Linkage between service quality and customer loyalty bank

International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1

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LINKAGE BETWEEN SERVICE QUALITY AND CUSTOMERS LOYALTY IN COMMERCIAL BANKS

S. Dhandabani, PhD, Assistant Professor, S.S.T College, Coimbatore, T.N,India

ABSTRACT

This study examines the nature of linkage between service quality and customer loyalty in Indian retail

banking. Study used confirmatory factor analysis to identify the service quality dimension. The resulted

dimensions are Reliability, Responsiveness, Knowledge and recovery; and Tangibles. The service

quality dimensions lead to customer satisfaction and the customers’ satisfaction leads to customer’s

loyalty. The structural equation model reveals that there is no significant direct linkage between service

quality and customers loyalty. At the same time, the service quality has a significant indirect impact on

customer’s loyalty especially through customer’s satisfaction. The study indicates that the bank

managers need to develop a systematic assessment programs to monitor service quality and customers

satisfaction over time. Once the service culture is established, that will lead to customer satisfaction.

And customer satisfaction result in customer’s loyalty.

Keywords: Banks Customer, Loyalty, Responsiveness, Service, Satisfaction

INTRODUCTION

During the past two decades or so, regulatory, structural and technological factors have

significantly changed the banking environment throughout the world (Angur et al., 1999). In a

milieu which becomes increasingly competitive, service quality as a critical measure of

organizational performance continues to compel the attention of banking institutions and remains

at the forefront of services marketing literature and practice (Lasser et al., 2000; Yavas and

Yasin, 2001). The interest is largely driven by the realization that higher service quality results in

customer‟s satisfaction and loyalty, greater willingness to recommend to someone else, reduction

in complaints and improved customer retention rates (Danaher, 1997; Magi and Julander, 1996;

Levesque and McDongall, 1996).


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Undoubtedly owing to the belief that delivery of higher service quality is a must for

attaining customers satisfaction and a number of other desirable behavioural outcomes, recent

years have witnessed a flurry of research exploring inter relationship between service quality and,

satisfaction and behavioural outcomes (Festus and Hsu, et al., 2006; Thamariselvan and Raja,

2007). This study expands the research stream into India. The specific objectives of the study

are:

to reveal the dimensions of service quality in commercial banks.

to examine the inter relationship between exogenous and endogenous variables and

to study the direct and indirect effects of service quality on customer loyalty.

A study addressing these issues is relevant and significant for at least three reasons. First,

while much is known about the items in the SERVQUAL instrument that are global in nature, the

outcome of administering the SERVQUAL scale to the consumers of a service is of little utility

value for instituting an operational instrument process for the service. Some researchers

(Babakus and Boler, 1992; Lapierre, 1996; Levitt, 1981) have suggested that the search of

universal conceptualization of the service quality construct may be futile, and to be a practical

utility, a service construct should not only be operational, but also context specific.

Secondly, while much is known about the relationships between service quality,

satisfaction and behavioural outcomes as a result of research initially as conducted in the USA

and England (Angur et al., 1999; Jamal Nasser, 2002; Yavas et al., 1997; Anthanassapoulous, et

al., 2001), still there is a paucity of research dealing with these issues in the context of India.

Thirdly, in today‟s fiercely competitive Indian banking environment, where Indian bankers

consider delivery of excellent service quality to customers as a key to success and survival, the

findings from the study can provide them with valuable insights in ways of enhancing service

quality to induce greater customer satisfaction and customers loyalty.

CONCEPTUAL FOUNDATIONS


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Over the past 40 years, several authors have attempted to develop coherent classification

schemes for services. The intent of such schemes is to bring parsimony and order to allow a

better understanding of the characteristics that differentiate services and the organizations that

provide them. The following section reviews some of these schemes.

Service Quality

Service quality is considered a multi-attribute construct-the product of the comparison

between the customers expectations and their perceptions of the company‟s actions (Parasuraman

et al., 1985; 1998; Boulding et al., 1993; Gronroos, 1994). Perceived service quality has been

defined as the consumer‟s global attitude or judgement of the overall excellence or superiority of

the service. Perceived service quality results from comparisons by consumers of expectations

with their perceptions of service delivered by suppliers (Lewis et al., 1994; Takeuchi and Onelch,

1983; Zeithaml, 1988). Customers expectation are beliefs about a service that serve as standards

against which service performance is judged (Zeithaml et al., 1993); what customers think a

service provider should offer rather than what might be on offer (Parasuraman et al., 1988).

