Impacts of quality service on customer loyalty.

A case study of banks in the UK

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Abstract

The primary objective of every business organisation is to ensure customer loyalty. The new forms of
service channels that have emerged in the banking service including; online baking, automatic teller
machine, mobile banking, maturing financial markets, and global competitions, has forced bankers to
explore the importance of customer loyalty. Here, the underlying model of SERVQUAL (Eskildsen and
Kristensen, 2008) with five dimensions was used to evaluate impacts of service quality on customer
loyalty among the bank customers in the UK and the variables mediated by customer satisfaction. The
findings show that improved quality service in the UK has led to a good relationship between the service
providers and th clietele. The primary trend that enhanced the case under study was deregulations of
financial sectors by the government of the UK. The results reviewed involved more than ten domestic
commercial bankd and an additional 16 foreign-owned commercial banks within the UK. Increased
competitive pressure, bank mergers, deregulation are significant keys to dramatic changes in the
banking sector. Reliability, empathy, and assurance are the primary service quality dimensions that play
significant roles in this question. The study findings democstrate that the respondents who were mainly
customers generally have a favourable view of the banks, but still, the banks could do with more
improvements in the key sectors.

Keywords: Customer loyalty, quality of service, banking sector, empathy

1.0 INTRODUCTION

1.1 Background

Every business organisation realises the need to provide quality service as the primary goal because of
its very key for customer retention. Service quality explains how well a service is delivered in comparison
to the expectation of the customers. It is also useful for business operators in the identification of gaps
to be addressed for better clients' satisfaction. On the other hand, customer loyalty is the positive
experience and satisfaction to a customer on a particular product or service. The success of a service
provider depends on the high quality relationship with his/her customers, service quality leads to a
performance superiority in an organisation leading to increased sales profit, a good market share,
improving and enhance customer relations and cooperate image that promotes customers loyalty. In
today's banking, there exists stiff competition, and hence delivering quality service to customers is a
significant factor for business success and survival. This competition has caused a lot of dramatic
changes; for instance, the argument by Antony (2015) reveals that the UK banks need to meet to a
greater extent, the market satisfaction in order to gain the required customer loyalty for better business
returns.
The contemporary customers within the banking sector are well versed regarding their rights, high
competition, and changing demands. The banks, therefore, should always ensure constant and
consistent progress as far as quality service delivery to the customers is concerned. Portela &
Thanassolis (2006) in their report the fact that there is little research that explains the correlation
between quality service and customer loyalty within the banking sector. The duo also emphasised on
the fact that these very limited available studies do not factor the pertinent issues regarding the
mutative nature of the bank branches. According to Antony (2015), the quality of service is vital in
analysing the bank branches performance owing to the fact that the levels of service quality provided by
the banks to their customers are essential for the survival of the banks.

Currently, many UK banks devote resources to perform studies in order to asses customers'
expectations and satisfaction regarding the quality of service and products offered by the banks. These
studies have yielded results which have been in many cases, shared and used within the banking
industry to improve the service quality. The banks have also formed partnerships and initiated
collaborations with other industry players like institutes of training, which have been vere resourceful in
training and supply of competent personnel for the banking industry. The sole reason for such a move is
to create an edge for the industry in this age of increased competition, quality service demands and the
recessionary pressures to control costs and customer demands,

1.2 Statement of Problem

Most banks find it challenging to attract and sustain customers. The physical environment should be as a
factor considered during customer satisfaction and the reliability of staff to its customers. A financial
organisation (banks) is significantly affected when there is a failure for it to solve its customer needs and
problems. Due to the increased number of customers, those who wish to engage in explanations with
the staff seem not to have the opportunity. This creates dissatisfaction. Most bank staffs lack computer
skills and are unable to help customers with online services. The customer population is also too large
for the staff to give personal attention. Mittal (2016), identified that creating value for customers builds
loyalty and intends to build growth, profit, and more value. Therefore, for an organisation to gain loyalty
from the customers, there is a need to asses the quality of services in all banks so that problems that
users face can be addressed

1.3 Research Question

The study purposed to investigate the following research question; Impacts of quality of service on
customer loyalty. This primary question will be handled through the following minor questions;

a)What is the current situation of service quality in UK banks?

b)What factors account for the quality of services in bank branches?

c)How can quality services in all banks be improved?

d)What is the future of the banking industry in the UK?

1.4 Aims and Objectives

The study will endeavour to address the following items as the primary study objectives;

a) To investigate the impacts of service quality on customer satisfaction

b) To evaluate administrative practices and their impacts on the banking sector

c) To recommend based on the study findings on how to better address the challenges identified by the
customers

1.5 Research Hypothesis

H1: Improved quality of service in the banking sector has a direct correlation with customer loyalty.

H2: Efficient customer service is mainly affected by service quality as compared to other elements.

