Effect Of Service Quality On Customer Retention

1.1 Background of the study
Excellent service quality differentiates one bank from the other; today it is essential for profit making and survival. Service quality is used as one of the strategies to retain customers. Customers have become quality conscious and they expect all services provided to be of high quality (Lee & Hwan, 2005). In order to have a sustainable competitive advantage service sectors like banks are obliged to provide excellent services to their customers. Various strategies are formulated to retain the customer and the key of it is to increase the service quality level. Service quality is particularly essential in the banking services context because it provides high level of 3 customer satisfaction, and hence it becomes a key to competitive advantage (Ahmossawi, 2001). In addition, service quality has a significant impact on a bank’s success and performance (Mouawad and Kleiner 1996). Nowadays, service quality has received much attention because of its obvious relationship with costs, financial performance, customer satisfaction, and customer retention. (Duncan and Elliot, 2002) Consumers all over the world have become more quality conscious; therefore customers’ requirements for higher quality service have been increased (Lee, 2005).

Service sector such as the banks are obliged to provide excellent services to their customers in order to have sustainable competitive advantage. In spite of the criticality of service quality to businesses, measuring service quality causes difficulties to service providers, as of the unique characteristics of services: intangibility, heterogeneity, inseparability and perishability (Douglas & Connor, 2003). In sight of this, services need a distinctive framework for quality clarification and measurement. Among the major frameworks, servqual model developed by Parasuraman et al. (2018) is most preferred and widely used model for measuring service quality in the service industry. Quality is such an important issue that it is considered a really significant concept in our real life. It is regarded as a strategic organizational weapon. And the pressing need of developing service organizations and upgrading their services necessitates the measuring of service quality. This assets in checking the quality progress and providing bases for improving it. As a result of economic changes throughout history, the concept of ‘quality’ has changed. ‘Quality’ comes from the Latin word ‘Qualities’, which refers to the nature of a person or the nature of an object. In the past Quality meant accuracy and perfection (Al-Dararkah, 2002).

The study of Lee et al. (2000) suggests service quality leads to customer satisfaction. To achieve a high level of customer satisfaction, most researchers suggest that a high level of service quality should be delivered by the service provider as service quality is normally considered an antecedent of customer satisfaction. As service quality improves, the probability of customer satisfaction increases. Quality was only one of many dimensions on which satisfaction was based; satisfaction was also one potential influence on future quality perceptions (Clemes, 2008). Service quality is an important tool to measure customer satisfaction (Hazlina et al., 2011). Empirical studies show that the quality of service offered is related to overall satisfaction of the customer. According to Jamal and Anastasiadou (2009), reliability, tangibility and empathy positively related with customer satisfaction. Sulieman (2011) found that reliability, tangibility, responsiveness and assurance have significant and positive relationship with customer satisfaction. Meanwhile empathy was found to have a significant and negative effect on customer satisfaction .Moreover, the result of Ravichandran et al (2010) indicates responsiveness is the only significant dimension of service quality that affects the satisfaction of customers positively.

Banks are key players in financial markets operations and play an important role in keeping a country’s economy running smoothly. In today’s highly competitive corporate environment, quality of services is an essential element for enhancing customer satisfaction and customer loyalty. Customer retention in the banking sector has received utmost acknowledgment. (Ehigie, 2006). Some customers stopped patronizing the services of banks due to the fact that they spend more hours in queues, their complaints are not handled with urgency, and they are not given prior notice to provide their identification cards when going for their deliverables (Cheque books, withdrawals forms, pay in books, regular sms alerts), and they are not informed of any increase in service charges and rates which have caused them (customers) a lot of displeasure. (Kish, 2000). Every customer of a bank has an insight and prospect concerning service delivery (Mengi, 2009).