Admas University

An assessment of the relationship between service quality and customer

Satisfaction. (In case of commercial bank of Ethiopia- Mekelle City
Branches)

A Thesis Submitted in Partial Fulfillment of The

Requirement for Bachelor of Arts in business management

Name ID No
1.Nigus Gidey ............ .. 0277/17
2.Goitom Berhe ........... 1047/17
3.Kurat Huluf...............0352/17
4.Ghare Biruk ............. 0206/17
5.Senait Kidu ................0692/17
6.Kibrom Equbay........ 0682/17
7.Amanuel Eyasu .........0286/17
8. Mahder Zeslasie ….325/09

Submitted to: Teklemariam (MA)

Sep.2015. Mekelle, Ethiopia

 CHAPTER ONE

1. Introduction
The history of the Commercial Bank of Ethiopia (CBE) dates back to the establishment
of the State Bank of Ethiopia in 1942. (combanketh.et) CBE was legally established as a
share company in 1963. (combanketh.et) Customer Satisfaction is one of the core values
of CBE by which it is committed to offer the highest quality service to its customers and
aspire to be branded with quality in the minds of its customers and the general public. It
is obvious that customers are important stakeholders in organizations and their
satisfaction is a priority to management. Customer satisfaction has been a subject of
great interest to organizations and researchers alike. In recent years, organizations are
obliged to render more services in addition to their offers. The quality of service has
become an aspect of customer satisfaction.

From the view of operations management, it is obvious that customers play important
roles in the organizational process (Lee & Ritzman, 2005, p. 92). Before the placement
of strategies and organizational structure, the customers are the first aspect considered by
managements. Customers are always aiming to get maximum satisfaction from the
products or services that they buy.

Whether an organization provides quality services or not will depend on the customers’
feedback on the satisfaction they get from consuming the products, since higher levels of
quality lead to higher levels of customer satisfaction (Kotler & Keller. 2009, p. 169).
Most companies are adopting quality management programs which aim at improving the
quality of their products and marketing processes, because it has been proven that
“quality has a direct impact on product performance, and thus on customer satisfaction”
(Kotler et al., 2002, p. 8). The reason for this is to satisfy the customers. But, are the
customers satisfied because of the products or service quality? Are the companies
providing the actual qualities perceived by the customers/consumers? By keeping this as
a point of departure, this chapter deals with the background of the study, statement of the
problem, objectives of the study, and research questions, scope of the study and the
significance of the study.
1.1 Background of the Study
Service Quality and customer satisfaction have long been recognized as playing a crucial
role for success and survival in today’s competitive market. Service quality is a recent,
decisive issue in the marketing thought. It also helps control the competitive position,
and consequently, determines the market share and profits (Abdullah, 2002). Therefore,
the ability of banking sector to continue and survive in the market depends on their
ability to respond to the requirements of change and interact with the output of it. As the
customers' needs and wishes are shaped and formed in the light of their economic, social
and civilization conditions, there is a close relationship between the banks' ability to
continue and survive and their ability to produce services that fit in with the increasing
and changing needs of the customers. So, organizations, especially service ones, work
hard to find effective ways to counter external changes in order to survive and they
enhance their effectiveness by means of activating their services and creating and
developing new ones.

Service quality is an increasingly important factor for organizational performance,

success, and survival in the banking sector. It has received wide recognition by the
researchers over the last decade in the retail banking sector (Aldlaigan & Buttle, 2002;
Angur et al. 1999; Bath, 2005; Sharma & Mehta, 2004; Bahia & Nantel, 2000). The
interest is largely driven by the realization that high service quality results in customer
satisfaction and loyalty (Levesque & McDougall, 1996; Magi & Julander, 1996;
Zeithaml et al., 1996; Danaher, 1997).

Furthermore, customer loyalty is a primary determinant of the long-term financial

performance of firms. This is especially vital for service firms where increased loyalty
can significantly increase profits (Reichheld, 1996).

Currently technological changes are causing banks to rethink their strategies for services
offered to both commercial and individual customers (Hossain and Shirely, 2010).
Moreover, banks that excel in quality service can have a distinct marketing edge since
improved levels of service quality are related to higher revenues, increased cross-sell
ratios, higher customer retention (Bennett and Higgins, 1988), and expanded market
share (Bowen and Hedges, 1993).

Therefore, banks should focus on service quality as a core competitive strategy

(Chaoprasert and Elsey, 2004). SERVQUAL model can be used which is a multi-
dimensional research instrument, designed to capture consumer expectations and
perceptions of a service along the five dimensions that are believed to represent service
quality (Parasuraman, et al., 1988). There have been a number of empirical studies of
retail bank service quality. Most of these have measured service quality by replicating or
adapting the SERVQUAL model.

The model was criticized by Cronin & Taylor (1992) as the SERVQUAL scale measures
customer satisfaction on perception-expectation model and not on attitude model. The
authors developed the SERVQUAL model to measure service quality by considering
only the customer perceptions dimension.

Consumers all over the world have become more quality conscious; therefore
customers‟ requirements for higher quality service have been increased (Lee, 2005).
Service sector such as the banks are obliged to provide excellent services to their
customers in order to have sustainable competitive advantage.

In spite of the criticality of service quality to businesses, measuring service quality

causes difficulties to service providers, as of the unique characteristics of services:
intangibility, heterogeneity, inseparability and perish ability (Douglas & Connor,
2003).Insight of this, services need a distinctive framework for quality clarification and
measurement. Among the major frameworks, SERVQUAL model developed by
Parasuraman et al. (1985; 1988) is most preferred and widely used model for measuring
service quality in the service industry.

Service quality has been and remains at the forefront of bank management‟s attention
(Appelbaum et al., 2005), as well as a focus on the services marketing literature (Lassar
et. al., 2000; Arasli et. al., 2005). The general notion has been that the service quality is
closely related to customer satisfaction and bank performance. While the direction of the
relationship has been a subject of debate in some studies (Ahmad and Kamal, 2002;
Bitner, 1990; Cronin and Taylor, 1992; Yavas et al., 1997), the widely accepted belief is
that the delivery of high service quality is a must for attaining customer satisfaction, and
a precondition for a number of desirable behavioral outcomes that lead to high
performance in retail banking (Ting, 2004; Yavas et al., 2004).

To remain competitive, service providers must render quality service to their customers.
Moreover, understanding and meeting customers’‟ expectations and subsequently being
different from competitors are important in order to survive in the today’s world of
globalization. Banking sector today is facing tough competition. If they continue to exist
in the market, they need to maintain high level of customer satisfaction. Customer
satisfaction and service quality are global issues that affect all organizations, be it large
or small, profit or non-profit, global or local Service organizations and play an important
role for developing countries. Hence there must be good quality and competitive
organization in maintaining customer satisfaction and further needs to improve the
effectiveness and efficiency of the organization. (Tan Sri Dato 'Dr ZetiAkhtar Azizi,
2005).

The development and improvement in banking services from year to year is a concern of
society. This can be seen increasing competition in service quality in banking. Quality of
care is a top priority in creating customer satisfaction. Quality is an ability of a set of
inherent characteristics of product, system or process to fulfill requirements of customers
and other interested parties. Service quality has also become an essential research subject
as it is critically a determinant factor towards to a firm’s financial performance. The
banking sector also needs quality personnel and competency. Having employees like
them to provide high quality products and services is critical to build consumer
confidence and good relationship, drive customer satisfaction and enhance the reputation
of previous research studies, (Ndubisi & Tam, 2005) has stated 'bind' the customer is as
important as when they lose will harm the institution. This was lead to a decline in
revenue, increased costs to attract new customers, a bad reputation when the customer is
not satisfied the problem will spread to other customers and a decline in employee
retention (Colgate & Norris, 2001).

According to Parasuraman et al. (1988, 1991, 1994), service quality can be appropriately
measured using the SERVQUAL method which accounts for customer’s perceptions of
service quality. In particular, service quality is assessed through the gap between
expectations and performance. The SERVQUAL model assess service quality by
considering it as a multidimensional construct comprising of five key dimensions
namely the tangibles, reliability, responsiveness, assurance and empathy. This study was
revealing which dimension of service quality are important to customers, and was
provide an insight into their perception of service quality at commercial banks. This was
assist banking service provider to plan and execute a marketing strategy that was
maximize service quality in line with customer's current and future needs, and hence to
improve customer satisfaction and retain customers which was impact positively the
market share and profit .So this study aims to assess the relationship between service
quality and customer satisfaction at commercial bank of Ethiopia in selected branches of
Mekelle City.

1.2 Statement of the Problem.

Customer satisfaction and service quality are most important elements in achieving
organizational goals. Organization tries to have consistence customer satisfaction with
the services provided by it. Because of, this service quality plays a pivotal role in
determining customer satisfaction. In a way, quality needs to be understood and manage
throughout the services of an organization. Hence, quality services are considered as
most important aspect. Satisfaction and quality have evolved along parallel tracks
(Strandvik & Liljander, 1995).