Expectations are formed from a variety of sources such as the customer‟s personal needs and

wishes (Edvardsson et al., 1994).

Measurement of Service Quality

The SERVQUAL instrument proposed by Parasuraman et al., (1988) posits the computed

disconfirmation approach whereby the difference between a customer‟s expectation and the

actual performance is calculated. This approach has been criticized by several authors for a

number of weaknesses. The alternative approach namely SERVPERF, is that measurement of the

customer‟s perception of the performance of a service which provides adequate assessment for

service quality (Gronroos, 1988; 1990; Cronin and Taylor, 1992; Peter et al., 1993; Brown et al.,

1993; Bebko, 2000). The increasing support on the measurement of service quality by

performance-only measurement (SERVPERF) is witnessed (Andaleeb, and Basu, 1994; Zeithaml,

1996 and Cronin et al., 2000). Since the weight of evidence in the literature supports the use of


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performance perception, the present study adopts the “SERVPERF” scale to measure service

quality.

Service Quality Dimension in Commercial Banks

Several researchers have suggested that the search for universal conceptualization of the

service quality construct may be futile (Levist, 1981; Lovetock, 1983). The service quality

construct is either industry or context specific (Babakus and Boller, 1992). The measurement of

the service quality construct is multidimensional. In its original structure, service quality consists

of five dimensions (Parasuraman et al., 1988; Carman, 1990; Rust and Oliver, 1994). These are:

1. the tangibility aspects of the service

2. the reliability of the service provider

3. the assurance provided by the service provider

4. the responsiveness of the service provider; and

5. the service provider‟s empathy with customers

The included variables to measure the service quality of commercial banks were ranging

from seventeen to fifty seven variables (Narul Islam, 2005; Verma and Vehra, 2000; Sharma and

Mehta, 2004; Elango and Gudep, 2006; Sharma and Sharma, 2007; Bhat, 2004; Levesque and

Gorden, 1996; Bhat, 2005; Zillur, 2005; Gani and Bhat, 2003). In the present study, the included

service quality variables are twenty seven (See Table 1).

Customer Satisfaction

Several studies seem to conclude that satisfaction is an affective construct rather than a

cognitive construct (Oliver, 1997; Olsen, 2002). Cronin et al., (2000) assessed service

satisfaction using items that include interest, enjoyment, surprise, anger, wise choice, and doing

the right thing. Rust and Oliver (1994) defined satisfaction as the “customer‟s fulfillment

response” which is an evaluation as well as an emotion-based response to a service. In the

present study, the more popular Westbrook and Oliver‟s (1991) four emotion-laden items have

been used.


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Perceived Value

Customers perceived services have been theoretically represented as consisting of two

dimensions. Berry and Parasuraman (1991) distinguish a process and an outcome dimension,

whereas Gronroos (1990) makes a distinction between functional and technical quality. The

process of functional quality refers to “how” the service is delivered, while the outcome or

technical quality refers to “what” customers perceive, the benefits of using the service. In the

commercial banks, how banking operations are being transacted as functional benefit, easy to use,

safety and confidence on the systems at banks are the benefits that customers perceive as

technical benefits. In the present study, the number of items used to measure the perceived value

on service is three (See. Table 1).

Customer’s Loyalty

According to a model presented by Zeithaml et al., (1996), behavioural intention can be

captured by such measures as repurchase intentions, words of mouth, loyalty, complaining

behaviour, and price sensitivity. High service quality often leads to favourable behavioural

intention (Burton et al., 2003). Loyal customers are important, because they contribute to the

bank‟s profitability by passing positive words of mouth and also retain their customership.

