Relationship Between Service Quality and Customer Loyalty

Relationship between Service Quality and Customer Loyalty -
A Study on Telecom Sector in Nepal
Krijen Maharjan
Exam Roll No: 15570025
P.U. Registration No: 2015-2-57-0025
A graduate Research Project Report Submitted to
ACE INSTITUTE OF MANAGEMENT
POKHARA UNIVERSITY
Submitted for the Degree of
Masters of Business Administration (MBA)
Kathmandu
March, 2019
ACKNOWLEDGEMENTS
The research entitled “Relationship between service quality and customer loyalty – A
study on telecom sector in Nepal” has been prepared under the graduate research project
as partial fulfilment of Masters of Business Administration (MBA) under program of
faculty management, Pokhara University.
First of all, I would like to express my deepest gratitude to my supervisor Mr. Rabindra
Silwal, for his support and encouragement, under whose guidance, suggestions and
timely supervision, I got the opportunity to perform this research. I would also like to
thank Mr..Pravat Uprety and Mr. Ajay Shah for their valuable guidance and advice for
completing this thesis.
I would like to express my gratitude towards Ace Institute of Management for giving me
this opportunity to apply the accumulated knowledge during my MBA course for this
research project. I would also like to thank Ace library for providing access to valuable
books, journals and other information for this research project.
Also, I would like to thank all the respondents who gave their valuable time to fill the
questionnaire survey.
Lastly, I would like to thank all the facilitators and the administration of Ace Institute of
Management, my friends and family, and all those who assisted me, directly and
indirectly by providing me with necessary ideas and comments for the preparation of the
report.
Thanking you all!
Sincerely,
Krijen Maharjan
March, 2019
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CERTIFICATE OF AUTHORSHIP
I, hereby, declare that this submission is my own work and that to the best of my
knowledge and belief, it contains no material previously published or written by another
person, nor material which to a substantial extent has been accepted for the award of any
other degree of a university or other institution of higher learning, except where due
acknowledgement is made in the acknowledgements.
………………………………………………..
Krijen Maharjan
Date: 2019/02/15
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APPROVAL SHEET
Recommendation for Approval
This GRP report prepared and submitted by Krijen Maharjan in partial fulfilment of the
requirement for the degree of Master of Business Administration has been supervised by
me and I recommend it for acceptance.
…...……..……………
Mr. Rabindra Silwal

Date:
Acceptance of the External Evaluator

I approve the GRP submitted by Krijen Maharjan. The grade sheet has been submitted to
the Dean, School of Business, Pokhara University through the college on a separate
evaluation sheet.
…..…………...……….
External Evaluator
Date:
Viva Examination
Ms. Krijen Maharjan has successfully defended the GRP. We recommend it for
acceptance. The grade sheet has been submitted to the Dean, Pokhara University through
the college on a separate evaluation sheet.
External Examiner ………………………
GRP Advisor ….…………………..
Internal Examiner....................................
Date:
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TABLE OF CONTENT
ACKNOWLEDGEMENTS.............................................................................................................i
CERTIFICATE OF AUTHORSHIP...............................................................................................ii
APPROVAL SHEET.....................................................................................................................iii
TABLE OF CONTENT.................................................................................................................iv
LIST OF TABLE..........................................................................................................................vii
EXECUTIVE SUMMARY............................................................................................................1
CHAPTER I...................................................................................................................................3
INTRODUCTION..........................................................................................................................3
Background of Study..................................................................................................................3
Problem Statement......................................................................................................................5
Objective of the Study................................................................................................................6
Significance of Study..................................................................................................................6
Research Hypothesis...................................................................................................................7
Limitation of the Study...............................................................................................................8
Organization of the Study...........................................................................................................8
CHAPTER II................................................................................................................................10
LITERATURE REVIEW & THEORETICAL SURVEY............................................................10
Service Quality.........................................................................................................................10
Customer Loyalty.....................................................................................................................11
Relationship between Service Quality and Customer Loyalty..................................................13
Empirical Literature..................................................................................................................14
Research Gap............................................................................................................................15
Theoretical Framework.............................................................................................................15
Specification of Variables.........................................................................................................16
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Research Instrument.................................................................................................................17
Model Design...........................................................................................................................17
CHAPTER III...............................................................................................................................19
RESEARCH METHODOLOGY..................................................................................................19
Research Design and Plan.........................................................................................................19
Sample Size and Determination................................................................................................19
Data Collection.........................................................................................................................19
Instrumentation of Data............................................................................................................20
Reliability.................................................................................................................................20
Validity.....................................................................................................................................21
Data Analysis Method..............................................................................................................21
CHAPTER IV...............................................................................................................................23
DATA ANALYSIS AND FINDINGS..........................................................................................23
Descriptive Analysis of Data....................................................................................................23
Analysis of dimensions of Service Quality...............................................................................30
Service Quality.........................................................................................................................34
Customer Loyalty.....................................................................................................................35
Inter Operator Comparison of Service Quality and Customer Loyalty.....................................37
Pearson’s Correlation Analysis.................................................................................................38
Multicollinearity Test...............................................................................................................40
Regression Analysis..................................................................................................................40
Inferential Analysis: Hypothesis Testing..................................................................................42
Demographic analysis of Service Quality and Customer loyalty..............................................43
CHAPTER V................................................................................................................................48
SUMMARY AND CONCLUSION..............................................................................................48
Summary..................................................................................................................................48
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Major Findings.........................................................................................................................49
Conclusions..............................................................................................................................49
Recommendation......................................................................................................................50
REFRENCES...............................................................................................................................52
ANNEX........................................................................................................................................54
LIST OF TABLE
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Table 3. 1: Coefficient of Cronbach's Alpha..................................................................20Y

Table 4. 1: Gender of Respondent.....................................................................................24
Table 4. 2: Age Group of Respondent...............................................................................24
Table 4. 3: Academic Qualification of Respondent...........................................................25
Table 4. 4: Occupation of Respondent..............................................................................26
Table 4. 5: Subscription of Respondents...........................................................................26
Table 4. 6: Subscription Plan of Respondents...................................................................27
Table 4. 7: Subscription Duration of Respondent.............................................................28
Table 4. 8: Services Subscribed by Respondent................................................................29
Table 4. 9: Packages Subscribed by Respondent...............................................................29
Table 4. 10: Empathy of Operators....................................................................................31
Table 4. 11: Reliability of Operator...................................................................................32
Table 4. 12: Tangibility of Operators................................................................................33
Table 4. 13: Responsiveness of Operators.........................................................................34
Table 4. 14: Summary of Service Quality.........................................................................34
Table 4. 15: Loyalty of Respondents.................................................................................36
Table 4. 16: Comparison of Service Quality and Customer Loyalty of Operators...........38
Table 4. 17: Correlation Coefficient of Factors of Service and Customer Loyalty...........39
Table 4. 18: Multicollinearity Test....................................................................................40
Table 4. 19: Regression Analysis......................................................................................41
Table 4. 20: Hypothesis Test.............................................................................................42
Table 4. 21: T-test for Service Quality and Gender...........................................................43
Table 4. 22: ANOVA Test for Service Quality and Age Group.......................................44
Table 4. 23: ANOVA for Service Quality and Education Levels.....................................44
Table 4. 24: ANOVA Test for Service Quality and Occupation.......................................45
Table 4. 25: T-test for Customer Loyalty and Gender.......................................................46
Table 4. 26: ANOVA test for Customer Loyalty and Age Group.....................................46
Table 4. 27: ANOVA Test for Customer Loyalty and Education Level...........................47
Table 4. 28: ANOVA Test for Customer Loyalty and Occupation...................................47
LIST OF FIGURE
YFigure 2. 1: Conceptual Framework

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Y
Figure 4. 1: Q-Q Plot of Service Quality...........................................................................35
Figure 4. 2: Q-Q Plot of Customer Loyalty.......................................................................37
EXECUTIVE SUMMARY
Service industries are particularly much more affected due to the unique nature of their
intangible products. Service marketing is different from goods marketing, and is usually
more complex to manage. In service industries, the distinctive features of services
(intangibility, inseparability, perishability and heterogeneity) require an understanding of
and satisfaction of customer needs and expectations, creating, communicating and
delivering customer value, and keeping promises.
In Nepal there are six telecom operators namely, Nepal Doorsanchar Company limited
(NDCL), United Telecom Limited (UTL), Ncell Pvt. Ltd (Ncell), C.G. Communication
Pvt. Ltd (CGC), Nepal Satellite Telecom Pvt. Ltd (NSTPL), Smart Telecom Pvt. Ltd.
(Smart Cell). And they have a subscriber base of 38,160,142. The telecom market
structure of Nepal is as 98% mobile service and 2% fixed line service. This indicates that
mobile service is the major medium for access to telephony service in Nepal. And among
the six operator, three viz. Nepal Telecom, Ncell and Smart Cell have the market share of
NTC-50 %, Ncell-43%, Smart Cell-5%, making them the major telecom operators of
Nepal.
The research was based in Kathmandu Valley. A total of 150 samples were taken where
each element of the population had an equal and non-zero chance of being selected. Also
equal sample (50) for each operator (NTC, Ncell and Smart Cell) was selected. The
present research was conducted descriptive and causal comparative research design and
collect the data using social networking sites where a set of questionnaires was prepared
with two distinct sections. First section of the questionnaire contained the personal
information of the respondent whereas the second section contained the behavioral
aspects of the respondent. Likert scale questions were used on the second section of the
questionnaire.
From the research it was found that among the different services the primary services like
voice, SMS and data are used by 100% of the respondent. Further in case of Data service
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majority of the respondent have been using data packs which reflect the current trend in
usage of mobile data.
In terms of service quality and customer loyalty, Based on the different analysis
performed (correlation analysis, regression analysis and inferential analysis) we can
conclude that all three factors of service quality (empathy, responsiveness and reliability)
have significant and positive relation with the customer loyalty, whereas Tangibility of
service quality has no significant relation with customer loyalty for the telecom sector of
Nepal.
Further the service quality of the operators are above average and the corresponding
customer loyalty is also above average. Among the three operators considered for the
study Ncell has the better service quality while NTC has the better customer loyalty.
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CHAPTER I
INTRODUCTION
Background of Study
Customer loyalty is an aspect of consumer behavior. Organizations are focusing on this