It is imperative that service companies measure and monitor service quality and
satisfaction with a view of influencing the behavioral intentions of their customers (Saha
and Theingi, 2009) providing a good service quality is a major issue for all business
especially for banking industry. Customer satisfaction may determine the success or
failure of a business. In order to be competitive in the marketplace, banks need to satisfy
their customers. Best service quality provided was ensuring a high market share and
substantial return.

The unique characteristics of service contribute to the complexities involved in assessing

and managing service quality. Since Quality can be several things at the same time and
may have various meanings, depending on the person. This complicates both the
consumer’s assessment of service quality and the provider’s ability to control it. Most
services involve a direct contact

between the customers and the service provider (Mersha and Abdlakha, 1990). This
means that, in addition to task proficiency, interpersonal skills like courtesy, friendliness,
tolerance and pleasantness are important dimensions of quality, particularly in high
contact service where front line employees are the key to customer satisfactions (Mersha
and Abdlakha, 1990). The customer is the judge of quality. Understanding customer
needs, both current and future, and keeping pace with changing markets requires
effective strategies for listening to and learning from customers ,measuring their
satisfaction relative to competitors, and building relationships, customer needs–
particularly differences among key customer groups – must be linked closely to an
organization’s strategic planning, product design, process improvement, and workforce
training activities.

Satisfaction and dissatisfaction information are important because understanding them

leads to the right improvements that can create satisfied customers who reward the
company with loyalty, repeat business, and positive referrals. Creating satisfied
customers includes prompt and effective response and solutions to their needs and
desires as well as building and maintaining good relationships.

A business can achieve success only by understanding and fulfilling the needs of
customers. From a total quality perspective, all strategic decisions a company makes are
“customer-driven.” In other words, the company must show constant sensitivity to
emerging customer and market requirements. According to the study by Collart (2000),
one of the determinants of success of a firm is how the customers perceive the resulting
service quality, as this is the key driver of perceived value. It is the perceived value
which determines customer satisfaction. Many firms including banking industries begin
to track their customers‟ satisfaction through measuring their level of service quality
perceived by their customers. The most widely used model to measure perceived service
quality was developed by Parasuraman et al. (1985, 1988) known as SERVQUAL.
According to this model, five dimensions of service quality are: Tangibles, Reliability,
Responsiveness, Assurance and Empathy. (A detailed discussion of the SERVQUAL
model is done in the literature review section of this paper.)

Even if there are few documents about the service quality with regard to commercial
bank of Ethiopia in Mekelle City Selected branches, there are no previous well
documented studies on relationship between service quality and customer satisfaction
and its subsequent impact on customer satisfaction, so the researcher try to see the gap.

Research Questions
 Does service quality have an impact on the satisfaction level of customer?
 What is the level of customer satisfaction?
 Is there any relationship between service quality and customer
satisfaction?

1.3 Objectives of the Study.

The main purpose of this study was to assess relationship between service quality using
the five dimensions of SERVQUAL model and customer satisfaction at commercial
bank of Ethiopia in Mekelle City selected branches.

The specific objective of the study includes:

 To examine the relationship between services quality and customer satisfaction.
 To identify the impact of service quality on the satisfaction level of customers.
 To measure the satisfaction level of customers within commercial bank of
Ethiopia in Mekelle City selected branches.
1.4 Significance of the Study.
 The study was improved on the researcher’s academic knowledge and skill in the
research field.
 This paper was providing some insight about service quality and customer
satisfaction.
 This study was thus intending to fill the literature gap related to service quality
and customer satisfaction using a model that will describe the various factors of
service delivery through five dimensions.
  The study was providing up to date information for practitioners and students in
the retail banking industry for further research.
 More specifically this study was served as preliminary work or a stepping stone
for further study on the issues.
1.5 Scope of the Study.
The respondents of the study were those customers who have saving account at
commercial bank of Ethiopia in Mekelle City selected branches Adishim duhun and
Adihaki branch purposefully selected because the researcher is living near to the selected
branches. Hence other customers and branches are not included in the questioners

1.6 Limitation of the study.

 Lack of well documented source.
 Time and money constraints were other limitation of the study.
 Unwilling of the responsible body to give the document.

1.7Organization of the paper.

The paper is organized into five chapters. The first chapter deals with the introduction of
the topic and the second chapter presents review of related literature which is about
service quality and customer satisfaction. The third chapter deals with the methodology
of the research and the fourth chapter presents data analysis, findings and discussion of
the data gathered. The fifth chapter presents the conclusion and recommendations of the
research.
 CHAPTER TWO

2. Literature Review

2.1 Theoretical Framework

With the fast pace of modern day living, utilization of services has increased
tremendously. Marketing practitioners and researchers, likewise, increased their activity
momentum in this area of business. However, despite this fast pace and resultant
enrichment of service literature, the issue of perceived service quality remains elusive
(Parasuraman, Zeithaml, and Berry 1985; Smith 1999).
A review of literature reveals that major efforts have been anchored in the perspectives
of Gronroos (1982) and Parasuraman, Zeithaml and Berry (1988). Gronroos Nordic
perspective (1982, 1984) viewed service quality in global terms of functional and
technical quality. In contrast, the American perspective of Parasuraman, Zeithaml and
Berry (1988) zeros in reliability, responsiveness, empathy, assurances, and tangibles, all
related to or dependent upon the service encounter process. Carman (1999) found that
since service quality evaluations are highly complex processes, they could be expected
to be at several levels of abstraction. Service quality construct confirms to the structure
of a third-order factor model that ties service quality perceptions to distinct and
actionable dimensions (Brady and Cronin. Jnr, 2001).
Parasuraman et al, (1988) who came up with the SERVQUAL model also known as the
Gaps model, defines quality as the difference between customer‘s expectation and their
perception of the service delivered. The SERVQUAL instrument provides a method of
measuring service quality. It is the most frequently used measure of service quality
(Mattson, 1994) and is based on five service quality dimensions (tangibles, reliability,
responsiveness, assurance and empathy). Service quality is the result of human
interaction between the service provider and the customer. (Liu, 2005).The relationship
between service quality and customer satisfaction has received considerable academic
attention in the past few years. . Many researchers have operationalized customer
satisfaction by using a single term scale and many others have used multiple item scales.
Service quality and customer satisfaction has been investigated, and results have shown
that the two constructs are indeed independent, but are closely related, implying that an
increase in one is likely to lead to an increase in the other (Sureshchandar,
Chandrasekharan and Anantharaman, 2002).
According to Zeithaml and Bitner (2003), satisfaction and service quality are
fundamentally different in terms of their underlying causes and outcomes. Although they
have certain things in common, satisfaction is generally viewed as a broader concept,
whereas service quality assessment focuses specifically on dimensions of service.
Service quality is a component of customer satisfaction.
Service quality is a focused evaluation that reflects the customer‘s perception of
elements of service such as interaction quality, physical environment quality, and
outcome quality. These elements are in turn evaluated based on specific quality
dimensions: reliability, responsiveness, assurance, empathy and tangibles. Satisfaction,
on the other hand, is more inclusive: it is influenced by perceptions of service quality,
product quality, and price so well so situational factors and personal factors.
According to Parasuraman, Zeithaml and Berry (1988), five principal dimensions that
customers use to judge service quality include -reliability, responsiveness, assurance,
empathy, and tangibles as shown below.

2.2 Service quality Model:

Among the models for measuring service quality, the most acknowledged and applied
model in diversity of industries is the SERVQUAL (service quality) model developed by
Parasuraman et al. The SERVQUAL model of Parasuraman et al. (1988) proposed a five
dimensional construct of perceived service quality tangibles, reliability,
responsiveness, assurance and empathy as the instruments for measuring service
quality (Parasuramanet el al., 1988; Zeithamlel al., 1990).

2.2.1 Reliability

Reliability depends on handling customers' services problems; performing services right

the first time; provide services at the promised time and maintaining error-free record.
Furthermore, they stated reliability as the most important factor in conventional service
(Parasuraman et al., 1988).

Reliability also consists of accurate order fulfillment; accurate record; accurate quote;
accurate in billing; accurate calculation of commissions; keep services promise. He also
mentioned that reliability is the most important factor in banking services (Yang et al.,
2004).

It highlighted whether the service delivery process wads standardized, streamlined and
simplified, so customers could receive the service without any problem. The structured
aspects of service delivery processes have not ever been adequately studied
(Sarashchandar et al, 2002). In literature there were few marketing scholars who have
tried to focus on the importance of the structural content of service delivery in service
quality evaluation (Dauaher and Mattson, 1998). This structural content of the service
delivery process is considered important in service quality evaluation (Dauaher and
Mattson, 1998).

