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Service Quality And Its Impact On Customer Satisfaction: An Empirical Evidence

Article · February 2011

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Hummayoun Naeem
Shaheed Zulfikar Ali Bhutto Institute of Science and Technology, Dubai
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Service Quality And Its Impact

ABSTRACT

This comparative research was designed to investigate the impact of service quality on customer
satisfaction in the Pakistani banking sector. Hypothesis developed for the study was “higher level
of service quality leads to higher level of customer satisfaction”. A sample of two hundred
respondents, (one hundred from a foreign bank and one hundred from a public sector /
nationalized bank located in the twin cities of Rawalpindi and Islamabad) was drawn on the basis
of simple random sampling. Various constructs of SERVQUAL model developed by Zeithaml and
Bitner (1996) and five point customer satisfaction tool developed by Taylor and Baker (1994)
were adopted and used for data collection. Data were analyzed through SPSS version 14. Results
of the regression analysis indicated that service quality was proved to be a strong predictor of
customer satisfaction in case of the foreign bank with the R 2 value of 0.644 accepting research
hypothesis and rejecting null hypothesis as compared value R2 of 0.156 that does not support the
research hypothesis in case of public sector bank. The study concluded that service quality, if
managed effectively, can contribute significantly towards customer satisfaction.

Keywords: Service Quality, Customer Satisfaction, Pakistani Banking Sector

INTRODUCTION

B anks have their own significant role to play in the economic system of any country. Various types of
banks perform various functions according to their prescribed roles defined by their memorandums
and articles of association. Central bank is the bank of the government and is required to monitor
and supervise the banking activities in a politically defined and specified geographical region. Agricultural and
industrial banks cater for the needs of farmers and industrialists. Commercial banks generally have a wider network
of their branches and look after the financial requirements of the general public (Mian, 2008). Commercial banks
have maximum interaction with the general public and that is why, central banks are always keen to improve their
service quality and productivity.

The most important factor that matters a lot in today’s modern and successful banking business is the
quality of services. Due to uniform policies of the central bank, all commercial banks are required to offer almost
same services. But how these services are provided; that is the most important phenomenon. Ziethaml et al (1996)
presented a model indicating various dimensions of service quality. The model was named SERVQUAL that
elaborates service quality indicating its various constructs namely Tangibles, Reliability, Responsiveness, Empathy
and Assurance.

Having discussed different aspects of the said service quality model, the next point comes to our mind is
that why does this particular area get emphasized? The simple answer is “customer satisfaction”. Most of the
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reputed business houses have their slogans based on the theme of the statement i.e. whatever we do is for our
customers. This approach is very much in line with the following common phrases used by the marketing people:
“customer is king”; “customer is always right”. In light of the above discussion, it becomes obvious that customer
is the center of all business activities. Following the same pedagogy, customer satisfaction thus becomes the
ultimate objective of any business venture.

PROBLEM STATEMENT

Keeping in view the significance of service quality and customer satisfaction, a study is designed to
examine the impact of service quality as an independent variable on dependent variable i.e. customer satisfaction.

SIGNIFICANCE AND LIMITATIONS

Every study has two parameters, one is theoretical contribution and the other one is applied aspects.
Theoretical contribution is that either it is contributed by or it is a contribution to the body of knowledge. Applied
aspects are that who is going to benefit from this research. The results and findings of the study would be applicable
to the industry so that by taking this into account they can improve their productivity also. If the service quality
effects negatively then it will decrease the productivity and as a result, profitability of the bank will decrease. The
limitations are that scope of the study is restricted to the research plan i.e. the impact of service quality on customer
satisfaction.

OBJECTIVES OF THE STUDY

The objectives of research are:

 To study the service quality level in nationalized and foreign banks in Pakistan.
 To examine the customer satisfaction level in nationalized and foreign banks in Pakistan.
 To test the relationship if any between the two variables i.e. service quality and customer satisfaction.

