Parasuraman, 1988).
These five dimensions identified as follows:
- Tangibility
Physically, the evidence of Service Counter staff is including a personality and
appearance of personnel, tools, and equipment used to provide the service.
Reliability
This involves the ability to perform the promised service dependably and accurately.
It includes ‗Doing it right the first time', which is one of the most important service
components for customers. Reliability also extends to provide services when
promised and maintain error-free records.
Responsiveness
Counter staff that render the service are willing to help customers and provide
prompt service to customers such as quick service, professionalism in handling and
recovering from mistakes. It has been said that ‗Today luxury is time'. Consequently,
service providers, ability to provide services in a timely manner are a critical
component of service quality for many customers.
- Assurance
This refers to the knowledge and courtesy of employees and their ability to convey
trust and confidence including competence, courtesy, credibility and security.
Competency refers to possession of the required skills and knowledge to perform the
services. It involves knowledge and skill of the contact personnel, knowledge and
skill of operational support personnel, research capability of the organization.
Courtesy involves politeness, respect, consideration, and friendliness of
contact personnel.
Credibility involves trust worthiness, believability, honesty; it involves
having the customer's best interest at heart. Contributing to credibility is company
reputation, personal characteristics of the contact personnel. The degree of hard sell
involved in interaction with the customer.
17
Security refers to the freedom from danger, risk or doubt. It involves physical
Safety, financial security and confidentiality.
Empathy
The term empathy refers to the provision of caring and individualized
attention to customers, including access, communication and understanding the
customers.
Access involves approach, ability and ease of contact. It means the service is
easily accessible by telephone, waiting time to receive service is not extensive, hours
of operation are convenient and location of service facility is convenient.
Communication means keeping customers informed in language they can
understand. It means listening to customers, adjusting its language for different
consumers and speaking simply and plainly with a novice. It also involves explaining
the service itself, explaining how much the service will cost, and assuring the
customer that a problem will be handled.
Understanding the customers means making the effort to understand the
customer‘s need. It includes learning the customer‘s specific requirements, providing
individualized attention, recognizing the regular custom.
It is clear from the above results that customers like to be given enough
individualized attention and treated with care. It thus allows the customers to easily
approach and spell out their needs regarding the service being provided. The
importance of empathy may be the root of the statement. If one looks at who is
winning, it tends to be banks that see the customer as an individual.
SERVQUAL offers five dimensions of service quality to be evaluated in any service
setting; reliability, responsiveness, assurance, empathy, and tangibles (Parasuraman,
et al, 1994), and it has been widely used in practice in its original and modified form.
However, further research has illustrated that there are two overriding dimensions to
service quality, the core or outcome aspects and the relational or process aspect of
the service (Babin, B. J., Griffin, M., 1998). While reliability is largely concerned
with the service outcome, tangibles, responsiveness, assurance, and empathy are
18
more concerned with the service process. Customers judge the accuracy and
dependability (i.e., reliability) of the delivered service, but they judge the other
dimensions as the service is being delivered. It was found that although reliability is
the most important dimension in meeting customer expectations, the process
dimensions (especially assurance, responsiveness, and empathy) are most important
in exceeding customer expectations (Parasuraman et al, 1994).
2.2.2 Customer Satisfaction
2.2.2.1 Disconfirmation Theory
In marketing literature (Churchill and Surprenant, 1982; Oliver, 1980) as well as in
recent information system studies (McKinney et al., 2002), the disconfirmation
theory emerges as the primary foundation for satisfaction models. According to this
theory, satisfaction is determined by the discrepancy between perceived performance
and cognitive standards such as expectation and desires (Khalifa and Liu, 2003).
Customers, expectation can be defined as customer‘s partial beliefs about a product
(McKinney, Yoon and Zahedi, 2002). Expectations are viewed as predictions made
by consumers about what is likely to happen during impending transaction or
exchange (Zeithmal and Berry, 1988).
Perceived performance is defined as customer‘s perception of how product
performance fulfils their needs, wants and desire (Cadotte et al., 1987). Perceived
quality is the consumer‘s judgment about an entity‘s overall excellence or superiority
(Zeithmal, 1988). Disconfirmation is defined as consumer subjective judgments
resulting from comparing their expectations and their perceptions of performance
received (McKinney et al., 2002, Spreng et al., 1996).
Disconfirmation theory was declared that satisfaction is mainly defined by the gap
between perceived performance, expectations and desires which is a promising
approach to explain satisfaction. This theory was proposed that satisfaction is
affected by the intensity (or size) and direction (positive or negative) of the gap
(disconfirmation) between expectations and perceived performance.
19
2.2.2.2 Expectation disconfirmation theory
Khalifa and Liu (2003) Expectation disconfirmation occurs in three forms:
1. Positive disconfirmation: occurs when perceived performance exceeds
expectations.
2. Confirmation: occurs when perceived performance meets expectations.
3. Negative disconfirmation: occurs when perceived performance does not meet
and is less than the expectations.
It is more probable for customers to be satisfied if the service performance meets
(confirmation) or exceeds (positive disconfirmation) their expectations. On the
contrary, customers are more likely to be dissatisfied if the service performance is
less than what they expected (negative disconfirmation). Khalifa & Liu (2003)
discussed that taking expectation disconfirmation as the only determinant of
satisfaction; this theory does not cause the fact that if high expectations are
confirmed, it would much more lead to satisfaction than confirmation of low
expectations. To resolve this drawback perceived performance is included as an
additional determinant of satisfaction. In other words the only way to ensure
satisfaction is to empirically create disconfirmation by manipulating expectations and
performance.
2.2.2.3 Satisfaction
Before proceeding further, it is best that one fully understands the definition of the
phrase ‗Customer Satisfaction`. The phrase does not only express a happy customer,
but rather complex than that.
Most researchers agree that satisfaction is an attitude or evaluation that is formed by
the customer comparing their pre-purchase expectations of what they would receive
from the product to their subjective perceptions of the performance they actually did
receive (Oliver, 1980). As Kotler (2000, p.36) defined that satisfaction is a person‘s
feelings of pleasure or disappointment resulting from comparing a product‘s
perceived performance (or outcome) in relation to his or her expectation.
20
Additionally, Yi (1990) also stated that customer satisfaction is a collective outcome
of perception, evaluation and psychological reactions to the consumption experience
with a product/service.
Customer satisfaction is actually a term most widely used in the business and
commerce industry. It is a business term explaining about a measurement of the kind
of products and services provided by a company to meet its customer‘s expectation.
To some, this may be seen as the company‘s key performance indicator (KPI). In a
competitive marketplace where businesses compete for customers, customer
satisfaction is seen as a key differentiator and increasingly has become a key element
of business strategy. There is a substantial body of empirical literature that
establishes the benefits of customer satisfaction for firms. It is well established that
satisfied customers are key to long-term business success (Kristensen et al., 1992;
Zeithami et al., 1996; McColl-Kennedy and Scheider, 2000). It also defined as a
global issue that affects all organizations, regardless of its size, whether profit or
non-profit, local or multi-national. Companies that have a more satisfied customer
base also experience higher economic returns (aker and Jocobsson, 1994; Bolton,
1998; Yeung et al., 2002).
Consequently, higher customer satisfaction leads to greater customer loyalty (Yi,
1991; Anderson and Sulivan, 1993 Boulding et al., 1993) which in turn leads to
higher future revenue (Fornell, 1992; Bolton, 1998). For that matter, many market
leaders are found to be highly superior-customer-service orientated. They have been
rewarded with high revenue and customer retention as well.
For that matter, organizations in the same market sector are compelled to assess the
quality of the services that they provide in order to attract and retain their customers.
Apparently, many researchers conceptualize customer satisfaction as an individual‘s
feeling of pleasure (or disappointment) resulting from comparing the perceived
performance or outcome in relation to the expectation (Oliver, 1981; Brady and
Robertson, 2001; Lovelock, Patterson and Walker, 2001). There are two general
conceptualizations of satisfaction here, namely, the transaction-specific satisfaction
21
and the cumulative satisfaction (Boulding et al., 1993; Jones and Suh, 2000; Yi and
La, 2004). Transaction-specific satisfaction is the customer‘s very own evaluation of
his or her experience and reaction towards a particular service encounter (Cronii and
Taylor, 1992; Boshoff and Gray, 2004).