Credibility involves trustworthiness, believability and honesty. It is about having the

customer’s best interests at heart, contributing to credibility is a company name,
reputation and privacy discussions (Francis 1996). Balunywa (1995) highlights that
credibility mean trust, assurance, integrity and security. Say what you mean and mean
what say. This is more important in retail banking, an instruction that handles the
payment system keeps customer’s money

2.2.2 Responsiveness

Responsiveness defined as the willingness or readiness of employees to provide service.

It involves timeliness of services (Parasuraman et al., 1985). It is also involves
understanding needs and wants of the customers, convenient operating hours, individual
attention given by the staff, attention to problems and customer’s safety in their
transaction (Kumar et al., 2009).

Responsiveness concerns the willingness or readiness of employees to provide a service

in such away as; mailing a transaction slip immediately, speed on mortgage
conformation, updating accounts promptly (Francis, 1996). Responsiveness has been
shown to an important factor Aukiran (1994), suggest that efforts to increase speed of
processing information and a customer is likely to a positive effect on customer
satisfaction in retail banking. Balunywa, (1995) emphasizes that when a customer has a
need, meet it, be easy accessible available to customer. Robert (1997) described
communication as the ability a service to communicate with a customer in the away he/
she will understand. It includes the clarity, completeness, and accuracy of both verbal
and written information to customer and the ability to listen and understand the
customer. According to Ntayi, (1999), Communication means keeping customer
informed in the language they can understand and listen to them. It may mean the
company going that extra mile to adjust its language for different customers, availability
of inquiries desk, informing of account changes, and clarity of staff answers and ease of
understanding letters are great consideration to effective communication (Galloway,
1994).

2.2.3 Empathy
Parasuraman et al. (1985) defined empathy as the caring and individual attention the firm
provides its customers. It involves giving customers individual attention and employees
who understand the needs of their customers and convenience business hours. Ananth et
al. (2011) referred to empathy in their study on private sector banks as giving individual
attention; convenient operating hours; giving personal attention; best interest in heart and
understand customer’s specific needs.

2.2.4 Assurance
Parasuraman et al. (1985) defined assurance as knowledge and courtesy of employees
and their ability to inspire trust and confidence. According to Sadek et al. (2010), in
British banks assurance means the polite and friendly staff, provision of financial advice,
interior comfort, eases of access to account information and knowledgeable and
experienced management team.

Access is to do with approachability and ease to contact, it may mean the service is
easily accessible by telephone; waiting time to receive service is not excessive and
convenient hours of operation and convenient location of service facility (Francis 1996).
According to Galloway (1994), getting right person on phone, appearance of branch,
ease of getting to branch, queues at cash machines and staff available to help are issued
to look out for. Robert (1997) considers accessibility to be approach ability to the service
location, including the ease of find one’s way around the service environment and clarity
of route. In the case of contact staff with means both the staff and customer ratio and
amount of time each staff member has available to spend with each customer for service
goods, accessibility includes both quality and range to product like account types
available to the customer. This was defined by Francis (1996) as the possession of the
required skill and knowledge performs a service. It involves research capacity,
knowledge and skills of operational support staff. Competence is the skill, expertise and
professionalism with which the services are executed. According to Robert (1997),
competence includes the carrying out of correct procedures, correct execution of
customer instruction, degree of product and service knowledge exhibited by contact
staff, rendering of sound advice and the general ability to do a good job.

Summary of SERVQUAL items

Dimension Definition
Reliability The ability to perform the promised service dependably and accurately
The knowledge and courtesy of employees and their ability to convey trust and
Assurance
confidence
The appearance of physical facilities, equipment, personnel and
Tangibles
communication materials
Empathy The provision of caring, individualized attention to customer
Responsiveness The willingness to help customers and to provide prompt servic
2.2.5 Tangibility.

Parasuraman et al. (1985) defined tangibility as the appearance of physical facilities,

equipment, personnel, and written materials. Ananth et al. (2011) referred to tangibility
in their study of private sector banks as modern looking equipment, physical facility,
employees are well dressed and materials are visually appealing.

They are one of few dimensions that have been consistently used by different researchers
(Bahia and Nantel, 2000). However tangibles refer to physical facets of service facility
equipment, machinery signage, communication material (Bahia and Nantel, Parasuraman
et al, 1985).It included the physical evidence of service except the personal appearance
of staff which was included in human element dimension, employees and customers are
usually influenced by the tangible facets of service in physiological, psychological,
emotional and cognitive ways (Bitner, 1992). The intangible aspects of the staff
customer interface have a considerable influence both negative and positive in the
service quality (Johnston, 1995). Tangibles are associated with the impact on the
customer’s inferences about what service should be like and therefore will influence the
evaluation of service quality (Parasuraman et al, 1993). Customer’s perception of
tangibles was generally considered important in the case of the banks than others.

2.3 Customer perception of quality.

In Australia, the importance of customer’s view has grown in since the deregulation of
the banking sector in early 1980S (De Brouwer, 1999), since each customer perception
preference has had increasingly greater impact on the bank success (Saraschandar,
Rejendran and Anantharaman, 2002). Today customers are more educated than ever
before. They expect more value for money and want a good service and are willing to
pay for it. (Kim and Weiner, 1996)

The level of courtesy and assistance required by the bank customer as increased
dramatically as customers have up graded their service standards (Yavas et al, 1917). It
is important for banks to differentiates themselves on the basis of customer service in
order to effectively compete in the modern competitive banking environment (Alexadris
Demitriadis )

2.4 Human elements of service quality

Referred to all aspects of the staff / customer interaction in service delivery the
importance of the human element informing customer’s perception of service quality has
been identified by marketing scholars (Jabnouns and Al-Tamini,2003, Yavas et al
1997).Employees have an important effect on customer service because customers are
educated than ever before (Movawad and Weiner 1996) Further front line employees
play a vital role in representing the firm interaction with outside parties and influencing
the recognition, attitude and evaluation formed by customers (Schneider and Bowen
1996) thus front line employees were considered to be a main driver of customer
satisfaction and favorable success perception. Finally four out of five service quality
dimensions were about human elements, reliability, empathy and assurance
(Sarashchandar et al, 2002) and murkata, 2002)

The service quality literature initially focused on measurement issues. Following the
introduction of the SERVQUAL, attention centered on the determinants of perceived
service quality with particular emphasis on the service delivery process. SERVQUAL,
with its five dimensions (i.e. tangibles, assurance, reliability, responsiveness, and
empathy) has come to symbolize the American perspective on service quality (Brady and
Cronin, 2001), the European perspective represented by Gronroos service quality model.

SERVQUAL is designed to measure service quality as perceived by the customer.

Consumers in the focus groups discussed service quality in terms of the extent which
service performance on the dimensions matched the level of performance that consumers
thought a service should provide. A high quality service would perform at a level that
matched the level that the consumer felt should be provided. The level of performance
that a high quality service should provide was termed as consumer expectations. If
performance was below expectations, consumers judged quality to be low. To illustrate,
if firms responsiveness was below consumers’ expectations of the responsiveness that a
high quality firm should have, the firm would be evaluated as low in quality in
responsiveness. Parasuraman et al. (1985) basic model was that consumer perceptions of
quality emerge from the gap between performance and expectations, as performance
exceeds expectations, quality increases; and as performance decreases relative to
expectations, quality decreases. Thus, performance-to-expectations”gaps‟ on attributes
are used to evaluate the quality of a service from the theoretical foundation of
SERVQUAL.

2.5 Service Quality.

Nowadays, with the increased competition, service quality has become a popular area of
academic research and has been acknowledged as an observant competitive advantage
and supporting satisfying relationships with customers (Zeithmal, 2000).

Service quality is concepts that has aroused substantial interest and argue in research.
There are difficulties defining and measuring it with no overall consensus emerging on
either (Wisniewski, 2001). Service quality has been defined as the overall assessment of
a service by the customers (Eshghi et al., 2008), while other studies defined it as the
extent to which a service meets customer’s needs or expectations. Service is assumed to
be quality when it consistently conforms to customer expectations (Asubonteng et al.,
1996; Wisniewski and Donnelly, 1996). Parasuraman et al. (1985) argues that service
quality is the measure of service delivered as against expected service performance.

Service quality is defined as customer perception of how does a service meets or exceeds
their expectations (Czepiel, 1990). Several practitioners define service quality as the
difference between customer’s expectations for the service encounter and the perceptions
of the service received (Munusamy et al., 2010). Customer expectation and perception
are the two main ingredients in service quality. Customers judge quality as’’low‟ if
performance (perception) does not meet up their expectation and quality as’’high‟ when
performance exceeds expectations according to Oliver (1980).

Service quality consists of five dimensions: tangibles (appearance of physical facilities,

equipment, personnel and written materials), reliability (ability to perform the promised
service dependably and accurately), responsiveness (willingness to help customers and
provide prompt service), assurance (knowledge and courtesy of employees and their
ability to inspire trust and confidence), and empathy (caring and individual attention the
firm provides its customers).