(Anderson and Mittal, 2000; Storbacka et al., 1994). Loyalty is predominantly satisfaction driven

(Rust et al., 1995) and therefore customers satisfaction measurements are believed to give a better

indication of future performance of service firms (Anderson and Fornell, 1999) than, for instance

financial and accounting based measures (Kaplan and Nortan, 1996). Customer loyalty is a

feeling of commitment on the part of the consumer to a product, brand, marketer, or services

above and beyond that for the competitors in the market place, which results in repeat purchase

(Szymigin and Carrigan, 2001). A loyal customer to a bank is thus, one who will stay with the

same service provider, is likely to take out new products with the bank and is likely to


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recommend the bank services (Fisher, 2001). The customer‟s loyalty towards the banks in the

present study is measured on the basis of three statements (Kish, 2000; Bridgewater, 2001).

Inter-Relationship among Service Quality, Customer Satisfaction and Customer Loyalty

There is no clear message in the literature on the causal ordering of service quality and

customers satisfaction, and on which of the two constructs is a better predictor of customer

loyalty (Bolton and Drew, 1991; Cronin and Taylor, 1992). One group of researchers upholds

that satisfaction is antecedent to service quality (Brady and Robertson, 2001). Dabholkar, 1995;

and Winstanley, 1997). Another group of researchers believe that the service quality is

antecedent to satisfaction (Brady and Robertson, 2001, Bloemer et al., 2002; Newman 2001). A

third perspective maintains that there is a non-recursive relationship between service quality and

satisfaction (Taylor and Cronin, 1994). The impact of service quality, customer satisfaction on

customer loyalty is complex. The present study, however predicts the direct and indirect effects

of service quality, customers satisfaction on customer loyalty with the help of structural equation

modeling. The proposed research model is presented in Figure 1.

FIGURE 1

Proposed Research Model

Reliability

Responsivenes

s

Knowledge

and Recovery

Tangibles

Service

Quality

Perceived

Quality

Customer

Satisfaction Customer

Loyalty


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RESEARCH MATHODOLOGY

Scale Development

Parasuraman et al. (1994) emphasized an alternative approach in giving customers

definitions related to five underlying dimensions of service quality and asking them to assign the

items into the dimension only on the basis of each items content. Similar to the essence of

Parasuraman et al.‟s approach, the questionnaire items in the present study were generated via a

series of focus groups. Specifically, the focus group customers comprised teams of customers

and bank officials of public and private sector banks. The research developed a service blue print

for commercial banks because this gives the customers an opportunity to better understand the

sequential stages of service encounter. The operational definition of the construct of perceived

quality (SERVPERF) was introduced to the customers prior to their development and verification

of the service quality measurement scale. The focus groups (bank officials) were requested to

check the variables included to measure the service quality of commercial banks.

TABLE 1

The Survey Instrument

Sl.No Particulars

I. Reliability

1. Error-free records

2. Timely Passion of service

3. Right at first time itself

4. Staffs sincerity in service

5. Providing service at promised time

6. Sincere in solving problems

II. Responsiveness

7. Employees adopt service to the customer needs

8. Staffs readiness to customers request

9. Customers informed about service performance


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10. Well handling of peak hours

11. Providing correct response to customers

12. Courteous among employees

13. Willing to help customers

III. Tangibles

`14. Attractive interior design

15. Upto-date equipment

16. Neat and professional appearance of employees

17. Confortable parking space

18. Visually appealing facilities

IV. Recovery

19. Employees empowered for correction

20. Response on Complaints

21. Quick Correction on mistakes made

22. Convenient operating hours

23. Personalized service

Sl.No Particulars

V. Knowledge

24. Customer Relationship

25. Knowledge of staffs

26. Awareness on Latest banking facts

27. Provision of adequate information

VI. Perceived Value

1. Navigation Easy

2. Safety

3. Confidence on Bank

4. Accessibility

VII. Customer Satisfaction

1. I am satisfied with my decision to choose this Bank

2. I did a right thing

3. My choice is a wise one

4. I feel good experience with this bank

VIII. Customer Loyalty

1. I am proud to be a customer of this bank

2. I want to continue as a customer of this bank

3. I recommend others about my bank

Each item of the service quality of commercial banks was rated on a five point likert type

of scale. In addition, the perceived value, customer satisfaction and customer loyalty were also

measured with the help of related statements.