This reaction is expressed by the customer who experiences a product or service for
the first time. Meanwhile, cumulative satisfaction refers to the customer‘s overall
evaluation of the consumption experience to date (Johnson, Anderson and Fornell,
1995); an own accumulation of contacts with services provided them from day-to-
day. It is from this accumulation that customers establish a personal standard which
is used to gauge service quality. However, in general, it is agreed that customer
satisfaction measurement is a post-consumption assessment by the user, about the
products or services gained (Churchill and Surprenant, 1982; Yuksel and
Rimmington, 1988).
2.2.2.4 Dissatisfaction
The study of satisfaction begins with examining potential causes of dissatisfaction
(Grandinetti, 2001; Keane, 1998). This information is crucial as consultants suggest
that it costs five times more to attract a new student, than to retain an old one.
First, you should welcome interruptions. Second, set up customers to be wrong.
Third, consider intellectual research a personal affront. Fourth, make clients wait.
Fifth, ignore privacy. Sixth, make the clients feel inferior. Seventh, keep the
relationship impersonal. Eighth, have a rude and callous staff. Ninth, keep staff in the
dark. Tenth, design confusing bills. Eleventh, cut back on service delivery.
Obviously, attending to these issues in a comprehensive proactive planned approach
will avoid much of the potential customer service difficulties. However, if a
complaint is generated try to verify validity and respond objectively. First, listen
without interrupting. Second, formulate your response. Third, tell the customers what
is next. Fourth, invite customer feedback and encourage staff participation.
Research has proven that customer dissatisfaction has a greater psychological impact
and a greater longevity compared to good experiences as it has been estimated that
22
two out of three times as many customers will tell others of a bad experience than
relate a good one (Lovelock, 2005). Therefore, there is a multiplier effect of bad
service; it hurts not only the bottom line of the institution and its reputation, but
implies additional costs of losing potential customers apart from existing ones.
Studies have concluded that:
Service quality is one of the effective means in building a competitive position in the
service industry (Lewis, 1993) Investments in service quality, customer satisfaction
and customer relationships lead to profitability and market share (Rust and Zahorik,
1993).
High quality service and customer satisfaction often results in more repeat purchases
and market share improvements. Customer satisfaction leads to customer loyalty and
this leads to profitability.
The costs of customer acquisition are much higher than the costs of retention
Lovelock (2001).
2.2.2.5 Customer’s Perception of Quality
The customers' perception element of quality has its own distinct definition and form
of measurement. It carries subjectivity, and is the level of perceived value reported
by the customer who benefits from a process or its outcome.
Perceived quality is in the mind of the believer, and is a poor offspring because our
methods of today are all focusing attention on the business and not to the customer
outside of the business.
According to the U.S. Small Business Administration, business must offer quality
service to customers and clients if they want to maintain a positive public image.
Setting customer help to ensure that companies reach, and exceed, customers'
expectations. "When it comes service standards to customer satisfaction, it all comes
down to perception: How the customer sees and experiences the product and service
23
provided by your business," writes Lea Strickland in Carolina Newswire. "It's not
what you believe or think, not what your studies or focus groups tell you, but what
your actual customers feel, experience and say."
2.3 Customer Satisfaction in the Banking sector
Customer satisfaction and service quality are inter-related. The higher the service
quality, the higher is the customer satisfaction. Many agree that in the banking
sector, there are no recognized standard scales to measure the perceived quality of a
bank service. Thus, competitive advantage through high quality service is an
increasingly important weapon to survive.
Measuring service quality seems to pose difficulties to service providers because of
the unique characteristics of services: intangibility, heterogeneity, inseparability and
perishability (Bateson, 1985). Because of these complexities, various measuring
models have been developed for measuring perceptions of service quality
(Gro ̈nroos, 1983; 1990; Parasuraman et al., 1985; 1988;, 1991; Stafford, 1996; Bahia
and Nantel, 2000; Aldlaigan and Buttle, 2002). The SERVQUAL model of
Parasuraman et al. (1988) proposes a five-dimensional construct of perceived service
quality: tangibles; reliability; responsiveness; assurance; and empathy – with items
reflecting both expectations and perceived performance. Service quality has become
an important research topic because of its apparent relationship to costs (Crosby,
1979), profitability (Buzzell and Gale, 1987; Rust and Zahorik, 1993; Zahorik and
Rust, 1992), customer satisfaction (Bolton and Drew, 1991; Boulding et al., 1993),
customer retention (Reichheld and Sasser, 1990), and positive word of mouth. There
are many research instruments developed to measure the perceived service quality.
Among such general instruments, the most popular being the SERVQUAL model, a
well-known scale developed by Parasuraman et al. SERVQUAL has been widely
acknowledged and applied in various services setting for variety of industries in the
past decade. Examples include: health care setting, dental school patient clinic,
business school placement centre, tire store, actual care hospital, large retail chains,
banking, pest control, dry cleaning, and fast food restaurants (Babakus and Mangold,
24
1988: Babok and Garg, 1985; Bower el al., 1994; Carman, 1990; Cronin and Tayler,
1992; Teas, 1993).
According to Nyeck, Morales, Ladhari, and Pons (2002), the SERVQUAL
measuring tool ―remains as the most complete attempt to conceptualize and measure
service quality‖ (p. 101).Word has it that it has quite a number of benefits.
Incidentally, the SERVQUAL measuring tool‘s main benefit is its ability that allows
researchers to examine numerous service industries such as; healthcare, banking,
financial services, and education (Nyeck, Morales, Ladhari, & Pons, 2002). The fact
that SERVQUAL has critics does not render the measuring tool moot. Rather, the
criticism received concerning SERVQUAL measuring tool may have more to do
with how researchers use the tool.
Dimensions of service quality and satisfaction
Grönroos (1984) proposed two dimensions of service quality, which are the technical
quality and functional quality. Technical quality refers to the result or the outcome of
the service, while functional quality refers to the process or the way the service has
been delivered.
The distinction of technical and functional qualities is parallel to the dimensions of
perceived justice theory, namely distributive and procedural justices (see Cohen-
Charash and Spector 2001 for a review). According to the theory of justice, distribute
justice deals with decision outcomes while procedural justice deals with decision-
making procedure, or how the outcome distribution is arrived (Lind and Tylor 1988).
The technical/functional quality distinction is also corresponding to the SERVQAUL
model (Parasuraman, Zeithaml, and Berry 1988), which indicated that service quality
contains five dimensions: reliability, responsiveness, assurance, empathy, and
tangibles. Mels, Boshoff and Nel (1997) analyzed the data from four service
industries and found that, in reality, SERVQUAL only measures two factors:
intrinsic service quality (resembling what Grönroos termed functional quality) and
extrinsic service quality (which refers to technical quality). Hui, Zhao, Fan, and Au
25
(2004) further suggested that reliability can be viewed as an outcome measure
because customers judge it after their service experience.
The other four dimensions are process attributes because they can be evaluated by
the customers during the service delivery. It is commonly noted that service quality
is an important determinant factor of customer satisfaction (e.g., Parasuraman et al.
1988; Cronin and Taylor 1992; Spreng and Mackoy, 1996). Evidence shows that
service satisfaction is a function of both technical and functional performance
(Grönroos 1995; Yi 1993). Justice theory can provide plausible explanations for the
impact of technical and functional qualities on satisfaction. Focusing on the
perceived fairness of outcomes, distributive justice theory states that people will
respond to unfair relationships by displaying certain negative emotions
(dissatisfaction) (Greenberg 1990). Several studies also support the notion that
consumers make equity judgments with respect to outcomes, and the equity
evaluations would then affect consumer‘s satisfaction (Oliver and DeSarbo 1988;
Oliver and Swan 1989). Defined as the perceived fairness of the means (or process)
by which the ends are accomplished (Lind and Tylor 1988), procedural justice aims
to enhance the probability of maintaining long-term productive relationship between
parties, and has been shown to have a positive effect on consumer service
satisfaction (Greenberg 1990; Konovsky 2000; Tax et al 1998).
Although the effect of performance expectations on satisfaction is known to be
contingent on the type of tangible products (e.g., Churchill and Suprenant 1982;
Patterson 1993, Tse and Wilson Advances in Consumer Research (Volume 35) / 523
1988), few studies have tested this contingency concept in services. Research on
organizational justice has also found that distributive justice is more important
predictor of satisfaction with personal outcomes, whereas the reverse is true when
people make more general evaluations (Folger and Konovsky 1989; Lind and Tylor
1988; McFarlin and Sweeney 1992). This suggests that the predictive roles of
outcome perception (i.e., technical quality) and the perceived fairness of process (i.e.,
functional quality) may depend on the nature of the outcome in question. Next, we
26
will explore this issue and propose the service types and alternative differentiation as
moderators of the quality/satisfaction relationship for services.