Reliability is considered the vital core of service quality. Other dimensions will matter to
customers only if a service is reliable, because those dimensions cannot compensate for
unreliable service delivery (Berry et al., 1994).

Perceived quality has been defined as a form of attitude, related but not equal to
satisfaction, and fallout from a consumption of expectations with perceptions of
performance. Consequently, having an improved understanding of consumers’ attitudes
will facilitate knowing how they perceive service quality in banking operations
(Parasuraman et al., 1988).

In the changing banking scenario of 21st century, the banks had to have a vital identity
to provide excellent services. Banks nowadays have to be of world-class standard,
committed to excellence in customers’ satisfaction, and to play a major role in the
growing and diversifying financial sector (Balachandran, 2005). There has been a
remarkable change in the way of banking in the last few years. Customers have also
accurately demanded globally quality services from banks. With various choices
available, customers are not willing to put up with anything less than the best. Banks
have recognized the need to meet customers’ aspirations. Consequently service quality is
a critical motivating force to drive the bank up in the high technology ladder. The
soundness of banking sector is of a dominant importance because it is a main component
of the Ethiopian financial sector, and as efficiency in the utilization of the savings of the
depositors and the banking sector resources is essential to improve the growth rate of the
existent sectors of the economy (Central Bank, 2003). The purpose of banking
operations is supposed to be to progress the quality of life for the overall society not just
the maximization of shareholders' wealth.

Service quality is a mufti-dimensional and abstract concept. It is associated with some

unique features e.g. inseparability of production and consumption, intangibility, and
heterogeneity. In the absence of objective measures, the measurement of quality is a very
complex issue and firms often need to rely on customers’ perception of service quality
(Parasuraman et al., 1985). Gronroos (1984) proposed that customer compared their
expectations to their experience of service quality in forming judgments.

Gronroos (1993) later developed the three dimensions in defining service quality

a) Functional quality: The dimension consists of the seven attributes that are process
related – behavior, attitude, accessibility, appearance, customer contact, internal
relationship, service mindedness;

b) Technical quality: The dimension consists of five output-related attributes –

employees’ technical ability, employees’ knowledge, technical solutions,
computerized systems, and machine quality;

c) Image of the service provider: The dimension described customer’s general perception
of the supplier

Gronroos (1982) and Parasuraman, Zeithaml and Berry (1988) were the pioneers in the
conceptualization of the service quality construct, these authors maintained that the
overall perception of quality was a disconfirmation of a customer’s expectation and
his/her evaluation of a service. Parasuraman et al. (1988) developed a disconfirmation
measurement, the SERVQUAL instrument, to measure service quality and its
dimensions. Although the definitions of service quality vary, the definitions are all
formulated from the customer perspective: that is, what customers perceive are important
dimensions of quality.

Huseyin, et. Al. (2005) believes that good knowledge of the characteristics and
advantages of service quality on the part of banks do contribute for their success and
their persistence in the international banking competitive environment. From these
definitions we conclude that the quality of banking service is an integrative assessment
of the services offered to the external client, for clients are considered to be independent
individuals with various requirements on the basis of which services are provided, based
on certain specification. This requires that banks have to carefully select creative
employees with high qualifications and capabilities. Service quality as perceived by
customers definitely indicates what is left of their previous perception of the service
quality and the level of their satisfaction with the current performance of the service.
This means that satisfaction is an intermediary factor between the previous perceptions
of the service quality and the present perception of it. Accordingly, and within this
general framework, customers can access the service actual quality provided to them
(Mualla, 1997). Hence, the customer's satisfaction with the actual performance level of
service has a further impact on the formation of the customers' perceptions of service
quality. And one the service is purchased again; satisfaction becomes a major approach
to the process of assessing service quality (Mualla, 1998). This study depends on this
very approach – the measurement of actual performance – which is termed
'SERVQUAL' (Joseph, et. al., 1992).

The assessment of service quality is largely based upon Parasuraman et al.’s (1988)
original development of the measure of perceived service quality (Herington and
Weaven, 2008). Parasuraman et al. 1988, (as cited in Tissica Santos, 2003) developed an
assessment tool known as SERVQUAL. It consists of a list of ten dimensions
(reliability; responsiveness; competence; access; courtesy; communication; credibility;
security; understanding the customer; and tangibles) to measure service quality (Rod et
al., 2008). Later in 1988, these ten dimensions were cut down to five ones: tangibility,
reliability, responsiveness, assurance, and empathy (Wang and Shieh, 2006).

2.6. Importance of services quality in banking service.

Interestingly, most of the service quality literature was based on retail banks. In the
banking sector, service quality results from the difference between the customers’
perceptions for the services offered (received) by the bank and their expectations vis-a-
vis the banks that offer such(expected) services (Bahia & Nantel, 2000). A number of
determinants had been developed over the years in measuring the service quality of
banks.

Sasser et al (1978) describes levels of material, facilities, and personnel are the
determinants of service quality. Lehtinen & Lehtinen (1982) consider physical quality
(environment), corporate quality (company image), and interactive quality (interaction
between personnel and customers) are the determinants of service quality. Stafford
(1996) identified seven attributes in assessing bank service quality – bank atmosphere,
customer-employee relationship, interest rates and charges, available and convenient
services, availability of ATMs, reliability, adequate tellers.

Banking industry is a demand driven industry, which constitute an important part of the
service industry. Retail banks therefore have to redefine their corporate image to that
emphasizes service quality since it provides many advantages to a company such as
allowing the company to differentiate itself from its competitors by increasing sales and
market shares, providing opportunities for cross selling, improving customer relations
thus enhancing the corporate image, reliability, responsiveness, credibility and
communication results in the satisfaction and retention of customers and employee, thus
reducing turnover rate(Lewis,1991,Newman 2001) Without any doubt, service quality is
very important component in any business related activity. This is especially so, to
marketer a customer’s evaluation of service quality and the resulting level of satisfaction
are perceived to affect bottom line measures of business success (lacobucci et al., 1994).

Quality service is gaining more importance in banking industry (Munusamy et al, 2010).
Hollowell, (1996) suggest that there is strong theoretical underpinning among customer
satisfaction, customer loyalty and profitability. Levesque & McDougall (1996) pointed
out that customer satisfaction and retention are critical for retail banks. Bloemer et al.
(1998) explore how image, perceived service quality and satisfaction determine loyalty
in a retail bank. Armstrong and Seng (2000) analyze the determinants of customer
satisfaction in the banking industry. If customers perceive that they are obtaining
additional benefits from their relationship with establishment employees, their
satisfaction level with the service provider will increase (Beatty et al., 1996). For present
investigation five quality dimensions have been constructed as the study examines the
constructs that impact on consumers’ decision to stay with or leave their current banks in
Ghana. In addition, the study explores whether there is any association between quality
service and customer satisfaction.

Customer expectations are beliefs about a service that serve as standards against which
service performance is judged (Zrithaml et al., 1993); which customer thinks a service
provider should offer, rather than on what might be on offer (Parasuram et al., 1988). To
some, service quality can also be defined as the difference between customer’s
expectations for the service encounter and the perceptions of the service received.

According to the service quality theory (Oliver, 1980), it is predicted that customers will
judge that quality as ` low’ if performance does not meet their expectations and quality
as `high` when performance exceeds expectations. Closing this gap might require toning
down the expectations or heightening the perception of what has actually been received
by the customer (Parasuraman et al., 1985).

According to Gronroos (1982), perceived quality of a given service is the result of an

evaluation process since consumers often make comparison between the services they
expect with perceptions of the services that they receive.

2.7 Determinants of service quality

Classification of service quality has been addressed by a number of scholars. Lehtinen

(1982), identified three (3) dimensions of physical quality, corporate quality and
interactive quality, while Granoos (1988) identified five key determinants of quality
service as; professionalism and skills, reputation and credibility, behavior and attributes,
accessibility and flexibility, and reliability and trust worthiness. In their revised version,
Perasuraman et al (1985) identified the following determinants; reliability,
responsiveness, accessibility, competence, credibility, courtesy, communication,
security, the other determinants include customer perception, consistence of service
delivery, human elements of service quality, tangibles of service.

Physical quality relates to tangible aspects of services. Interactive quality involves the
interactive nature of service and refers to two- way flow that occurs between the
customer and service provider or his/her representative, including both automated and
animated interaction. Corporate quality refers to the image attributed to a service
provider by its current and potential customers as well as others.

