Service quality, satisfaction and loyalty in retail- banking

| December 24, 2014

Service quality, satisfaction and loyalty in retail- banking

Order Description

I have written the first draft that contains of the full idea. Can you please re-write the report in cohesive, coherent and structured way. With Simple language. I

have also attached the framework i suggest to inform the idea.
The structure i propose should be as follow:

Section 1
Abstract ( i need abstract ?)
1. Introduction
1.2 background information
1.3 Research Justification
1.4 Research objectives
1.5 Research structure

Section 2 / Literature Review
This could follow the structure proposed but you need to improve it. Make it coherent and lead to the discussion section.It should evaluate the lit.

Section 3
3 Discussion
The relationship between SERVQUAL and satisfaction is well studied. However, the direct and indirect relation between service quality dimensions and loyalty is

limited. Thus, i attempted to address this topic considering the relevance of service quality and satisfaction to customers loyalty.
(Critical thinking is needed here)

Section 4

Abstract: (focus on a clear statement of the purpose of the report, the main area covered, main conclusion and areas for future research)
Table of Contents:

Section one: Introduction
The purpose of this report is to understand the psychological aspects behind how service quality influences customer satisfaction, which will lead to loyalty because

satisfied customers are likely to stay loyal. The purpose of this chapter is to present the reader with a background on the stated topic, justification for research,

research question, objectives and the structure of the report.
Huge increases in globalization and free market trading have resulted in stiff domestic as well as international competition. Much of this competition can be

attributed to the growth of manufacturing, and services sectors across the globe. With such heavy competition, most businesses operate to gain profits through securing

and exploiting their competitive advantages.
In manufacturing industry, it is easier for firms to secure competitive advantage because they deal with tangible goods that customers can purchase. Whereas in the

services sector, the ability to secure competitive advantage is limited because of the large number of rivals, low price control for firms, large number of customers,

similar products and services and low brand loyalty from customers (Bose & Gupta, 2013). This implies that service firms have limited scope to secure competitive

advantage by the traditional strategic methods such as low cost, pricing or differentiation strategies because rivals quickly imitate these strategies. This indicates

that one of the best ways a service firm can secure competitive advantage is through improving the quality of services it provides its customer (Macfarlane, 2014).
A service firm does not provide a tangible product to their customers, but rather a service that serves to fulfill some need for the customer. Customers do not enjoy a

physical product, which implies that service quality is a highly cognitive process that customers use to understand how they feel about the service (Talluri, Kim

&Schoenherr, 2013).  One of the best measures of how customers feel about the experience is to evaluate customer satisfaction.
Measuring satisfaction is a direct reflection of how well the firm is performing (Sharma, 2014). In a competitive landscape, it is very important to have satisfied

customers and to know how satisfied they are. There is much academic literature available on customer satisfaction in the banking sector, and these literatures will be

used to describe the link between customer satisfaction and customer loyalty. Literature suggests that service quality and customer satisfaction are closely related,

but highly distinct concepts and that customer satisfaction and loyalty are also closely related but highly distinct concepts. The main aim of this paper is to

describe the various dimensions of the SERVQUAL model that are important in inspiring customer satisfaction and long-term loyalty using literature as a reference

(Bogomolova, 2011).
1.1.    Research Background:
Service quality is one of the most competitive forces that a firm can use to influence its customers. It refers to the overall attitude that customers have towards the

service experience that firm provides. Researchers have identified that customers measure service quality at a psychological level, and this signifies the role of

perceptions when they evaluate a service experience (Özguven, 2012; Bogomolova, 2011; Ladhari, 2009; Abdelghani, 2012). Imdadulhaque, (2013) adds that it is the

perceived service quality that allows a customer to formulate how satisfied they feel after the experience. A high quality of service allows firms to differentiate

themselves from rivals, which has a greater impact on customers. The banking sector is one that is marked by high degree of competition, regulation, limited price

control for banks and service quality is one of the best sources of competitive advantage for banks (Özguven, 2012). The relevance of service quality to the consumer-

banking sector has been well studied by academics for just over a decade (Darmayanti & Cahyono, 2014; Dinh&Pickler, 2012; Sunayna, 2013; Mittal & Gera, 2012). Since

banks have fewer sources of competitive advantage, the customer plays a very strong in influencing banking practices. This report will focus on the consumer-banking

sector only, and the interrelationships present in this sector.
The banking customer is any person that uses the services and products offered by a bank to fulfill their needs. A person may approach a bank for services such as

savings, deposits, withdrawals, credit facilities or loans. Özguven (2012) identifies that banking sectors are highly competitive because the degree to which products

can be differentiated is very low. If banks choose to differentiate, rivals imitate these products quickly, and this limits competitive advantage. This further allows

customers to have a high degree of bargaining power because there are a large number of banks offering identical services, and these customers may choose to leave a

bank at any time, with little cost to them (Mittal & Gera, (2012). This further highlights that retaining customers is also another source of competitive advantage for

banks. The main problem with the service is that it has to be continuously improved. Customers evaluate a service experience at the cognitive level and what is

considered as good service today may not be applicable tomorrow (Vassiliadis, Priporas, Bellou & Andronikidis, 2013).This dynamic nature of the customer and their

perceptions towards service is what has made is a very important area in academic research.
Consumers are considered to be the focus of any business, and customer satisfaction and loyalty have been extensively studied by academics (Bowen & Chen, 2001).
The basic operating principle of any business is to maximize profit above all else, and the primary method of doing this is by cost reduction. Corneliu (2013) explain

customer service as any form of assistance provided or advice given to individuals that utilize the goods and services of a company, before the good/service is bought,

during the purchase and after its bought. It has been proven that customer satisfaction is one of the best ways a firm can ensure profit maximization (Khan &Fasih,

2014; Torres, 2014; Setó-Pamies, 2012; Srivastava &Rai, 2013).  Because of the influential role of the customer in the service sectors, researchers have studied

customer satisfaction in great detail. Some researchers investigated the links between cultural backgrounds and the extent to which they are satisfied and found that

respondents from collectivist backgrounds were mostly family oriented and were highly likely to recommend a bank to others. Ya-Ling & Shari (2013) agreed that

recommendations are the best way for a bank to maintain its existing clients, and increase its base simultaneously because it is a free form of marketing.