Measuring Service Quality
The most widely used models in measuring service quality in the banking sector are
the SERVQUAL and SERVPERF models. According to the SERVQUAL model
(Parasuraman et al., 1988), service quality can be measured by identifying the gaps
between customers‘ expectations of the service to be rendered and their perceptions
of the actual performance of the service. SERVQUAL is based on five dimensions of
service quality (Parasuraman et al., 1988): - Tangibles: the physical surroundings
represented by objects (for example, interior design) and subjects (for example, the
appearance of employees). - Reliability: the service provider‘s ability to provide
accurate and dependable services. - Responsiveness: a firm‘s willingness to assist its
customers by providing fast and efficient service performances. - Assurance: diverse
features that provide confidence to customers (such as the firm‘s specific service
knowledge, polite and trustworthy behavior of employees).
- Empathy: the service firm‘s readiness to provide each customer with personal
Each dimension is measured by four to five items. Each of these combined 21 items
is measured in two ways: the expectations of customers concerning a service and the
perceived levels of service actually provided. In making these measurements,
respondents asked to indicate their degree of agreement with certain statements on
liker type scale. For each item, a gap score (G) is then calculated as the difference
between the perception score (P) and the expectation score (E). The greater the gap
scores the higher the score for perceived service quality.
The SERVPERF model was carved out of SERVQUAL by Cronin and Taylor in
1992. SERVPERF measures service quality by using the perceptions of customers.
Cronin and Taylor argued that only perception was sufficient for measuring service
quality and therefore expectations should not be included as suggested by
SERVQUAL (Baumann et al, 2007).
27
The SERVPERF scale is found to be superior not only as the efficient scale but also
more efficient in reducing the number of items to be measured by 50% (Hartline and
Ferrell, 1996; Babakus and Boller, 1992; Bolton and Drew, 1991). In this study, the
SERVPERF scale is used to measure to service quality in retail banking. Many
studies have been conducted by adopting the SERVPERF model.
Service quality and customer satisfaction
Service quality is more difficult for the consumer to evaluate than goods quality.
Perceptions of service quality result form a comparison of consumer expectations
with actual service performance. Quality evaluations are not made solely on the
outcome of a service; they also involve an evaluation of the process of service
delivery (Sesser et al. 1978). Service quality has been described as a form of attitude,
related but not equivalent to satisfaction, which results from the comparison of
expectations with performance (Parasuraman, Zeithaml and Berry 1988).
Service quality involves a comparison of expectations with performance: it is a
measure of how well the service level delivered matches customer expectations of a
consistent basis. Service quality has been conceptualized as a function of consumer
expectations towards the service situation and process, and of the output quality they
perceived themselves to have received.
Kotler and Armstrong (2012) preach that satisfaction is the pos-purchase evaluation
of products or services taking into consideration the expectations. Researchers are
divided over the antecedents of service quality and satisfaction. Whilst some believe
service quality leads to satisfaction, others think otherwise (Ting, 2004). The studies
of Lee et al. (2000); Gilbert and Veloutsou (2006); Sulieman (2011) and Buttle
(1996) suggest service quality leads to customer satisfaction. To achieve a high level
of customer satisfaction, most researchers suggest that a high level of service quality
should be delivered by the service provider as service quality is normally considered
an antecedent of customer satisfaction. As service quality improves, the probability
of customer satisfaction increases. Quality was only one of many dimensions on
28
which satisfaction was based; satisfaction was also one potential influence on future
quality perceptions (Clemes, 2008).
Service quality is an important tool to measure customer satisfaction (Hazlina et al.,
2011). Empirical studies show that the quality of service offered is related to overall
satisfaction of the customer. According to Jamal and Anastasiadou (2009), reliability,
tangibility and empathy positively related with customer satisfaction.
Sulieman (2011) found that reliability, tangibility, responsiveness and assurance have
significant and positive relationship with customer satisfaction. Meanwhile empathy
was found to have a significant and negative effect on customer satisfaction.
Moreover, the result of Ravichandran et al (2010) indicates responsiveness is the
only significant dimension of service quality that affects the satisfaction of customers
positively.
Customer satisfaction and loyalty
Both the service management and the marketing literatures suggest that there is a
strong theoretical foundation for an empirical exploration of the linkages between
customer satisfaction and customer loyalty. According to these literatures, customer
satisfaction with the service experience will lead to higher level of customer loyalty.
Horstmann (1998), states that there is a strong and positive relationship between
customer satisfaction and loyalty. A satisfied customer is six times more likely to
repurchase a product and share his experience with five or six other people
(Grönroos, 2000; Zairi, 2000); further unsatisfied customer can banish more business
from the organization than ten highly satisfied customers do (Mohsan, 2011). With
higher customer satisfaction the level of loyalty increases. Tee et al. (2012) found a
significant positive relationship between customer satisfaction and customer loyalty.
Other several studies have indeed found satisfaction to be a leading factor in
determining loyalty (Sit et al., 2009; Mensah, 2010; He and Song, 2009). These
studies have concluded that there is a significant relationship between customer
satisfaction and loyalty. They assert that high level of customer satisfaction will
29
result in increased loyalty for the firm and is positively associated with repurchase
intentions, positive words of mouth and profitability. On the basis of the above
empirical literatures, customer satisfaction is indicated as a foremost determinant of
customer loyalty.
In Tanzanian banking industry, customers perceive very little difference in the
banking products offered by banks dealing in services as any new offering is quickly
matched by competitors. There are disappointments of customers over the service
offered and the available services don‘t match with the expectation of the customer.
The marketing mix represents the organization‘s marketing offering and consists of
the variables that the organization puts together to satisfy the needs and desires of the
target market (Bennett 2008). The traditional marketing mix has four components,
namely, product, price, place and promotion. Of late other 3P‘s have been added to
include; people, process and physical evidence
The marketing mix is comprised of four components: products, distribution, price
and promotion (Crompton and Lamb, 2006). These four components are used to
respond to the needs and wants of customers and to enable the seller to meet its
objectives. Both selection of target markets and the elements of marketing mix can
be manipulated to achieve the desired outcome of finding a market for a particular
product.
Mandell (2005) points out that the four elements have to be in harmony with one
another. The marketing mix elements are controllable because the marketer decides
what they should be, but the marketing mix has to be implemented in an
environment, which is uncontrollable by marketers. Marketers should bear in mind
that the marketing mix variables are affected by the marketing environmental.
According to Kotler (2004) product means the goods and services combined
company offers to the target market. When developing a product services companies
must analyse the customer to see how well the product is suited to the customer‘s
needs. It is essential to package and present a product to the customer in the best way
30
possible to help convince the customers that you are best placed to cater for their
needs.
Products or market offerings are the basis of any business, which is why the product
can be regarded as the reason for marketing (Wells, Burnett & Moriarty 2008). If
there were no product (or service) there would be nothing to sell. A company aims to
make the product different and better in a way that will cause the target market to
favour it and even pay a premium price for it (Kotler, 2009).
The term ―product‖ refers to the bundle of attributes and features, both tangible and
intangible components offered by a firm (Burnett and Moriarty, 2008). Tangible
components are, for example, product size, colour, shape and packaging. Intangible
components include style, image, prestige and brand name.
Price is the amount of money customers have to pay to obtain a product or service
and it is important when making a marketing plan, some customers will care more
about the price than the quality of a product or service. With competition being high
it is essential for a company to make price decisions critically. Analyzing what
competitors are offering for a similar product is essential to ensure uniformity.
Price is the value the seller and buyer assign to the product (Burnett and Moriarty
2008).However; price has different meanings for sellers and buyers. To the seller it
means a series of cost components and an expected profit margin. The price a seller
sets for a product is based not only on the cost of making and marketing the product,
but also the seller‘s expected profit level (Wells, Burnett and Moriarty, 2008).
The price charged is based on what the market will bear, the relative value of the
product and on what the competition is doing.
For the buyer, it is a calculation of the price for comparable products, the expected
price, perceived risk and the need for the product. Thus the price at which a product
is sold has to be a compromise between what the buyer is willing to pay and what the
seller is willing to sell the product for.
31
Since pricing information is often a key factor in motivating consumers to act,
information about pricing is probably the most important message that can be
transmitted to consumers. The difference between price and the other three
marketing mix elements is that it produces revenue, whereas the others create costs
(Kotler, 2009). Price discounts, rebates and coupons are price adjustments intended
to spur purchase.
