Impacts of quality service on customer loyalty. A case study of banks in the UK
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Abstract
Customer loyalty is the primary goal of a business organization. The emergence of new forms of service channels by the banks such as; online baking, automatic teller machine (ATM), mobile banking, maturing financial markets, and global competitions, has forced bankers to explore the importance of customer loyalty. Here, the underlying model of SERVQUAL (Eskildsen and Kristensen, 2008) with five dimensions was used to evaluate impacts of service quality on customer loyalty among the bank customers in the UK and the variables mediated by customer satisfaction. The findings show that improved quality service in the UK has led to a good relationship between the customers and the service providers. The primary trend that enhanced the case under study was deregulations of financial sectors by the government of the UK. There were ten domestic, commercial banks and 16 foreign-owned commercial banks operating in the state. Bank mergers, deregulation, and increased competitive pressure are significant keys to dramatic changes in the banking sector. Reliability, empathy, and assurance are the primary service quality dimensions that play significant roles in this question. The findings indicate that the respondents generally have a favourable view of the banks, but still, there are rooms for improvements.
Keywords: Customer loyalty, quality of service, banking sector, empathy
1.0 INTRODUCTION
1.1 Background
Quality service is the primary goal for a business organization due to its advantages for customer retention. Service quality is an assessment of how well a delivered service conforms to the clients’ expectations. Service quality is of great importance to business operators as it helps to identify problems and better the assess for clients’ satisfaction. On the other hand, customer loyalty is the positive experience and satisfaction to a customer on a particular product or service. The success of a service provider depends on the high quality relationship with his/her customers, service quality leads to a performance superiority in an organization leading to increased sales profit, a good market share, improving and enhance customer relations and cooperate image that promotes customers loyalty. In today’s banking, there exists stiff competition, and hence delivering quality service to customers is a significant factor for business success and survival. This competition has caused a lot of dramatic changes; for instance, the UK banks face the challenge of greater market satisfaction in order to cultivate customer loyalty (Antony, 2015).
In today’s banking, there is increased awareness among bank customers of their rights, changing demands, and high competition, which require constant progress in quality service from banks for their customers to stay loyal. In 2006 a research by Portela & Thanassolis stated that not only empirically studies of the relationship between customer loyalty and service quality and in the banking system are limited. Additionally, the existing studies on bank branches’ efficiency, in general, do not put into consideration the mutating role of bank branches. Quality of service is vital in analyzing the performance of bank branches’ performance since service quality levels they provide to their customers are essential for their survival. Several banks in the Uk devote resources to perform studies to asses customers’ expectations and satisfaction on the quality of products and services offered by the banking institutions. Results from such studies are sometimes shared within the industry to improve the service quality of the sector.
Many UK banks also make deliberate steps in collaboration with the industry players and training institutes, aimed at boosting the supply of well-trained and competent personnel for the financial services industry. This action was driven by increased competition, recessionary pressures to control costs and customer demands, and quality services.
1.2 Statement of Problem
Most banks find it challenging to attract and sustain customers. The physical environment should be as a factor considered during customer satisfaction and the reliability of staff to its customers. A financial organization(banks) is significantly affected when there is a failure for it to solve its customer needs and problems. Due to the increased number of customers, those who wish to engage in explanations with the staff seem not to have the opportunity. This creates dissatisfaction. Most bank staffs lack computer skills and are unable to help customers with online services. The customer population is also too large for the staff to give personal attention. Mittal (2016), identified that “creating value for customers builds loyalty and intends to build growth, profit, and more value.” Therefore, for an organization to gain loyalty from the customers, there is a need to asses the quality of services in all banks so that problems that users face can be addressed
1.3 Research Question
The study purposed to investigate the following research question; Impacts of quality of service on customer loyalty. This primary question will be handled through the following minor questions;
a)What is the current situation of service quality in UK banks?
b)What factors account for the quality of services in bank branches?
c)How can quality services in all banks be improved?
d)What is the future of the banking industry in the UK?
1.4 Aims and Objectives
The study will endeavour to address the following items as the primary study objectives;
- a) To investigate the impacts of service quality on customer satisfaction
- b) To evaluate administrative practices and their impacts on the banking sector
- c) To make recommendations based on the findings of the study that will help to address the challenges identified by the customers
1.5 Research Hypothesis
H1: Improved quality of service in the banking sector has a direct correlation with customer loyalty.
H2: The main element of service quality is efficient customer service.