Recommendations also indicate that the customers are highly loyal and satisfied with the bank and its services (Ismajli, Hysi-Panajoti, Fejza, Ismajli & Fejza, 2014)
The interrelationships between customer satisfaction and customer loyalty have also been studied by academics (Beerli, Martin & Quintana, 2004). It is found that they

closely affect each other and that a high level of satisfaction will indicate a high level of customer loyalty as well (Ya-Ling & Shari, 2013). Torres (2014) validated

that profitability is increased via customer loyalty, and loyalty arises directly from satisfied customers. Customer satisfaction arises from the overall quality of

service, and that service quality behaves as an antecedent to customer satisfaction (Johnson & Gustafsson, 2000). There is adequate literature about service quality

and its individual relationships with customer satisfaction and loyalty, but there is a shortage of literature on the linkages between the dimensions of service

quality, satisfaction and loyalty and the purpose of this paper is to address this gap in literature (Khan &Fasih, 2014; Setó-Pamies, 2012; Srivastava &Rai, 2013).
1.2.    Research Justification:
Academics have studied customer satisfaction because of its influence on various aspects of business performance. Research identifies many reasons that

influence customer satisfaction such as service quality, product quality, pricing, personal and situational factors and these factors all validate the relationship

between service quality and customer satisfaction (Oliver, 1993). The relationship between service quality and customer satisfaction is well studied, but there are

varying opinions about their relationship. Some academics say that service quality is an antecedent to customer satisfaction, and others say the opposite (Oliver,

Balakrishnan& Barry, 1994; Oliver,   & Linda, 1980). Parasuraman, Zeithaml, & Berry, (1988) postulate that these concepts are so closely related that it is customer

satisfaction that governs service quality, and service quality generates customer satisfaction.
It is the perceived quality of service that measures the extent to which the service provided can meet the expectations of the customer. This means that delivering

high-quality service means either meeting or exceeding customer expectations on a regular basis (Darmayanti & Cahyono, 2014). Customers perceptions are influenced by

the degree to which the service meets or doesn’t meet their expectations, and the only way that firms can be satisfying their customers is by improving the overall

quality of service (Setó-Pamies, 2012).
Customers are likely to remain loyal to a business if they perceive that they are receiving a service of greater value than what they can receive from a rival.

The SERVQUAL model is a multi-item scale research tool that has gained wide acceptance because of its reliability and validity. It is composed of five dimensions,

which are, reliability, responsibility, empathy, tangibles and assurance, and these will be discussed in more detail in the literature review (Parasuraman, Zeithaml, &

Berry, 1988). This paper will use the SERVQUAL because academics have more positive opinions about it than criticisms. This model was chosen because it has good

applicability while studying service quality and customer satisfaction (Özguven, 2012).

1.3.    Research Objectives:
The main question this research will investigate is:
“To what extent do the dimensions of service quality influence customer satisfaction and customer loyalty in the banking sector?
Considering the research question, there are four main objectives to this research:
1.    To understand the relationship between service quality and customer loyalty.
2.    To understand the relationship between service quality and customer satisfaction.
3.    To understand the relationship between customer satisfaction and loyalty.
4.    To formulate a relationship between service quality, customer satisfaction and loyalty.
1.4.     Research Structure:
The first chapter of this report is the introduction, and it serves to explain the various motivations, background, purpose, objectives and outcomes that this paper

aims to achieve. The second chapter is a literature review focused around academic views on the topics of service quality; using the SERVQUAL dimensions of service

quality, customer satisfaction and customer loyalty. The purpose of the literature review is to gather common themes in literature around these topics, and study them

from customer perspective. Once these topics have been reviewed, the next chapter of this paper will discuss the common themes and formulate a relationship between

service quality, customer satisfaction and customer loyalty. The last chapter will be the conclusion, which will present limitations of this study, a few

recommendations and implications of the research. Included with this paper is a comprehensive reference list of all the academic material that was used as a guide to

writing this paper.

1.    General ( why is this topic important, identifies the gap in the literature and clearly states the research question)
2.    Service and service quality
3.    Service logic
4.    Service perspiction
5.    Customer percpection
6.    Measuring service quality based on customer perspection
7.    Background of the study:
8.    Research justification
9.    Research objectives
10.    Research structure
The quality of service has drawn unprecedented attention in the last few decades especially in the service industry. It has been reported that the service sector is

responsible for more than two-thirds of the world developed countries. The rational beyond this transformation can be attributed to the evolution of the world’s

economy. Basically, the world economy can be categorised into two main if not three main sectors; the primary sector which includes; agriculture, forestry and fishing,

whereby the secondary sectors may include; manufacturing and service sectors. Last but not least is referred to the tertiary sector. Both globalisation and technology

advancement has contributed to increase the competition.

The developed banking channels ; internet banking, phone banking and ATMs’.

In the developed countries who have just been evolved towards a post industrial economy. yet, many other parts of the glob are still attempting to catch up. its It

has been widely accepted that service quality can provides a source of competitive advantage.

