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PROJECT TOPIC: THE IMPACT OF SERVICE QUALITY ON CUSTOMER SATISFACTION IN BANKING INDUSTRY

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CHAPTER ONE

INTRODUCTION

1.1            Background to the Study

Service quality, especially in the banking sector, has been a popular research topic. Gefen (2000) defined service quality as “the subjective comparison that customers make between the quality of the service that they want to receive and what they actually get.” Sudesh (2007) reported that the poor service quality in public sector banks is mainly due to deficiency in tangibility, as well as a lack of responsiveness and empathy. On the other hand, private sector banks were found to be more refined in this regard. Overall, foreign banks were relatively close to their customers’ expectations in term of the various dimensions of service quality. Furthermore, the study revealed the presence of service quality variations across demographic variables. It suggests that bank management should pay attention to potential failure points and respond to customer problems (Sudesh, 2007). Banks should pay attention to service quality to increase customers’ loyalty to the company, willingness to pay, customer commitment, and customer trust (Hazra and Srivastava, 2009). Therefore, there is a need to emphasize the understanding of multidimensional constructs of service quality and its implications in a competitive environment. A satisfied customer does not necessarily become loyal, while customers may maintain a relationship with a company despite being dissatisfied (Matos et al., 2013).

According to Hossan (2012) customer satisfaction is a key factor in positioning a firm’s performance. This can be measured in different ways. One of the ways of measuring the customers’ satisfaction is by understanding benefits and costs relationship of the customers’ expectations. This can depend on their past experiences. Another way is through the life cycle of the relationship of the customer (Ojo, 2010). In the past, quality was seen as a measurable aspect for tangible products only. This was due to inferiority of the service sector in the economy. Due to the increasing importance of service sector in the economy, the measurement of service quality began to be of interest to individuals in this field (Ghost & Gnanadhas, 2011). Quality of service is not only a vital factor of customer satisfaction in manufacturing industries but also in service firms today that are developing (Karim & Chowdhury, 2014).

Research indicates that customer satisfaction plays a very important role in customer loyalty and retention although it does not ensure repeat purchase (Mohsan et al., 2011). Firms in the service sector need to strive through service quality. One of the major factors which influence the customer satisfaction is the quality of service (Timothy, 2012). Measurement of service quality enables firms to compare before and after changes, identify the quality-related problems, and establishing clear standards for service delivery. High service quality will improve customer satisfaction, give a firm an edge in the market share, and attract profit (Hossan, 2012).

The global economic recession and unrest in financial markets has greatly damaged the confidence of banking and finance sector consumers all over the world. Banking industry has become greatly competitive in the existing business setting. Banks are greatly realizing the need to single out themselves from the competitors, on various criteria which can boost customer satisfaction and loyalty, since banks are offering approximately homogenous products to the customers. The result has shown paramount importance of customer satisfaction and loyalty for the enhanced performance of an organization in the long run (Hallowell 1999). With the aim of enhancing confidence of customers in the abilities of service provides, service quality, customer satisfaction and loyalty are the vital factors deliberated in the current literature (Dick, & Basu 2001).

1.2            Statement of the Problem

It has been observed that people are not loyal to one particular bank anymore. Hence, commercial banks in Nigeria are forced to consider how to create a solid customer foundation that will not be threatened even in the face of aggressive competition. Numerous competitors have entered into the Nigeria banking sector to partake in the advantages of this developing sector. This has created the situation of intense competition among the banks in Nigeria. So, every bank is now striving hard to launch attractive and innovative products and services in order to attract the new customers, and some banks like First Bank with a pool of customers are trying to retain their customers for the longer period of time. In addition attracting new customers and earning huge profits is still a goal to be achieved. This is only possible when the customers are satisfied with the service offered (Kariru & Aloo, 2014). There is a general agreement by scholars that the concept of customer satisfaction and service quality are highly interrelated. For example it has been noted high that service quality generally leads to high levels of customers’ other sectors like the hospitality sector also the banking industry in since they are also in the service industry. Due to emerging trends in technology and consumer awareness, consumers have become increasingly demanding. They understand the value of the products that they want but they also expect quality service rendered to them for their satisfaction (Ghost & Gnanadhas, 2011 and Akbaba, 2009). Even with leading technology to offer services, if any bank serves below the customer expectations, with time it will lose busi ness to competitors in the same industry.


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