Impacts of customer quality of service and customer loyalty. A case study of banks in Singapore
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Abstract
Customer loyalty is the primary goal of a business organization. The emergence of new forms of banking channels 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 (Parasuraman et al., 1988) with five dimensions was used to evaluate impacts of service quality on customer loyalty among the bank customers in Singapore and the variables mediated by customer satisfaction. The findings show that improved quality service in Singapore 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 Singapore. 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 overall respondents evaluate the bank positively, 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 major factor for business success and survival. This competition has caused a lot of dramatic changes; for instance, Malaysian banks face the challenge of greater market satisfaction in order to cultivate customer loyalty (LAM &BOJEI 2007).
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 service quality and customer loyalty in the banking system are limited, but also the existing studies on bank branches efficiency, in general, do not account for the changing role of bank branches. Service quality is of utmost importance in analyzing the performance of bank branches since their survival depends on their service quality levels they provide to their customers. Several nations have been on a study on how to assess customer’s expectations and satisfactions.for instance Malaysia has gone through tremendous changes since their independence in 1957, their first step was gradual deregulation in the financial sector, and this created more competition within the industry.
In year 2004, Bank Negara Malaysia completed a study to assess customers’ expectations and satisfaction on the quality of products and services offered by banking institutions that was shared with the industry to improve the service quality of the sector after which it initiated a program to train and prepare 1000 highly qualified graduates for immediate placements in banking and insurance institutions. An effort was undertaken in collaboration with the industry and training institutes, and it is aimed at boosting the supply of well-trained and competent personnel for the financial services industry (Source: BNM 2008, 9th Bank Human Resource Conference). 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. Reichheld and teal(1996) 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;
- 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 endeavor to address the following items as the main 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 findings of this study can be used by the Uk banking system 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 important 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. Finally, 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.
BASIS FOR FUTURE RESEARCH WORKS
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
3.0 Methodology
4.0 Results
5.0 Conclusion and Recommendation
References