Section two: Literature Review  (evaluation)
The purpose of this chapter is to present the views of academic scholars about identified relationships between service quality, customer satisfaction and loyalty

within the banking sector (retail). This chapter aims to understand key ideas from published literature and identify and evaluate the gap existed.

2.    Lit. Review
Researches indicate that bank customer satisfaction and loyalty share a very positive relationship, and service quality and customer satisfaction also share a positive

relationship but since there are so many contrasting opinions about these relationships, this area can always be studied further. Further, there was limited academic

material available on the relationships of service quality dimensions on customer satisfaction and loyalty together, and that is why this research focuses on this


Many researchers have studied customer satisfaction in the banking sector and have found common themes in their research. Colgate and Lang (2001) found that a higher

level of customer satisfaction will lead to a higher level of loyalty. They describe a clear link between satisfaction, loyalty and recommendation and states that the

three factors are positively related. This means that when a customer experiences an increase in satisfaction, this will increase their loyalty as well, and loyalty

leads to a higher referral rate or recommendations. Dick and Basu (1994) found that customer satisfaction in the banking sector can be evaluated by two dimensions

which are repeat purchase and customers attitudes and that satisfaction increases sales revenues because it instigated loyalty from customers, and loyal customers

engage in repeat purchases and positive attitudes to the firm. Conversely, Arora &Vashishat (2011) says that high levels of customer satisfaction do not lead to

customer loyalty because other factors such as pricing can take precedence when the customer makes their decisions. Gan, Clemes, Limsombunchai and Weng (2006) studied

the linkage between customer satisfaction, overall loyalty and switching behaviors and found that the service quality dimensions were not the only factors that

influenced loyalty but factors that encouraged switching behaviors also influenced overall loyalty. They found that customers evaluate the service according to the

dimensions in addition to their perceptions and brand image before making a decision to switch or not.
Arora & Saxena (2013) studied the relationships between SERVQUAL dimensions and customer satisfaction in the Indian retail-banking sector. They found that although

service quality and customer satisfaction had a close relationship, there were different degrees to which customers valued the dimensions of service quality. Their

main findings were that customers valued empathy the most. In a similar study, Sandip and Kailash (2009) found that customers valued something different.

2.1 SERVQUAL and Customer Satisfaction (other factors were not considered such as price, culture etc)
The customer is any individual/organisation that purchases service from a firm in exchange for money. The payments customers make are revenues that contribute to the

firm’s profits. Khan and Fasih (2014) elucidate that a customer is different form a consumer such that, the differences lie in how the product /service is consumed.

This means a customer is the one who buys the product and consume it simultaneously, whereas a consumer is anyone who consumes a product regardless the purchase

transaction. The happiness associated with customer experience from the purchase of the service is defined as satisfaction.
Customer satisfaction is important to service quality process because it aims to fill the gap between the purchase of the product and its consumption. Oliver and Lind

(1980) describe customer satisfaction as a vital outcome of the marketing process as it links the purchase experience with the consumption experience and aims to make

this experience positive for the customer. Organisation can induce satisfaction by influencing customer’s attitudes; securing brand loyalty and increasing repeat

consumption of their product (Panda and Rao-Kondasani, 2014).  Therefore, the literature suggests SERVQUAL to measure customer satisfaction in relation to the service

quality (Oliver, 1993).
Oliver & Linda also described the difference between expectations and actual performance of a service as a state of disconfirmation. They further identified three

states of disconfirmation in their expectation-confirmation model to measure customer’s satisfaction. These are;
–    Positive disconfirmation: this is when the actual performance exceeds the expectations of the customer, which causes a high level of satisfaction.
–    Negative disconfirmation: this is when the actual performance is below the expectations and this causes low customer satisfaction.
–    Zero disconfirmation: this is when the actual performance matches the expectations of the customer (Oliver, 1993).
Based on the model, customer satisfaction can be induced through two predominant stages, either cumulatively or by a transaction. (Torres, 2014; Dinh & Pickler, 2012).

According to Oliver (1993), a customer may experience satisfaction following the transaction at which a purchase is completed, and this is a transaction-specific

satisfaction whereas a customer may experience the satisfaction cumulatively when he/she evaluates the overall experience from the first purchase over a cumulative

period  (this is the last stage of loyalty and what business should harvest!!!)(Bolton, 1998).

Existing researches show varying degrees of importance for the dimensions of the SERVQUAL model towards banking customer satisfaction. For example, Khan and Fasih

(2014) concluded that reliability and tangibility were regarded as important, whereas Arora and Saxena (2013) found that assurance and responsiveness were more

important. Some researchers have argued that some of the dimensions of SERVQUAL apply towards service quality and cannot be used to measure customer satisfaction

because they have proven that empathetic and tangible factors are negatively correlated with banking customer satisfaction  (Bose and Gupta, 2013; Abdelghani, 2012;