For consumers, price bundling is a good motivating factor for buying the product.
Price bundling is the practice of selling multiple units of a product or combination of
complimentary products for a lower total price than if sold separately.
Promotion is defined as a whole array of methods and procedures by which an
organization communicates with its target market. Promotion strategy centers on
communication. Communication channels used by banks are among the factors
which convince customers to use banks product and services. A successful
promotion should be able to build awareness and interest in a product.
Promotion or marketing communication is the final element in the marketing mix. It
is intended to send marketing-related messages to a selected target audience and to
persuade consumers to purchase the product. It covers all those communication tools
that can deliver a message to a target audience (Kotler, 2009). The above marketing
instruments can be regarded as the four traditional elements of the marketing mix.
Promotion may be divided into four areas: personal selling, advertising, sales
promotion and public relations. Personal selling for the tour packages that takes place
through trade fairs. Also, the personal sources of information through contact that is
form word of mouth. Advertising is through different media: internet (web pages or
banners), newspapers, television, or radio.
Public relations is the art and social science of analyzing trends, predicting their
consequences, counseling organization‘s leadership, and implementing planned
programs of action which will serve both the organization‘s and the public interest.
32
The statement also indicates the necessity of public relation of being a part of the
wider perspective of corporate strategy.
Media are channels through which organisations advertise their products (Youell,
2008). Popular media channels include newspapers and magazines, television, radio,
cinema, transport, outdoor advertising and electronic advertising. The channel is the
method whereby which communication travels from the source (sender) to the
receiver (Belch and Belch, 2007).
Two types of channels of marketing communication exist, namely personal and non-
personal channels of communication. Advertising, sales promotion and publicity and
public relations can be regarded as non-personal communication channels, whereas
direct marketing, interactive marketing and personal selling can be viewed as
personal means of communication (Belch and Belch, 2007).
These two media channels will now be discussed in more detail. Information
received from personal influence channels is generally more persuasive than
information received via the mass media, since the sales message is far more flexible,
personal and powerful than an advertisement. The message can be adapted to the
prospective customer at the time of sale and immediate feedback is possible (Belch
and Belch 2007).
Publicity is probably the most credible form of marketing communication since it is
not the company itself but rather an outsider who compliments or criticizes the
company. Publicity is not directly paid for, since the company attempts to encourage
the media to say something positive about it in their newspapers or magazines by
performing well, providing unique services or sponsoring an event (Motlatla, 2008).
Public relations involve creating a positive image of the business to its publics which
include customers, shareholders, employees and suppliers. It is the management
function whereby public attitudes are evaluated, and a programme of action to earn
public understanding and acceptance is executed (Motlatla, 2008). Public relations
are supportive, rather than primary factors in the marketing and promotional process.
33
With regard to people as an element of the marketing mix, there is strong relationship
between the people involved in marketing and effectiveness of marketing strategies
used by a business. People involved in marketing and selling should be adequately
trained to be able to perform their duties effectively. The more skilled people are in
marketing and sales, the more effective the implementation of marketing strategies
(Bennett, 2008).
Process is another component of marketing mix that may hinder or enhance the
marketing process (Bennett, 2008). The more effective the marketing process, the
more effective the marketing strategy becomes. An example of a process in
marketing is the use of information technology in marketing. Businesses that use
websites to promote their businesses are more likely to sell more than companies that
don‘t have websites. All these contribute to service quality and customer satisfaction
in the banking sector.
Marketing management is one of the fastest growing management approaches being
adopted across many organizations. According to Light (2007), marketing
management evolved from business processes such as relationship marketing and
increased emphasis on customer retention through the effective management of
customer relationships (Payne et al., 2009).
Marketing Management has become a leading business strategy in competitive
business environment. Marketing Management can be viewed as ‗Managerial efforts
to manage business interactions with customers by combining business processes and
technologies that seek to understand a company‘s customers‘ Companies are
becoming increasingly aware of benefits provided by Marketing Management (Kimet
al., 2003).
Some potential benefits of Marketing Management are as follows:
a) Increased customer retention and loyalty,
b) Higher customer profitability
c) Creation value for the customer,
34
d) Customization of products and services,
e) Lower process, higher quality products and services.
Core parts of marketing management activities include; understanding customers‘
profitability and retain profitable customers. To cultivate the full profit potentials of
customers, many companies already try to measure and use customer value in their
management activities. Therefore, many firms are needed to assess their customers‘
value and build strategies to retain profitable customers (Rosset, 2008).
The more a marketing paradigm evolves, the more long-term relationship with
customers gains its importance. Marketing management pursues long-term
relationship with profitable customers. It can be a starting point of relationship
management to understand and measure the value of customers since marketing
management as a whole is to be deployed toward the targeted customers (Levine,
2003).
Marketing initiatives have resulted in increased competitiveness for many companies
as witnessed by higher revenues and low operational costs. Managing customer
relationships effectively and efficiently boosts customer satisfaction and retention
rates. Marketing management helps organizations assess customer loyalty and
profitability on measures such as repeat purchases, dollars spent, and longevity (ibid
This study addresses all these issues and tries to identify the dimension of quality
which achieved least together with its implication on customer satisfaction and
loyalty.
2.4 Empirical Studies
Earlier studies identified limited use and piecemeal approaches to TQM in higher
education (Babin, 1998) without emphasizing measuring the student satisfaction.
This area of study has only recently been addressed with rigorous evaluation.
Clearly, we are at the point in the higher education process, where customer service
should be one of the most important objectives. Lovelock (2001) argues that high
35
customer satisfaction will result in increased loyalty for the firm and that customers
will be less prone to overtures from competition.
In line with Berry (1994) of all the benchmarks used to measure quality, customer
satisfaction is still one of the single strongest predictors of customer retention. It‘s
considerably more expensive to attract new customers than it is to keep old ones
happy. In a climate of decreasing brand loyalties, understanding customer service
and measuring customer satisfaction are crucial.
In view of the study carried out by Kotler (2002), conducting a customer satisfaction
surveying program is a burden on the organization and its customers in terms of time
and resources. There is no point in engaging in this work unless it has been
thoughtfully designed so that only relevant and important information is gathered.
This information must allow the organization to take direct action. Nothing is more
frustrating than having information that indicates a problem exists but fails to isolate
the specific cause.
Based on the empirical data reported by Coate (1992) from his research about the
relationship between customer satisfaction and business performance in Netherlands
and other countries in Europe, the study concluded that there is a positive
relationship between customer satisfaction and organizational performance
indicators. Various factors might influence the time lag between a change in
customer satisfaction and an expected effect in sales margin or other output
indicators. These results show that the organization that satisfies its customers
performs better in its business and survives in the competitive market.
The research carried out by Harvey (2001) about the determinants of E-CRM in
influencing customer satisfaction in Sweden, the empirical evidence reported that the
widespread use of the web technology presents an opportunity for business to use the
internet as a tool for electronic customer relationship management. System quality,
information quality, intrinsic success, responsiveness and efficiency are very
important issues to enhance customer satisfaction.
36
The central issues involved in meaning service quality have been well documented
(Cronin and Taylor, 1992; Parasuraman, Berry, and Zeithaml, 1991b; Babakus and
Boller, 1992; Carman, 1990). Of interest here are two aspects of service quality
measurement; (1) the number of dimensions that constitute service quality and (2)
the operationalization of the measurement. Previous researchers have been looking at
the linear relationship between service quality and satisfaction judgments. In recent
studies on satisfaction judgments, it has been suggested that the relationship should
be in a non-linear form (Ding, 2004). According to Taylor (1997), there is evidence
that suggests that evaluation of satisfaction should involve a curvilinear or higher
order form as well as an interaction effect (Taylor and Baker, 1994). This has been
confirmed by Oliva et al. (1992) who stated that the satisfaction function should not
be in the linear form. A study by Edris (1997) on quality for business customers
among Kuwaitis found that local ownership is one of the determinants for bank
selection.
On the other hand, a study by Athanassopoulus (1997) showed that there is no global
difference between private and the government-owned banks. There are many other
researchers who concluded that service quality is the antecedent to satisfaction
(Ahmad and Kamal, 2002; Cronin and Taylor, 1992; Yavas et al., 1997). Hence in
this research, the question of which one is the antecedent will be studied. Using
service quality as the antecedent to satisfaction is more logical and that why it has
been taken into consideration. This is because satisfaction is an important goal to be
achieved by bank marketers and if the banks want to increase satisfaction, they can
do it through service quality (Goode et al., 1996).
