Abstract
Service Superiority is important in determining the success of any given service providing organization and influences the level of its competitiveness in the market. A bank in the retail market can outdo its competitors through the provision of excellent services. To retain one's consumers; the quality of service provided must be very palatable to the consumers. This study seeks to establish the relationship between service quality and client loyalty in the retail banking sector in the U.K. This will go a long way in assisting bankers to evaluate and improve the quality of customer service to gain their loyalty thus retention of potential customers.
Acknowledgement 5
Chapter 1: Introduction 6
1.1 Background Information 6
1.2 The problem statement 7
1.3 Objectives and Aims 7
1.4 Hypothesis 7
1.5 Research questions 7
1.6 Importance of the study 7
Chapter 2: Works Analysis 8
2.1 Consumer constancy 8
2.2 Service Eminence 9
2.3 Service Excellence and Consumer Loyalty 10
Chapter 3: Methodology 10
3.1 Sample size and sampling procedure 11
3.2 Research instruments 11
3.3 Research Integrities 11
3.4 Statistical Scrutiny and Clarification 12
3.5 Research Schedule (Gant Chart) 12
Chapter 4: Outcomes and Discussions 12
4.1 Research precincts 12
Chapter 5: Conclusions and recommendations 12
6. References 13
Acknowledgement
I would like to thank the Almighty God for the strength, patience and persistence to formulate, write and produce this proposal.
The Connection concerning Service Quality and consumer Loyalty in the Retail Banking Sector in the UK
Chapter 1: Introduction
This section provides an overview of the eminence of a service and customer loyalty in the retail market. It presents background information about the concept of service quality concerning maintaining good relations with customers. The problem statement, objectives of the study, hypothesis and research questions is discussed as well as the significance of this research is also tackled in this chapter.
1.1 Background Information
The basis of quality service as the best strategy for obtaining a lead in the market has raised significant concern from practitioners as well as researchers. Service firms have acknowledged that maintaining a long-term relationship with customers is of importance in creating a competitive marketplace thus the need for not only attracting customers but also maintaining their loyalty.
Financial systems are channelling their focus more on the customer than the services they offer due to the vibrant nature of the financial system. This, they believe, helps them scale higher in the market share; thus competitive. The retail banking sector has been over the years characterised by an uprising of new forms of banking avenues such as mobile banking, web banking, the use of Automated Teller Machines, the ever-growing financial market and the globalization of competition. The new forms of doing business have forced bankers to channel their strength towards maintaining a durable relationship with their consumers and cultivate more on customer loyalty. To be more competitive, banks need to explore ways to better the quality of service they offer. The gain of customer’s loyalty results from service quality (Caruana, 2002); therefore achieving customer loyalty; which is a core objective of any business firm as it helps in customer retention; is solely reliant on the superiority of service quality. The current trend of bank customers being sensitized of their rights, the dynamism in demands and the increasing competition requires continuous modification of service quality to achieve customer loyalty.
The intensity of the value of a service critically determines the general satisfaction consequently leading to customer maintenance and their devotion. The most important precursor in customer loyalty is service quality in the service industry (Fullerton, 2005). The quality of relation between service providers and customers harvests a long-term, closer and trustworthy relationship between the customer and the bank.
Over the years, the excellence of a service has been a perfect tool for competition for banks in achieving success in the marketplace which has homogenous services. For any business firm to survive in the current competitive market, delivering quality service to customers is mandatory. Service quality has birthed various researches in recent years. Since it results in customer loyalty, it is a matter of great concern. Business firms expand their market share as well as retain their potential customers upon provision of high-quality service. Customer loyalty is the need for customers to be grounded in an organization, be committed to increasing the quantity of their product purchase, and expand the depth of their transactions in their relation to the bank (Parasuraman, Berry & Zeithaml, 1988). It is usually the ability of a customer to repurchase his or her preferred service or product even in the event of situational influences and marketing efforts that may result in a behavioural switch. According to Douglas and Connor (2003), it is more cost effective to serve regular customers and even generate most revenues from a customer who repurchases a company’s product over a length of time (Reichheld, 2003).
1.2 The problem statement
Lewis (1993) argues that perceived service quality is an indication of the notch a package provided meets customers' demands. To deliver quality service, service providers must consistently conform to the expectations of customers. The measure of resemblance between expectations and experience determines a customer's perception of service quality. Firms need to offer services that surpass expectations of customers so as to satisfy them (Parasuraman et al., 1988). Customers’ loyalty to a service organization will improve if the degree of delivering services to customers is beyond the company’s contemporaries. Companies have realized with the gain of customer loyalty they can yield great profits in the marketplace.