Darmayanti and Cahyono, 2014). Another example, Smith (1995) suggests that SERVQUAL/RATER has no applicability in customer satisfaction and its applicability is

limited to measuring service quality only because they found convenience and competitive pricing to be the main influents of customer satisfaction. Conversely, Jamal

and Nasser (2002) found that the convenience and competitive prices were not the main influents across all demographic profiles. However, a common theme in reviewed

literature was that banking customers valued responsiveness and reliability most when considering customer satisfaction from a SERVQUAL perspective .
Some researchers have developed the SERVQUAL concept further.  The Bank Service Quality scale (BSQ) was formulated in the original research by Bahia and Nantel (2000),

which aimed to understand customer perceptions about service quality in the banking sector in Canada. They developed 31 different attributes, which were differentiated

under six categories. Their findings were that bank customers’ valued access, range of services, pricing, assurance, tangibles, reliability and accuracy and validated

that the BSQ scale was more appropriate for measuring customer satisfaction in the banking sector . Stafford and Wells (1998) developed the BSQ scale further to

include 7 categories, which were atmosphere of service, personal relationships with employees, prices and rates, availability and convenience, ATM locations,

reliability and accessibility of tellers within the bank. In a study of customer satisfaction in the retail banking sector in Bangladesh .
Omar (2011) et al. found that customers felt positive disconfirmation when the bank was responsive and reliable most, and that they associated negative disconfirmation

when factors employees did not empathize or provide assurance to customers. A recurring theme from the research is that banking customers did not attach much value

towards tangibles when evaluating service quality in the banking sector .

Now, although there is abundance of literature on linkages between customer satisfaction, SERVQUAL and service quality, the main gap identified is that SERVQUAL

dimensions do not find universal applicability within the banking sector with respect to customer satisfaction .
3.1.    Linking Service Quality with Customer Satisfaction:
Service quality and customer satisfaction have been studied as independent yet highly related concepts. Oliver and Linda (1980) identify that there is a positive

relationship between them and that an increase in either will have an increasing effect on the other. However, researchers argue about the nature of the relationship

they share, while Gan et al. (2006) say that service quality is the antecedent to customer satisfaction, Dinh and Pickler (2012) say the opposite.  An antecedent

refers to the primary influence of a factor, so when it is said that service quality is the antecedent, it influences the level of customer satisfaction experienced

(Oliver, 1993).
Parasuraman et al. (1988) explained that customer satisfaction is experienced at a transactional level whereas service quality refers to the comprehensive view of the

relative superiority of services an organization offers. Oliver (1993) posited that it was service quality that was the antecedent to customer satisfaction, when he

conducted a study, in which he eliminated the transactional-specific and cumulative influents. It was found that customer satisfaction arises from a comprehensive

attitude of the organization, and the customer takes into account many factors before making a decision (Nai-Hwa & Shu-Luan 2008). This finding conforms with the

definition of service quality because quality refers to the overall attitude rather than a specific transaction.

In the literature review it was suggest service quality is the antecedent to customer satisfaction, SERVQUAL was largely applied towards understanding service quality

from a customers viewpoint. This implies that the five dimensions have an inseparable relationship with customer satisfaction, because the customer experiences

satisfaction from a service experience in which those five dimensions are fulfilled. SERVQUAL also has gained reputation as an acceptable measurement of quality of

service, despite its criticisms (Nai-Hwa & Shu-Luan 2008).
The recurring gap identified in literature around service quality and customer satisfaction in the banking sector, was that although researchers agreed that service

quality dimensions had a big influence on customer satisfaction, there is no agreement to what extent each dimension is valued. Further, there is no agreement on the

ranking that customers gave to each dimension when evaluating a service quality experience between banks. As presented in the literature review, some researchers found

that customers valued responsiveness and reliability the most, and had low importance for empathy and tangibles, and there are contrasting degrees of importance given

to the other dimension in different researches .

–    Reliability: this would be the most important aspect because a bank deals with people’s money and the customer would expect the bank to be reliable in the

management of their money.
–    Responsiveness: Gan et al (2006) found that customers liked when their queries were responded to promptly and that it was easy to access the banks services,

this is supported by Omar (2011) as well.
–    Assurance: this would be the next important factor, as customers would like to be reassured about their finances.
–    Empathy: customers like when employees feel for them, or can understand their situations; this makes them feel valued as well (Dinh and Pickler, 2012).
–    Tangibles: the recurring theme in the literature reviewed was that banking customers did not seem to value tangible aspects when evaluating service quality of

a bank .

This paper suggests that it is still possible to increase customer satisfaction by ensuring that the service delivery model focus on those dimensions that customers

value the most. This means that a bank can still increase its customer satisfaction levels by increasing its responsiveness and improving its reliability and not

improving the other dimensions to the same extent. If a bank can address all the dimensions of the SERVQUAL scale in its delivery process, it will ensure that its

customers experience a state of positive disconfirmation. If a bank can just provide the bare minimum of service, or it does not address all the dimensions that are

important to customers, they are likely to either experience zero confirmation, or they will consider switching. If the bank is unable to address any aspects of the

SERVQUAL dimension, or addresses those that are not important to customers, it is highly likely that customers will experience a state of negative disconfirmation and

will definitely switch .

1 I xx (Mei Mei, L., .. etc)  Zaim, Bayyurt, and Zaim (2010) found that tangibility, reliability and empathy are important for customer satisfaction, but Mengi (2009)

found that responsiveness and assurance are more important.
1 ii xx In another study Siddiqi (2010) examined the applicability of service quality of retail banking in Bangladesh.  He found that service quality is positively

correlated with customer satisfaction; empathy had the highest positive correlation with customer satisfaction, followed by assurance and tangibility.  On the other

hand, Lo, Osman, Ramayah and Rahim (2010) found that empathy and assurance had the highest influence on customer satisfaction in the Malaysian retail banking industry.
1 iii xx Arasli, Smadi and Katicioglu (2005) found that reliability had the highest impact on customer satisfaction.  A number of studies have identified the

dimensions of service quality as the antecedents of customer satisfaction.
A self-administered survey was conducted.  The respondents were demographically diverse customers of HSBC retail banking services who reside in Hong Kong.
Among the five SERVQUAL dimensions, empathy, tangibility, responsiveness, reliability, and assurance, were found to be significant predictors of customer satisfaction.