A recent study by Johnson (2008), explores the relationships between customer
retention, intentions and satisfaction. This study concludes that changes in customer
satisfaction can have important financial implications for the organization because
lifetime revenues from an individual customer depend on the duration of his/her
relationship. This study shows that service providing firms should pay great attention
to quality of the service, appropriate cost and good customer care.
37
Zeithaml et al. (1996) suggest that a customers' relationship with a company is
strengthened when that customer makes a favorable assessment about the company's
service quality and weakened when a customer makes negative assessments about
the company's service quality.
Ame (2011) in his research on the effects of quality on satisfaction and its
consequences on customer behavioral intentions suggests that a high level of
perceived quality is a good strategy for enhancing customers‘ behavioral intentions
and finally leading to high profits which means continuous survival for service firms.
Customer satisfaction is the leading criterion for determining the quality actually
delivered to customers.
Wiers-Jenssen et al. (2002) state that customer satisfaction approaches may be a tool
for building a bridge between more views on how to improve the banking sector.
Measuring student satisfaction has been a central theme in the work with TQM.
In the area of baking, the concept of what dimensions constitute quality and how to
achieve customer satisfaction have not been thoroughly addressed, although some
interesting studies exist. These gaps are reflected in the statement of the problem
which this study tries to address in order to bridge that gap which exists.
2.5 Conceptual Framework
Basing on the nature of the problem, objectives of the study and the literature
reviews, do conceptualize the study by identifying independent and dependent
variables in the process of developing bank and customer service quality and
satisfaction. A conceptual framework is constructed to guide the design of the
investigation. In a bid to meet customer expectations and perception another issue of
practical concern for the banking sector in Tanzania should be the planning for
quality of banking services. This will involve among others courtesy, bank facilities,
customer feedback and improvement, service delivery, and commitment of top
management, as well equipment and staff recruitment, customer attraction and
retention under the market model.
38
Figure 1 : Conceptual Framework Developed During Literature Review
2.6 Analysis of Literature Review
These two concepts, quality and satisfaction, are probably related, and some believe
that satisfaction with a series of transactions leads to perceptions of good quality.
Moving on to expectations and perceptions, there are two distinct models concerning
the nature of service quality. Grönroos (1988) and the work on SERVQUAL (e.g.
Parasuraman and Berry 1994) support the notion that quality evaluations as
perceived by customers stem from a comparison of what the customers feel that the
organisation should offer (that is, their expectation) and their perceptions of the
performance of the organisation providing the service.
The relationship between customer satisfaction and service quality has received a
good deal of attention in the literature (Lovelock, 2005). However, the vast majority
of articles attempting to examine this interrelationship have been of a non-empirical
nature.
Similar to Anderson and Fornell (1997), and Oliver (1981) quality is one dimension
on which satisfaction is based we view service quality as an antecedent to
•Banking hall
•Number of tellers
•Accessibility
•Interest rate
•ATM
•ICT services
•Safety
Independent variables
• Polite staff
•Courtesy
•Customer service department
•Conducive environment
• Feed back
•quality of service providers
•personal attention
• customer support system
Intermediate variables
•CUSTOMER SATISFACTION
•Referrals
• Increase in customer population
• Supporting banking activities
• Talking good about the bank
Dependent variables
39
satisfaction. MacLeod, (2001) points out customer satisfaction depends on
preexisting or contemporaneous attitudes about service quality. MacLeod, (2001) and
Anderson et al. (1994) also point to suggesting that improved service quality will
result in a satisfied customer and suggest that to a large extent this relationship is
intuitive.
40
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
The purpose of chapter three was to describe the methodology applied in this study.
It includes research philosophy, research design, sampling techniques and procedures
to be adopted, the data collection techniques, and analytical tools to be employed in
analyzing the data.
3.2 Research Perspective
The nature of this research topic supports an amalgamation of both qualitative and
quantitative approaches. The qualitative approach, which was considered as an
interpretive approach, structures a major part of this research. According to Saunders
et al (2003), the qualitative approach refers to data collection techniques such as
interview and data analysis that is produced from non-numerical data. The
interpretive researcher therefore attempts to get within the minds of his or her
subjects and see the world from their point of observation (Bryman and Bell 2007).
Moreover, Newman and Benz (1998) highlight that interpretive researchers study
things in their natural settings and try to make sense out of them by interpreting
phenomena through the meanings people convey to them. This approach consigns
trust to the people being studied to provide their own clarification of their position or
behavior.
On the other hand, the quantitative approach is a distinguishing research strategy.
Bryman and Bell (2007) state that quantitative research entails the collection of
numerical data and displays a view of the correlation between theory and research as
deductive, partiality for a natural science approach (positivism) and as having an
objectivist formation of social reality.
Therefore, for the purpose of this research, the qualitative approach was adopted
through semi-structured interviews which were conducted with top management and
line managers. To a certain degree, the researcher endeavored to mix both qualitative
41
and quantitative approaches, it has been argued by Bryman and Bell (2007) that by
mixing these approaches the findings supply broader insight into the issues being
researched.
3.3 Research Paradigm and Design
The research paradigm used was more of a positivist approach where the
phenomenon investigated was preceded by literature to identify gaps that exist within
the area of study. Research design is the plan or design of how to go about the
research. Churchill (2007) argues that a research design is simply the framework or
plan for a study used as a guide in collecting and analyzing data. Being positivistic in
nature both descriptive and analytical designs (desk and field) were employed in
order to come up with better analysis and conclusion. Descriptive studies were
undertaken as the nature of the problem was well known, the objectives are clearly
specified, it was also used to accomplish a wide variety of data such as determining
the level of customer satisfaction depending on quality of services rendered by the
different banks. The cross sectional was apparent basing on the time frame within
which this study was needed to be completed which was a limiting factor for a
longitudinal study.
3.4 Study Area
The study area comprised of two locally owned banks (NMB and DCB) and two
international banks (Standard Chartered and Stanbic Bank) and clients (120 that is 30
from each bank). The study area of Dar es Salaam region was chosen as a
representative of other regions in Tanzania due to the following reasons: Dar es
Salaam is the Headquarter for many locally and internationally owned banks in
Tanzania, more branches than any other region and so the issue of accessibility is
much easier than in other regions. Most economic activities in Tanzania are
concentrated in Dar es Salaam since it is the largest business centre, which comprises
of various economic activities ranging from small to large businesses. The
organisations selected are NMB and DCB) and two international banks (Standard
Chartered and Stanbic Bank) among other banks and this is because of the following
reasons:
42
The listed banks have more branches country wide and they represent the locally and
internationally owned banks.
3.5 Nature and Source of Data
Both primary and secondary data were collected and used. Primary data were directly
collected from the different banks in Tanzania. Secondary data were acquired from
various publications, institutions including libraries and over the internet.
3.5.1 Primary data
These are data which are collected afresh and for the first time, and thus happen to be
original in character (Kothari, 2005). Primary data were collected from the
departments and customers in trying to analyze service quality and customer
satisfaction in the banking sector in Tanzania. These were collected through the
different questionnaires and interviews held.
3.5.2 Secondary Data
Secondary data is information not gathered for the immediate study at hand but for
some other purpose (Churchill, 2007). Source of these data included books and
journal and News Papers (Saunders, et al, 2005) .The secondary data was collected
from department records, over the internet and from the libraries. The information
collected from the secondary sources formed the basis for development of conceptual
hypotheses that were tested in the study.
3.6 Sample and Sampling Procedure
The sample comprised of two locally owned banks (NMB and DCB) and two
international banks (Standard Chartered and Stanbic Bank) clients (120 that is 30
from each bank). The respondents were clients who were found at the different
branches understudy at the time of carrying out the study. The clients included
among others corporate clients and other normal clients. The clients were used as
they are the key to measuring the performance of a given bank as they are the
receipts of the different services that are provided by their banks. The researcher
distributed questionnaires and also held interviews with the different respondents
43
from each bank under study, the analysis of data depended on the number of
questionnaires which were returned. The probabilistic technique was employed
where sample surveys were selected.
These respondents were drawn randomly from the four banks understudy based in
Dar es Salaam. The four banks were selected basing on their customer base and
ownership. The sample size selected was fairly large enough for the generalization of
the study. Sampling is defined as a selection of subset of elements from a larger
group of objects (Churchill and Laccobucci, 2002). The study employed random
sampling in choosing the respondents basing on the assumption that the sample
represented the whole population. Judgmental sampling technique was used for the
case of non-probabilistic sampling techniques. Judgmental sampling allows the
researcher to select respondents according to their convenience (Baradyana and Ame
2007). A sample of different branches was chosen conveniently for the purpose of
gathering as much data as possible in order to fulfill the main objective of the study.