area due to the growing concerns for building long-term relationships with customers.
Customer loyalty has been identified in the marketing literature to be a competitive,
growth and survival tool for many companies, especially in the highly Globalized,
industrialized and competitive markets.
According to Oliver (1999) customer loyalty is said to be a deeply held commitment to

rebuy or repurchase a preferred product/service consistently in the future, thereby causing
repetitive, same-brand or same brand-set purchasing, despite situational influences and
marketing efforts having the potential to cause switching behavior. Generally, it is agreed
upon that growth and survival of companies depend on how loyal their customers are in
almost all industries (Boohene & Agyepong, 2011).
Service industries are particularly much more affected due to the unique nature of their
intangible products. Service marketing is different from goods marketing, and is usually
more complex to manage. In service industries, the distinctive features of services
(intangibility, inseparability, perishability and heterogeneity) require an understanding of
and satisfaction of customer needs and expectations, creating, communicating and
delivering customer value, and keeping promises (Aksoy, Atilgan, & Akinci, 2003).
Within the services sector, Service quality has been identified as an important topical
issue accounting for effective service management as well as that of customer service
loyalty. Both are regarded as strategic tools with potential to enhance competitiveness
within the service organizations (Kotler & Armstrong, 2010). As a result, researchers are
4
making efforts to assess what amounts to service quality and its relationship with
customer satisfaction vis-a-vis customer loyalty.
Boahene and Agyapong (2011), in analyzing the antecedents of customer loyalty in

Ghana, concluded, that telecommunication management needs to emphasize quality.
They emphasized, that because service firms do not provide tangible products, their
service is usually assessed through measures of the service provider’s relationship with
customers. Service quality was found in the study to correlate positively and significantly
with customer loyalty.
Similarly, Krishman et al. (1999) in studying customer satisfaction found that satisfaction
with product offerings is a primary driver of overall customer satisfaction. The findings
further observed that the quality of customer service with respect to financial statements
and services provided through different channels of delivery, are also important in
determining overall satisfaction. A study by Nukpezah and Nyumuyo (2001) on customer
loyalty in the Ghana banking industry found among other factors that service quality
(especially empathy and reliability) and bank image and reputation are important
instigators of customer satisfaction and loyalty.
In Nepal there are six telecom operators namely, Nepal Doorsanchar Company limited
(NDCL), United Telecom Limited (UTL), Ncell Pvt. Ltd (Ncell), C.G. Communication
Pvt. Ltd (CGC), Nepal Satellite Telecom Pvt. Ltd (NSTPL), Smart Telecom Pvt. Ltd.
(Smart Cell). As per the NTA MIS report of Falgun, 2074 (13 February, 2018 – 14
March, 2018), they have a subscriber base of 38,160,142. And as per the same MIS report
the telecom market structure of Nepal is as 98% mobile service and 2% fixed line service.
This indicates that mobile service is the major medium for access to telephony service in
Nepal.
And among the six operator, three viz. Nepal Telecom, Ncell and Smart Cell are
providing mobile (4G) service to their subscribers. Further according to the MIS report,
as of Falgun, 2074 (13 February, 2018 – 14 March, 2018) the total number of mobile
users were 37,297,727. And the mobile penetration at 127.34%. And also the market
share of the service providers are as NTC-50 %, Ncell-43%, Smart Cell-5%, making
them the major telecom operators of Nepal.
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Nepal has seen a steady growth in the consumption of mobile telephone service, as per
the NTA MIS report of Falgun, 2074 (13 February, 2018 – 14 March, 2018) the mobile
penetration has risen from 125.34% to 127.34% within a year. And the same report
shows the year to year growth rate of the major three telecom as 32.41% - NDCL,
20.41% - Ncell, and 28.55% - Smart Telecom.
With the telecom industry of Nepal lead by these three telecom operator there is question
of “Which telecom operator provides the best service”. Many times customer switch to
other operator due to poor service quality of current. Even the market leader of the
industry have faced serious criticism regarding its service quality due to which it has lost
its greater share of market to competitor.
Thus studying the service quality of these three telecom operator will provide a
significant insight to the current status regarding the customer satisfaction and customer
loyalty towards their corresponding service provider.
Problem Statement
Some studies have revealed that service quality influences organizational outcome such
as performance superiority (Poretla and Thanassoulis, 2005), increasing sales and profit
(Kish, 2000; Duncan and Elliot, 2002), enhancing customer relations, improving
corporate image among other. It is also argued that the success of a service provider
depends on the high quality relationship with customers, which determines customer
satisfaction and loyalty (Panda, 2003).
Previously, Nepal Telecom was the sole provider of mobile service, then the monopoly
was broken by the introduction of Ncell into the market. Ncell entered into the market
with superior network and service quality which lead to many NTC subscriber switching
to Ncell. And now a third operator, Smart Cell has entered into the market as a direct
competitor with advance 4G technology, and Smart Cell is growing its customer base
rapidly. As per the NTA MIS report of Falgun, 2074 (13 February, 2018 – 14 March,
2018) they have acquired 392,035 subscriber within a year.
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Also the mobile penetration has reached 127.34%, thus the market is highly saturated and
there is high competition among the operators. There is also a high probability of users
switching there service provider if they perceive the service quality of their provider as
unsatisfactory. Thus this study is an attempt to understand the impact of service quality
on the loyalty of their customer.
The problem statement can be summarized as below:
 What is the current perception of service quality and customer loyalty in telecom
sector?
 Which operator is better in terms of service quality and customer loyalty?
Objective of the Study
Telephony service has been categorized as a basic need by the government and the
mobile penetration of the country is at 127.34%, as per the Nepal Telecom Authority.
Thus the service provided by the service operators impacts the basic right of the people of
the country. Thus keeping this fact in mind, the main objectives of the study are as
follow,
 To analyze the relationship between four antecedents of service quality and

customer loyalty.
 To compare the service quality and customer loyalty of the major telecom
operators of Nepal.
Significance of Study
Hardy (1980) found the impact of telecommunication on growth taking 45 countries data
into consideration. It was found that telecommunication has largest effect in the least
developed countries and the smallest effect in the developed countries.
Shridhar and Sridhar (2004) observed that telecommunication infrastructure development

and economic growth proceed together taking 68 countries data in the study for analysis.
7
It was found that a significant impact of cellular Services on national output. The impact
of telecom penetration on total output is significantly lower for developing countries.
Maximum time telephones were used for economic purposes such as finding out
employment opportunities, price of a product, land transactions, remittances and other
business opportunities. The average prices of the agricultural commodities were higher in
villages with phones than without phones found by Bayes et al (1999).
Telecommunications can create market through information dissemination to local people
and improve the standard of living leading -to growth has stated by Eggleston et al (2002)
From above research finding, it is clear that telecommunication is an important factor for
development of the nation. Thus this research is an attempt to understand the current
market dynamics of telecom industry of Nepal. This research attempts to find the impact
of service quality on customer loyalty, as customer loyalty is one of major factor for a
sustainable business.
Further this research will benefit various stake holders of the telecom industry. This
report can be useful to the operators for understanding and improving their service
quality and formulating key strategy for customer retention and product development for
revenue generation.
Another stake holder that can be benefited is the governing authority body, for them this
research can be a secondary source of data for statistical record and as a reference
regarding the delivered service quality of different telecom operators.
Also this report can be an assist to academic researcher who are involved in the study of
telecom sector in Nepal, service quality or in the study of customer loyalty.
Research Hypothesis
On the basis of the independent and dependent variables under study following
hypothesis were formulated-
1. H1: There is significant relationship between reliability of service quality and

customer loyalty in telecommunication sector.
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2. H2: There is significant relationship between responsiveness of service quality

and customer loyalty in telecommunication sector.
3. H3: There is significant relationship between empathy of service quality and