This implies that these five dimensions are most important to Hong Kong customers.
Finally, empathy has the least importance in consumers’ minds.  Results show that empathy is positively related to customer satisfaction, but customers perceive a low

degree of interaction with employees in banks providing personalized service.
[ NOTE:  ? This paragraph to go in the “loyalty” section ?  I believe it is there.  Check. ] Loyalty is the direct result of customer satisfaction, which is greatly

influenced by the value of services provided to customers. ]
2xx Titko, J., & Lace, N. (2012).  Service Quality Evaluation in Latvian Bankikng.  Economics & Management, 17(1), 304-310.  Dol:10.5755/j01.em.17.1.2282.
Despite the wide application of SERVQUAL, it has been criticized often by researchers (Karatepe, 2011; Chi Cui et. Al, 2003; Avkiran, 1994).  They suggest using the

model, considering industry-/culture-/country- specific features.  A number of researchers have adapted SERVQUAL for measuring service quality in banking (Avkiran,

1994; Bahia & Nantel, 2000; Rostamy, 2009; Abdulla et al., 2011; Ladhari et al., 2011).
3xx Cirpin, B.K., & Sarica, K. (2014). Measurement of service quality in the banking industry: A case study from Turkey.  Istanbul University Journal of the School of

Business Administration, 43(2), 205-217.
Another country’s study is of banks in Turkey where the reliability dimension takes the second ranking of the clients’ expectations after the assurance dimension.

Transactions correctly carried out in the first instance are most important for customers.  A bank which operates correctly and on time is assured their customers will

remain with that bank.
Also, empathy is a factor that affects client perception.  Banking operations are not usually known or easily understood.  Sometimes it may be difficult for clients to

express their requirements.  Therefore, they need bank staff to respectfully listen carefully to their request and respond appropriately. (CO-creation)
[ NOTE:  Is this paragraph needed? ]  It is seen that the factor of physical properties, compared to the other factors, is ranked at the lowest position of the banking

services expectation ranking.
4xx Abdelghani, E. (2012).  Applying SERVQUAL to Banking Services: An Exploratory Study in Morocco.  Studies in Business & Economics, 7(1), 62-72.
In 2012, Abdelghani believed the results of his study suggested that the customers’ satisfaction is a function of three main dimensions.  These are assurance,

responsiveness and empathy.  The implication therefore is that banks which are keenly competitive need to focus on providing the best outcome on these dimensions.  On

the other hand, Abdelghani said the results indicated that the customers were “generally satisfied with the quality of the service provided by the Moroccan banks” as

the existing banks had a good quality assurance strategy.
5 xx (Loyalty)  Khan, M.M., & Fasih, M. (2014).  Impact of Service Quality on Customer Satisfaction and Customer Loyalty: Evidence from Banking Sector.  Pakistan

Journal of Commerce & Social Sciences, 8(2), 331-354.
The main objective of Khan & Fasih’s study into the impact of service quality on customer satisfaction and customer loyalty, was “to determine the impact of various

service quality dimensions on customer satisfaction and customer loyalty in the banking sector of Pakistan.”
The results of the study indicated that service quality and all its dimensions such as tangibles, reliability, assurance and empathy, “have positive associations with

customer satisfaction and loyalty in the banking sector of Pakistan.”  However, the only finding which does not conform to previous literature is reliability and its

association with customer satisfaction.  The reasons may be that previous studies on this construct were carried out in developed countries while Khan & Fasih

conducted their research study in a developing country “where the concept of customer service and service quality is entirely different from developed countries on

environmental grounds. (Pls. explain???)”  It was pointed out that in Pakistan, bank staff rarely provide prompt service.  Moreover, customers may be more concerned

about other aspects of service. ( What are they???)

–    Much literature by organizational researchers suggests service quality is a strong predictor of customer satisfaction and customer retention.  Therefore

service quality drives customer satisfaction, which impacts customer loyalty (Cronin, et al., 2000). (How it impacts it???)
–    6 xx (conclusion?)  Kazi Omar, S. (2011).  Interrelations between Service Quality Attributes, Customer Satisfaction and Customer Loyalty in the Retail Banking

Sector in Bangladesh.  International Journal of Business and Management, (3).
–    In 2011 Kazi used the hypotheses test which confirmed that all the service quality attributes positively correlate with customer satisfaction.  The highest

positive correlation with customer satisfaction was shown to be empathy, and the second highest was assurance, with the least positive being tangibility.  Thus the

hypotheses test revealed a considerable positive relationship between customer satisfaction and customer loyalty.

2.2  SERVQUAL and customer’s loyalty (only two factors)
3.2.    Linking Customer Satisfaction with Customer Loyalty:
Arora and Saxena (2013) studied linkages between customer satisfaction and loyalty in the Indian retail-banking sector using the SERVQUAL dimensions. They largely

attributed increases in customer satisfaction and loyalty studies to the increases in globalization and trade. Their research focused on the banking sector in New

Delhi, which is a limitation to their research, as it does not represent the whole population of Indian banking customers. They found that for a bank to generate

satisfied customers, and ensure loyalty the bank must focus on all the five dimensions equally. They found positive relations between customer satisfaction and loyalty

but no correlation between the two. This means that although they have an influential relationship, they have no increasing or decreasing effect on the other (Torres,