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THE SAMPLE

Two waves of sampling took place in order to obtain a sufficient number of survey

respondents. In total, 20 Public Sector and 20 Private Sector banks in Madurai, Tamilnadu have

been purposively selected for the present study. From each bank, 10 customers are purposively

selected. The total sample size came to 400 customers. The response rate among the customers of

Public Sector and Private Sector banks are 64.00 and 76.00 per cent to its total respectively. This

generated total of 280 customers (128+152). Among the total customers, the important age group

is 46 to 50 which alone constitutes 41.21 per cent to the total. The important occupational

background among the customers are business and private employment which constitute 31.09

and 22.86 per cent to the total respectively. The important annual income among the customers

are Rs.15,000 to 20000 per month which constitutes 40.96 per cent to the total. Most of the

customers have an experience of 12-15 years in their present banks.

DATA ANALYSIS

The present study first reviewed the descriptive statistics (Mean, standard deviation,

coefficient of variation, kurtosis and skewness) in both samples and were satisfied with the data

distribution. Next, focusing on the customers of Public sector banks (Sample-1), the present study

used an iterated factor analysis with item commonality estimated from squared multiple

correlations, and maximum likelihood as the estimation method. This procedure resulted in a

four-factor solution that was rotated by a Promax algorithm (i.e. an oblique rotation). As a

conservative, heuristic, items with a loading small than 0.4 on any factor were deleted. Moreover,

items that demonstrated cross-loadings greater than 0.4 on more than one factor were also

dropped because they do not provide pure measures of specific construct. In addition, the scree

test and the Kaiser (1960) eigen value–one criterion were both used to identify the number of

factors. The results are given in Table 2.


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TABLE 2

Factor loadings for the underlying dimensions of service quality

Sl.No V.No Variabels Reliability Responsiveness Knowledge and

Recovery

Tangibles

1 V4 Staffs sincerity in service 0.8914

2 V2 Timely Provision of service 0.8622 3 V1 Error free records 0.7413

4 V6 Sincere in solving Problems 0.7028

5 V5 Providing service at promised time

0.6541

6 V3 Right at first time itself 0.5191

7 V11 Providing correct response to

customers

0.9127

8 V9 Customers informed about

services

0.8096

9 V13 Willing to help customers 0.7539 10 V8 Staffs readiness to customer

request

0.7044

11 V10 Well handling at peak hours 0.6599 12 V21 Quick correction on mistakes

made

0.8968

13 V24 Customer Relationship 0.8213

14 V25 Knowledge of staffs 0.7908 15 V27 Provision of adequate information 0.6744

16 V23 Personalized service 0.5246

17 V18 Visually appealing facilities 0.8969 18 V16 Neat and Professional appearance

of employees

0.8203

19 V15 Upto date equipment 0.8456

20 V14 Attractive interior design 0.6339 Eigen value 7.5814 5.4117 2.8646 1.3309

Percent of variance explained 31.14 20.89 18.49 12.17

Cronbach alpha 0.7342 0.7817 0.7039 0.7324

*Factor loading less than 0.5 are not shown

Out of 27 service quality variables, seven variables were dropped because of their poor

factor loading (less than 0.4) and more than 0.4 in more than one factors. The 20 variables were

taken for the data validity test namely Kaiser-Meyer-Ohlin (KMO) measure of sampling

adequacy and Bartletts test of sphericity. Both the two tests satisfied the validity of data for factor

analysis. The factor analysis result in four important factors with the cumulative variance

explained of 82.69 per cent. The identified factors are Reliability, Responsiveness, Knowledge

and Recovery; and Tangibles. The above said service quality factors consist of 6,5,5 and 4


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variables with the reliability coefficient of 0.7342, 0.7817, 0.7039 and 0.7324 respectively.

Notably all of the calculated reliability coefficient are above the widely recognized rule of thumb

of 0.7 (Nunnally, 1978) which suggests a good internal consistency among item in this each

identified Dimension.

Guided by results generated from the above analysis, an informal Confirmatory Factor

Analysis (CFA) is made on a broader sample of customers in Private sector banks (Sample-2). An

iterated factor analysis with forced four-factor selection method resulted in a four-factor solution

that is analogous to the one reported in Table 3.