4. H4: There is significant relationship between tangibility of service quality and

Limitation of the Study
The limitation of the study are as follows:
 Limited sample size

o The population size of this research is in millions which is difficult to
reach to. I am taking a limited sample of 150 respondents from
Kathmandu. The sample size is limited due to which respondents from
different parts of the country cannot be reached.
 Data collection methods
o Samples was be selected using convenience method. Data collection was
done through online questionnaire and direct personal contact filling the
questionnaire which was completely and individual view point.
Organization of the Study
This research is be divided into three main chapters. The first chapter is an introductory
chapter that includes background of the study, statement of the problem, rational of the
project, research questions, research objectives, research hypothesis and the limitations of
the study.
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The second chapter is the literature review which includes the theoretical concepts of the
study as well as reviews the studies that has been done earlier.
The third chapter deals with the research methodology to be implemented to carry out the
study which involves research design, population and sample size distribution, data
collection procedure and service dimensions. Besides, Bibliography and References is
included at the end of the study.
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CHAPTER II
LITERATURE REVIEW & THEORETICAL SURVEY
Service Quality
Though the term service quality emphatically applied for service industry (also
implacable for goods) but, the concept and related studies in this field was germinated in
the goods sector. The prevalent contribution was given by Persuraman, Ziethaml and
Berry, (1985). They suggested that the implications of service quality will be different for
goods and service sector and defined service quality as a global judgment, or attitude,
relating to the superiority of the service‟.
Persuraman, Ziethaml, and Berry (1988) proposed a model known as SERVQUAL for
measuring customers‟ perception towards service quality. Gronroos (1984) developed a
Nordiac model of service quality. This model proposed that two forms of qualities are
provided by the service organizations i.e. technical quality and functional quality. The
technical quality is what the customer actually receives (Fischer, 2012) and the functional
quality refers to the manner in which services are delivered to customers or how the
customer receives the services. Edwardsson et al. (1989) proposed service quality as a
multidimensional construct and identified technical quality, integrative quality, functional
quality and outcome quality as the four attributes of service quality.
Reichheld and Sasser (1990) emphasized that firms can profitably serve the customers by
zero defection which may results into lesser customer defection and hence firms
profitability. Boulding et al. (1993) described that greater perception of service quality of
customers leads to more behavioral benefits for the organization like recommendation
and positive word of mouth.
Patterson et al. (1993) proposed an integral model, which suggests that service quality is
an attitude. Hence customer satisfaction and dissatisfaction along with prior attitude helps
to form the attitude regarding service quality. Johnston (1995) identified some satisfiers
11
and dissatisfiers as determinants service quality. He discussed that interaction between

staff and customers has a significant influence on customer loyalty.
Zeithaml et al. (1996) said that customer behavior is a mediating variable between service
quality and financial performance of the firm and improved service quality may increase
favorable behavioral intention. Brady and Cronin (2001) evaluated that customer form
their perception towards service quality on the basis of evaluating outcome, interaction
with the service employer and environmental quality.
Suuroja (2003) found and prove that service quality should not be considered as a gap
between perceived service qualities and expected one, rather expectation may influence
the perception of customers. Overall service quality can be seen as evaluation of services.
Johnston C.T (2004) suggested that for satisfying and retaining the customers, effective
service recovery is required on the part of organizations. Abdulla (2006) called service
quality as a pervasive strategic force.
Customer Loyalty
Loyalty is an old-fashioned word that has traditionally been used to describe fidelity and
enthusiastic devotion to a country, a cause, or an individual. More recently, it has been
used in a business context to describe a customer’s willingness to continue patronizing a
firm over the long term, preferably on an exclusive basis or recommending the firm’s
products to friends and associates. Customer loyalty extends beyond behaviour and
includes preference liking and future intentions (Loverlock and Wirtz, 2007).
Customer loyalty can be defined as “customers loyalty is basically the customers overall
affiliation or strong commitment to a service/product or company” (Oliver, 1999).
Customer loyalty has three distinct approaches. Behavioral loyalty approach (Grahn
1969); attitudinal loyalty approach (Bennett & Rundle-Thiele 2002; Jacoby 1971; Jacoby
& Chestnut 1978) but, Dick and Basu, (1994) defined customer loyalty as a relationship
between relative attitude and repeat patronage; hence he integrated attitudinal and
behavioral loyalty.
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Gremler and Brown, (1996) offers one definition of customer loyalty that serves the
purpose of this study: the degree to which a customer exhibits repeat purchasing behavior
from a service provider, possesses a positive attitudinal disposition toward the provider,
and considers using only this provider when a need for this service exists. Gremler and
Brown, 1998) concluded that a loyal customer can create multiple effects like repeat
purchase, positive word of mouth and personal recommendation to new customers.
Uncles D. (2002) has given three popular models of Customer Loyalty in which he
expressed loyalty as an attitude, loyalty in terms of revealed behavior and buying based
on purchase situation or characteristics of individual. Gustavsson and Lundgreen, (2005)
described that customers can be kept loyal by maintaining good relationship between
customers and company. Based on a 20-80 principle, the top 20% of the customers may
create 80% of profit for a company (Kotler & Keller, 2005).
Rundle Thiele (2005) emphasized on multidimensionality of customer loyalty. He

identified behavioral loyalty and seven types of attitudinal loyalty. Hence, it is concluded
that there are various types of loyalty exists and customers Customer can be loyal in
many ways.
Bandhyopadhyaya and Martell (2007) categorized customers into three types on the basis
of their behavioral and attitudinal characteristics as- single user, multiple users and non-
users and attitudinal loyalty acts as a base for customer loyalty. Loyalty is the most
important goal of implementing relationship marketing activities (Zhang & Feng, 2009).
Customer service loyalty conceptualization has received tremendous attention in the

literature over the past two decades because according to Nukpezah and Nyumuyo
(2009), practitioners have observed its intricate relationship with a firm’s profitability.
Thus customer loyalty is now accepted as indispensable in strategic decision making
because it costs more to attract new customers than to retain old ones.
According to Kuusik (2007), it is important to segment customers based on their loyalty.

Theories of behavioral loyalty were dominating until 1970 considering loyalty as the
function of the share of total purchases, function of buying frequency or buying pattern,
or function of buying probability. These approaches looked at brand loyalty in terms of
13
outcomes (repeat purchase behavior) rather than reasons, until Day (1994) introduced the
two-dimensional concept of brand loyalty, which stated that loyalty should be evaluated
with both behavioral and attitudinal criteria. Contemporary researches consider and
accent the psychological (mostly attitudinal and emotional) factor of loyalty (Jacoby et
al., 1973; Oliver 1999; Reichheld 2003 cited in Kuusik, 2007). The relationship is so
important for the customer that he or she makes maximum efforts to maintain it. Highly
bonded customers will buy repeatedly from a provider to which they are bonded,
recommends that provider to others, and strongly defend their choices to others by the
belief based on the insistence that they have chosen the “best” product or service from
that provider.
Relationship between Service Quality and Customer Loyalty
Three parameters of service quality; reliability, empathy and customer loyalty was found
positively correlated (Siddiqui, 2011). Positive relationship was found between all the
attributes of service quality attributes and customer loyalty with mediating effect of
customer satisfaction in a study in retail banking sector in Bangladesh. Tangibles,
responsiveness and reliability were found directly related with customer loyalty in
Telecommunication industry in Ghana in the study of (Idrissu, 2011) consistent with the
result of (Kheng et al., 2010). Empathy had highest positive correlation while assurance
had least correlation with customer loyalty. In a study conducted by (Agyei & Kilika,
2013) in Kenyan mobile telecommunication sector, all the indicators of service quality
model found to have positive correlation with customer loyalty. Empathy has the highest
influence on customer loyalty. Impact of all the parameters of customers‟ perceived
service quality was positive on customer loyalty except tangibility in the study of (Hassan
et al., 2013). All the constructs of SERVQUAL was found strongly connected with
customer loyalty in the study of (Poku et al., 2014) in the Telecommunication industry of
Ghana.
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Empirical Literature
Rahaman et al. 2011, explored service quality of the private commercial banks in
Bangladesh. The findings from their study revealed that, one of the primary causes of
service quality design failure is the lack of understanding of the evolving need and
preferences of targeted customers.
Ilhaamie (2010) examined the level of service quality, expectation and perception of the
external customers towards the Malaysian public services using the SERVQUAL
instrument. The study found that tangible is the most important dimension. It also has the
lowest scores of perception. On the other hand, service quality gap is neither the lowest
nor the highest. Finally, these external customers have the highest expectation on the
reliability of the Malaysian public service.
Ojo (2010) investigated the relationship between service quality and customer
satisfaction in the telecommunication industry with a focus on Mobile
Telecommunication Network (MTN) Nigeria. A total of 230 respondents participated in
the study. Regression analysis and Pearson product moment correlation coefficient were
employed in analyzing the data. The study revealed a positive relationship between
service quality and customer satisfaction. The researcher therefore recommended that
organizations should focus more attention on service quality, because of its effects on
customer satisfaction. To ensure that customer satisfaction level is high organization must
first of all know the expectations of the customers and how they can meet such
expectations. Customer satisfaction helps in customer loyalty and retention. It has been
discovered that the cost of attracting new customer far exceeds the cost involved in
retaining existing ones.
Kheng et al. (2010) employed the SERVQUAL model developed by Parasuraman et al.,
1988 with five dimensions to evaluate the impact of service quality on customer loyalty
among bank customers in Penang, Malaysia. Customer satisfaction was used as an
intermediate variable. The findings show that improvement in service quality can
enhance customer loyalty. The service quality dimensions that play a significant role in
the equation are reliability, empathy, and assurance. The findings indicate that the overall
respondents evaluate the bank positively, but still there are rooms for improvements.
15
Sammons (1982) conducted an exploratory study of customer satisfaction of fine dining