3.7 Data Collection Methods and Instruments
Kothari (2003) and Saunders (2000) state that proper research methodology
facilitates the researcher to use appropriate methods and techniques to collect
relevant data for the study hence facilitate accuracy and reliable results of their
findings. The whole process of data collection is important in research as it allows
for dissemination of accurate information and development of meaningful
programmes (Kombo and Tromp, 2006). The study employed a variety of data
collection methods. The study was composed of both primary data collected from the
different questionnaires and interviews and secondary data were obtained from a
wide variety of documents which were accessed by the researcher.
3.7.1 Questionnaires Administration
A questionnaire is a set of questions which are usually sent to the selected
respondents to answer at their own convenient time and return back the filled
questionnaire to the researcher. In this study questionnaires will be used to collect
information from respondents. The reason for using questionnaires is because they
44
cover large sample at low cost, and gives respondents adequate time to give well
thought-out answers.
Questionnaire includes all techniques of data collection in which each person is
asked to respond to the same set of questions in a predetermined order (DeVaus,
1996). To avoid ambiguities in the source of primary data using questionnaire,
closed-end (the closed- ended questions were in the form of multiple choices, where
the respondents were asked to put a tick (√) against the answers which they prefer)
and open-ended questions (open-ended questions, the respondents were required to
fill in the empty spaces by giving their feelings, experiences, and opinions) this was
so in order to provide for respondents to respond properly and give them opportunity
to express without limitation whatever pertinent information they have that is related
to the study.
3.7.2 Interviews
Frey and Oishi 1995 define it as "a purposeful conversation in which one person asks
prepared questions (interviewer) and another answers them (respondent)." Interviews
were conducted by the researcher to the different respondents of the banks under
study. To be able to source the required data and information interviews were
conducted by using unstructured interviews for the purpose of finding out what is
happening. The required information were captured through asking the respondents
how the operations were at their different stations and how service quality was
looked at and handled.
According to Kothari (2006), an interview is a set of question administered through
oral or verbal communication or is a face to face discussion between the researcher
and the interviewee respondent. Both group and individual interviews were
conducted with respondents, who were the customers from the sampled banks.
Interviews enabled the researcher to get supplementary information obtained by
using questionnaires.
45
3.7.3 Documentary Review
Secondary data were collected through reviewing relevant documents. Robson
(1993), documentary secondary data includes written documents (such as notices,
correspondence, minutes of meetings, reports to shareholders, transcripts of
speeches, and administrative and public records) and non-written documents (such as
video recordings, pictures, films and television programmes). In this study,
secondary data involved among others, technical and HRM journals, customer
response/claims reports, periodicals, television programmes, newspapers‘ articles
and internet search. The different data collected that is the secondary and primary
complimented each other in order to come up with a well-balanced research study.
3.8 Data Management
3.8.1 Data cleaning
Data collected from the field was properly edited ensuring that no redundant data
was involved in the analysis.
3.8.2 Validity
Validity is the extent to which differences in scores on measuring instrument reflect
true differences between individuals, groups, or situations in the characteristic that it
seeks to measure, or true differences in the same individual, group, or situation from
one occasion to another rather than systematic or random errors. To ensure validity,
the measuring instrument (questionnaire) was pilot tested to smoothen and refine it;
hence respondents found it friendly in answering the questions and the face or
consensus validity was employed.
3.8.3 Reliability
Reliability is the ability to obtain similar results or scores by measuring the same
object, trait or construct with independent but comparable measures across time.
Cronbach alpha coefficient was used for assessing reliability of the data. SPSS was
used to calculate the value of alpha (). The measure has coefficient ranging from 1
to 0 and a value of 0.6 or less does indicate unsatisfactory internal reliability.
Cronbach‘s alpha was used because it is the most commonly used reliability test in
46
social science research and it provides superior results when compared with other
methods of measuring reliability. The results of the study had an alpha = 0.9048 and
a standardized item alpha = 0.8997, this indicates good internal reliability.
3.9 Data Analysis
Due to the nature of this study the Software Package for Statistical Sciences (SPSS)
was used to analyze the data. The research and statistical tools employed in this study
were frequency analysis, cross tabulation, factor analysis, ANOVA (analysis of
variance), and regression analysis. Frequency analysis on the main factor under
study, does illustrate overall satisfaction levels of respondents with services rendered
by the different banks in general. Descriptive statistics (mean and standard deviation)
were also examined to further support frequency analysis of customer‘s satisfaction.
The second major analysis carried out was an ‗R‘ type factor analysis to examine the
underlying or latent dimensions within variables of overall satisfaction and service
quality. Both Bartlett‘s test of spherecity and measure of sampling adequacy (MSA)
were carried out to ensure that the requirements of factor analysis are met.
Regression analysis was employed to examine the influence of the various
determinants extracted by factor analysis and demographic variables on overall
satisfaction.
47
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1 Introduction
The results section of the body of the report presents the findings of the study in
some detail, often including supporting tables and figures (Churchill & Brown, 2007
p.539). This chapter presents the research findings coming out of the detailed
analysis of the collected data. It covers the analysis of collected data from the
respondents of the questionnaires, interviews, content analysis as well as those found
from the review of documentary sources. The approach followed in organizing the
results was to present the general information about the subject matter of the study as
per field discoveries first, and then the areas of concern which are addressed step by
step around the questions to be answered by the research. The process of data
interpretation was based on inferential statistical methods obtained by the use of
SPSS version 11.5 package. Quantitative data were analyzed in the form of graphs,
tables, percentages and simple statistical measures of central tendency were
calculated using spread sheet computations and formulas.
4.2 Demographic profile of respondents
The questionnaire was designed to seek information about the user groups' age,
gender, education, and their occupation.
Table 4. 1 Demographic Profile of Respondents
Male Female
No of respondents 96 24
Percentage (%) 80% 20%
48
Figure 4, 1 Gender Profile of Respondents
Analysis shows that 80 per cent of the respondents are male and 20 per cent are
female.
The details breakdown of the demographic profile of the customers has been given in
Table 4.1 as in the appendix.
Table 4. 2 Age Distribution of respondents
No of respondents percentage
45 and above 6 5
35-45 72 60
25-35 30 25
Total 12 10
80%20%
Gender Profile of Respondents
Male
Female
49
Figure 4, 2 Age Distribution of respondents
It is known from Table 4.1 that 60% of the respondents are in the age group of 35 to
45 years. The next largest group of the respondents is in the age group of 25 to 35
years (25%). About 10% respondents are from the age group of below 25 years and
only 5% respondents are in the age group of 45 and above.
Table 4. 3 respondent level of education
No of respondents Percentage
Bachelor degree 72 60
Masters holders 12 10
College degree 36 30
Total 120 100
Analysis also shows that more than half of the respondents are Bachelor degree
holders (60%), however, Masters holders are 10% of the total respondents followed
by college degree 30%.
6
72
30125
60
25
10
0
20
40
60
80
100
120
140
45 and above
35-45 25-35 Below 25
Percentage
No of respondents
50
Figure 4.3 respondent level of education
Among the 120 respondents, the highest numbers of the respondents are in
occupation of service sector (68%) followed by others (5%). The study comprised of
two locally owned banks (NMB and DCB) and two international banks (Standard
Chartered and Stanbic Bank)
4.3 Descriptive statistics
The study did set objectives which it had to fulfill from the collected data and the
findings are reflected in the sections that follow. These were based on the research
questions and the conceptual frame worked developed during the literature review.
4.3.1 To assess the customers’ perception of the service quality in the selected
banks in Tanzania
Specific objective of the study did aim at assessing the customers‘ perception of the
service quality in selected banks in Tanzania. The study did use different variables in
trying to generate data for the assessment of customers‘ perception as elaborated
below.
72
12
36
60
10
30
0
20
40
60
80
100
120
140
Bachelor degree Masters holder College degree
Percentage
No of respondents
51
4.3.1.1 Customer support
Basing on the responses from the respondents, customer support was one of the
variables highlighted. From the interviews held it was discovered that customer
support is an important service that bank do provide to their customers. 100% of the
respondents at NMB, DCB, Stanbic and Standard Chartered agreed that proper
support to the customer may lead to the banks to generate profit and build customers'
confidence.