2.8 Customer satisfaction

Literature establishes that customer satisfaction is a key to long-term business success

(Zeithaml et al., 1996).To protect/gain market shares, organizations need to outperform
competitors by offering high quality product or service to ensure satisfaction of
customers (Tsoukatos and Rand, 2006). Banks need to understand customers’ service
requirements and how it impact on service delivery and customers’ attitudes (Gerrard
and Cunningham, 2001), for a small increase of customer satisfaction can to customer
loyalty and retention (Bowen and Chen, 2001). With better understanding of customers'
perceptions, companies can determine the actions required to meet the customers' needs.
They can identify their own strengths and weaknesses, where they stand in comparison
to their competitors, chart out paths for future progress and improvement (Magesh,
2010). In the banking industry, a key element of customer satisfaction is the nature of the
relationship between the customer and the provider of the products and services. Thus,
both product and service quality are commonly noted as a critical prerequisite for
satisfying and retaining valued customers (Muslim and Isa, 2005). It is indeed true that
delivery of high-service quality to customers offers firms an opportunity to differentiate
themselves in competitive markets (Karatepe et al., 2005).

Customer satisfaction is potentially an effective tool that banks can use to gain a
strategic advantage and survive in today’s ever-increasing banking competitive
environment and the essence of success (Siddiqi, 2010).

One strategic focus that banks can implement to remain competitive would be to retain
as many customers as possible. It is more economical to keep customers than to acquire
new ones. The costs of acquiring customers to supplant those who have been lost are
high as the expense of acquiring customers is incurred only in the beginning stages of
the commercial relationship (Reichheld and Kenny, 1990).

In addition, longer-term customers buy more and, if satisfied, may generate positive
word-of-mouth promotion for the company (File and Prince, 1992).

Long-term customers also take less of the company’s time and are less sensitive to price
changes (Healy, 1999). These findings highlight the opportunity for management to
acquire referral business that is inexpensive to obtain. It is believed that reducing
customer defections by as little as five percent can double the profits (Healy, 1999).

Satisfaction with a bank's products and services plays a role in generating loyalty. In
today’s world of intense competition, a firm’s ability to deliver high quality service that
result in satisfied customers is the key to a sustainable competitive advantage (Shemwell
et al. 1998). As large numbers of banks are opening up and the people are becoming
more aware and conscious of quality, keen competition has emerged in the banking
industry, so to retain customers banks have to provide better services to customers as
service quality is an indicator of customer satisfaction (Parasuraman et.al., 1998; Spreng
and Mackoy, 1996; Jamal and Nasser, 2002; Arasli et.al., 2005a, b; Othman and Owen,
2002). Cronin et. al., (2000) and Wong and Sohal (2003) suggested that service quality
demonstrate that a positive relationship with a number of behavioral intentions.
Athanassopoulos et. al., (2001) find that customer satisfaction has direct effect on the
behavioral responses of customers. Rust and Williams (1994) stated that the customer
satisfaction leads to the greater intent to purchase. Bontis et.al, (2007), also find causal
construct between customer satisfaction and customer loyalty. Sudin et.al (1994) finds
that the provision of fast and efficient services, speed of transaction and the reputation
and image of a bank is the most important criteria in the selection of banks by customers.

Muffato and Panizzolo (1995) state that customer satisfaction is considered to be one of
the most important competitive factors for the future, and it is the best indicator of a
firm’s profitability. Again, customer satisfaction drives firms to improve their reputation
and image, reduce customer turnover, and to increase attention to customer needs and
create barriers to switching, and improve business relationships with their customers.

Parasuraman et al. (1985) suggested that services are intangible since they are
performances and experiences. Services are heterogeneous, as their performance often
varies from producer to producer, customer to customer, and day to day and production
and consumption of services are inseparable. Quality in services often occurs during
service delivery, which is the interaction between a customer and a service provider. As
a result, quality of service is more difficult for customers to evaluate. Customers
evaluate service quality on the outcome of the service and also on the process of service
delivery, and from how well a service provider actually performs, given their
expectations of service performance.

The key factors influencing customers’ selection of a bank include the range of services
(Abratt and Russell, 1999). Therefore service excellence, meeting client needs, and
providing innovative products are essential to succeed in the banking industry. Leeds
(1992) acknowledged that approximately 40 percent of customers switched banks
because of what they considered to be poor service. Customer satisfaction has for many
years been perceived as key in determining why customers leave or stay with an
organization. Managers need to know how to keep their customers, even if they appear
to be satisfied as unsatisfied customers may choose to defect, because they do expect to
receive better service elsewhere (Reichheld, 1996)

Customer satisfaction, a term frequently used in marketing is a measure of how products

and services supplied by a company meet or surpass customer expectation. Customer
satisfaction is defined as "the number of customers or percentage of total customers,
whose reported experience with a firm, its products, or its services (ratings) exceeds
specified satisfaction goals, Customer satisfaction is the primary mental state of
customer which comprise by two thing (1) expectation before purchase (2) perception
about performance after purchase (Oliver 1997)[18] according to the many authors
customer satisfaction is feelings of customer in the process that what has been received
against what was accepted including expectation and perception about purchase decision
and need and want associated with purchase decision Satisfaction became a popular
topic in marketing during the 1980s and is a debated topic during both business
expansions and recessions. Most discussions on customer satisfaction involve customer
expectation of the service delivery, actual delivery of the customer experience, and
expectations that are either exceeded or unmet. If expectations are exceeded, positive
disconfirmation results, while a negative dis confirmation results when customer
experience is poorer than expected.
The definition and concept of customer satisfaction According to Kotler (2002)
satisfaction is the level of one's feelings after comparing the performance (results) are
perceived as compared with expectations. Each company directs its business activities to
produce goods and services that can provide satisfaction to consumers. Customer
satisfaction through service quality can be improved by several approaches as follows:

1. Minimize gaps that occur between management and customers.

2. Companies must be able to build a shared commitment to create vision in improving
the service process.
3. Provides the opportunity for customers to complain.
4. Develop and implement a responsibility, pro-active and marketing partnership in
accordance with the marketing situation.
Customer satisfaction has become a key intermediary objective in service operations due
to the benefits it brings to organizations (Saha and Theingi, 2009). The importance of
customer satisfaction is derived from the generally accepted philosophy that for a
business to be successful and profitable, it must satisfy customers (Bitner and Hubbert,
1994). Previous research has demonstrated that satisfaction is strongly associated with
re-purchase intentions (Cronin and Taylor, 1992; Fornell, 1992). Customer satisfaction
also serves as an exit barrier, helping a firm to retain its customers (Fornell, 1992;
Halstead and Page, 1992). Several studies have concluded that it costs more to gain a
new customer than it does to retain an existing one. In addition, customer satisfaction
also leads to favorable word-of-mouth publicity that provides valuable indirect
advertising for an organization (Halstead and Page, 1992; Fornell, 1992)
Customer satisfaction is the feeling or attitude of a customer towards a product or service
after it has been used. According to Oliver (1980), the customer satisfaction model
explains that when the customers compare their perceptions of actual products/services
performance with the expectations, then the feelings of satisfaction have arisen. Any
discrepancies between the expectations and the performance create the dis confirmation.
Previous research in services acknowledges a strong positive relationship between
service quality and satisfaction (Parasuraman et al., 1988; Bahia & Nantel, 2000).

Lassar et al. (2000) demonstrated that a technical/functional quality-based model of

service quality is a reliable predictor of satisfaction. Jamal and Nasser (2002) also
confirmed that core and relational dimensions of service quality are causal antecedents
of customer satisfaction. In the relationship-marketing literature, the outcome of
customer satisfaction is strongly associated with customer loyalty.

In many industries, having satisfied customers also means that organization receives
fewer complaints (Fornell, 1992), hence reducing costs in handling failures. Researchers
also maintain that satisfied customers are willing to pay more for the benefits they
receive and are more likely to be tolerant of an increase in price (Fornell, 1992). Bitner
and Hubbert (1994) concluded that, through satisfying customers, organizations could
improve profitability by expanding their business and gaining a higher market share as
well as repeat and referral business.

According to the international journal service industry management (1994), it is

explained that customer satisfaction is managing customer relationship and profits. That
is a dynamic relationship quality or link between service quality and customer
satisfaction. Eugene suggests that customer satisfaction is a cognitive reaction which
emerges as a response to a single or prolonged service encounters. It is the customer’s
subjective satisfaction judgment resulting from observations of attribute performance
regarding a product or service (Oliver and Desurbo 1993).

These definitions spell out that customer satisfaction is not based on a single factor but a
multiplicity of factors appreciate t in the creation of satisfaction. The greatest difficulties
in the provision of customer satisfaction vary from customer to customer. Specification
of service quality is based on the expectations of a particular customer. Eugene (2000)
argues that quality improvements that are not based on customer needs will not lead to
improved customer satisfaction leads to loyalty and retention. Winners in today’s retail
banking must therefore track their customers‟ needs, expectation and perceived
company performance. Mc Connell (1990) contends that customer dissatisfaction leads
to loss of market share, reduced sales and lower profit margin. Kolter and Armstrong
(1999) defended the customer satisfaction as the customer's perception that compares
their pre-purchase expectations with post purchase perception. Oliver (1997, p. 13)
defines satisfaction as “the consumer’s fulfillment response”, a post consumption
judgment by the consumer that a service provides a pleasing level of consumption-
related fulfillment, including under or over-fulfillment. Oliver (1981) point of view
Customer satisfaction is the evaluation a customer makes to a certain exchange, which
reflects the relation of the customer's expectation and their real perception to products
and services they receive.