restaurants in Singapore. The paper seeks to find out the service dimensions of service
quality, which lead to higher levels of customer satisfaction. The findings from the 27
study indicated that the service dimensions of assurance, empathy and tangibles are the
most important to customers’ evaluation of service quality, and thus, may have a positive
influence customer satisfaction.
Research Gap
Even though several studies have been conducted on customer loyalty around the world,
in the service industries however, little has been done (Wernerfelt, 1991; Kuusik, 2009;
Nukpezah & Nyumuyo, 2009). It is interesting to note that in the Nepal telecom sector,
no empirical study has been conducted to show the relationship between service quality
and customer loyalty. In order to close this research gap in the literature, this study
sought to identify and empirically.
Different research available are based on the socio-economic background which is

different than of Nepal, thus this research have attempted to understand the different
dimensions of service quality in the socio-economic environment of Nepal and study its
impact on the Nepali customer. Further this research will attempt to compare the service
quality of the major three mobile operator of Nepal (providing service in Kathmandu) as
well.
Theoretical Framework
According to Norzaidi (2013), the selection of variables in a study must have the
characteristics that can be measured and it is important especially when crating and
designing a questionnaire.
The theoretical framework for this study is based on the SERVQUAL mode, and is
applied to understand the perceived service quality of the mobile operators.
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Independent Variables
Responsiveness Dependent
Variable
Empathy Customer Loyalty
Reliability
Nepal Telecom
Tangibility
Ncell
Service quality
Smart Cell
Moderating Variables
Figure 2. : Conceptual Framework
Specification of Variables
Tangibility: It is about the physical evidence of the service. Specifically, the concept
explores the physical facilities of the service provider, the appearance of personnel, the
tools and equipment used to provide the service including other customers in the service
facility.
Reliability: the service dimension of reliability measures the consistency of performance

and the dependability of the service. According to Zeithaml et al. (2006) reliability is “the
ability to perform the promised service dependably and accurately” or “delivering on its
promises”.
Responsiveness: Responsiveness concerns the willingness or readiness of employees to

provide service (Parasuraman et al., 1985). This dimension is concerned with dealing
with the customer’s requests, questions and complaints promptly and attentively. A firm
is known to be responsive when it communicates to its customers how long it would take
to get answers or have their problems dealt with.
17
Empathy: Empathy entails caring and provision of individualized attention to customers

by personnel of the firm (Zeithaml et al., 2006). In this respect, the customer feels unique
and special. In an attempt to develop empathy, personnel of the firm should endeavor to
know the names of their customers, their preferences and needs and take steps to satisfy
them.
Research Instrument
The present study is based on the SERVQUAL model proposed by Persuraman, Zeithaml
and Berry (1988) for measuring customers’ ‟ perception towards service quality”. 23
items instrument was generated comprising of 18 items for the five antecedents
(Tangibility, Reliability, Responsiveness, Empathy) of independent variables on the basis
of the work of Persuraman et al., (1988), and 5 items for customer loyalty on the basis of
the work of Harsandaldeep Kaur and Harmeen Soch (2012).
For measurement of customer loyalty following scale based on model suggested by

Harsandaldeep Kaur and Harmeen Soch (2012) is used. In this instrument the major
fields under study are; Intention of using current services in future, more payment for the
existing service provider, encouraging others the services to the others, Positive word of
mouth for existing service provider, recommendation of this service provider to others.
With these factors the customer loyalty of the respondent is calculated.
Model Design
In this research there are 4 independent variables and one dependent variable. In order to
understand the relationship between various independent variables and the dependent
variable (customer loyalty), following model is formulated.
CL=β0+ β1X1+ β2 X2+ β3 X3+ β4 X4+e
Where,
CL=Customer Loyalty
18
β0=Regression constant
βx=Regression coefficient , x=1,2,3,4
X1=Empathy
X2=Reliability
X3=Tangibility
X4=Responsiveness
e=random error
All regression coefficients is calculated and the above regression equation is formulated
based on the data collected as mentioned in the “Research Methodology”.
19
CHAPTER III
RESEARCH METHODOLOGY
Research Design and Plan
Descriptive research was conducted within Kathmandu valley. The data in the research
was qualitative and quantitative. The data was collected using structured questionnaire
and the questionnaires was self-administered. The research was also include secondary
data, which are collected through various sources including journals, survey reports,
online reports and newspaper.
Sample Size and Determination
The sample size of 150 was selected through a non-probability convenience sampling
technique following the convenience sampling module. Users of three telecom operator
(NTC, Ncell, Smart Cell) within the Kathmandu valley are qualified to take part in the
survey.
Further, the sample size for each operator is equal, i.e. 50 sample each was taken for
NTC, Ncell, and Smart Cell respectively.
Data Collection
The research has include both primary and secondary data. The primary data was
collected through primary source i.e. the use of structured questionnaires. Also an online
format of the questionnaire was used to gather data from respondents.
20
Instrumentation of Data
The research include primary data which was obtained via survey. For this interview
session was conducted with the respondents to fill up the structured questionnaire.
The questionnaire design was based on the theoretical framework, and was designed by
relating the factors involving with the service quality and customer loyalty. The
questionnaire was designed to meet the simplicity, clarity and understandable. The major
question types would be Yes/No question, single response, multiple response, ranking
question and Likert scale question.
Reliability
The most widely used reliability measure is Cronbach‘s alpha. Cronbach‘s alpha is the
average of all possible split half coefficients resulting from different ways of the scale
items. (Hair et al., 2009) suggested the generally agreed upon lower limit for Cronbach‘s
Alpha is 0.7, although it may decrease to 0.60 in exploratory research (Hair et al., 2009).
Hence, Cronbach’s alpha was used to check the reliability. The overall alpha should be
more than 0.7 to be reliable and valid information.
Table 3. : Coefficient of Cronbach's Alpha
Factors Cronbach's Alpha N of Item

Empathy 0.616 4
Tangibility 0.758 3
Tangibility 0.604 4
Responsiveness 0.806 3
Loyalty 0.601 5
The above result of qualitative data showed that coefficient of Cronbach’s alpha for the
four factors of service quality and customer loyalty. The table shows that reliability at
60% or more which indicate that the data taken for the study was reliable.
This indicated that there is internal consistency among service quality and loyalty of
telecom sector in Nepal.
21
Validity
To ensure the validity of the research following aspect of validity would be focused.
a. Content validity: To ensure the validity of the content, a well-structured, rational

questionnaire was developed under the supervision of an expert on the topic.
Also, the survey was self-administered to maintain accuracy of the response.
b. Concurrent validity: To ensure the accuracy of response form the responders,

questionnaire was developed such that there would be concurrent items within the
questionnaire, so that two responses can of same nature can be compared for
validity. Also interdependent items was included in the questionnaire to further
validate the constructs of the research.
Data Analysis Method
After the collection of questionnaires from the respondents, the questionnaires was
analyzed and categorized under usable and unusable data. The data was then be recorded
and coded on SPSS. While, Expectation Maximization technique was used to fill the
missing data, summary statistics was used to describe all samples characteristic.
Analysis was done on the demographic variables of the respondent. Frequency

distribution, Mean, Standard deviation of; Gender, Age, Academic qualification,
Occupation of the respondent was calculated to understand the demographic structure of
the respondents. Also, same analysis was applied on the behavioral factor of the
respondents like Subscription plan, Subscription duration, Services subscribed and
packages subscribed.
The next analysis was carried out on factors Service quality and Customer loyalty.
Minimum, Maximum, Mean and standard deviation of all factors was calculated and
presented in tabular format.
22
After the analysis of factors of service quality and customer loyalty, a cross tab
comparison was made to compare the service quality of different telecom operators.
Comparison was made on the base of Mean and Standard deviation of respective service
quality and customer loyalty.
Next Pearson’s Correlation Analysis was performed on the collected data to analyze the
correlation between Customer Loyalty, Empathy, Responsiveness, Tangibility and
Reliability. Further Multicollinearity Test was performed to analyze the inter-association
between the different factors of service quality and customer loyalty. The research is
more valid if there is no multicollinearity between the different factors.
After correlation analysis, Regression analysis was performed to formulate a linear mode,
taking customer loyalty as dependent variable and factors of service quality as
independent variables.
The next analysis was inferential analysis. In this analysis one way ANOVA test was
performed to evaluate the four different hypothesis formulated in Chapter I. The level of
significance is 0.05 and we will accept H1 if the P-value is less than 0.05 otherwise we
will reject H1.
Finally, service quality and customer loyalty was analyzed on basis of different
demographic factors like gender, age, education and occupation. A single hypothesis was
formulated to test the significance between these factors.
23
CHAPTER IV
DATA ANALYSIS AND FINDINGS
This chapter provides systematic presentation and analysis of primary data to understand
the relationship between customer loyalty and service quality. This chapter is divided into
three sections. First section covers the analysis of primary data and presents the results
based on questionnaire. Second section deals with the presentation and analysis primary
data to analyze the relationship between dependent and independent variable. It is done
with the help of Pearson’s correlation coefficient analysis and regression analysis.
Finally, the third section discusses on the concluding remarks associated with findings of
primary data analysis.
Descriptive Analysis of Data
This section is concerned with the analysis of primary data and presents the results of the
survey. This section attempts to analyze the primary data where general profile of the
respondents, views of respondents. The method used in this section is descriptive
research design which deals with Likert scale questions.
Gender of Respondent
This section shows the demographic characteristics of respondents in terms of gender.