TABLE 3

Factor loadings for the underlying dimensions of service quality

Sl.No V.No Variabels Reliability Responsiveness Knowledge

and

Recovery

Tangibles

1 V1 Error Free records 0.9133

2 V2 Timely Provision of Service 0.8646

3 V4 Staffs sincerity in service 0.7028 4 V5 Providing service at promised

time

0.6517

5 V6 Sincere in solving problems 0.5803

6 V9 Customers informed about services

0.8403

7 V11 Providing correct response to

customers

0.7868

8 V13 Willing to help customers 0.6917

9 V8 Staffs readiness to customers

request

0.5803

10 V25 Knowledge of staffs 0.8917 11 V21 Quick correction on mistakes

made

0.7804

12 V27 Provision of adequate information 0.6517 13 V24 Customer Relationship 0.5964

14 V15 Upto date equipment 0.7914

15 V18 Visually appealing facilities 0.6306 16 V16 Neat and Professional appearance

of employees

0.5341

Eigen value 5.0817 3.4517 2.0862 1.1408

Percent of variance explained 31.58 21.41 20.71 12.39 Cronbach alpha 0.7414 0.7602 0.7334 0.7046

* Factor loading less than 0.4 are not shown

It is worth noting that refinement of items making up each dimension was done three times

to obtain a clean four-factor picture. Specially, variable-3 was deleted due to a lower than 0.3


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factor loading on factor-1 (Reliability). In addition, Variable No.10; No.23 and No.14 were

dropped to avoid the possible ambiguous dimensionality. They were associated with factor 2, 3

and respectively in Sample-1. The reliability and validity of data for factor analysis has been

conducted with the help of KMO measure sampling adequacy and Bartletts test of sphericity.

Both these tests satisfied the condition of validity of data also. The four factors namely

Reliability, Responsiveness, knowledge and Recovery; and Tangibles consist of 5,4,4 and 3

variables with the reliability coefficient of 0.7414, 0.7602, 0.7334 and 0.7046 respectively. All

the four factors explain the service quality in commercial banks to the extent of 86.09 per cent.

Assessing reliability and validity of constructs

It should be noted that a more rigid procedure was also performed to assess the

dimensionality of the service quality measure. Empirically, convergent validity (the degree if

association between measures of a construct) was assessed by reviewing the „t‟ tests for the factor

loadings. The composite reliability scores for each of four factors have been also computed. The

results are given in Table 4.

TABLE 4

Properties of the CFA for SERVPERF

Construct and

Indicators

Items Standardised Loading

T-Statistics

Composite Reliability

Service Reliability

Error free records 0.8303 14.18* 0.93 Timely provision of service 0.8517 15.48*

Staffs sincerity in service 0.9208 17.33*

Providing service at promised time 0.8417 14.91* Responsiveness

Customers informed about service performance 0.8163 12.06*

Providing correct response to customers 0.7492 10.31* 0.82

Willing to help customers 0.8169 12.73* Staffs readiness to customers request 0.6965 8.17*

Knowledge and recovery 0.6566 7.29*

Knowledge of staffs 0.8143 7.13* 0.87 Quick correction on the mistakes made 0.7309 6.96*

Provision of adequate information 0.6256 6.45*

Customer Relationship 0.6144 6.03*

Tangibles Upto date equipment 0.8308 5.94* 0.86

Visually appealing facilities 0.7736 5.38*

Neat and professional appearance of employees 0.6943 5.11*


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The metric for each scale was established by fixing the coefficient for one indicator to 1.00 for

each of four factors. Other than the fixed loadings, each item evidenced highly significant „t‟

statistics (value < 0.01), suggesting that all indicator variables provide good measures to their

respective construct. Specifically, the entire set of indicators has a standardized loading higher

than 0.6256 with the highest being 0.9208. These results generally supported the convergent

validity of the indicators. (Anderson and Gerbing, 1988). Composite reliability is similar to

Cronbach alpha, and reflects in the internal consistency of the indicators measuring each

Confirmatory Factor Analysis construct (Fornell and Larcker, 1981). Results show that all four

factors have composite reliability scores greater than the commonly recommended 0.7

benchmark, and this suggests that each of the factors is reliably measuring its respective

constructs.

