The Relationship between Service Quality & Customer Satisfaction in

Banking Industry in Ratnapura Area.

1. INTRODUCTION

In today’s world with the rapid development of technology, knowledge & competition
“Marketing Research” became an important concept for all organizations. In today’s fast-
faced and increasingly competitive market, the main objective of every organization is to earn
profits & good company growth. In such case customer satisfaction & service quality are
global issues that affect all organizations. Therefore today so many companies focus &
interesting in studying, evaluate & implementing strategies that aim to satisfy their customers
maximally by improving the quality of the service which they provide. Therefore it is
essential for marketers to concern about the quality level of their services.

Quality is an important concept in our real life. Quality comes from the Latin word
“Qualitas” which refers to the nature of the person or of an object. In the past quality meant
accuracy & perfection. (Anber Abraheem Shlash Mohammad, Shireen Yaseen Mohammad
Alhamadani,) However as a result of economic changes the concept of “quality” has changed.
Today quality considered as one of the most important strategic weapon for all organizations.

Customer satisfaction also has been examined by many researches in different industries.
(Fornell, 1992; Anderson and Sullivan, 1993; Bolton, 1998; Caruana, 2002; Ranaweera and
Prabhu, 2003). Today as a result of technological & economical changes customers have
become intelligent & busy people. Therefore they always expect quick & efficient service for
their money. In this research it is examine how the quality of banking services affects
customer satisfaction.

In today’s world within the open economic system banking industry plays a major role as
circulation of money through the banking system. Banking is a broad concept which consists
with different activities and functions. Today development of information technology is
directly reasonable for improving the quality of banking services. When considering the
industrial context of Sri Lanka, the main bank is “Central Bank”. And also according to the

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current data of central bank of Sri Lanka approximately there are 25 banks are working in Sri
Lanka including 05 foreign banks.

And also local banks are divided as commercial banks, specialized commercial banks,
development banks and other which include both government & non government banks.

Nowadays due to tough competition among those banks, they always try to provide superior
service to their customers. Therefore bankers following several techniques & strategies to
improve the quality level of their services. Specially using technological advantages. As an
examples facilitate to use banking services by using mobiles & internet. Not only that they
developing the physical environment & facilities of their banks.

However today each & every customer demand high quality services, not only from the
banks. If customers are unsatisfied, it is easy for them to move away to another bank.
Therefore bankers must specially focus their attention to always provide high quality service
to their customers.

Customer has special kind of behavior in different aspects like customers give priority to
areas which include the full-fillness of their expectations involving the responsiveness area
and customers are less attracted to tangible areas. To achieve better level of service quality
bank managers should develop working lines on which service quality is refined to increase
the customer satisfaction. (Khalid et al., 2011)

Many researchers have been conducted to find the impact of services quality on customer
satisfaction in their context. But here researcher expects to conduct this research for the first
time in Sri Lankan context. And also previous researchers have used not only the service
quality & customer satisfaction, they have added different variables such as customer loyalty,
online systems & customer intention. But here this research only examines the relationship
between service quality & customer satisfaction in banking industry in Sri Lanka.

1.1. Research problem

Service quality & customer satisfaction are a crucial to success in any business. Especially
within the banking sector. Because banks doing their business activities regarding the public

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money. So the quality levels of banking services are very important specially to earn good
profit through attract and retain more customers.

When developing and implementing strategies to improve the quality level of banking
services, it is related with customer satisfaction. Therefore before plan or develop more
strategies to improve the quality of banking services, it is important to conduct a research on
that. This research gives the answer to the main problem which is

“ What is the relationship between service quality and customer satisfaction in banking
industry in Sri Lanka?”

1.2. Objectives

The main objective of this research is to,

Examine the relationship between service quality and customer satisfaction in banking
industry in Sri Lanka.

A research like this is essential to assess and improve service delivery and design, because it
will provide management with data that they can use in making inferences about the
customers. (JENET MANYI AGBOR, The Relationship between Customer Satisfaction and
Service Quality, 2011, p 5). So the results of this research will provide useful information &
guidelines for service organizations regarding customer satisfaction & service quality.

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 2. LITERATURE REVIEW
2.1 service quality
Service quality has been defined by various people in different ways. Services depend on the
type of product and it differs in the various organizations. According to the area which the
term “service” is being used it can be defined in different ways. For instance service is “any
intangible act or performance that one party offers to another that does not result in the
ownership of anything” (JENET MANYI AGBOR, The Relationship between Customer
Satisfaction and Service Quality, 2011, p 7).

The aim of providing quality services is to satisfy customers. Measuring service quality is a
better way to measure whether the services are good or bad and whether the customers will or
are satisfied with it.
When describing the term quality, according to Karim's definition (1996), he explains quality
as anything which matches with the characteristics of the product or service which meet the
external needs. And also (Mohamed & Shirley 2009) emphasized that banks have to care
about the quality of their services since this quality is considered the essence or core of
strategic competition.