1.6 Significance of the Study

The results of this research work will help improve the UK banking system through the implementation
of the key elements of quality of service for improved customer loyalty. The study will also highlight
challenges and issues that affect the banking industry, and this information will put the banks in a better
position to self evaluate and address the shortcomings when rendering services and offering products to
their customers. The human resource within the baking setting will also be in a position to identify the
perception and expectations of the users, they will, therefore, be able to tailor their products and
services to satisfy these customers in a timely and appropriate manner. The bank managers will also
gain useful knowledge from this study, and they will learn the most important elements to enforce
quality service for better customer loyalty. The study results provide a body of knowledge that can be
used to fashion the policies to help address the industry pitfalls and deficiencies regarding service
delivery that may impact on customer loyalty. Besides the banking sector, this research will provide
information to scholars, students and the general public who would wish to better acquaint themselves
with such information for both general knowledge acquisition or for research purposes.

1.7 Research Summary

The study into sections numbering one to five; the first section covers the introduction. This part
comprises the research background, problem statement, the question addressed in the study, objectives
of the study, study significance and finally the summary. The second section comprises the reviewed
literature relevant to the study topic. The third chapter three outlines the methodology used for the
study; it covers the research design, the scope of the study, instrumentation, data analysis &
presentation were included. The next section: chapter four presents the discussion regarding the
analysed data and therefore, the findings of the research. The last section- chapter five constitutes the
summary, conclusions, and recommendations of the study.
2.0 LITERATURE REVIEW

It provides customers with a reason to enhance customer value and an attitude to position competitor'
brands. The SERVQUAL instrument where customers' expectations and actual performance were
calculated has gone through several civilisations by other authors since it does not touch on some
important. Similarly, this research may not have touched some areas, but it seems more improved since
it was based on the previous researchers'researchers' ideas.

Several studies seem to conclude that satisfaction is an affective construct rather than a cognitive
construct (Eklof, Podkorytova & Malova, 2018). ). Some researchers assessed service satisfaction using
items that include interest, anger, enjoyment, surprise, wise choices and doing the right thing. This
shows that satisfaction is the customer' fulfilment response and at times, can be emotion-based.

This research, however, described quality service as the primary goal for any business organisation.
Based on the UK banking reports today, there is increased awareness among bank customers of their
rights, changing demands, and high competition, which leads to constant progress in quality service
from banks for their customers to stay loyal. The emergence of new forms of services by banks suggests
future improvements in service quality in the UK banks. Some of these services include; online baking,
automatic teller machine (ATM), mobile banking, maturing financial markets, and global competitions,
forcing bankers to explore the importance of customer loyalty.

SERVQUAL Dimensions

SERVQUAL is a multi-item scale. This scale is developed to help assess customer perceptions of service
quality in service and retail businesses. As for this study, it will mainly focus on bank service delivery
(responsiveness, reliability, assurance, and empathy). The tangibility of service is a scale that measures
how dependable a customer views a service provider to be based upon the quality of its most visible
attributes. Tangibles can include physical facilities, equipment, staff appearance, among other examples.
The cleanliness of ATM rooms in the UK is an excellent example of tangible service.

Reliability of service can be defined as the ability of service provider to perform the promised service
dependably and accurately. For example, the customers who come to Barclays banks in the UK to apply
or replace their ATM cards were promised to get their services done within an hour. This action makes
them not to wait for too long and lose their loyalty to the bank staff. Responsiveness is reflected by the
willingness to help customers and provide prompt service. In the UK banks, customers should not be in
line for too long, waiting to be served. The staff came up with an idea to educate its customers on how
to access mobile banking to avoid long lines in the banks. Besides that, assurance quality is knowledge
and courtesy of employees and their ability to inspire trust and convey confidence among customers.

Empathy quality; the last dimension on the SERVQUAL model, is a caring, ability to be approachable, and
giving the individual attention that the company can provide to the customers. For examples in the UK
the customer care can be a good listener to what customers' want and need; for example, they can
elaborate on the type of bank account an individual need to create.
 3.0 METHODOLOGY

3.1 Introduction

This chapter focused on the approach given for this study.it contains the discussion on research design,
data and information collection methods, design of the questionnaire, sampling design and other
related factors. Data method analysis consisted of factor analysis, reliability test, descriptive statistics
and was based on the research hypothesis.

3.2 Research design

Research design is an important step to gather and analyse the imperative data and assist in finding the
location of the study, sample size and population. This study is done in the UK and majoring in the
banking sector and highlights factors to improve service quality to the customers. It also includes the
identification of five independent variables including tangibles, reliability, responsiveness, assurance and
empathy.