Discriminant Validity

It is not easy to establish discriminant validity. (the degree to which items of constructs are

district) when the involved constructs are theoretically related to a hierarchically high order

construct (i.e. service quality), as is the case here. The existence of a second order factor structure

suggests the sub-dimensions of service quality share common variance. However, discriminant

validity can be empirically assessed in a weak sense by using the confidence interval test (plus or

minus two standard deviations around the factor correlations). Discriminant validity is said to be

satisfied if a 95 per cent confidence interval of the inter-factor correlation between two constructs

does not include an absolute value of one (Anderson and Gerbeing, 1988). The Correlations

among all the constructs are presented in Table 5.

TABLE 5

Correlation Matrix for all exogeneous and endogenous Variables

Sl.No. Variables Reliability Responsive ness

Knowledge and

Recovery

Tangibles Perceived value


Customer loyalty

1. Reliability 0.4617* 0.4208* 0.5168* 0.8234* 0.7186* 0.5163*

2. Responsiveness 0.6143* 0.4599* 0.7908* 0.6345* 0.5081*


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3. Knowledge

and Recovery

0.5347* 0.8189* 0.7408* 0.4408*

4. Tangibles 0.8406* 0.7902* 0.5244*

5. Perceived data 0.6904* 0.6508*

6. Customer

Satisfaction

0.8147*

7. Customer

Loyalty

*Significant at five per cent level.

Though some of the correlation coefficients were found to be relatively high, the 95 per

cent confidence intervals for the inter factor correlation were not found to include 1.0. As a result,

this confidence interval test tends to support to the discriminant validity of the studied constructs.

Impact of independent variable on dependent variable

The impact of service quality on perceived value, perceived value on customer

satisfaction, and customer satisfaction on customer loyalty have been estimated with the help of

structural equation Modeling. The fit indices like x2, RMSEA, TLI, AGFI, GFI, CFI and NFI

have also been computed. The implications of these with the proposed model are explained in

Table 6.

TABLE 6

Results of the Structural Equation Modeling

Sl.No Hypothesis Standardized

Data

t-Statistics p-Value

1. Service Quality with

Perceived value

0.7134 6.1718 0.0244

2. Perceived value with


0.6291 5.2376 0.0139

3. Customer Satisfaction

with Customer Loyalty

0.5739 0.9708 0.0172

Fit Indices

Chi-square=113.08 RMSEA=0.041 TLI = 0.934

p-value (.0018)

AGFI = 0.917 GFI=0.946 CFI=0.952 NFI=0.923

The standardized coefficient in the Hypothesis namely service quality with a positive impact on

the perceived value of the commercial banks has a significant value ( = 0.7134; t-value= 6.1718),


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supporting the assertion that the service quality significantly and positively influences the

perceived value of the service offered by the commercial banks. This fundamental concept

reiterates that the commercial banks should focus on the quality of service to increase the

perceived value of service among the customer‟s mind. The real challenge for the commercial

banks is to find SERVQUAL dimensions and their significance to overall service quality.

The second Hypothesis is trying to predict the relationship between the perceived value of

the service by the customers to their satisfaction. This hypothesis supports and proves that the

perceived value of service plays a significant impact on the overall customer satisfaction since its

value is 0.6291 and the t-statistics of 5.2376 which is significant at one per cent level. This

direct effect would give clear relationship between perceived value and customer satisfaction.

The third hypothesis reveals the impact of customers‟ satisfaction on their loyalty. The -

value (0.5739) and the t-statistics (5.9708) are significant at two per cent level. The present study

reveals that there is a significant and positive direct impact of customers‟ satisfaction on

customers loyalty. Moreover, the results are encouraging for commercial banks as very much

satisfied customers would like to recommend this bank to others.

The fit indices for this model indicate how well the data fit with model. Infact, all fit

indices are well within the range accepted among the researchers. The significant Chi-square

value (113.08) supports the model. The comparative fit index that is Normed Fit Index (0.923)

value signifies the best of fit of model with the collected data. The variances are also greatly

explained. The Goodness of Fit Index (GFI=0.946), Adjusted Goodness of Fit Index

(AGFI=0.917) and Tucker Lewis Index (TLI= 0.934) along with Root Mean Square, Error of

Approximation (RMSEA = .052) strongly supports this model.