Walfried et al. (2000) adopted two techniques in their study for service quality
perspectives and satisfaction in private banking, the first was SERVQUAL and the
second was a measure of technical/functional quality. In the second approach, technical
quality involves what is provided while functional quality considers how it is provided.
These two service quality measures were subsequently compared and contrasted as to
their ability to predict customer satisfaction. The study provides initial support in favor
of the idea that SERVQUAL and technical/functional quality-based models may be
unequally or asymmetrically applicable across different settings and situations. The
authors suggested employing both of these two measures in varying situations and
contexts, as well as with different customer groups. Zhu et al. (2002) explored the
impact of information technology (IT) on service quality in a large consumer bank. Their
results showed that IT based services have a direct impact on the SERVQUAL
dimensions and an indirect impact on customer perceived service quality and customer
satisfaction. They also concluded that the evaluations of customers for IT based services
were affected by their preference towards traditional services, experiences in using IT
based services and perceived IT policies.

2.9 Determinants of customer satisfaction

Togo through the transformation, Lévesque (1996), identified the drivers of customer
satisfaction in retail banking to be performance, loyalty, location, skilled employees and
competitive interest to deliver these benefits on an ongoing basic to its existing clientele
will impact on customer satisfaction.

Location: understanding location are the customer benefits of convenience and

accessibility which are enabling factors that make it easy for the customers to do
business with the bank.

Performance: performance yields clean and convincing directions for designing service
offerings staff development programmers and customer complaint management systems
(Levesque and Gordon, 1996). Doing it right the first time and ensuring successful
problem recovery results in to reliability, competitive and shows that employees are
willing and ready to provide a service.

Loyalty: Eugene et al; (2000) suggest that loyalty is a deeply held commitment to rebut
or repertories a preferred product or service consistently in the future despite situational
influences. According to Bloemer (1998) intangible attributes such as reliability,
competence, credibility and efficiency place a major role in building and maintaining
loyalty thus a great intent to repurchase and likelihood of recommending the bank to
others.

2.10 perceived service Quality and customer satisfaction

Customer satisfaction is influenced by customers’ perceptions of quality (Zeithaml and

Bitner, 2000). Service quality is an antecedent of the broader concept of customer
satisfaction (Gotlieb et al., 1994; Buttle, 1996; Zeithaml and Bitner, 1996; Lee et al.,
2000) and the relationship between service quality and loyalty is mediated by
satisfaction (Caruana, 2002; Fullerton and Taylor (2002). Customer satisfaction is the
customers' evaluation of services after purchase as opposed to their expectation (Oliver,
1997; Zeithaml & Bitner, 2000).

Several studies report that quality’s effect on customer satisfaction is often seen as
greater than other antecedents (Churchill and Suprenant, 1982; Oliver and DeSarbo,
1988; Anderson and Sullivan, 1993). Furthermore, Cronin and Taylor, 1992 concludes
perceived service quality leads to customer satisfaction which in turn, has a significant
effect on purchase intentions. Boulding and Zeithaml (1993) points out the positive
effect of perceived service quality on behavioral intention. Expectations and delivered
service influenced perceived service quality, which in turn, has an impact on behavioral
intentions such as willingness to provide favorable word of mouth and engage in repeat
business (Bernhardt et al., 2000).

There is also a controversy regarding the relationship between customer satisfaction and
service quality. Some authors reported that relationship exist between customer
satisfaction and service quality (Oliver and DeSarbo 1988; Parasuraman, Zeithaml, and
Berry 1994). Some posit that service quality is important antecedent of customer
satisfaction (Parasuraman et al. 1988; Churchill and Suprenant 1982; Cronin and Taylor
1992; Spreng and Mackoy, 1996; Oliver, 1993; Fornell 1992; Oliver and DeSarbo 1988;
Chigozirim, 2008). Some other argues that customer satisfaction is an antecedent of
service quality. Finally, it is agreed that customer satisfaction is broader construct than
service quality, so service quality assumed to be an important antecedent of customer
satisfaction.

Kotler and Armstrong (2012) preach that satisfaction is the post-purchase evaluation of
products or services taking into consideration the expectations. Researchers are divided
over the antecedents of service quality and satisfaction. Whilst some believe service
quality leads to satisfaction, others think otherwise (Ting, 2004). The studies of Lee et al.
(2000); Gilbert and Veloutsou (2006); Suleiman (2011) and Buttle (1996) suggest
service quality leads to customer satisfaction. To achieve a high level of customer
satisfaction, most researchers suggest that a high level of service quality should be
delivered by the service provider as service quality is normally considered an antecedent
of customer satisfaction. As service quality improves, the probability of customer
satisfaction increases

Baker and Crompton (2000) defended satisfaction as a personal experience and

mentality related the nitration between personal expectation and actual receive.
Customer satisfaction is the overall evaluation to services. It is the reflection customers
make to their previous purchase. If it always exceeds their expectation, their loyalty
increases. Customer satisfaction should be highly valued in business (Ostrom &
Iacobuci, 1995; Hou & Yao, 1995; McAlexander et al., 2003). FonVielle (1997) pointed
out that improving customer satisfaction is the only way to business success. The
relationship among service quality and customer satisfaction has received considerable
attention in the marketing literature (Brady et al., 2001; Cronin and Taylor, 1992; Meuter
et al., 2000; Oliva et al., 1992; Olorunniwo et al., 2006; Zeithaml et al., 1996). Within
this research area, numerous empirical studies have reported the positive relationship
between customer satisfaction and service quality (Andaleeb and Conway, 2006). The
European and American customer satisfaction indices models, however, suggest that
service quality is a component of satisfaction (Fornell et al., 1996). Firms that provide
superior service quality also have a more satisfied customer base (Gilbert et al., 2004;
Gilbert and Veloutsou, 2006).

According to Bilal (1996), quality assurance in organization provides confidence to the

management of the organization and customer. He argues that the organization needs to
control quality in order to avoid unsatisfactory performance that leads to customer
turnover. However, Wesner et al., (1995) contends that the customer is the key driver for
change and acknowledging his satisfaction is of importance to business access. Factors
which lead to customer turnover like actual price charged, changing address,
ineffectiveness and poor communication among others, should be considered in proper
alignment to produce quality services.

Poon (1993) contends that there is need for loyalty for customers, quality labor and
ensure services are consistently good. Keeping customers satisfied and happen through
quality will keep them coming back rather than leaving. Whereas Medilk (1992) argues
that the customer assesses quality by his or her perceptions of the way in which services
or facilities are provided. Thus means that quality concerns visitor expectation of
services and what is received and delivered. A bad customer service experience is used
as an example of common customer service error hence customer turnover.

Wesner et al. (1995), contends that the successful organizations are the ones that deliver
the higher standards within the limits of what the customer can afford. Quality does not
need to be expensive but it has to reflect high value for money so as to satisfy the
customers. Quality service is measured through customer’s comments repeat new
business and complaints. Mc Connell (1990) adds that customers need to feel
comfortable and relax on the surrounding. They need differentiated products and
services that give them experience they cannot get anywhere.
Attention should be put on customer complaints so as to retain the existing customers
and attract new ones. Customer satisfaction is another important aspect for service
organizations and is highly related with service quality (Bolton and Drew, 1991; Cronin
and Taylor, 1992; Taylor and Baker, 1994; Spreng and MacKoy, 1996). In today's world
of intense competition, the key to sustainable competitive advantage lies in delivering
high quality service that will in turn result in satisfied customers (Shemwell et al., 1998).
As service quality improves, the probability of customer satisfaction increases. In this
way, the association between service quality and customer satisfaction has emerged as a
topic of significant and strategic concern (e.g. Bolton and Drew, 1991; Cronin and
Taylor, 1992; Taylor and Baker, 1994). Customers’ evaluations of the service quality are
critical to service firms that aim to improve their marketing strategies (Cronin and
Taylor, 1992; Jain and Gupta, 2004; Ofir and Simonson, 2001). Oliver (1997, p. 13)
defines satisfaction as “the consumer’s fulfillment response”, a post consumption
judgment by the consumer that a service provides a pleasing level of consumption-
related fulfillment, including under- or over-fulfillment. Customer satisfaction is viewed
as influencing repurchase intentions and behavior, which, in turn, leads to an
organization’s future revenue and profits. As a result of the direct link with profits, the
issue of service quality and customer satisfaction has become a focus of the banking
industries. More and more companies are compelled to assess and improve their service
quality in an effort to attract customers (Gilbert and Veloutsou, 2006).Service quality is
an antecedent of the broader concept of customer satisfaction (Gotlieb et al., 1994;
Buttle, 1996; Zeithaml and Bitner, 1996; Lee et al., 2000) and the relationship between
service quality and loyalty is mediated by satisfaction (Caruana, 2002; Fullerton and
Taylor (2002).