1.6 Significance of the Study
The Uk banking system can use the findings of this study to more the quality of service for improved customer loyalty. Through this study, all bank management will be in a better position to identify the shortcomings of services rendered to the customers. The study will also help the staff banks to identify what users perceive and expect from them so as to access needed services in the fastest time possible. This study will also be vital as it provides reference services in the banking industry and to the general public by contributing to the existing knowledge in the market. In addition, the management of banks will benefit from this study as it would educate the management on what to be done to enhance the quality of services they offer to the customers. The study provided recommendations that, when adopted and properly implemented, would help to fashion out policies to address the deficiencies and pitfalls in the service delivery, which relates to customer loyalty. Finally, this research will be of impact and an excellent reference for future researchers. Policy decisions can also be made in case this field becomes relevant for study and will be of great help to the subject field in question.
1.7 Research Summary
The study was structured into five chapters; chapter one comprised of the introduction, which covered the background of the study, statement of the problem, research question, aim and objectives, the significance of the study, and research summary. Chapter two focused on the literature review. Chapter three looked at the methodology used for the study where research design, the scope of the study, instrumentation, data analysis & presentation were included. Chapter four comprised the data analysis and discussion of the study findings. Chapter five consisted of the summary, conclusions, and recommendations drawn from the findings of the study.
2.0 LITERATURE REVIEW
Service quality is the judgment of customers about the overall superiority of a product or a service. This literature considers perceived service quality as a primary aspect and customer based. It provides customers with a reason to enhance customer value and an attitude to position competitor’s brands. The SERVQUAL instrument where customers’ expectations and actual performance were calculated has gone through several civilizations by other authors since it does not touch on some important. Similarly, this research may not have touched some areas, but it seems more improved since it was based on the previous researchers’ ideas.
Several studies seem to conclude that satisfaction is an affective construct rather than a cognitive construct (Eklof, Podkorytova & Malova, 2018). ). Some researchers assessed service satisfaction using items that include interest, anger, enjoyment, surprise, wise choices and doing the right thing. This shows that satisfaction is the customer’s fulfilment response and at times, can be emotion-based.
This research, however, described quality service as the primary goal for any business organization. Based on the UK banking reports today, there is increased awareness among bank customers of their rights, changing demands, and high competition, which leads to constant progress in quality service from banks for their customers to stay loyal. The emergence of new forms of services by banks suggests future improvements in service quality in the UK banks. Some of these services include; online baking, automatic teller machine (ATM), mobile banking, maturing financial markets, and global competitions, forcing bankers to explore the importance of customer loyalty.
Empathy quality; the last dimension on the SERVQUAL model, is a caring, ability to be approachable, and giving the individual attention that the company can provide to the customers. For examples in the UK the customer care can be a good listener to what customers’ want and need; for example, they can elaborate on the type of bank account an individual need to create.
Besides that, assurance quality is knowledge and courtesy of employees and their ability to inspire trust and convey confidence among customers.
Responsiveness is reflected by the willingness to help customers and provide prompt service. In the UK banks, customers should not be in line for too long, waiting to be served. The staff came up with an idea to educate its customers on how to access mobile banking to avoid long lines in the banks.
Reliability of service can be defined as the ability of service provider to perform the promised service dependably and accurately. For example, the customers who come to Barclays banks in the UK to apply or replace their ATM cards were promised to get their services done within an hour. This action makes them not to wait for too long and lose their loyalty to the bank staff.
The tangibility of service is a scale that measures how dependable a customer views a service provider to be based upon the quality of its most visible attributes. Tangibles can include physical facilities, equipment, staff appearance, among other examples. The cleanliness of ATM rooms in the UK is an excellent example of tangible service.
SERVQUAL is a multi-item scale. This scale is developed to help assess customer perceptions of service quality in service and retail businesses. As for this study, it will mainly focus on bank service delivery (responsiveness, reliability, assurance, and empathy)
SERVQUAL Dimensions
3.0 Methodology
3.1 Introduction
This chapter focused on the approach given for this study.it contains the discussion on research design, data and information collection methods, design of the questionnaire, sampling design and other related factors. Data method analysis consisted of factor analysis, reliability test, descriptive statistics and was based on the research hypothesis.
3.2 Research design
Research design is an important step to gather and analyze the imperative data and assist in finding the location of the study, sample size and population. This study is done in the UK and majoring in the banking sector and highlights factors to improve service quality to the customers. It also includes the identification of five independent variables including tangibles, reliability, responsiveness, assurance and empathy.