Rahman (2013) studied the relationships between loyalty and satisfaction in the banking sector from an international perspective. He conducted a descriptive  study,

and the purpose of the research was to test four independent hypotheses. He evaluated loyalty as a combination of factors like basic services rendered, advanced

services, prestige, costs and satisfaction.  However, his findings identified positive correlations between the four hypotheses that were tested, which are:
–    Between basics services provided to customers and satisfaction
–    Between advance services provided to customers and satisfaction
–    Between prestige, costs and satisfaction
–    Between loyalty and satisfaction
These findings do not match with the findings of Arora and Saxena (2013) such that this research describes a positive correlation between the loyalty and satisfaction,

and Arora found there to be no consequential effects on the other.  This is the main gap identified in the literature, which is researchers could not agree on the

extent of the relationship that satisfaction and loyalty share. The main limitation of both these researchers was that they were both conducted within one geographical

region only, which limits the generalizability of the results.
Considering, Khan and Fasih’s (2014) research which investigated customer satisfaction from a service dimension perspective and its implications for loyalty using a

quantitative research method in “Impact of Service Quality on Customer Satisfaction and Customer Loyalty: Evidence from the Banking Sector”. This research explained

the various antecedents to loyalty in the retail-banking sector and found that customer valued the following aspects in service quality that realized a state of

loyalty in them. They detailed that there were positive correlations between empathetic factors, commitment, trust, marketing, and value and conflict resolution in the

loyalty process . The limitations of this research were that it was limited to the Malaysian banking sector only, and only consumer customer services were studied in

the five main banks of Malaysia (Ismail & Panni, 2009). This limits the applicability of findings to a wider cross section of the global population.
The recurring theme is that there are strong relationships between customer satisfaction and loyalty, and there is no agreement on the type of relationship they share.

Based on the literature reviewed, this paper suggests that there is customer satisfaction is the antecedent to loyalty.
Based on the readings, an increase in overall customer satisfaction through an improved service delivery model which addresses all the dimensions of service quality,

may lead to a direct increase in the level of loyalty. One reason could be attributed customer’s evaluation process in their cognitive e perception, which is a direct

result of the overall service delivery process. However, many scholars argued that loyal customer are not always satisfied and the opposite can be true as will.
The Customer Loyalty Concept:
Customer loyalty can be a huge source of competitiveness for organizations because it maintains the revenue that the firm is generating, by having a large number of

loyal customers. Research strongly suggests that customer loyalty is one of the key strategic objectives of any business because it has been proven that firms enjoy a

lower operating cost to maintain existing customers rather than to attract new ones (Bogomolova, 2011; Srivastava & Rai, 2013; Ya-Ling & Shari, 2013). It is more

profitable to have loyal customers because it requires less service and operational cost to maintain loyal customers. Further, loyal customers are willing to pay

higher prices for their brands products  (Dick and Basu, 1994).
Dick and Basu (1994) also say that loyal customers are the best form of marketing for a firm, because they will recommend that brand to others based on perceived

customer satisfaction. This implies that since service quality is an antecedent to customer satisfaction, and loyalty is influenced by customer satisfaction, service

quality and customer loyalty also must be closely related. This relationship will be evaluated and discussed further on.
Bogomolova (2011) identifies customer loyalty as a cognitive process that customers formulate based on their values, beliefs, attitudes, desires or state of mind.

Loyalty is developed by service quality strategies that induce positive states of mind in consumers and enhance them by associating their brand with certain behaviors.

However, it is difficult to manage customer loyalty because it involves influencing customer behavior as well as their psychological perceptions.

Customer loyalty can be defined by two dimensions, which are relative attitudes and repeated patronage. Relative attitude refers to the psychological associations that

the customer has about the brand, and repeated patronage refers to the frequency with which a customer returns to a brand for their services (Dick and Basu, 1994).

There are four mindsets of loyalty identified as well, which are:
–    Loyal: this is when a customer has highly positive attitudes about the brand and favors them with repeated purchases (Dick and Basu, 1994).
–    Latent: this is when customers have high attitudes, but low frequency of repeat purchase  (Dick and Basu, 1994).
–    Spurious: when customers have low attitudes, but a high frequency of purchase (Dick and Basu, 1994).
–    Zero loyalty: when customers have low attitudes and a low frequency of purchase (Dick and Basu, 1994).
There is much literature about customer loyalty from perspective of brand loyalty. However, there is limited research on customer loyalty arising from superior quality

of service . Dick and Basu (1994) found that the case of customer loyalty from brand loyalty could not be applied towards service quality because customers form and

depend on personal relationships within an organization in case of services, but in a brand loyalty scenario customers become loyal due to tangible goods. Customer

loyalty from a service quality perspective is greater emphasized by dimensions like reliability, assurance and empathy (Srivastava and Rai, 2013).
Bogomolova (2011) identifies that a service firm can still retain loyalty from customers with a poor relative attitude towards the service. If the general attitude is

poor, a firm that performs just a little more than what customers perceive as poor can influence a positive attitude in customers and induce patronage. Srivastava and

Rai (2012) says that in such a circumstance, the firm can still encourage customers to recommend their brand, and that a willingness to refer a brand was a measure of

the customers loyalty as well. It makes sense that for bank customer loyalty means sustained revenue, lower service costs and can increase opportunities to tap new

market segments.
Han and Hyun (2012) explained that on 1997 Oliver proposed a four-stage model of customer loyalty that customers experience from a service quality perspective. He

identified that the loyalty process begins as a cognitive process, but is later influenced by the aspects of the firm and the quality of service it delivers.  His

model proposes the following stages in the loyalty process:
1.    Cognitive: this is the stage where the customer makes a cognitive evaluation of the level of perceived service from the firm and the perceived value that they

receive from using that firms services. This is where the customer begins to form notions of whether the quality of service meets their expectations or not (Han &