The relationship among service quality and customer satisfaction has received
considerable attention in the marketing literature (Brady et al., 2001, 2002; Cronin and
Taylor, 1992; Meuter et al., 2000; Oliva et al., 1992; Olorunniwo et al., 2006; Zeithaml
et al., 1996). Many empirical studies have investigated the relationships among the
constructs of service quality and customer satisfaction in a variety of industries and
cultures. Within this research area, numerous empirical studies have reported the
positive relationship between customer satisfaction and service quality (Andaleeb and
Conway, 2006).

2.11 Customer’s Loyalty

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

captured by such measures as repurchase intentions, words of mouth, loyalty,
complaining behavior, and price sensitivity. High service quality often leads to favorable
behavioral 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 customer ship. (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
recommend the bank services (Fisher, 2001).
 CHAPTER: III

3. RESEARCH METHODOLOGY

The purpose of this study was to assess the relationship between service quality
dimensions and customer satisfaction from the customer viewpoints. Service dimensions
(tangibles, reliability, responsiveness, assurance and empathy) were thoroughly
examined. Assessments were based on Likert scale ranging from not satsafied to very
satisfied

3.1 Research design

The study was used descriptive and exploratory research design. Descriptive method was
used to describe the dimensions of the research variables and exploratory research design
was used for generating ideas. In order to answer the problem statement and pertaining
research objectives carefully, the research design was reflected on and discussed in each
step below.

3.2 Target population and sample

The study was undertaken to assess the relationship between service quality and
customer satisfaction by the customers of the Commercial Bank of Ethiopia. Currently
CBE has more than 13.3 million account holders and the number of Mobile and internet
Banking users also reached more than 1,352,000 as of September 30 th 2016 (68% active
users). Active ATM card holders reached more than 3 million (61% active users). It has
more than 1160 branches stretched across the country in which 19 branches are found in
Meklle city.

3.3 Instruments

The aim of this study was to assess the relationship between service quality and
customer satisfaction by customers of commercial bank of Ethiopia in Meklle city
branch and its impact on customer satisfaction. The questionnaire survey was the main
form of data collection. The survey instrument which was developed in this study
consisted of three major sections. The first section was containing questions about
personal profiles of the respondents including gender, educational level, age, and
occupation. The second section were comprises five constructs measuring of
SERVQUAL as proposed by Parasuraman et al. (1988). And the third section were
comprises ten items that measure Customer satisfaction adapted from Walfried et al.
(2000). The instrument was use Likert scales, representing a range of attitudes.
 3.4 Data collection and Data source

To measure the customers’ evaluation of banking services at commercial bank of

Ethiopian in Mekelle city branch, a survey was conducted; using a questionnaire.
Parasuraman et al. (1991) undertook a significant work to measure service quality across
a broad range of services and they come up with a framework known as SERVQUAL.
The SERVQUAL is a three-dimensional construct of service quality consisting of
tangibles, reliability, responsiveness, assurance, and empathy. The SERVQUAL model
constitutes the basis for analyzing of customers‟ perception of service quality and
derived satisfaction. To develop the SERVQUAL scale, Parasuraman et al. (1991)
gathered data from both primary and secondary source.

The main source of primary data was through a standard questionnaire. Secondary data
was obtained from already existing literature that was from textbooks, journals,
brochures, and internet and bank reports.

3.5 Data analysis

After collecting the data through questionnaire, the process of analysis begins. Analysis
of data in this research was done by using statistical tools And also descriptive analysis
used for the demographic factors such as gender, age, education, occupation, monthly
income and for how many times the customers are using the bank’s services. Tools like
tables and percentage are used. Data analysis was performed by using SPSS software
version 16.
 CHAPTER: IV
4. Result and Discussion
To analyses the collected data in line with the overall objective of the research
undertaking, statistical procedures were carried using SPSS 16.00. In this part to identify
the major issues and to provide workable recommendations for the problems concerning
service quality and customer satisfaction, the researcher has collected data through self-
administered questionnaire. In this chapter the findings of the study are presented.
During the survey a total of 200 questionnaires were distributed to customers but, 151
respondent were returned the questionnaires .

4.1 Descriptive analysis

This descriptive analysis is used to look at the data collected and to describe that
information. It is used to describe the demographic factors for more clarification. It is
mainly important to make some general observations about the data gathered for general
or demographics questions. The demographics factors used in this research are gender,
age, education qualification, occupation, monthly income, and length of time the
respondents uses the banks services.

Table 1: Gender of respondents

Gender Frequency Percent

Female 51 32.0

Male 100 68.0

Total 151 100.0

Table 1: Gender of respondents

Table .2: Age of respondents

The respondent’s age is shown in the following table 1.1. The table shows that 50.5% are
the age of 20-39 years old, followed by respondent at the age between 40-59 years old
with 38%, 9% were at the age below 60 and above years old. The remaining of the
respondents 2.5% were 18 years old.

Age Frequency Percent

18 years 5 2.5

20-39 years 75 50.5

40-59 years 50 38.0

60 and above years 21 9.0

 Total 151 100.0

Table 2.: Age of respondents

3. Education qualification of the respondents
The education qualifications of respondents are shown in table 2. As it is indicated in
the table, 41% hold a first degree. In the other way, 41% were diploma holder, while
9% of the respondents achieved secondary education. 4.5% hold a postgraduate
degree and 3% respondents show that they had other qualification 1.5% achieved
primary education.

Education Frequency Percent

primary 3 1.5

secondary 11 9.0

diploma 62 41.0

degree 62 41.0

postgraduate 2 4.5

others 1 3.0
Table 3:
Education qualification of respondents
4. Occupation of the respondents
The results of respondents‟ occupation are indicated in table 4.4. The table demonstrates
that 30% of the respondents are working in government sector, 26% are working in
private sector, 23% are having their own business and 21% are indicated that they are
students.

Occupation Frequency Percent

Government sector 53 30.0

Private sector 42 26.0

Own business 33 23.0

Student 21 21.0

Total 151 100.0

Table 4: Occupation of respondents

5. Monthly income of respondents
The results of monthly income of respondents are shown in table 4.5. The table shows
that 51% of the respondents had income of 1000-2999 birr and 28.5% had income of
between birr 3000-4999 monthly. On the other hand, 17% had income of below birr
1000 and the remaining respondents 3.5% had income of 5000 birr and above.

Monthly income Frequency Percent

below birr 1000 34 17.0

birr 1000-2999 102 51.0

birr 3000-4999 57 28.5

Birr5000andabove 7 3.5 3.5

200 100.0 100.0

Table 5: Monthly income of respondents

Ranked Service Dimensions Average scores
Ranking Dimension Average

1 Responsiveness -0.75

2 Tangibles -1.75

3 Empathy -1.8

4 Reliability -1.8

5 Assurance -2

i) Responsiveness (RN)
Responsiveness obtained an average gap score of (-0.75).customers expect more in CBE
on Employees make information easily obtainable by customers, employees give prompt
services to customers, employees are always willing to help customers and employees
are never too busy to respond to customers requests.
II.Tangibles
Average customers are unsatisfied with the level of services offered by CBE. It was
reported to have highest average gap score of (-1.75).Customers are not satisfied with
CBE services, they should have up-to-date equipment and physical facilities should
virtually appealing, employees should be well dressed and appear neat and physical
environment of the CBE is cleaned.
iii) Empathy (EM)
the result shows average gap score of (-1.8).To this extent CBE should give customers
individual attention, operating service hours should convenient to customers, employees
give customers personal service and employees understand the specific needs of their
customers.
iv) Reliability (RL)
Reliability obtained an average of gap score of (1.8) which means that CBE is expected
to be more reliable to satisfy the customers; when they promise to do something by a
certain time, they do it, when customer has a problem, they should show sincere interest
in solving the problem, the respondent perform the service right the first time, should
provide their services at the time they promise to do so and keep their records accurately.
v) Assurance (AS)
Assurance obtained average gap score of (-2).The findings reveal that customer are not
satisfied with the behavior of employees instill confidence in customers, customers feel
safe in their transactions with the employees, employees should be polite to customers
and employees of CBE should have knowledge to answer customers’ questions.
Factors Hindering Customer Satisfaction in CBE
The respondents were asked on factors hindering customer satisfaction levels for
services provided by CBE. They were network coverage, voucher availability,
flexibility, air time charges, and customer care.