3.3 Quantitative design
The quantitative design will be applied to this research based on the nature of the study to gather the representative data from the target respondent. Through the SERVQUAL analysis, it gives a better understanding of the service quality and its impacts on customer satisfaction. Most researchers have always focused on the quantitative approach. It quantifies the attitudes and behaviours of customers toward the service they get from the staff. The reason for and advantage of why quantitative research is preferred is its ability to produce reliable data that are usually qualified to large
3.4 Descriptive research
The descriptive research method is as pretty as it sounds. They summarize situations, though they do not give accurate descriptions. It generates both qualitative and quantitative data and studies frequency, average, central tendency, and any other statistical calculations. With descriptive research, researchers can know a substantial amount of information, where the research problem is and give a measure.
3.5 Methods of data collections
In this research, two methods of data collection were used, which are primary and secondary data.
3.5.1 Primary data
Primary data refers to first-hand information. In this study, the primary data used was through giving a questionnaire to the respondent both online and through the paperwork. For the specific area of study, the researcher needed cooperation and clarification as the questionnaire was given in person to the respondent. Some answers received from the online questionnaire differed due to some specific issues regarding the topic. Paperwork questionnaire seems more efficient than the online administered during this study to address the problem at hand.
3.5.2 Secondary data
Secondary data refers to data that was already collected by a researcher but not the current user. It involves four steps; identifying the subject of the domain and where to acquire the data, gathering of the existing data, comparing different sources of data and finally analyzing the data at hand. Secondary data may be obtained from online databases or referring to related articles. This method of data collection is costly, time-consuming and needs a commitment by the researcher. Due to advanced technology, finding resources, especially from the internet, has become so easy. this study help researchers to get a better understanding of the study question since they have referring materials.
3.6 Sampling design
There are five steps involved in sample design; identifying the target population, setting a sampling frame & location, choosing the sampling elements, selecting the sampling technique and determining the sampling size of the respondent location.
3.6.1 Target population
This is the group of interest, and it is where the researcher is looking forward to getting and analyze relevant information. The target group is referred to as the entire group or events where answers to the question under study are to be obtained. In this study, simple random sampling is chosen to select customers in the UK as a respondent for the study. Simple random sampling was randomly selected due to a high population of citizens with bank accounts in the UK. The method was selected due to the likelihood that everyone in that population has a chance to be chosen.
3.6.2 sampling frame and sampling location
The sampling frame is the list of items or people forming a population from which a sample is taken. In this study, individuals holding bank accounts and potential customers in any of the UK banks will be our sampling frame. In fact, the sampling location for the study is the standard chartered bank in London city, Barclays in the canary whorl and royal bank of Scotland.
3.6.3 sampling element
The sampling element, in this case, is a customer of Barclays bank who has been a loyal customer in the UK for the past ten years. The reason to chose this sampling element is that he has been operating other accounts apart from Barclays, and he is very familiar with the banking system of the UK. Since the main subject under discussion is the quality of services the customers receive, a foreign respondent was also selected.
3.6.4 sampling technique
To asses customer’s perception of the quality of service in the UK, a simple random sampling technique was selected. To achieve this, the researcher will go through the company’s customer record and history to identify customer’s information such as email, home or office address. The researcher will then draw a sample and decide on the number of respondents to have in the final sample. Simple random sampling is easy and fair to accomplish; it is even easier to generalize the result from the final sample back to the population.
3.6.3 sampling size
It is advisable for the researcher to pretest the questionnaire to other people, such as friends and family members, before distributing the questionnaire to the selected respondent. This is for the researcher to familiarize with the questions and avoid misunderstanding in the future. In case of a misunderstanding, the researcher has to re-do the questionnaire until it suits the purpose of the study. A total of 300 questionnaires were distributed, and 247 were collected. Out of that,14 questionnaires were unusable because they were not in accordance with the question under study while some were incomplete.
3.7 Conclusion
3.8 Project Timeline
References
References
Antony, J. (2015). Six-sigma for improving top-box customer satisfaction score for a banking call centre. Production Planning and Control, 26(16), 1291-1305.
Mittal, V. (2016). Developing and Implementing a Customer-Focused Strategy in Banks: Customer Satisfaction Strategy Maps. Available at SSRN 2783075.
Eskildsen, J. and Kristensen, K. (2008). Customer satisfaction and customer loyalty as predictors of future business potential. Total Quality Management & Business Excellence, 19(7-8), pp.843-853.
Eklof, J., Podkorytova, O., & Malova, A. (2018). Linking customer satisfaction with financial performance: an empirical study of Scandinavian banks. Total Quality Management & Business Excellence, 1-19.
Portela, M. C. A. S., & Thanassoulis, E. (2006). Malmquist indexes using a geometric distance function (GDF). Application to a sample of Portuguese bank branches. Journal of Productivity Analysis, 25(1-2), 25-41.