The mean score of this parameter was 3.45 with standard deviation of 0 .74 with Z
score 0.99. The result indicates that customers' perception is positive regarding
service provided by the bank in the way of customer support.
4.3.1.2 Good manners and hospitality
Another variable that was conceptualized was good manners and hospitality as one
of the parts of reliability of service quality that attracts customers of the banks'
personnel manner and hospitality. Customers do consider this as an important aspect
as evidenced, findings show that at NMB the parameter was not satisfactory basing
on the way the customers are treated, one client at NMB lamented that the queues are
too long at all time and you find that that tellers are not providing services to
customers plus those personnel handling customer complaints not taken a kin
response on their complaints. It was different at Stanbic and Standard Chartered as
the customers were in praise of the banks personnel manner and hospitality.
4.3.1.3 Imposing of service charges and fines
From the documentary analysis carried out at all the banks under study it was
discovered that the banks do charge various amounts to the customers' account for
their services such as demand draft, money transfer, cheque book issue, ledger fees,
over the counter withdraws, ATM usage etc. With regard to this parameter, the mean
score is the lowest (2.33) among the parameters. The result indicates that the
customers' perception in this case is very unsatisfactory at all the banks. Results
show that the international banks were the ones with the highest charges as compared
to their local counterparts. In other words, banks are imposing service charges and
52
fines too much for which customers dissatisfaction are reflected in the result and
bank should minimize the service charges.
4.3.1.4 Convenience business hour
It was discovered that banks are operating their business within a time framework as
well as they have to provide extra timing for which customers can do business in
comfortable time. Findings show that Stanbic and Standard Chartered did offer
banking hour at evening for example their branches at Kariakoo do operate up to late
evening hours which are to the convenience of their customer.
As for the local banks this was still a problem as they were still operating on the
normal 3-4pm closure which was affecting their customers in one way or the other.
The study revealed that the perception in this case to local banks is not satisfactory
compared to other the international banks.
4.3.2 Impact of different service quality dimensions on customers’ level of
satisfaction
This objective required respondents to show the impact of different service quality
dimensions on customers‘ level of satisfaction. As for this study the variables that
were used were adapted from Grönroos (1984) who proposed two dimensions of
service quality, which are the technical quality and functional quality. Technical
quality refers to the result or the outcome of the service, while functional quality
refers to the process or the way the service has been delivered. In here the study
employed chow tests for each service to test the impact in the local and international
banks as reflected in the table below.
53
Table 4. 4 : Descriptive Statistics for local and international banks
For the local banks, the Chow test F=3.109, significant at α =.05 level, suggesting
there are significant differences in the regression equations across the high and low
AD sub-groups.
Specifically, the influence of functional quality on satisfaction becomes greater as
the degree of alternative differentiation increases (beta=.019 for low AD group vs.
beta=.306 for high AD group). Similarly, the impact of functional quality is
significantly different between the low and high alternative differentiations for the
international banks (Chow test F*=5.8188, p<.05). Functional quality apparently
have a stronger impact on satisfaction (beta=.623, p< .001) under high AD condition
than when it is under low AD condition (beta=.255, p< .05). In addition, the
influence of technical quality decreases as AD increases.
Local banks International banks
Techn
ical
qualit
y
Functio
nal
quality
Adj
R2
Chow
test
Techni
cal
quality
Function
al quality
Adj
R2
Chow
test
Overa
ll
.59**
*
1.8** ---- .39*** .40***
Low
AD
.694*
**
0.19ns .493 3.109
***
.398**
*
.255* .314 5.891*
**
High
AD
0.518
***
0.306**
*
0.59
9
0.236* 0.623*** 0.65
9
***p<0.001, *p<0.05, ns: not significant at p<0.05
54
4.3.3 Gap between customers’ expected and perceived service quality of
banking services in Tanzania
Specific objective three of the study required respondents to show whether there was
a gap between customers‘ expected and perceived service quality of banking services
in Tanzania and the findings are revealed in the table below. This objective centered
on investigating if their existed a gap and to what extent that gap was between the
different service attributes that the customers do expect and what they perceived and
what they ended up getting at the end of the day in the service provision by the bank.
Table 4. 5 : Responses to if gap exists
Responses Frequency percent
Strongly agree 32 24.2
Agree 42 32
Neither agree nor
disagree
16 12.1
Disagree 20 15
Strongly disagree 22 16.7
Total 132 100
Source: Survey data.
55
Figure 4, 3 Responses to if gap exists
The findings of the study 22 (24.2%) of the respondents strongly agreed that there
was a gap, 42 (32%) did agree, 16 (12.1%) neither agreed nor disagreed, 20 (15%)
disagreed and 22 (16.7) strongly disagreed. Basing on the 56. 2% of those that
strongly agreed and agreed as compared to 31.7% of disagree and strongly disagree it
shows that those who agreed are more which therefore implies that there is a gap in
between the customers‘ expected and perceived service quality of banking services in
Tanzania. The study further centered onto exploring if the gap existed between the
local banks and international banks and the findings revealed that international banks
customers agreed 100% and the expected and perceived service attributes did have a
huge gap and for the local banks customers were 75%. This was largely attributed to
the fact having known that these were international banks customers had higher
expectations that what really the banks would manage to provide thus creating that
gap.
3242
16 20 22
24.2
32
12.115
16.7
0
10
20
30
40
50
60
70
80
Strongly agree
Agree Neither agree nor disagree
Disagree Strongly disagree
Percentage
Frequency
56
CHAPTER FIVE
DISCUSSION OF THE FINDINGS
The general objective of the study was to analyze service quality and customer
satisfaction in the banking sector in Tanzania and it was discovered that service
quality at the different local and international banks had a positive contribution on
customer satisfaction. This was thus in line with the study by Athanassopoulus
(1997) showed that there is no global difference between private and the
government-owned banks. There are many other researchers who concluded that
service quality is the antecedent to satisfaction (Ahmad and Kamal, 2002; Cronin and
Taylor, 1992; Yavas et al., 1997).
According to this study using service quality as the antecedent to satisfaction is more
logical and that is why it was taken into consideration. This is because satisfaction is
an important goal to be achieved by bank marketers and if the banks want to increase
satisfaction, they can do it through service quality.
Specific objective one of the study aimed at assessing the customers‘ perception of
the service quality in selected banks in Tanzania and it was discovered that different
attributes were highlighted which ranged from customer support, good manners and
hospitality, convenient business hour and imposing of service charges and fines.
Findings showed that international banks had fallen behind as far as imposing
charges and fines while for the local banks convenient working hours, personnel
manners and customer support were a bitter pill to swallow for them as they were
complained against by the different clients.
From the findings it does indicate a slight difference between banks perceived
satisfiers and customers‘ perceived satisfiers and customer satisfaction.
The results support the contention that perceived satisfiers have a great consideration
towards satisfaction. Therefore the increase in perceived service quality leads to
increased customer satisfaction. Lovelock (2005) argues that the functional
57
relationship between perceived quality and satisfaction is exponential. To put it in
another way, dissatisfaction with more recent encounters will have a larger impact on
perceived quality than dissatisfaction with previous encounters. Although it is
possible that method variance is the cause of the large satisfaction effect on
perceived quality, the theoretical arguments presented above suggest that perceived
quality is a function of satisfaction. Unless efforts are made to measure each
construct separately - for example, customer satisfaction with all service encounters
at appropriate time periods and perceived quality at the time of service delivery - one
must conclude that perceived quality depends on satisfaction.
On the difference between local and international banks service delivery findings
reflected that the null hypothesis at the given level of significance was accepted. This
therefore meant that there is some difference in the provision of services between the
local and international banks in Tanzania. The positive correlation as revealed in the
different variables which were examined resulted into accepting the null hypothesis
and rejecting the alternative hypothesis as reflected in the findings. Thus an increase
or decrease in service quality by 7.8% results into customers‘
satisfaction/dissatisfaction at the same percentage.
It is understood that customers' perception in this case better than customer support,
good manner and hospitality, maintaining of customer grievances and imposing of
service charge. Safety of customers' investment: The service quality is also
depending on how safe is customers' investment. The mean score (3.92) and rank
(2nd) of this parameter does indicate that customers are satisfied as other parameters.
Keep confidentiality of account and transaction: This is an important parameter and
customers want their account and transaction to be kept confidential. The mean score
is 3.77 and ranked 4th with standard deviation is almost 0.90.
The result indicates that customers have moderate confidence in this service.
Reputation of the bank: Every bank wants to run their business with good reputation.