Network Frequency Percent

Coverage
Satisfaction

NOT 95 74.5
SATISFIED

SATISFIED 42 23.5

VERY 14 8
SATISFIED

This was pointed out 95(74.5) of the respondents not satisfied in net work coverage
42(23.5%) of the respondents said they were satisfied with network coverage and14 (8%
)were very satisfied.

Table 4.6:

Voucher FREQUENCY PERCENT

Availability

NOT 71 47.5
SATISFIED

SATISFIED 46 32
VERY 34 20.5
SATISFIED

Research results shows that 71(47.5%)of the respondents were not satisfied with
Voucher Availability service and 46 (32%) of the respondents answered satisfied,
34(20.5)% of the respondents said they were very satisfied with the CBE prepaid
voucher availability.

4.5.3 Flexibility

Flexibility FREQUENCY PERCENT

NOT 53 33
SATISFIED

SATISFIED 60 41

VERY 38 26
SATISFIED
60 (41%) of the respondents stated that not satisfied in flexibility, in provision of services to its
customers. 53(33% )were not satisfied and 38(26% were very satisfied.

Customer FREQUEN PERCENT

Care CY

NOT 121 85
SATISFIED

SATISFIED 8 4

VERY 22 11
SATISFIED

According to research findings, 121(85% of the respondents were not satisfied with customer
care 22(11%) were very satisfied and only 8(4%) said they were satisfied by customer care.

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 CHAPTER: V

5. Summary, Conclusion and Recommendations

5.1Conclusion

The nature of banking services encourages customers to demand the highest possible quality. In
order to achieve this, it is essential to be very close to customers to capture information on
customer current and future needs, expectations and perceptions. The main objective of this
study was to assess the relationship between service quality and customer satisfaction. This study
posits and develops an instrument of service quality, and examines the relationship between
perceived service quality and customer satisfaction from various studies, SERVQUAL appears to
be a consistent and reliable scale to measure banking service quality, and provide a useful
diagnostic role to play in assessing and monitoring service quality in banks. The measurement of
Banks‟ service quality has to be based on perceived quality. It is because service quality is
intangible, heterogeneous and its consumption and production occur in tandem (Lim and Tang,
2000). This research also drew conclusions and gave suggestions. The research results are
expected to provide guidance and reference for the management of commercial banks in Mekelle
city. The results of this study indicated that service quality is an important antecedent of
customer satisfaction this result consistent with results drawn (Andaleeb and Conway, 2006;
Gotlieb et al., 1994; Buttle, 1996; Zeithaml and Bitner, 1996; Lee et al., 2000; Zeithaml and
Bitner, 2003). Five dimensions of service quality have significant influence on customer
satisfaction. These dimensions include tangibles, reliability, responsiveness, assurance, and
empathy. Moreover, our findings show that service quality is an important antecedent of
customer satisfaction. This finding reinforces the need for banks managers to place an emphasis
on the five dimensions of service quality.

As the conducted survey points out, there are some of the problems that surface in the effort of
evaluating customers’ satisfaction hence customer satisfaction vary according to the nature of
service. The highest customer satisfaction is revealed in the responsiveness area such as bank
staff’s tell customers’ exact time of service will be performed, prompt service, bank staff’s
willingness to help customers, bank staff’s respond to queries of customers, friendly attitude of
staff, followed by the reliability area such as customer guidance, customer supportability to
deliver promised service, banks insist on error free records, keen in solving problems, perform

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services exactly the first time, customer support services, hospitality services and handling of
customer’s grievances. Representative, satisfactions are in the assurance and tangibles area, such
as infrastructure facilities, interior decoration, banks staff’s behavior instills confidence and
inspire trust, staffs are courteous, staffs are knowledgeable, customers feel safe in dealing with
the banks followed by empathy area such as banks business timing, individual attention, caring,
bank location and return on investment. Due to the wide variation of the responses, the selected
private banks need to consider the weak areas in order to meet customer requirements. Hence, to
be successful in banking sector, banks must provide service to their customer that at least meets
or better, if exceeds their expectations. Managers of the banks should take appropriate decision
to improve the quality of services in CBE of Mekelle city branch. To achieve higher levels of
service quality, the bank managers should redesign their strategies about customer satisfaction
with respect to service quality by identifying and improving upon factors that can improved upon
customer satisfaction. The quality dimension assessed by the customer satisfaction questionnaire
is important to customers and therefore it is beneficial for managers to understand which of these
quality dimensions is highly linked with overall customer satisfaction to enable management
direct resources to these areas. The benefits of customer satisfaction surveys represent a clearer
picture of the customers and also an overview of the areas the banks needs to improve. In this
manner the banks has the chance to accede to a higher customer satisfaction level and maintain a
strong relationship with its customers and prevent customers from defecting to other banks.

The importance of study findings for managerial decision-making processes is evident. Banks
managers seeking to improve their customers’ satisfaction levels, in their effort to increase
loyalty, retention rates and attract new customers, may benefit by information about the effect of
individual dimensions of service quality on customer satisfaction.

Banks should know that their customers have the right

 To expect service that is reliable, timely, personalized, and memorable.

 To be greet warmly, serve promptly, and given a full attention
 To understand and acknowledge the importance of their financial goals and help find the
best solutions for them
 To get personal and professional service that makes them want to return and recommend
Banks to friends

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  To be provided with a high-quality banking services with the best value possible
 To be provided with an accuracy on all their transactions, accounts, statements, and
correspondence
 To get personal responsibility and accountability from the bank

5.2. Recommendations

The banks that will thrive in the future will be those that are able to focus more on their
customers. Banks should have the interest of their customers at heart, because customers are the
true business of every company. Banks in Mekelle should not only adapt to technological
advancement, but must ensure that the new employed technology makes for a prompt and a
stress-free banking.

There is need for each bank to apply the queuing technology to their banking system as this
would help them to manage customers waiting in line. Banks should embark on effective training
and developmental environment skills that can help employees deliver punctual services to the
customers.
The findings of this research also important evidence for managers who take charge of service
quality. It is helpful for employees to understand the effectiveness of service quality from
consumer’s perspective.

In light of the findings and conclusions made above, the following possible recommendations are
suggested as being valuable to the CBE in Mekelle city for improving service quality activities to
assure customer satisfaction.

 Tangibility: Banking service should better to continue to be a priority of CBE in

particular, and all banks in Mekelle city, in general.
 Banking service is not seen, felt or touched before it is purchased. To make it
attractive to customers, the benefits and features should be well communicated
and packaged in a way that it will be acceptable to the market.
 Banks in Mekelle city should better to make their services tangible by packaging
them nicely in order to make them appealing to their target markets. Putting in
place up-to-date equipment potentially adds to the tangibility of service. The use
of Automated Teller Machine by banks in recent times has helped in this regard.

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  CBE in Mekelle city should improve the Tangible dimension of its service by
improving the bank’s physical appearance, acquiring modem equipment’s like
computers communication materials, good waiting facility inside the bank, neatly
dressed and good appearance of the employees.
 Tangibility was shown to be the weakest dimension of satisfaction. Therefore,
bank management better to maintain the attributes of tangible service quality at
the bank.
 To close the gap of the most important dimension in service operation i.e.
Reliability, the bank better to train its employees to be consistent in providing
service.
 Empathy: (including access, communication, understanding the customer) which is
caring and personalized attention that the firm provides to its customers has also been
found to be important to customers of CBE in Mekelle city. It is therefore recommended
that banks in Mekelle city that have not integrated this into their service strategies should
do so since it will help them in their service delivery.
 CBE in Mekelle city better to work hard at Empathy dimension. This can be done
by improving the skill of staff related to; understanding the specific needs of
customers and giving individual attention to customers by giving training in this
area. The banks advisable to attempt to remain competitive by providing
attractive and prompt banking service that earns by customers’ confidence and
trust.
 Empathy was shown to be the moderate dimension of satisfaction. Therefore,
bank management advisable to arrange special courses to improve effective
communication.
 The willingness to help customers and to provide prompt service should be
improved by giving continuous training to staff.
 Responsiveness dimension. The bank should to minimize the gap in this area by
improving Responsiveness to customer requests, questions, complaints and problems and
by recruiting qualified staff.

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 The banks should better to strive to acquire technological capacity that will
enable them to provide a wide array of banking service promptly and efficiently
to their customers.
 Banks may reconsider their banking service hours and install ATMs at various
locations to provide round the clock access to customers. Bank managers should
better to focus on high quality services, and improve service quality effectively
 Banks should always try to engage in overtime banking that is, working extra
hours, as this would profit working class individuals who do not have the
opportunity to go to the bank during their work hours. Moreover, this would
profit the bank maximally, as they would increase the number of individuals that
bank with them.
 Finally, bank operators should ensure that they avoid puffing promises that will
unnecessarily raise the expectations of the customers as against the actual quality
of service they are able to provide

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