Many authors developed various definitions on service quality. For instance (Bitner, Booms
and Mohr 1994, p. 97) define service quality as “the consumer’s overall impression of the
relative inferiority / superiority of the organization and its services”.
Another way of define service quality is “Perceived qualities as well as customer
expectations are the two most important constructs that positively and directly influences
overall customer satisfaction”. (Yu Hung-Hsiang, 2005, p.86).

“Customer satisfaction is directly proportional to service quality. So organizations should pay

more attention on service quality. For this, the firms should welcome customer suggestions
and should design programs which can measure service quality and customers satisfaction”.
(Ojo, 2010). (Hernon & Nitecki 2000, p.690) defined service quality in terms of “meeting or
exceeding customer expectations or as the difference between customer perceptions and
expectations of services”.

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A quantitative research was arranged by Parasuraman Zeltham, I & Berryet (1988) in which
an instrument was developed for measuring the perception of consumers regarding service
quality and after that research it became known as SERVQUAL. This compound word
consists of the two words 'Service' and 'Quality. The dimensions of SERVQUAL model
were:
™ Tangibility – physical attributes.
™ Reliability –to give promised service.
™ Responsiveness – showing interest to help customers and provide prompt services.
™ Assurance –guarantee competence, courtesy, credibility, and security to customers by
organization’s employees using their knowledge.
™ Empathy –the ability to understand and share the feelings of customers.
(Parasuraman Zeltham, I & Berryet, 1988)

Caruana (2002) evaluated service loyalty over 1000 retail banking customers in Malta.
Results showed that customer satisfaction played a mediating role in the effect of service
quality.
According to Sasser et al. (1978), service quality is determined of how the received quality of
services matches with the customers’ expectations.

2.2. Customer satisfaction

Customer satisfaction is a key factor of success for any business, and it is essential for
building long-term customer relationships (Patterson et al. 1997). Most discussions on
customer satisfaction involve customer expectation of the service delivery, actual delivery of
the customer experience, and expectations that are either exceeded or unmet. If expectations
are exceeded, positive disconfirmation results, & negative disconfirmation results when
customer experience is less than expected.

In today's world of intense competition, the key to sustainable competitive advantage lies in
delivering high quality service that will in turn result in satisfied customers. (Anber
Abraheem Shlash Mohammad, Shireen Yaseen Mohammad Alhamadani, p.63)

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According to the (Samraz Hafeez & Bakhtaran Muhammad 2012, p.201) customer
satisfaction means that “a customer or the user of service is well contended with the
performance”.
And also it can be defined as the situation that customers’ expectation of the service provided
matches with the actual service that they received (Sasser et al. 1978; Groonroos 1982).
Oliver (1997, p. 13) defines satisfaction as “the consumer’s fulfillment response, a post
consumption judgment by the consumer that a service provides a pleasing level of
consumption-related fulfillment, including under or over-fulfillment”.

Bitner & Zeithaml (2003) stated that satisfaction is the customer’s evaluation of a product or
service in terms of whether that product or service has met their needs and expectations. Thus
understanding factors that affect customer satisfaction has become an important aspect for all
firms that provide services and products.
“Customer satisfaction as an individual’s feeling of pleasure or disappointment resulting from
comparing a product’s perceived performance (or outcome) in relation to his or her
expectations”. ( YAP SHEAU FEN, KEW MEI LIAN, Sunway Academic Journal 4, p.61)

(Woodruff, 1997) described customer satisfaction as the overall positive or negative evaluation of a
customer for the services.

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 3. CONCEPTUAL FRAMEWORK & HYPOTHESIS

3.1. Conceptual framework

In this research, this researcher has developed a conceptual framework (figure 01) which
aims to examine the relationship between service quality & customer satisfaction in banking
industry.
Service quality was conceptualized as a function for the differences between expectations &
performance based on the original view of Parasuraman Zeltham, I & Berryet, (1985).

Following framework represent that service quality has a positive impact on customer
satisfaction in banking industry in Sri Lanka.

+H 1
  Service Customer
 
Quality Satisfaction

Figure.1

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3.2. Hypothesis development

According to the Anber Abraheem Shlash Mohammad, Shireen Yaseen Mohammad

Alhamadani (2011, p.68) they were conducted a research to examine the relationship between
service quality perspectives & customer satisfaction in commercial banks working in Jordan.
They conducted the research by getting 260 respondents as sample of customers who were
visiting to 13 commercial banks in Acity of Jordan. They found that service quality is
positively related with customer satisfaction and also they indicated in their study that service
quality is an important antecedent of customer satisfaction.