The respondents profile is briefly presented in the following Table 4.1.
24
Table 4. : Gender of Respondent
Gender
Operator Total
Male % Female %
NTC 25 50% 25 50% 50
Ncell 28 56% 22 44% 50
Smart Cell 25 50% 25 50% 50
Total 78 52% 72 48% 150
The table shows that out of the total respondents, 52 percent are male and 48 percent
respondents are female. Thus in this study there is almost equal distribution of male and
female
Age of Respondent
This section shows the demographic characteristics of respondents in terms of age. The
respondents profile is briefly presented in the following Table 4.2.
Table 4. : Age Group of Respondent
Age Group Total

Operator
16 to 25 % 26 to 35 % 36 and above %
NTC 16 32.00% 32 64.00% 2 4.00% 50
Ncell 17 34.00% 26 52.00% 7 14.00% 50
Smart Cell 25 50.00% 17 34.00% 8 16.00% 50
Total 58 38.67% 75 50.00% 17 11.33% 150
On the basis of age group, the majority of the respondents (50.00 percent) are from age
group of 26 - 35 years followed by 38.67 percent are from age group 16 - 25 years then
after 11.33 percent are from age group 36 – and above years.
Further, from the table we can observe that the majority of respondent for NTC are from
age group 26 to 35 years, for Ncell are also from age group 26 to 35 years. And for Smart
Cell the majority of respondent are from age group 16 to 25.
25
This indicates that the majority of respondent are below 35 years so the analysis will be
more valid on younger population.
Academic Qualification of Respondent
This section shows the demographic characteristics of respondents in terms of academic

qualification. The respondents profile is briefly presented in the following Table 4.3.
Table 4. : Academic Qualification of Respondent
Tota
Academic Qualification l
Operator
up to
+2 % Bachelors % Master or above %
NTC 12.00 42.00 46.00
6 21 23 50
% % %
Ncell 46.00 46.00
4 8.00% 23 23 50
% %
Smart 18.00 60.00 22.00
9 30 11 50
Cell % % %
Total 12.67 49.33 38.00
19 74 57 150
% % %
The result shows that majority of respondents (49.33 percent) completed Bachelor’s
degree, followed by 38 percent of respondents completed Master and above degree, and
12.67 percent had completed up to +2.
Further, the result shows that 46 percent of NTC user had Master or above degree.
Similarly 46 percent of Ncell user had Bachelor’s degree as well as 46 percent user had
Master or above degree. While the majority of Smart Cell user (60 percent) had
Bachelor’s degree.
26
Occupation of Respondent
This section shows the demographic characteristics of respondents in terms of

occupation. The respondents profile is briefly presented in the following Table 4.4.
Table 4. : Occupation of Respondent
Occupation
Operator Total
student % Employed % Business %
NTC 17 34.00% 25 50.00% 8 16.00% 50
Ncell 13 26.00% 34 68.00% 3 6.00% 50
Smart Cell 5 10.00% 45 90.00% 0 0.00% 50
Total 35 23.33% 104 69.33% 11 7.33% 150
The result shows that majority of respondent (69.33 percent) are employed. Followed by
23.33 percent student and 7.33% Business owner.
Further, the result shows that majority of NTC users (50 percent), Ncell users are (68
percent) and Smart Cell users (90 percent) are employed.
Subscription of Total Respondent
This section shows the subscription of respondents to various operator. This section show
the multi operator subscription of the 150 respondent. The respondents profile is briefly
presented in the following Table 4.5.
Table 4. : Subscription of Respondents
Operator Total User %

NTC 107 71.33%
Ncell 65 43.33%
Smart Cell 54 36.00%
The result shows that out of 150 respondent 71.33 percent has subscribed to NTC as well,
43.33 percent has subscribed to Ncell as well and 36 percent has subscribed to Smart cell
as well.
27
This result shows that the majority of respondent have also subscribed to NTC also, while
using service of other operators.
Subscription Plan
This section shows the subscription plans of respondents for their primary operator. The
respondents profile is briefly presented in the following Table 4.6.
Table 4. : Subscription Plan of Respondents
Subscription Plan
Operator Total
Postpaid % Prepaid %
NTC 6 12.00% 44 88.00% 50
Ncell 20 40.00% 30 60.00% 50
Smart Cell 0 0.00% 50 100.00% 50
Total 27 18.00% 123 82.00% 150
The result shows that majority of respondent (82 percent) use the prepaid plan where as
18 percent use the postpaid plan for their primary subscription.
Further, from the result NTC has more prepaid users while Ncell has more postpaid users.
And since Smart has only prepaid plan for their customer, all of its subscriber are under
prepaid plan.
Subscribed Duration
This section shows the subscription duration of respondents for their primary operator.
Table 4. : Subscription Duration of Respondent
Subscription Duration Total
more
Operator less than 1 1 to 3 4 to 6
% % % than 6 %
year years years
years
NTC 0 0.00% 8 16.00% 12 24.00% 30 60.00 50

28
Ncell 60.00
2 4.00% 12 24.00% 6 12.00% 30 50
%
Smart 10.00
22 44.00% 14 28.00% 9 18.00% 5 50
Cell %
46.67
Total 11 7.33% 42 28.00% 27 18.00% 70 150
%
The result shows that 46 percent of the respondent have been subscribed to their primary
operator for more than 6 years. Also, second majority (28 percent) of the respondent have
been subscribed to their primary operator for 1 to 3 years.
Further, majority of NTC users (60 percent) have been subscribed to the operator for
more than 6 years. Also for Ncell 60 percent have been subscribed to the operator for
more than 6 years. While 44 percent of Smart Cell users were subscribed to the operator
less than a year.
This result show that, Smart Cell being new operator in the industry have more new
subscriber while NTC has no new subscriber, for the survey sample.
Services Subscribed
This section shows the various service subscribed by the respondents for their primary
operator.
Table 4. : Services Subscribed by Respondent
Operator Service
Voice Data SMS CRBT MCA FNF BT International Roaming
29
Call
NTC 50 50 50 1 41 7 14 2 0
Ncell 50 50 50 5 28 9 16 11 5
Smart
50 50 50 3 44 4 17 1 0
Cell
Total 150 150 150 9 113 20 47 14 5
The result shows that all respondent use the voice, Data and SMS service. And the most
service used apart from them is the Missed Call Alert (MCA) service followed by
Balance Transfer (BT) service.
Package Subscribed
This section shows the package subscription of respondents for their primary operator.
Table 4. : Packages Subscribed by Respondent
Package Subscribed Total

Operator
Voice Package % Data Package % Both %
NTC 12 24.00% 28 56.00% 10 20.00% 50
Ncell 6 12.00% 27 54.00% 17 34.00% 50
Smart
22 44.00% 19 38.00% 9 18.00% 50
Cell
Total 40 26.67% 74 49.33% 36 24.00% 150
From the result, the majority of respondent (49.33 percent) have subscribed to data
package only, while 26.6 percent have subscribed to voice package only. Also 24 percent
of respondent have subscribed to both packages.
Further, majority of NT users (56 percent) and Ncell user (54 percent) have subscribed to
data package. While majority of Smart Cell user (44 percent) have subscribed to voice
30
package. Amon the operator, Ncell have the highest (34 percent) subscription to both
services.
Analysis of dimensions of Service Quality
This section provides the information regarding the Service quality of the telecom
operator. Service quality is the result of empathy, reliability, tangibility, and
responsiveness.
Empathy
The respondent’s opinion regarding the empathy of the operator is presented in table
4.10.
Table 4. : Empathy of Operators
Statement N Minimum Maximum Mean Std. Deviation