Wide-ranging research has been done on the magnitudes of apparent quality of service in financial sectors through the SERVQUAL model, but dismal results have been achieved in the sector in the UK. The SERVQUAL model is popular as the best tool for measuring perceived quality (Caruana, 2002). A lot of research has been done to bridge the breach between service quality and customer loyalty. This research will, therefore, investigate the relationship between service quality and customer loyalty in the retail banking sector in the U.K.
1.3 Objectives and Aims
1.4 Hypothesis
There is no liaison between service quality and customer constancy
Customer reaction to service quality in retail banking sector doesn’t contribute to customer loyalty.
There is a need for establishing strategies for customer retention and loyalty in the banking sector.
1.5 Research questions
Is there a link between service eminence and customer loyalty in the trade market?
Are there strategies established to ensure continued customer loyalty?
1.6 Importance of the study
This research will make a critical contribution to ensuring the retail banking sector in the UK lays down strategies to ensure customer loyalty in the manner in which they offer quality services to their customers. Through this research, the retail banking would realize their shortcomings and look for avenues for bridging the gap between service quality and customer loyalty.
Chapter 2: Literature review
The notion of customer loyalty has repetitively gathered concern from experts and intellectuals due to its complex relation to a firm’s overall output. It is considered obligatory since it is more expensive to entice first-hand consumers than to maintain the long-standing customers. The concept of loyalty is two-dimensional; attitudinal and interactive. Attitudinal is linked to one’s feeling which results to affection towards a particular product, service or organization as Fournier (1998) notes while behavioural reflects the extent to which one’s intentions eventually leads to his or her actions. Literature review gives examples of loyalty behaviour as; continuous purchase of services from the same source, extending the size and scale of affiliation (Negi, 2009) and increased occurrence for the purchase and verbal recommendations (Anderson & Jacobson, 2000).
Long-term dedication and attachment to an organisation, the service and product offered, the price value are an amalgamation of attitudinal customer loyalty. Reichheld (2003), states that it is very important since it denotes the probability of a customer remaining loyal in the coming days and having the confidence to give an endorsement of the corporation to associates. The attitudinal loyalty of the customer, results from their sensitivity to price, commitment to a brand and the number of times they buy the brand (Anderson & Jacobson, 2000). The cogent constituent, on the other hand, is attributed to a customer's preference to a particular firm, the belief that it offers the best services and satisfies the customer's needs (Negi, 2009).
2.1 Consumer loyalty
A consumer’s aptitude to repeatedly buy merchandise from a given firm in spite of situational impacts and advertising energies defines customer loyalty. It is the magnitude to which a customer shows a repetitive behavioural purchase from a service provider, hold the service provider with esteem and considers the contribution of the provider if need of the service comes forth (Parasuraman et al., 1988). Loyalty encompasses behaviours and attitudes; the two go hand in hand, as behavioural aspect result to repetitive buying of a product from the same source while attitudinal loyalty one's feeling which results in preference to a particular product. It is thus a demonstration of customers' commitment to an organization despite its homogeneity in service provision. According to Dick and Basu (1994), customer loyalty is the repetitive occurrence and comparative attitude which develops from the comparison between one's preferred brand and the competitors.
Anderson and Jacobson (2000) argue that consumer devotion emanates from an association producing value for its customers so that they remain committed to them. They contend that the most genuine dependability occurs when advocacy role is given to the clienteles without inducements. The market literature is accepting customer-based research owing to the enormous proof that retaining regular customers is much cheaper than attaining new ones (Berry, 1995). Commercial banks are very much interested in creating and maintaining a long-term relationship with their customers (Parasuraman et al., 1988). Additionally, when there is a strong customer relationship, there are increased sales, affordable operation expenses and high profitability (Reichheld, 2003). Customer loyalty results to repurchases, dismal behavioural switching, positive appraisals and customer social responsibility as Fullerton (2005) argues. Reichheld (2003) projected that, having a 5% customer retention change, would result to 25-100% profit swipes across firms. Additionally, replacement of decamped customers is more expensive than preventing them from deserting.
2.2 Service Eminence
It refers to offering services that supersede customer’s expectations and having the customer critic the quality of the service or product (Negi, 2009).Where simultaneity occurs in production, delivery and consumption of a product; the concept of value can be defined as the equality between customer’s prospects and overall experience. Customers’ evaluation of service quality is a result of what they expect and what they eventually get (Berry, 1995).Serviced quality is how much a service delivered matches the needs of customers (Douglas & Connor, 2003). Banks have learned the prominence of providing excellence service to increase client gratification and commitment and also grow their proficiency and performance ((Dick & Basu, 1994). In evaluating the value of service, customer’s expectations are fundamental aspects since when performance supersedes customer’s expectations; quality is high and vice versa (Yu, Wu, Chiao & Tai, 2005)).