According to the (Samraz Hafeez, Bakhtiar Muhammad 2012, p.207) their research study was
conducted to find the impact of service quality, customer satisfaction and loyalty programs on
customer’s loyalty in banking sector of Pakistan. Under this research the researchers collect
the data from 331 customers having bank accounts in different banks of Pakistan. This
research indicates that service quality, customer satisfaction and loyalty programs are the
important factors that can increase the loyalty of a customer towards its bank but customers
are slightly satisfied with the quality services of banks operating in Pakistan
Spreng and Mackoy (1996) stated that service quality guide to customer satisfaction in their
research.

Based on the above research findings it was hypothesized that,

+H1: There is a positive relationship between Service Quality and Customer
Satisfaction

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 4. RESEARCH METHODOLOGY

Under the research methodology part it include the research context, research design, data
collection methods, procedures and sampling & measurements of variables which are use to
conduct this research.

4.1. Research context

This research is going to be examining the relationship between service quality & customer
satisfaction of banking industry in Ratanapura area.

As a research context this survey is going to be carried out in the context of banks which are
situated in Ratnapura area. In this research study it is expected to consider commercial banks,
specialized commercial banks, development banks & other banks in Ratnapura area.

4.2. Research design

Basically it can be identify two major categories of research designs.

1. Exploratory Research Design

2. Conclusive Research Design

Exploratory research is one type of research design, which has its primary objective the
provision of insights into and comprehension of the problem situation confronting the
researcher. Conclusive research is a research, designed to assist the decision maker in
determining, evaluating & selecting the best course of action to take in given situation.
(Naresh K. Malhotra, Satyabhushan Dash, Marketing Research 6th edition, 2010).

This research follows a descriptive research design under conclusive research (quantitative
research). Descriptive research design is a “type of conclusive research that has its major
objective the description of something usually market characteristics or function”. (Naresh K.
Malhotra, Satyabhushan Dash, Marketing Research 6th edition, 2010).

This research study belongs to descriptive research design. Because over this research study it
is expect to describe market characteristics of variables. And also try to expand the existing
knowledge regarding relationship between Service Quality and Customer Satisfaction. In this
study dependent variable is customer satisfaction & independent variable is service quality.

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4.3. Population & sample

4.3.1. Population

According to Naresh K. Malhotra, Satyabhushan Dash,(2010) population is all the

respondents who share common characteristics. This research is aimed to examine the impact
of service quality on customer satisfaction. Therefore the population of this research is the
customers who are visiting the banks of Sri Lanka.

4.3.2. Sample

According to the Dr. Rick Yount (Research Fundamentals, 4th ed. 2006) Sampling is the
process of selecting a group of subjects for a study in such a way that the individuals
represent the larger group from which they were selected. This representative portion of a
population is called a sample. Under this research study sample will be the customers who are
visiting selected bank’s branches in Ratnapura urban area. To select the sample from the
population the research wish to make a list of banks and number of branches which are
located in Ratnapura urban area and those will be divided as commercial banks, specialized
commercial banks, development banks & other banks. It is expected to collect data from the
customers of selected branches under above categories.

In this research sample size sample size will be 150 customers from 10 branches of selected
banks. And also sample will be consisting with both male & female customers who belong to
different age levels.

Under this research simple judgmental sampling technique will be use for select respondents
from the population. Judgmental sampling is “a form of convenience sampling in with the
population elements are purposely selected based on the judgment of the researcher. ( Naresh
K. Malhotra, Satyabhushan Dash, Marketing Research 6th edition, 2010 p. 336).

Because results under judgmental sampling technique may be projected to the target
population, it can be easily understood & also it’s a least cost technique.

4.3.3. Extent

When describing the extent, this research is wished to study the impact of service quality on
customer satisfaction in banking industry in Ratnapura area. So here the researcher limited
the extent to one geographical area. (Ratnapura).

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Under this research study the selected geographical area is Ratnapura. It was selected based
on several reasons. Here the researcher is a resident of Ratnapura area. Therefore it is easy to
visit the banks & collect the data from the respondents. Because the researcher has good
knowledge about the nature of the area. And also it provides various advantages to the
researcher such as convenience, low cost & easy to approach to the sample.

Not only that, Ratnapura is very famous for gems. Due to that reason there is thousands of
buying & selling of gems transactions are taking place in Ratnapura town every day. So
transaction volume is very high with the banks within a single day. This helps the researcher
to have a large sample and to collect the data very easily.

4.4. Data collection

According to the research format (quantitative) which is going to use for this research, both
primary & secondary data will be use.

4.4.1. Primary Data Collection

Primary data is the data organized by the researcher for the specific purpose of addressing the
research problem. (Naresh K. Malhotra, Satyabhushan Dash, Marketing Research 6th edition,
2010).