Operator has convenient 150 2.00 5.00 3.9800 .61818
validity period for
31

recharge and sim
activation.
Working Hour of the
customer care center is 150 2.00 5.00 3.3267 .60752
convenient
Customer service
representative understand 150 2.00 5.00 3.5733 .64866
the need of the customer.
Operator apologies to
customer for the 150 1.00 5.00 3.3467 .63443
inconvenience cause.
Average Score 150 1.75000 5.00000 3.55667 .62720
The respondents were asked to rate empathy of the operator from 1 to 5, the responses of
which are stated in the table above. They rated in the following terms.
(1 = strongly disagree, 2 = Disagree, 3 = Neutral, 4 = Agree and 5 = strongly agree)
In the above table, average score for empathy of the operator, with a mean of 3.55667
and standard deviation of 0.62720, are considered good as per the rating by the
respondents.
Reliability (Dimension of Service Quality)
The respondent’s opinion regarding the reliability of the operator is presented in table
4.11.
Table 4. : Reliability of Operator
Std.
Statement N Minimum Maximum Mean
Deviation
Operator Keeps its 150 2.00 5.00 3.4133 .79585
promise on timely service
32
delivery and customer

support.
Network coverage and
quality (voice clarity) of 150 1.00 5.00 3.1667 .77214
the operator is good.
Delivery of all service are
150 1.00 5.00 3.4333 .77214
timely.
Average Score 150 1.33333 5.00000 3.33778 .78004
The respondents were asked to rate reliability of the operator from 1 to 5, the responses
of which are stated in the table above. They rated in the following terms.
In the above table, average score for reliability of the operator, with a mean of 3.33778
respondents.
Tangibility
4.12.
Table 4. : Tangibility of Operators
Std.
Deviation
Customer care center are
150 2.00 5.00 3.4867 0.69259
located in convenient places.
Information/Message in 150 1.00 5.00 3.52 0.80034
33
Std.
Deviation
recharge are clear.
Promotional offers are
150 1.00 5.00 3.213 0.6511
communicated properly.
Billing methods are
150 2.00 5.00 3.6733 0.79846
transparent and clear.
Average Score 150 1.50 5.00000 3.47333 0.73563
The respondents were asked to rate tangibility of the operator from 1 to 5, the responses
In the above table, average score for tangibility of the operator, with a mean of 3.47333
respondents.
Responsiveness
4.13.
Table 4. : Responsiveness of Operators
Std.
Deviation
Customer service representative
150 1.00 5.00 3.5733 .83824
are always willing to help.
Operator takes your feedback 150 1.00 5.00 3.1667 .77214
Helpline is easily available 150 1.00 5.00 3.4400 .95172
34
Average Score 150 1.00000 5.00000 3.39333 .85403
The respondents were asked to rate responsiveness of the operator from 1 to 5, the
responses of which are stated in the table above. They rated in the following terms.
In the above table, average score for responsiveness of the operator, with a mean of
3.39333 and standard deviation of 0.85403, are considered good as per the rating by the
respondents.
Service Quality
From above result we can summarize the service quality of the telecom operators in
following table 4.14.
Table 4. : Summary of Service Quality

Empathy 150 2.25 5.00 3.5567 .42780
Reliability 150 1.33 5.00 3.3378 .64041
Tangibility 150 1.50 5.00 3.4733 .49928
Responsiveness 150 1.00 5.00 3.3933 .72771
Service Quality 150 2.38 4.67 3.4403 .43220
Service Quality can be interpreted as the average score of Empathy, Reliability,

Tangibility and Responsiveness of the operators. From the result we can conclude that the
average score of service quality in the telecom industry of Nepal is 3.4403, which is good
as per the rating by the respondents.
Further the Q-Q plot of service quality is shown below, and from the graph we can also
conclude that the distribution for service quality is normal.
35
Figure 4. : Q-Q Plot of Service Quality
Customer Loyalty
This section provides the information regarding the loyalty of respondent toward their
primary operator. The respondent’s opinion regarding the reliability of the operator is
presented in table 4.15.
Table 4. : Loyalty of Respondents
Std.
Deviation
I am willing to use the service in
150 2.00 5.00 3.9733 .70422
future as well.
36
Std.
Deviation
I am willing to pay same amount
for the current service in future 150 2.00 5.00 3.1533 .45960
as well.
I would encourage to use
packages/offers of operator to 150 2.00 5.00 3.7933 .74453
other users as well.
I have complains regarding the
service provided by the operator. 150 2.00 5.00 3.4800 .65251
I would recommend others to

150 2.00 5.00 3.7067 .72858
subscribe to my operators.
Average Score 150 2.00000 5.00000 3.62133 0.65789
The respondents were asked to rate tangibility of the operator from 1 to 5, the responses
In the above table, average score for customer loyalty towards the operator, with a mean
of 3.6213 and standard deviation of 0.65789, are considered good as per the rating by the
respondents.
Further the Q-Q plot of customer loyalty is shown below, and from the graph we can also
conclude that the distribution for customer loyalty is normal.
37
Figure 4. : Q-Q Plot of Customer Loyalty
Inter Operator Comparison of Service Quality and Customer Loyalty
This section provides the information regarding the comparison between major three
operators of Nepal viz. NTC, Ncell and Smart Cell in respect of the service quality and
customer loyalty.
The comparison of service quality and loyalty of customer between three operators is
shown in the following table 4.16.
38
Table 4. : Comparison of Service Quality and Customer Loyalty of Operators
Operator Service Quality Loyalty

Mean 3.3804 3.6320
NTC
Std. Deviation .47243 .34133
Mean 3.4737 3.6280
Ncell
Mean 3.4667 3.6040
Smart Cell
Mean 3.4403 3.6213
Total
From the result, we can see that Ncell has the highest service quality score (3.4737)
followed by Smart Cell (3.4667) and NTC (3.3804). Further, NTC has the highest loyalty
score (3.6320) followed by Ncell (3.6280) and Smart Cell (3.6040).
Pearson’s Correlation Analysis
Correlation is used to analyze the relationship between factors of service quality and
customer loyalty. The correlation coefficients between dependent and independent
variables are presented in Table 4.17.
Table 4. 1: Correlation Coefficient of Factors of Service and Customer Loyalty

39
Variables Loyalty Empathy Reliability Tangibility Responsiveness

Loyalty Pearson
1 .422** .409** .343** .375**
Correlation
Sig. (2-
.000 .000 .000 .000
tailed)
Empathy Pearson
1 .397** .478** .426**
Correlation
Sig. (2-
.000 .000 .000
tailed)
Reliability Pearson
1 .522** .387**
Correlation
Sig. (2-
.000 .000
tailed)
Tangibility Pearson
1 .325**
Correlation
Sig. (2-
.000
tailed)
Responsiveness Pearson
1
Correlation
Sig. (2-
tailed)
**. Correlation is significant at the 0.01 level (2-tailed).
Table 4.17. Shows that there is positive correlation between loyalty of customer and
empathy, reliability, tangibility and responsiveness of the telecom operator.
Among the different factors, empathy (0.422) and reliability (0.409) comparatively have
higher degree of correlation with customer loyalty. Whereas tangibility and
responsiveness have correlation coefficient of 0.343 and 0.375 respectively. Indicating
that empathy and reliability have greater impact on customer loyalty than tangibility and
responsiveness.
Further we can interpreted that, higher the empathy of the operator higher the customer
loyalty. Also, if the reliability of the operator is high, higher will be the loyalty toward
the operator. Similarly higher degree of tangibility and responsiveness results in higher
level of customer loyalty.
40
Multicollinearity Test
Following table 4.18 shows the result of multicollinearity test for the data collected.
Table 4. 2: Multicollinearity Test
Collinearity Statistics
Variable
Tolerance VIF
Empathy 0.68 1.472
Reliability 0.665 1.503
Tangibility 0.639 1.565
Responsiveness 0.761 1.315
From the result we can observe that the VIF value is 1.472 for Empathy, 1.503 for
Reliability, 1.565 for Tangibility and 1.315 for Responsiveness, meaning that the VIF
value obtained is in the range of 1 to 10. Thus it can be concluded that there is no
multicollinearity symptoms.
Regression Analysis
Regression analysis has been conducted and the results are presented in Table 4.19.
Table 4. 3: Regression Analysis
Standardized
Unstandardized Coefficients
Coefficients
Variable t Sig.
Std.
B Beta
Error
(Constant) 1.843 .266 6.932 .000
41
Empathy .225 .083 .233 2.711 .008

Reliability .140 .056 .217 2.505 .013
Tangibility .051 .073 .062 .700 .485
Responsiveness .098 .046 .172 2.115 .036
Table 4.19 shows that beta coefficient for celebrity trust is positive with Empathy of
telecom operators. The results hence indicate that empathy of telecom operator has
significant positive impact on customer loyalty.
Similarly, the beta coefficient for Reliability of telecom operator is positive with
customer loyalty indicating that higher the reliability, higher is the customer loyalty.
The beta coefficient for Tangibility of telecom operator is positive with customer loyalty.
The results hence indicate that Tangibility of telecom operator has significant positive
impact on customer loyalty.
The beta coefficient for Responsiveness of telecom operator is positive with customer
loyalty. Indicating that higher degree of responsiveness to higher degree of customer
loyalty.
Thus the following regression equation can be formulated,
CL=1.843+0.233X1+0.217X2+0.062X3+0.172X4
Inferential Analysis: Hypothesis Testing
In the section that follow, the hypothesis that were set earlier were tested by regression
analysis. From the result obtained in previous table 4.19 we can conclude the results of
hypothesis as presented in Table 4.20.
Table 4. 4: Hypothesis Test
S.N Hypothesis P-Value Conclusion