Hyun, 2012). This is the stage where the customer evaluates the various benefits, costs and quality during the purchasing decision process.
2.    Affective: this is that stage in the loyalty process where the customer can be influenced by satisfaction. Firms utilizing strategies that focus on increasing

customer satisfaction are likely to form affective loyalty ties with the firm Han and Hyun (2012).
3.    Conative: this is the stage in the loyalty process that is highly influenced by development of intrapersonal relationships with the firm. (Han and Hyun, 2012).
4.    Action: this is the stage where the customer has been won, and is loyal to the firm. A customer in this stage is highly loyal, has very positive attitudes

towards the firm and engages in high patronage (Han and Hyun, 2012).
This indicates that even the loyalty process is highly cognitive in nature, and is very influenced by overall service quality, as it is what customers use to evaluate

whether they will be loyal to a firm or not . The action loyalty is what service firms should nurture within their customer and this can only be achieved through the

four phases of the loyalty construct.

Customer loyalty has two aspects – behavioural and attitudinal (Dick & Basu, 1994; Han & Back, 2008; Kandampully & Suhartanto, 2000; Oliver, 1997).
Until recently, it was believed that repeat purchase/behavioural frequency and the amount of same brand/product purchasing were indicators of customer loyalty

(Kandampully & Suhartanto, 2000; Tellis, 1998).  This means it was thought behavioural only approach meant customers did not have commitment to a specific

product/service (Han & Back, 2008).  On the other hand, attitudinal customer loyalty is the psychological process, which is a commitment to a specific product/service.

However, positive attitudes/motivations are not necessarily that a customer will continue buying a specific product/service (Back & Parks, 2003; Dick & Basu, 1994;

Oliver, 1997).  Even though many researchers believe in the behavioural and attitudinal aspects to gauge loyalty, other researchers believe this single approach

(either behavioural or attitudinal) is too simplistic, and that a balanced approach (between behavioural and attitudinal) is necessary.
According to Oliver (1997), customer loyalty with the two dimensions of behavioural and attitudinal, increases through three phases: cognitive, affective, and

conative, and that action/behavioural loyalty develops as a result of this process (Oliver, 1997, 1999).  Oliver suggest people’s loyalty matures in the cognitive

stage; then the affective stage; followed by the conative stage, and then lastly, in the action/behavioural stage.   These developments are on information/knowledge

about product/service, then pleasurable feelings about a product/service performance, then conatively being a commitment to a product/service, and lastly behaviourally

(Oliver, 1997).

SERVQUAL measurement and loyalty
C xx [ Service quality is a strong predictor of customer retention and customer satisfaction as suggested by many organizational researchers.  Service quality is the

drive of the customer satisfaction that impacts customer loyalty (Cronin et al., 2000). ]  A study of the Malaysian banking sector, regarding the relationship between

service quality and customer loyalty, by Sureshchandar et al, 2003; and Brown and Mitchell, 1993, found that reliability was the strongest dimension of service

In 1990, Bitner established that customer loyalty is more strongly impacted by assurance than any other dimension of service quality.  At a later stage, customer

loyalty improves the level of customer satisfaction and the banks’ financial performance.  Xx
D xx Kranias, A., & Bourlessa, M. (2013).  Investigating the Relationship Between Service Quality and Loyalty in the Greek Banking Sector.  Procedia Economics and

Finance, 5(International Conference on Applied Economics (ICOAE) 2013), 453-458. Doi:10.1016/S2212-5671(13)00053-1

The way service quality has been measured has little effect in that it is customer behaviour which is evident.  Service quality influences/impacts customers’ perceived

value, satisfaction, revisit (Cronin et al., 2000) as well as word-of-mouth intentions (Yavas et al., 2004; Harrison-Walker, 2001).  As mentioned before, most

researchers reach a similar view, that service quality indirectly influences loyalty through satisfaction (Beerli et al., 2004; Lewis and Soureli, 2006; Caruana, 2002;

Jamal and Anastas 2009), then there are other studies that have proved service quality directly impacts on loyalty.  For example, Zeithami et al. (1996) in an early

investigation, found a strong association between service quality and service loyalty.  Also, Carrillat et al. (2009), found service quality impacts purchase

intentions and those customers reality in a direct as well as an indirect way through satisfaction.  In the context of banking services, Bloemer et al., 1998, revealed

that the reliability and efficiency of a service impacts on the level of customer loyalty.  Similarly, Kheng et al., 2010, found a direct positive link between quality

factors, such as reliability, empathy and assurance and customer loyalty.  However, Bloemer et al., 1999, highlights that the relationship between service quality and

loyalty is unclear and needs further investigation.  This is the gap ……. ]  Therefore, this study by Kranias & Bourlessa, 2013, looked into the impact of bank service

quality factors (i.e. employee competence, bank’s reliability, and product innovativeness, value for money, physical evidence and proximity-convenience) on customers’


(BSQ; seven measurement scale) see below*
2.1 Service Quality
Quality is defined as “satisfying or exceeding customer requirements and expectations, and consequently to some extent it is the customer who eventually judges the

quality of a product”.
The quality of a service that customers receive is determined by the variance between customer’s expectations and his/her own perception of the actual service

delivered (Munusamy et al., 2010).
According to Lau, Cheung, & Lam, & Chu, (2013) a good service quality is considered as a process to retain existing customers and gain new ones, enhance brand image as

a marketing technique and increase profitability through cost reduction and/or expand customer’s base.
The underpinnings assumption is that customer’s expectation is formed based on his/her personal knowledge and experience related to the service they seek (   ).