Direct and indirect effects on Customer loyalty


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The direct and indirect effects of service quality, perceived value and customer satisfaction

on customer loyalty are evaluated with the help of structural equation modeling. The results are

shown in Table 7.

TABLE 7

Total effects of the factors involved in evaluation of service quality on Customer Loyalty

Sl.No Factors Direct

effects

Indirect

effects

Total

effect

Relative

Percentage

1. Service Quality 0 0.173 0.1730 18.02

2. Perceived value 0 0.213 0.2130 22.19

3. Customer satisfaction 0.5739 0 0.5739 59.79

4. Customer Loyalty 0.5739 .3860 .9599 100.00

From table 7, customer satisfaction clearly has the high level of impact (59.79%), followed

by perceived value (22.19%) and service quality (18.02%). The customer satisfaction has a direct

impact whereas perceived value and service quality have indirect effects on the customer loyalty.

CONCLUSION AND MANAGERIAL IMPLICATIONS

The service quality scale developed in this study was first calibrated using the data from

customers of public sector banks (i.e. sample-1) and then cross-validated using a more diversified

data set (i.e-sample-2). Four service quality factors were identified as the first order dimensions

of service quality in the context of commercial banks. These are Reliability; Responsiveness;

knowledge and Recovery; and Tangibles. Notably, the variables in knowledge and recovery are

correlated together and formed as a factor namely knowledge and recovery. Subsequently, the

confirmatory factor analysis was employed to confirm the dimensionality of the first order service

quality factors. The purification process in the present study was dictated by the desire to develop

a more parsimonious as well as reliable measure of service quality that would be widely useable

to most industries falling under service sector. The result highlights the need not only to

operationally the service quality construct, but also to identify to which typology a service

belongs, because the latter fact may suggest the service quality factor. So emphasize for training

service staffs and for formulating competitive operations strategy. Based on results reported in

the present study, consequently, service providers in the commercial banks could interpret these


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results suggesting that they may downplay the role of reliability, responsiveness, knowledge and

recovery; and tangibles.

In order to achieve customer satisfaction, bank mangers need to understand what

customers want and how they assess the bank service quality. The present study compiled a list of

16 service quality variables (grouped into four factors) that an average bank customers often use

to assess bank services. Our operationalizable questionnaire items could provide several hints to

bank manager in terms of how to shape bank customer‟s experience. Concentrating on the four

identified service quality factors, the reliability and responsiveness appear to be slightly more

important than the knowledge and recovery; and Tangibles. As far the reliability dimensions are

concerned, error free records and timely provision of service need to give customers, special

attention. On the other hand, in order to enhance the responsiveness dimension, bank mangers

and staffs have to be highly responding the customers call. I terms of knowledge on recovery

dimension, knowledge of staffs is the key whereas in the case of tangibles, it is upto date

equipment. Bank managers may improve the tangibles dimension by keeping bank‟s physical

environment up to date and visually appealing. It is worth noting that improving all dimensions of

service quality sounds a good and audacious goal, but the main advantage of a distinctive

sequential improvement allows bank managers and staffs more opportunity to learn from possible

mistakes in one clinical change before a full-range service quality program is implemented.

The findings indicate that while service quality is an important driver of customer loyalty,

its indirect effect through perceived value and customer satisfaction is overwhelmingly larger

than the direct effect in generating higher customer loyalty. It is important for the bank managers

to understand the relevant service quality dimensions in their banking that could reinforce

positive customer satisfaction assessments. Bank managers need to develop a systematic

assessment programs to monitor service quality and customer satisfaction overtime. Bank staffs

should be kept informed of results and be encouraged to take part in figuring out an effective

resolution strategy. Only when a service culture is created, can the commercial bank‟s

management ensure the efficient delivery of services most desired by customers. The customers

loyalty should be generated only through customers satisfaction. So the bank managers should


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aim at customer satisfaction, then they ensure customers loyalty through the customer satisfaction

but not directly through the service quality of commercial banks.

REFERENCES

1. Alka Sharma and Versha Mehta (2004), “Service Quality perception in financial services –

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Documents

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