LITERATURE REVIEW
Serial Year Author/Authors Contribution to the Body of Knowledge
No.
1 1996 Ennew and Brinks The paper focuses on the relationship among service quality, customer
relationship and customer loyalty and concludes that compliance to
core ideas of service quality will generally result into customer
retention and profitability.
2 1997 Yavas and others Studied that the success of service quality programs can be measured
by retention of existing customers. Furthermore, employees having
maximum interaction with the customers need to be satisfied so that
they could come up with quality services.
3 2003 Jamal and Khattak The Study revealed that quality of services leads to customer
satisfaction and the tangible aspects of service environment have no
impact on customer satisfaction.
4 2003 Sureshchandar and others The research indicates the shortage of adequate product knowledge in
improving the financial performance despite of detailed work on
service quality and market potentials.
5 2004 Dean The research establishes a cause and effect relationship among
organizational features, employee attitudes to customer loyalty and
financial outcomes, concluding that organizational features and
employees’ attitude influence service quality.
6 2005 Gelade and Young The study examined relationship among organizational climate,
employee attitudes, customer satisfaction and sales performance.
Results indicate that the teamwork culture and job enablers support
organizational culture designed to serve customers efficiently.

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7 2005 Seth and Deshmukh The research analyzed service quality models and concluded that
customer expectation changes by elements such as time, interaction
with particular level of service quality and competitive environment.
8 2005 Huseyin and others The study includes analysis and comparison of service quality in
commercial banks of Cyprus. Results reveal that customer expectations
are not fulfilled because of the gap found in empathy part of the
SERVQUAL model.
9 2005 Carlo and others The study presents a framework focusing on quality of banking
services, resulting in the creation of five elements (customer
relationship, business transactions, information technology, branch and
its image) which can lead to quality in services targeting customer
satisfaction.
10 2006 Al-Hawari and Ward The research was based on service quality and customers’ role in
financial performance. Findings help in the formulation of marketing
strategies and proved customer satisfaction as a mediator in
relationship between retail banking and financial performance.
11 2006 Festus and Maxwell The research investigated the typology of services and
operationalization scale clarifying the nature of service quality and its
relationship with customer satisfaction and behavioral intentions.
12 2007 Yoo and Park The research was designed to analyze relationship among employees,
customers and financial performance. Results showed that employee
training and understanding has a significant impact on service quality.
13 2007 Chang The research presents the formula of collective relationship banking as
a mechanism for monitoring customer information and identifies the
probability of banking relationship when borrowing firms have
different operating structures.
14 2007 Mollenkopf and others The study focuses on the impact of return management system on
loyalty intentions. The resulting equation model identifies effects on
loyalty intentions occurring from customer satisfaction.
15 2007 Astrid Research results indicate that markets remain concentrated, number of
dominant banks remains almost constant across markets and most
importantly, service quality increases in larger markets and is higher in
larger banks because of their good will in the market.

It may concluded from the above discussions that customer satisfaction is always taken as a central point in
almost all business ventures. There are various factors that actually generate customer satisfaction. Service quality is
one of them. There has not been any scientific study where service quality has been taken as an independent variable
to study customer satisfaction as a dependent variable specifically in commercial banking sector. Keeping in view
this gap in the body of knowledge, this study has been designed to examine the impact of service quality on
customer satisfaction in the selected banks from the Pakistani banking sector.

METHODOLOGY

The universe for the present study consisted of two leading banks operating in Pakistan. One dealing with
the foreign sector i.e. Citibank, a leading American Bank having branches all over the country and the other one
from the public sector i.e. National Bank of Pakistan, having a wider network of branches all over the country.

RESEARCH QUESTION

What is the impact of service quality on customer satisfaction of banks?

HYPOTHESIS

The greater the service quality of the bank, the higher will be the customer satisfaction.

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There are two variables involved; Independent Variable is Service Quality and its various constructs are
Reliability, Assurance, Tangibles, Empathy, and Responsiveness.The dependent variable is Customer Satisfaction.

SAMPLING DETAILS

A sample of two hundred respondents, (one hundred from a foreign bank and one hundred from a public
sector / nationalized bank located in the twin cities of Rawalpindi and Islamabad) was drawn on the basis of simple
random sampling from the list of active customers. Sample details are as follows:

Table No. 1
Final Sample for the Study
Bank Active Customers
Citi Bank 100
National Bank 100
Total 200
Source: Bank data and researcher’s own processing

SCALE AND DATA ANALYSIS

A five point Likert Scale starting from strongly disagree to strongly agree (1 – 5) was used for the study.
Data analysis was carried out through SPSS software package (SPSS Inc, 2000) version 14.