There is significant relationship between customer
H1 loyalty and empathy of service quality in .008 Accept H1
telecommunication sector.
42
S.N Hypothesis P-Value Conclusion

H2 loyalty and reliability of service quality in .013 Accept H2
H3 loyalty and tangibility of service quality in .485 Reject H3
H4 loyalty and responsiveness of service quality in .036 Accept H4
From above result, following statements can be concluded.
1. There is significant relationship between customer loyalty and empathy of service

quality in telecommunication sector.
2. There is significant relationship between customer loyalty and reliability of

service quality in telecommunication sector.
3. There is no significant relationship between customer loyalty and tangibility of

4. There is significant relationship between customer loyalty and responsiveness of

Demographic analysis of Service Quality and Customer loyalty
In this section, the service quality and customer loyalty are analyzed with respect to the
demographic variables, which are: Gender, Age, Education and Occupation. T-test and
ANOVA test are used for this purpose.
Service Quality with Respect to Gender
For this analysis following hypothesis is formulated,
Ho: There is no significant difference in perception of Service Quality between male and
female.
43
H1: There is significant difference in perception of Service Quality between male and
female.
Using T-test for the analysis, the results are presented in table 4.21.
Table 4. 5: T-test for Service Quality and Gender
Mean Std. Error

t df Sig. (2-tailed)
Difference Difference
Service Quality 1.492 148 .138 .10495 .07035
From the above table the P value is 0.138, which is greater than 0.05, thus we can
conclude that there is no significant difference in perception of service quality between m
Service Quality with Respect to Age Group
Ho: There is no significant difference in perception of Service Quality between different

age group.
H1: There is significant difference in perception of Service Quality between different age
group.
Using one way ANOVA test for the analysis, the results are presented in table 4.22.
Table 4. 6: ANOVA Test for Service Quality and Age Group
Service Quality Sum of Squares df Mean Square F Sig.
Between Groups .186 2 .093 .496 .610

Within Groups 27.647 147 .188
Total 27.833 149
conclude that there is no significant difference in perception of service quality between
different age group.
44
Service Quality with Respect to Education Level

education levels.
H1: There is significant difference in perception of Service Quality between different

education levels.
Table 4. 7: ANOVA for Service Quality and Education Levels

Between Groups .021 2 .010 .055 .947
Total 27.833 149
different education level.
Service Quality with Respect to Occupation

occupations.
H1: There is significant difference in perception of Service Quality between different

occupations.
Table 4. 8: ANOVA Test for Service Quality and Occupation

45
Between Groups .190 2 .095 .507 .604

Total 27.833 149
different occupations.
Customer Loyalty with Respect to Gender
Ho: There is no significant difference in Customer loyalty between different genders.
H1: There is significant difference in Customer loyalty between different genders.
Using T-test for the analysis, the results are presented in table 4.25.
Table 4. 9: T-test for Customer Loyalty and Gender
t df Sig. (2-tailed) Mean Difference Std. Error Difference
2.46
Loyalty 148 .015 .16389 .06642
7
From the above table the P value is 0.015, which is less than 0.05, thus we can conclude
that there is significant difference in Customer loyalty between different genders.
Customer Loyalty with Respect to Age Group
Ho: There is no significant difference in Customer loyalty between different Age group.
46
H1: There is significant difference in Customer loyalty between different Age group.
Using one way ANOVA test for the analysis, the results are presented in table 4.26
Table 4. 10: ANOVA test for Customer Loyalty and Age Group
Loyalty Sum of Squares df Mean Square F Sig.

Between Groups .286 2 .143 .837 .435
Total 25.452 149
conclude that there is no significant difference in Customer loyalty between different Age
groups.
Customer Loyalty with Respect to Education Level
Ho: There is no significant difference in Customer loyalty between different Education

levels.
H1: There is significant difference in Customer loyalty between different Education

levels.
Table 4. 11: ANOVA Test for Customer Loyalty and Education Level
Between Groups .254 2 .127 .742 .478

Total 25.452 149
conclude that there is no significant difference in Customer loyalty between Education
levels.
47
Customer Loyalty with Respect to Occupation
Ho: There is no significant difference in Customer loyalty between different Occupations.
H1: There is significant difference in Customer loyalty between different Occupations.
Table 4. 12: ANOVA Test for Customer Loyalty and Occupation

Between Groups .012 2 .006 .034 .966
Total 25.452 149
conclude that there is no significant difference in Customer loyalty between different
Occupations.
CHAPTER V
SUMMARY AND CONCLUSION
In the final part of the report the present researcher has developed the four distinct
sections. The first section deals with the overall summary of the study carried out.
Followed by second section is the discussion of the present study and the interpretation of
its result to that of the previously carried research discussed in the review part of the
study. Third section of the chapter consists of the conclusion of the study and finally the
fourth section is all about the recommendation and implication of the study.
48
Summary
The present study is conducted in order to know the relationship between customer
loyalty and service quality in telecom sector. To make the research well executed the
researcher used quantitative method of data collection where the research was firmly
based on descriptive and causal research design.
The research was based in Kathmandu Valley. A total of 150 samples were taken where
each element of the population had an equal and non-zero chance of being selected. Also
equal sample (50) for each operator (NTC, Ncell and Smart Cell) was selected. The
present research was conducted descriptive and causal comparative research design and
collect the data using social networking sites where a set of questionnaires was prepared
with two distinct sections. First section of the questionnaire contained the personal
information of the respondent whereas the second section contained the behavioral
aspects of the respondent. Likert scale questions were used on the second section of the
questionnaire.
The data collected from the survey was later coded, analyzed, presented and integrated in
order to produce the result or outcome of the research study. From the present study the
researcher found that there is positive relationship between customer loyalty and service
quality in telecom sector.
Major Findings
The result of demographic data showed that the higher percentage of the respondents
were male which was 52%, and fell in the age group of 26 – 35 y/o (50%). Further,
mostly employed (69.33%) and the higher percentage of respondents had a Bachelors’
degree (49.33).
Moving on, among the 150 respondents 71.33% used NTC, 43.33% used Ncell and 36%
used smart. And among them most had subscribed to prepaid plan (82%). While 46.67%
of the respondent have been subscribed to their primary operator more than 6 years.
From the result obtained, it was also clear that all respondent have used voice, data and
sms service offered by their primary operator. Moreover, the most used service apart
49
from these were Missed call alert (75.33%), then followed by Balance Transfer (31.33%)
and Friends and Family service (13.33%). The study also indicated that 49.3% of the
respondent use data pack only and 26.67% of respondent used voice pack only. While
24% of the respondent use both voice and data pack.
From the analysis of service quality and customer loyalty it was found that the score for
the service quality of telecom sector at 3.4403, which is above average. And the score for
the customer loyalty in telecom sector is 3.6213 which is also above average.
In between the three operators, all have scored relatively similar and above average score
for service quality. However Ncell have the better service quality with an average score
of 3.4737 followed by Smart Cell (3.4667) and NTC (3.3804).
Similar result is seen for the customer loyalty score between the operators. All have
similar and above average score. However NTC has the better customer loyalty with a
score of 3.6320 followed by Ncell (3.6280) and Smart Cell (3.6040).
Conclusions
The results and findings of the study have been able to fulfil the objectives mentioned in
Chapter I. And from the result obtained we can conclude that most of the respondent are
subscribed to more than one operator and have been using prepaid plan. Many respondent
have been subscribed to their primary operator for more than 6 years.
Among the different services the primary services like voice, SMS and data are used by
100% of the respondent. Further in case of Data service majority of the respondent have
been using data packs which reflect the current trend in usage of mobile data.
In terms of service quality and customer loyalty, Based on the different analysis
performed (correlation analysis, regression analysis and inferential analysis) we can
conclude that all three factors of service quality (empathy, responsiveness and reliability)
have significant and positive relation with the customer loyalty, whereas Tangibility of
service quality has no significant relation with customer loyalty for the telecom sector of
Nepal.
50
Further the service quality of the operators are above average and the corresponding
customer loyalty is also above average. Among the three operators considered for the
study Ncell has the better service quality while NTC has the better customer loyalty.
Recommendation
After conducting the study few recommendation can be put forward for the operators and
for further research on the same topic
Firstly, this study shows that there is positive relationship between Empathy and
Customer Loyalty. Thus operators should provide convenient validity period for recharge
and sim activation while operating customer care center with appropriate timing and with
well-trained customer service representatives.
This study also shows that there is positive relationship between Reliability and Customer
Loyalty. Thus the operators should be precise on service delivery and improve their
infrastructure for better network coverage.
This study also shows that there is positive relationship between Tangibility and
Customer Loyalty. Thus the operators should place there customer care center in
convenient locations. Further they should be transparent with billing and should make
information available to customer clearly and easily.
This study also shows that there is positive relationship between Responsiveness and
Customer Loyalty. Thus the operators should take much feedback from customer while
making helpline easily available for the same purpose.
Lastly, the scope for this study is limited to service quality of operator and customer
loyalty within Kathmandu. Henceforth, future study should do a country wide
comparison to account for the Service quality of the operators and customer loyalty.
51
REFRENCES
Agyei, P. M., & Kilika, J. M. (2013). The relationship between service qualtiy and customer
loyalty in the Kenyan mobile telecommunication service industry. European Journal of
Business and Management, 35-44.
Boulding, W., Kalra, A., Staelin, R., & Zeithaml, A. V. (1993). A dynamic process model of
service quality: From expectation to behavioural intentions. Journal of Marketing
Research, 92-105.
Dick, A. S., & Basu, K. (1994). Custmer loyalty: Towards an integrated conceptual framework.
Journal of The Academy of Marketing Sciense, 66-80.
Hassan, U. M., Malik, A. A., Imran, M., Hussain, A., & Abbas, J. (2013). Relationship among
customers perceived service quality, satisfaction and loyalty in the retail banking sector
of Pakistan. World Applied Science Journal, 55-68.
52
Kushwah, V. S., & Bhargava, A. (2014). Service quality perception of telecom sector in India.
International Journal of Advancement in Technology, 25-30.
Lovelock, C. (1983). Classifying services to gain strategic marketin insights. Journal of