Under primary data it is very important and essential to design a questionnaire to collect data.
When designing a questionnaire it is expected to prepare it under three major categories. The
first part will include questions which were asked the personal & demographic profiles of the
respondents such as age, gender, and profession & education level. The second part will
consist with the questions about service quality & third part will be consist the questions
regarding customer satisfaction.

And also for the second & third parts questions five-point likert scale was use as 1 for
“Strongly Agree” 2 for “Agree” 3 for “moderate” 4 for “Disagree” and 5 for “Strongly
Disagree”

It is planned to distribute 150 questionnaires among the customers who are visiting the
selected banks (brnaches) in Ratnapura urban area.

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4.4.2. Secondary Data Collection

Secondary data “are the data which have already been collected for purposes other than the
problem at hand. (http://www.fep.up.pt). The secondary data will use to collect the data for
the theoretical practices in this research (literature review).

The secondary data will be obtained from previously published research articles which were
relevant to the research topic. And also it is wish to use journal articles and websites under
secondary data collection.

4.5. Variables Measurement

4.5.1. Independent Variable (Service Quality)

In this research independent variable is service quality. Which means that the “relativistic and
cognitive discrepancy between experience-based norms and performances concerning service
benefits”. (YAP SHEAU FEN, KEW MEI LIAN, Sunway Academic Journal 4, p.61). Service
quality measurement is based on the modified version of “SERQUAL” proposed by
(Parasuraman et al., 1988) which involve five dimensions of service quality developed by
(Parasuraman Zeltham, I & Berryet, 1988). Those dimensions consists with five major
dimensions include 20 sub items.
Those five dimensions are Reliability, Responsiveness, Empathy, Assurance, & Tangibles.
Responses to these items were made on five point likert scale format ranged from 1- Strongly
Disagree to 5- Strongly Agree.

“SERVQUAL (service quality model) can be used by bank managers to measure the service
quality of banking sector. All the characteristics of this model are related directly with
customer satisfaction. Empathy and Assurance are at the positive peak points while
Tangibility is at the bottom level of this relation. Current competition trends in banking sector
indicates that if customer is satisfied than bank will prosper more positively”. (Samraz
Hafeez, Bakhtiar Muhammad 2012, p.203).

4.5.2. Dependent Variable (Customer Satisfaction)

According to the Samraz Hafeez, Bakhtiar Muhammad 2012, Customer satisfaction means
that a customer or the user of service is well contended with the performance.

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Here customer satisfaction was measured by six item index adapted from Walfried M. Lassar,
Chris Manolis, and Robert D. Winsor (2000) & three items adapted from JENET MANYI AGBOR,
The Relationship between Customer Satisfaction and Service Quality,(2011,p 7)

A sample item include: How satisfied are you with the quality of the service provided by the
bank. The questions on customer satisfaction also used a seven point likert scale format
ranged from 1- Extremely Dissatisfied to 7- Extremely Satisfied & also an option for not
applicable.
Table 1 shows the measurements of variables and the items which are needed to develop the
Questionnaire.
Table 1
Variable Items/Index References
Tangibility Parasuraman, A., Zeithaml,
V.A. and Berry, L.L. (1988),
Service Quality Reliability "SERVQUAL”: Journal of
Responsiveness Retailing, Vol. 64, Spring,
pp. 12-40
Assurance
Empathy
Checking account’s details Walfried M. Lassar, Chris
Manolis, and Robert D. Winsor
Credit facilities (2000)
Time deposit accounts “Service quality perspectives
and satisfaction in private
Customer Satisfaction
Investment advisory services banking”
International Journal of Services
Courtesy of reception staff Marketing, Vol.14 No.3, pp. 244-
Courtesy of managers 271

Speed of service JENET MANYI AGBOR, The

Relationship between
  Price Customer Satisfaction
Complaints or problems and Service Quality,2011,p 7

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 5. DATA ANALYSIS

After collecting primary data through questionnaire, those data will be analyzed by using the
SPSS software. SPSS – (Statistical Package for the Social Sciences). This software facilitate
to access the data, present the data, reporting data and also for modeling.

Following models will be used to analyze & present the collected data.

™ Chi Square (x2)

™ Descriptive Statistic Analysis (Mean, SD- Standard Deviation)
™ Correlation Analysis
™ Other data will be presented by using MS- Excel package

Limitations of the research

™ The sample of this research study was limited & small.

™ Only questionnaire based survey methods use to collect the data.
™ Some respondents are unwilling to respond to questionnaires.
™ This research is focused only one geographical area. (Ratnapura).
™ Lack of accurate respondents.
™ This research did not consider the (cultural) potential differences.

Proposed time shedule

1st Month 2nd Month 3rd Month 4th Month

Introduction
Literature Review
Research design
Data Collection
Data Analysis
Write Final Report

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