Knowledgeable customers can clearly identify their needs and to a certain degree know how to fulfil them. The role of the service provider is limited to the capability

to address these needs and satisfy them.  Customer’s past experience on the other hand, determines his willingness to repeat the purchase for a particular product or

service. For instance, if the service provided did not fulfil customer’s needs, it is more likely that he/she (customer) will not repeat the transaction from the same

merchant again.

The firm’s ability to recognise customer’s expectations with its various degrees of dis similarities and how they perceive the service should help them designing their

own business models (service) and different strategies simultaneously. Thus, customer’s expectations and perceptions should be the two main components of his cognitive

perception that service quality should encapsulate.
Yet, measuring the perceived service quality is critical for service providers. The difficulties arose from the nature of the service per se.  Many scholars are

ascribed these problems to characteristics that feature the service industry. They emphasised on four main attributes, these are; perishability, heterogeneity,

inseparability and intangibility (El Saghier & Nathan, 2013).
These characteristics have to be carefully considered while designing service delivery and service process (concepts) is essential for proximity purposes.
There are many perspectives on how to manage the service. However, a marketing perspective seems to be essential due ot the characteristics aforementioned earlier. For

the aim of this research we intend to highlights the importance of two main approaches to service management; a customer’s perspective and a service perspective.
A customer perspective on service
Based on this approach, customers do not buy the service per se but rather they buy the offerings that consist of the service, information, personal attention in

addition to other components. It is customer perceived-service of the offerings is what matter to them and thus a value is created. Accordingly, it is reasonable to

assume that a service means supporting customer’s activities through a value creating processes. Yet, this value is not produced within the service firm but rather it

is co-created in a value generating process that involves both the customer and the service firm together

Another important aspect is the value proposition, firms need to improve their value if to stay competitive…   value generation and co-creation
Price is important and should not be discarded form the equation, brand image like in the case of Emirates airlines and Singapore. So, satisfaction is precedent to

loyalty but it does not necessary guarantees loyalty. Any attempt to link quality to loyalty directly does not violates the property preserved to the role of

satisfaction as a mediating factor between service quality and loyalty.

Many scholars ascertained that cultural factors influence the perception of how customers perceive the quality of a service provided. Thus, SERVQUAL is not universally

applicable. In order to measure customer satisfaction, another dimensions has to be considered such as: the impact of price and/or culture.

Discussion: (critical thinking)
How culture, price and other factors are important for loyalty
SERVQUAL is not applicable for measuring loyalty
The importance of adopting a relational approach to build and maintain loyalty (relational Aspects) in their marketing strategies.

4.1.       Contribution:
The focus of this research report was to understand the impact of service quality dimensions on customer service, and how it applies to the relationship between

customer service and loyalty. This paper aims to contribute to the fields of service management and service delivery. A suggested framework is presented to link

service quality dimensions with customer satisfaction and ultimately, customer loyalty.
Service quality, customer satisfaction and loyalty have been widely studied as individual concepts and also interrelationships between them have been studied. However,

there are limited studies about the interrelationships between customer satisfaction and loyalty in the banking sector using the SERVQUAL dimensions. This is a

contribution of this paper such that it aims to contribute to existing literature to fill any gaps that may exist, and also can serve as the foundation of future

research as well.
This research can contribute towards service sector firms that wish to understand service quality and can help them improve their business model. It can help those

firms interested in topics of customer loyalty and satisfaction as well since these topics are of great relevance to firms today.

4.3.       Future research

There is a need for further research to study the relationships of service quality dimensions on customer service and loyalty because this research had limited scope.

This research can further be expanded towards other service sector firms such as telecommunications or insurance, to have a better generalizability.

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Reflective Journal (rewrite it in the same way)
The writing of this research paper from the initial step to the final part of the writing process was a good educative experience for me. The research

process offered a good opportunity to completely understand the topic and employ my knowledge gathered through my learning process to develop a new conceptual

framework. The little knowledge on this topic motivated me towards researching more about it. Despite having some understanding on this topic, it was a difficult

experience to create a topic that I would come up with a thorough research on customer service and satisfaction.  Immediately my mind ran across different industries.

It is from this struggle that I imagined on what the organizations focus on satisfying customers and creating customer loyalty.  After much mind argument, I settled on

quality.  Organizations stress on quality so as to attract, maintain and create a competitive edge within its industry. Therefore, I decided to focus on this topic.

Researching more on the available literature, it was evident this was an interesting topic to research on. I found an interesting concept of service quality and its

dimensions. My assumption was that a thorough research on the topic would generate importance to organization management that its aim is to build customer loyalty.

That is why I have decided to do my research on banking service quality, different dimensions and their relationship to customer satisfaction and loyalty.
My research was based on different literatures available on quality services. It was amazing to find that there was a great information on the topic. From

this, it was evident that my topic was a major concern among different scholars. This offered enough information to review on my topic. Through thorough skimming of

different literatures, I was able to select sources that would offer in-depth information on the topic at hand. After collection of the different sources, the next

thing was to review them one after the other noting down important information and also taking merits and demerits of its style.
The next thing was to write the collected information and aligning them into sections. This was not an easy task. Despite trying to produce the first paper thinking

that it was effective, through my peers, I realized that I had committed few errors that needed corrections.  In addition, my supervisor was of great help in making

the research process a success. I am very grateful for my peer and my supervisor for his support in coming up with a framework and his contribution to my topic. he

made my research a success and fulfilling.
In conclusion, undertaking this research did not only contribute to the improvement of my knowledge and understanding of my selected topic but also

improved my critical thinking and reasoning beyond my expectation.  I suppose this will be of great help to me not only in education performance but also in other

activities in the real world


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