3.3 Quantitative design

The quantitative design will be applied to this research based on the nature of the study to gather the
representative data from the target respondent. Through the SERVQUAL analysis, it gives a better
understanding of the service quality and its impacts on customer satisfaction. Most researchers have
always focused on the quantitative approach. It quantifies the attitudes and behaviours of customers
toward the service they get from the staff. The reason for and advantage of why quantitative research is
preferred is its ability to produce reliable data that are usually qualified to large

3.4 Descriptive research

The descriptive research method is as pretty as it sounds. They summarise situations, though they do
not give accurate descriptions. It generates both qualitative and quantitative data and studies
frequency, average, central tendency, and any other statistical calculations. With descriptive research,
researchers can know a substantial amount of information, where the research problem is and give a
measure.

3.5 Methods of data collections

In this research, two methods of data collection were used, which are primary and secondary data.

3.5.1 Primary data

Primary data refers to first-hand information. In this study, the primary data used was through giving a
questionnaire to the respondent both online and through the paperwork. For the specific area of study,
the researcher needed cooperation and clarification as the questionnaire was given in person to the
respondent. Some answers received from the online questionnaire differed due to some specific issues
regarding the topic. Paperwork questionnaire seems more efficient than the online administered during
this study to address the problem at hand.

3.5.2 Secondary data

Secondary data refers to data that was already collected by a researcher but not the current user. It
involves four steps; identifying the subject of the domain and where to acquire the data, gathering of
the existing data, comparing different sources of data and finally analysing the data at hand. Secondary
data may be obtained from online databases or referring to related articles. This method of data
collection is costly, time-consuming and needs a commitment by the researcher. Due to advanced
technology, finding resources, especially from the internet, has become so easy. this study help
researchers to get a better understanding of the study question since they have referring materials.

3.6 Sampling design

There are five steps involved in sample design; identifying the target population, setting a sampling
frame & location, choosing the sampling elements, selecting the sampling technique and determining
the sampling size of the respondent location.

3.6.1 Target population

This is the group of interest, and it is where the researcher is looking forward to getting and analyse
relevant information. The target group is referred to as the entire group or events where answers to the
question under study are to be obtained. In this study, simple random sampling is chosen to select
customers in the UK as a respondent for the study. Simple random sampling was randomly selected due
to a high population of citizens with bank accounts in the UK. The method was selected due to the
likelihood that everyone in that population has a chance to be chosen.

3.6.2 sampling frame and sampling location

The sampling frame is the list of items or people forming a population from which a sample is taken. In
this study, individuals holding bank accounts and potential customers in any of the UK banks will be our
sampling frame. In fact, the sampling location for the study is the standard chartered bank in London
city, Barclays in the canary whorl and royal bank of Scotland.

3.6.3 sampling element

The sampling element, in this case, is a customer of Barclays bank who has been a loyal customer in the
UK for the past ten years. The reason to chose this sampling element is that he has been operating other
accounts apart from Barclays, and he is very familiar with the banking system of the UK. Since the main
subject under discussion is the quality of services the customers receive, a foreign respondent was also
selected.

3.6.4 sampling technique

To asses customer's perception of the quality of service in the UK, a simple random sampling technique
was selected. To achieve this, the researcher will go through the company's customer record and history
to identify customer's information such as email, home or office address. The researcher will then draw
a sample and decide on the number of respondents to have in the final sample. Simple random sampling
is easy and fair to accomplish; it is even easier to generalise the result from the final sample back to the
population.

3.6.3 sampling size

It is advisable for the researcher to pretest the questionnaire to other people, such as friends and family
members, before distributing the questionnaire to the selected respondent. This is for the researcher to
familiarise with the questions and avoid misunderstanding in the future. In case of a misunderstanding,
the researcher has to re-do the questionnaire until it suits the purpose of the study. A total of 300
questionnaires were distributed, and 247 were collected. Out of that,14 questionnaires were unusable
because they were not in accordance with the question under study while some were incomplete.

3.7 Conclusion

3.8 Project Timeline

References

Antony, J. (2015). Six-sigma for improving top-box customer satisfaction score for a banking call centre.
Production Planning and Control, 26(16), 1291-1305.

Mittal, V. (2016). Developing and Implementing a Customer-Focused Strategy in Banks: Customer

Satisfaction Strategy Maps. Available at SSRN 2783075.

Eskildsen, J. and Kristensen, K. (2008). Customer satisfaction and customer loyalty as predictors of future
business potential. Total Quality Management & Business Excellence, 19(7-8), pp.843-853.

Eklof, J., Podkorytova, O., & Malova, A. (2018). Linking customer satisfaction with financial performance:
an empirical study of Scandinavian banks. Total Quality Management & Business Excellence, 1-19.

Portela, M. C. A. S., & Thanassoulis, E. (2006). Malmquist indexes using a geometric distance function
(GDF). Application to a sample of Portuguese bank branches. Journal of Productivity Analysis, 25(1-2),
25-41.