In this case, customers perception is good as mean score is 3.82 and ranked 3rd
with
standard deviation of 0.89. Infrastructure facilities like parking, ATM etc: There are
58
some preconditions in order to run business like financial institutions, have to
provide infrastructural facilities to the customers. The perceptions of the customer in
this are moderate (3.56) and ranked 6th. It does mean banks are providing such
facilities to the banking Network: It is another important aspect of service quality of
banking companies.
In this case, customer perception is good as mean score is 3.35 and ranked 10th.
Modern equipment and décor: In the modern age, business premise should have high
standard of decoration of the bank and nice environment. The mean score (3.15) and
rank (14th) does not imply that customers' perception is high than other parameters
like goodwill, banks network etc. Easy to operating account: It is one of the issues
that customers can operate their account smoothly. The perception of the customers
to this service is not good as its mean score is 3.37 and standard deviation is 0.82.
Convenience business hour: Banks are operating their business within a time
framework as well as they have to provide extra timing for which customers can do
business in comfortable time.
For example, some banks offer banking hour at evening. The study revealed that the
perception in this case is not satisfactory compared to other services offered by
banks. The mean score is (3.48) and ranked (7th) support this statement. Providing
prompt information to customers: Bank services like prompt communicating to the
customer is vital. Customers are dealing the business transaction with safely and
confidently with the banks.
In this case, if the banks provide right information to the right customers promptly
which create public confidence, and thus help customers to take right decisions in the
right time . In this case, the mean score is 3.64 and ranked 5th which is understand as
moderate service proving by the banks.
59
CHAPTER SIX
CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction
This chapter sums up the results of the findings, interpretation and discussion chapter
as well as providing overview of the whole research project report. The chapter starts
by giving out a brief highlight of the research questions, objectives and review the
key ideas raised in the literature review and general discussion of the key findings
pursuant to the study‘s motive. Later the conclusion is derived from the study
findings followed by the recommendations and lastly the area for further research is
suggested.
5.2 Implications of the findings
The findings of the study do indicate that service quality influences customer
satisfaction.
The results enable stake holders of local and international banks to nuance the
intuitive relationship between service quality and customer satisfaction and have a
richer diagnostic value because both service quality and customer satisfaction are
measured at a detailed and specific level.
In addition, information on the service quality-customer satisfaction link may
provide actionable benchmarks that local and international banks may use to guide
their service policies aimed at securing customer satisfaction and loyalty.
Furthermore, the results have specific indications for the different types of service
industries' research and budget allocations and personnel management decisions
relating to the improvement of service loyalty based on service quality. The
managerial challenge here is to train staff to give individualized attention to
customers and not treat them as one homogeneous group, despite the fact that service
is subject to high degrees of standardization. Service providers should be motivated
both financially and morally (Slack, 2001). As seen in the findings of the study the
60
attitude of the local banks customers towards staff was not convincing and this was
attributed to service providers not being responsive. Therefore, the staff at the
different local banks should be motivated, as it is the backbone to meeting the
expectations of the customers in the local and international banks in Tanzania.
5.4.3 Conclusions
The study sought to measure customer satisfaction in the banking sector in Tanzania:
the case of locally owned and internationally owned banks in Tanzania. From the
findings of the study a strong basis on the statistical evidence lead to the conclusion
that:
There is a relationship between customers‘ expectation/perception from the services
of the banks and customer satisfaction. Henceforth, the higher the customer
expectations/perceptions are met the greater the level of satisfaction in the services
provided by the bank.
Customers showed dissatisfaction with some of the services that are rendered at their
different banks. The study further showed that service delivery at internationally
owned banks was more reliable than locally owned banks.
The study indicates that customers' perception vary according to the nature of
service. Measuring customer satisfaction with surveys or focus groups gives
direction to the banks for efforts and valuable inputs for improvement. In this case,
the highest customers' perceptions reach in Prompt and accuracy in transactions
followed by Safety of customers' investments and keep confidentiality of account
and transactions. The banks need to consider the weak areas in order to meet
customer requirement. The study has limitations in terms of sample size and if more
respondents could be included might be changed in terms of satisfaction ranking.
5.5.4 Recommendations
Basing on the findings and conclusions of the study the researcher gives
recommendations which, when taken into account will enhance or improve service
quality and customer satisfaction in local and international banks in Tanzania.
61
Bank should pay more attention to customer support so that perceptions of
customers' get high priority.
Measuring customer satisfaction with surveys or focus groups gives direction to the
banks for efforts and valuable inputs for improvement therefore the banks should
give this a priority in their day to day operations.
On job training of staff is also recommended as this will a brace the staff with
different ways of handling customers‘ complaints and also have an understanding of
the different types of customers that they have.
5.6.4 Directions for future research
The researcher suggests the empirical researches to be on the following areas for
future research:
The study covered only four banks. For this reason, the results from this study
cannot be taken as conclusive. There is a need to conduct a study of more
banks to investigate on the same issue.
Longitudinal studies should be carried as for this case it was a cross sectional
which simply takes a snap shot.
Previous researchers have been looking at the linear relationship between
service quality and satisfaction judgments. It is therefore recommended that
studies on satisfaction judgments should be in a non-linear form.
62
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74
APPENDICES
APPENDIX: A1 QUESTIONNAIRE FOR CUSTOMERS
Dear respondent I am happy to inform you that you have been selected amidst few
respondents to spare just your few minutes to assist the researcher to answer the
questions below. The information you will provide in line with this study will be
treated as confidential and will only be used for partial requirements of the
completion of the program. In case of any problem don‘t hesitate to contact the
researcher through his mobile phone or by E-mail: Thanks for your cooperation.
Mobile E-mail
LEAH PETER 0784-887911 [email protected]
Section A: General information (Please mark only one with a ―tick‖)
Q2.Sex
Female Male
Q3.What age group do you belong to
18-25yrs 36-45yrs
26-35yrs 46and above
Q4.What is kind of account do you hold with the bank?
Savings current Fixed Deposit
Other (specify) ………………………………………………..
Q8. Does the banks‘ environment affect customers‘ service delivery?
Definitely does Probably does
Probably doesn‘t Definitely doesn‘t
Section B: Decision-making
Q9.Who proposed for you to open up an account with the bank? (Please mark only
one with a ―tick‖)
Father Peers Mother
Organization Others (name)…………………………
Q10.When deciding to open up an account with a given banking institution is it
because of the infrastructures?
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(a) Yes
(b) No
(c)Other specify)………………………………………………………
Q11. Are the services rendered by your bank satisfactory?
(a) Yes
(b) No
(c) Not sure/Do not know
Section C: Personal judgment.
Q12. How can you judge the Staff Attitude towards customers?
Excellent [ ]
Very good [ ]
Fairly good [ ]
Poor [ ]
Q13. What weaknesses do you see in the day to day running of this bank?
…………………………………………………………………………………………
…………………………………………………………………………………………
……………………
Q14. Please indicate how important the customer service department is to you in
your dealings with the bank. Check only one box with a (V).
Not at all important [ ]
Not important [ ]
Sometimes important [ ]
Important [ ]
Very important [ ]
Q15.Are you satisfied with the services rendered by the customer service
department?
Very satisfied [ ]
Fairly satisfied [ ]
Neither satisfied nor dissatisfied [ ]
Fairly dissatisfied [ ]
Very dissatisfied [ ]
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Q16. What are your expectations from the bank in your service contact?
…………………………………………………………………………………………
Q17. I like helping potential customers by providing them with information about the
bank and its products.
Yes
No
Q18.I like talking about the bank with my friends
Yes
No
Q19. In a bid to measure the importance of the attributes of the services of your bank
You are requested to tick a column that you think represents your views on the
provided statements
Not
important
Fairly
important
Neither
important
nor
unimportant
Fairly
important
Very
important
On time
response
Services are
slow
Poor network
The service
provider are not
responsive
Customer
service
department is
not responsive
Security is high
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Not being
given enough
information
Q21. Can you please compare the services rendered at this bank with those of any
other banks of your choice?
Polite staff -- -- -- -- -- Rude staff
Conducive environment -- -- -- -- -- non conducive
Short time in queues -- -- -- -- -- long time in
queues
Adequate tellers -- -- -- -- -- Inadequate tellers
Reliable network -- -- -- -- -- unreliable network
Q22. If you were to choose a bank to have an account with again, would you still
choose this bank?
Yes [ ]
No [ ]
Maybe [ ]
No Response [ ]
Qn23. List down the other attributes of the bank‘s services which are not mentioned
that you do feel is important in meeting your expectations at the bank
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