Marketing, 365-379.
Lymperopoulos, C., c, haniotakis, I. E., & Soureli, M. (2006). The importance of service quality
in bank selection for mortage loan. Managing Service Quality, 57-71.
Ndubisis, N. O. (2006). A strucutral equation modeling of the antecedents of relationship quality

in the Malaysian banking sector. Journal of Financial Services Marketing, 131-141.
Owusu, A. (2012). The impact of CRM in telecommunication industry in Ghana-A case study of
Airtel Ghana Ltd. Kamasi branch. International Journal of Business and Management
Tomorrow, 35-50.
Parasuraman, A., Zeitham, V. A., & Berry, L. L. (1988). SERVQUAL: A multiple item scale for
measuring consumer perceptions of service quality. Journal of Retailing, 12-40.
Parasuraman, A., Zeithaml, V. A., & Berry, L. L. (1985). A conceptual Model of service quality
and its implications for future research. Journal of Marketing, 50-62.
Parvatiyar, A., & Sheth, J. N. (2001). Customer relationship management: Emerging practices,
process and discipline. Journal of Economic & Social Research, 1-34.
Payne, A., & Frow, P. (2013). Customer relationship management from strategy to implement.
Journal of Marketing Management, 135-168.
Poku, K., Ansah, O. M., & Lamptey, D. I. (2013). The impact of service qualtiy on customer
loyalty in telecommunication industry: A case study of Expresso Telecom Ghana.
Journal of Researcch in Marketing , 121-221.
Siddiqui, K. (2011). Interrelation between service quality attributes, customer satisfaction and
customer loyalty in the retail banking sector in Bangaladesh. International Journal of
Business and Management, 12-36.
53
ANNEX
Dear respondents,
This is a short questionnaire to study the Relationship between Service Quality and Customer
Loyalty in the telecom sector of Nepal, specifically in Kathmandu Valley. I request you all to fill
up the questionnaire and help me complete my research report, which is a part of my curriculum.
This will only take 10 minutes of your time. All the information collected herein will be kept
highly confidential and will only be used for academic purposes.
Thank you for your time.
1 Gender
a. Male
b Female
54
2 Age
a. 16 - 25
b
. 25 - 34
c. 35 and above
3 Education
a. Up to .+2
b
. Bachelor’s
c. Master and above
4 Occupation
a. Student
b
. Business
c. Employment (private/government)
d
. House maker
Which Operator have you subscribed? (TICK WHICH EVER IS

5 APPLICABLE)
a. Ncell
b
. NTC
c. Smart
6 Which is your primary operator? (SELECT ONLY ONE)

a. Ncell
b
. NTC
c. Smart
(Answer the following question based upon your primary operator)
7 Which product do you use?

55
a. prepaid
b
. postpaid
8 How Long have you been subscribed to the operator?

a. 1 to 2 years
b
. 2 to 4 years
c. 4 to 6 years
d
. more than 6 years
9 Which of the following service do you use? (Select whichever is applicable)

a. Voice service
b. Data (Internet) service
c. SMS
d. CRBT
e. Missed call alert
f. Friends and family service
g. Balance transfer
h. International calling
i. International Roaming
1
0 Do you use following offers?
a. Voice packages
b. Data packages
1 To what extend do you agree on following statement related to Empathy of your

2 operator?
Strongly Disagre Strongly
Factors Agree Agree Neutral e Disagree
Operator has convenient period for
a. recharge and sim activation
Working Hr. of the customer care
b. center is convenient
Customer service representative
c. understand the need of the customer
d. Operator apologies to customer for

56
the inconvenience cause
1 To what extend do you agree on following statement related to Reliability of your

3 operator?
Strongly Disagre Strongly
Factors Agree Agree Neutral e Disagree
Operator Keeps its promise on
timely service delivery and
a. customer support
Network coverage and quality
(voce clarity) of the operator is
b. good
Delivery of SMS, MMS, and other
c. service are timely
1 To what extend do you agree on following statement related to Tangibility of your

4 operator?
Strongl Neutra Strongly
Factors y Agree Agree l Disagree Disagree
Customer care center are located in
a. convenient places
Information/Message in recharge
b. are clear
Promotional offers are
c. communicated properly
Billing methods are transparent and
d. clear
1 To what extend do you agree on following statement related to Responsiveness of your

5 operator?
Strongl Neutra Strongly
Factors y Agree Agree l Disagree Disagree
Customer service representative are
a. always willing to help.
57
b. Operator takes your feedback

c. Helpline is easily available
16 To what extend do you agree on following statement related to your loyalty towards your
operator?
Strongly Strongly
Factors Agree Agree Neutral Disagree Disagree
I am willing to use the
a. service in future as well
I am willing to pay same
amount for the current
b. service in future as well
I would encourage to use
packages/offers of operator
c. to other users as well
I have no complain
regarding the service
d. provided by the operator
I would recommend others
to subscribe to my
e. operators.

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Relationship between Service Quality and Customer Loyalty -

A Study on Telecom Sector in Nepal

Exam Roll No: 15570025

P.U. Registration No: 2015-2-57-0025

A graduate Research Project Report Submitted to

ACE INSTITUTE OF MANAGEMENT

Submitted for the Degree of

Masters of Business Administration (MBA)

Thanking you all!

Recommendation for Approval

Mr. Rabindra Silwal

Acceptance of the External Evaluator

External Examiner ………………………

GRP Advisor ….…………………..

Objective of the Study................................................................................................................6

Limitation of the Study...............................................................................................................8

Organization of the Study...........................................................................................................8

LITERATURE REVIEW & THEORETICAL SURVEY............................................................10

Relationship between Service Quality and Customer Loyalty..................................................13

Research Design and Plan.........................................................................................................19

Sample Size and Determination................................................................................................19

Data Analysis Method..............................................................................................................21

DATA ANALYSIS AND FINDINGS..........................................................................................23

Descriptive Analysis of Data....................................................................................................23

Analysis of dimensions of Service Quality...............................................................................30

Inter Operator Comparison of Service Quality and Customer Loyalty.....................................37

Pearson’s Correlation Analysis.................................................................................................38

Inferential Analysis: Hypothesis Testing..................................................................................42

Demographic analysis of Service Quality and Customer loyalty..............................................43

SUMMARY AND CONCLUSION..............................................................................................48

Table 3. 1: Coefficient of Cronbach's Alpha..................................................................20Y

YFigure 2. 1: Conceptual Framework

Customer loyalty is an aspect of consumer behavior. Organizations are focusing on this

According to Oliver (1999) customer loyalty is said to be a deeply held commitment to

Boahene and Agyapong (2011), in analyzing the antecedents of customer loyalty in

The problem statement can be summarized as below:

Objective of the Study

 To analyze the relationship between four antecedents of service quality and

Shridhar and Sridhar (2004) observed that telecommunication infrastructure development

1. H1: There is significant relationship between reliability of service quality and

2. H2: There is significant relationship between responsiveness of service quality

3. H3: There is significant relationship between empathy of service quality and

4. H4: There is significant relationship between tangibility of service quality and

Limitation of the Study

The limitation of the study are as follows:

 Limited sample size

Organization of the Study

LITERATURE REVIEW & THEORETICAL SURVEY

and dissatisfiers as determinants service quality. He discussed that interaction between

Rundle Thiele (2005) emphasized on multidimensionality of customer loyalty. He

Customer service loyalty conceptualization has received tremendous attention in the

According to Kuusik (2007), it is important to segment customers based on their loyalty.

Sammons (1982) conducted an exploratory study of customer satisfaction of fine dining

Different research available are based on the socio-economic background which is

Empathy Customer Loyalty

Figure 2. : Conceptual Framework

Reliability: the service dimension of reliability measures the consistency of performance

Responsiveness: Responsiveness concerns the willingness or readiness of employees to

Empathy: Empathy entails caring and provision of individualized attention to customers

For measurement of customer loyalty following scale based on model suggested by

CL=β0+ β1X1+ β2 X2+ β3 X3+ β4 X4+e

βx=Regression coefficient , x=1,2,3,4