Abbreviations: CB for Citibank and NBP for National Bank of Pakistan

DEMOGRAPHIC CHARACTERISTICS OF THE SAMPLE

 A dominant majority (74.0%) of the customers from CB were below the age of 40. In case of NBP,
majority (67.0%) of the respondents were in the age group of 20 to 40. The data indicated that CB had a
dominating majority of young customers. This seems to be the CB strategy to hire young people with
modern and broader vision.
 A heavy majority ( 95 % ) of the CB customers were bachelors and master degree holders whereas 91 %
were of the same qualifications in case of NBP. Education level of the officers of both the banks appeared
to be generally the same.
 Citi Bank was found to have 96.0 % of male customers and 4.0% female customers. In case of NBP,
overwhelming majorities (98.0%) of the customers were male and almost 2.0% were female.

TESTING OF HYPOTHESIS THROUGH REGRESSION ANALYSIS

For empirical analysis, the researcher used service quality as an independent variable and customer
satisfaction as a dependent variable. Testing of hypothesis is performed through regression analysis:

(H1) The greater the service quality of the bank, the higher will be the customer satisfaction.

(H0) There is no relationship between service quality and customer satisfaction.

Table No. 2
Regression Analysis
Service Quality and its Impact on Customer Satisfaction
CB N=100 NBP N=100
R R2 Adjusted R2 F Statistics P Value R R2 Adjusted R2 F Statistics P Value
0.815 0.664 0.661 193.877 0.000 0.395 0.156 0.147 18.115 0.000
Source: Field Data

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The above table indicates a strong relationship (0.815) between the two variables in case of Citibank. R 2
value is 0.664 indicating that service quality is a strong predictor of customer satisfaction. The situation is opposite
in case of National Bank. Data reveal a weak relationship between the independent and dependent variable. The
results of the empirical analysis indicate that if service quality is monitored carefully, this can improve customer
satisfaction.

APPLICATION OF T TEST

Two independent samples were also analyzed with the application of t test. In both cases i.e. service quality
and customer satisfaction, strong t values were recoded ranging from 13 to 17 indicating a significant difference
between the two sets of samples.

CONCLUSION

Based on the findings and data analysis, following conclusions have been drawn:

1. Customers of foreign bank perceived high level of service quality whereas customers of nationalized bank
experiences low level of service quality form the bank personnel. The difference has also been statistically
verified through the application of t test.
2. It is further concluded that service quality is a strong predictor of customer satisfaction in case of foreign
bank whereas the situation is vice versa in case of nationalized bank.

The empirical evidence shows that public sector banks are unable to manage the factors influencing quality
as well customer satisfaction. On the other hand, foreign sector banks are keen to improve upon such issues. The
data proves that there is a significant relationship between service quality and customer satisfaction.

RECOMMENDATIONS

Based on the findings and conclusion of the study, following actions are recommended for implementation
by the banks involved:

 HR investments are to be made very carefully. Fresh blood induction is to be encouraged. As the
employees of NBP are mostly older and senior people. So, the bank should hire young and highly educated
people. That would result in the increase of their efficiency level.
 NBP employees should show their more commitment to provide efficient services to its customers.
 NBP needs to make arrangements for longer business hours.

FUTURE RESEARCH

 The sample size of 200 respondents is small to measure service quality and customer satisfaction. Another
study may be designed with a larger sample size.
 During literature survey, it was found that different other methods and models have been used to evaluate
the service quality of banks. A study may be designed while using such models.

AUTHOR INFORMATION

Hummayoun Naeem is an Assistant Professor in the Faculty of Management Sciences, Foundation University,
Islamabad. His area of specialization is banking and research issues in management. Before joining the University,
he served commercial banking sector for almost one decade mainly in managerial capacity with specialization in
branch banking operations. While combining his industrial and teaching experience, he developed a TQM Model
for Commercial Branch Banking Operations during his PhD from the same university. He has several local and
international conference and journal publications to his credit.

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Asma Akram has completed her Masters in Business Administration from Fatima Jinnah Women University,
Rawalpindi with specialization in management. She is currently working for a chartered accountancy firm in
Islamabad. She intends to get herself registered in the doctoral program in future.

M. Iqbal Saif is heading the Faculty of Management Sciences, Foundation University, Islamabad. Before joining
this University, he served University of the Punjab, Lahore, Allama Iqbal Open University, Islamabad and Gomal
University, D. I. Khan as a Department Head. He is the pioneer of PhD program in the Faculty of Management
Sciences. His area of specialization is sociological analysis of contemporary business issues, dynamics of
organizational behavior, quality management, research methodology and human resource development. He is author
of various books on research methodology and human resource development. He has a number of local and
international conference and journal publications to his credit.

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of Internet Banking and Commerce, Vol. 10, No.3. (http://www.arraydev.com/commerce/jibc/). Retreived
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