Expectations in literature are seen as what the customer feels should be offered to them (Parasuraman et al., 1988).The perception customers have for a service is founded on their expectation of the outcome. This is perceived quality. This is an attitude which is more or less similar to satisfaction; which results from various expectations with one’s perceptions of performance (Parasuraman et al., 1988). According to Negi (2009), service quality as professed by consumers has raised a lot of concern in the recent years as it specifically contributes a lot to competitiveness, developing and retaining satisfied and devoted customers. This creates the necessity for firms to give consideration to this concept to make amends and improve it to bridge the gap between customers' perception and expectations.
Service quality is tested both upon completion of its delivery and the through the steps taken for its delivery and the impacts it has on customers’ perception. A customer, whose perception of quality is sensitive, becomes more demanding and has little understanding of expected failures in service quality and identifies the intangibility of a service as the best indicator of quality in line with customers' perception (Douglas & Connor, 2003). If retail banking sectors provide quality service, it increases the proficiency in the market share as well as their profitability, which similarly reduces the emergence of switching behaviours from the customers. The consistency of providing high-quality service may provide a ground for differentiation. Improved quality is beneficial as it results to cost efficiency, improved customer retention and attracting new customers ((Dick & Basu, 1994).
Service quality has technical and functional dimensions. Technical service quality is the yield while functional dimension is the way in which customers and service providers relate. Biographers have also perfected this theory and argued that technical service quality is the end result as revealed by Douglas and Connor (2003) while functional quality is the way service is delivered (Parasuraman et al., 1988).The controversies between customers’ anticipations and acuities are the basis of two approaches of disconformities of expectations of service delivery and performance assessment measures. The disconformities approach is reliant on customers' expectations as a point of reference for evaluating their perceptions. These differences designate service quality. The efficiency of service quality is pegged on meeting or exceeding customers' expectations. The SERVQUAL instrument represents five dimensions; dependability, receptiveness, solidity, guarantee and responsiveness as the measures of service quality.
The instrument as appraised by different scholars is efficient in measuring service quality in banking and telecommunication sectors. However, the approach of service quality assessment based on forming expectations and comparing them with preceding perception has received critics. Some researchers argue that the best indicator of service quality is by measuring perceptions, recital –based measures give enhanced results than disconformities -based processes of service quality (Yu, Wu, Chiao & Tai, 2005).The disparity between these procedures would be that performance measures is useful in analysing the relationship between service quality and dependent factors while disconformity-based measures are well-designed for testing service gaps (Parasuramanet al., 1988). This research will employ the SERVQUAL model.
2.3 Service Excellence and Consumer Loyalty
Loyalty is the best indicator for long-term financial expansion in an organization (Douglas & Connor, 2003). Service quality is directly linked to customer loyalty. Researchers have divided opinions on service quality and customer loyalty. Others argue that meeting customer’s needs influences his or her buying frequency while others purport that service quality increases customer loyalty to a given company. Yu et al. (2005) argue that quality service leads to a bigger market stake and enlarged transactions that eventually result to customer faithfulness. Parasuraman et al. (1988) deduced from their study that provision of better services to customers; diminishes customers’ fault-finding behaviours while increasing constructive behaviours. Service quality significantly affects customer loyalty (Parasuraman et al., 1988). Provision of good service quality results to the maintenance of current clienteles, acquisition of fresh ones, cost effectiveness, boosting a company’s image, affirmative appraisals and increased profitability (Douglas & Connor, 2003). Service quality affects the repetitive purchase of regulars and their loyalty (Jones and Farquhar, 2003). A customer’s behaviour, motives and predilections are influenced by service quality (Yu et al., 2005). This is to mean; when a customer gets a service provider who meets his or her wants, the profitability of repurchasing the services is high. It thus has an impact on customers repurchase targets. Therefore, when customers have a confident insight of service quality, their loyalty is developed (Berry, 1995.).Apparent quality mirrors customers' viewpoint concerning dominance of a product or service. Service quality is amongst the few determinants of service variation, absorption of new customers and growing market segment and for customer retention (Dick & Basu, 1994). The duration of a loyal customer can be cosmological in the event of making references to the customer maintenance and repurchase behaviour (Douglas & Connor, 2003).
The literature review on service quality and customer loyalty provides a gap that needs to be filled. The task of meeting the needs and expectations of customers is reliant on the retail bankers so as to maintain their customers and even ensure continuous provision of quality service to customers. Quality service helps to attain loyalty from customers with regards to the purchase of services, investments and the customers' ability to portray a good image of the service providing company. Research in this area is, therefore, relevant to help ensure customer satisfaction in the banking system as well as increased profitability in the sector.
Chapter 3: Methodology
This chapter provides details about the methodology and the methods of data collection that will be used for the completion of this study. Based on the objectives and research questions as stated in Chapter 1, a simple randomized design will be used to investigate the relationship between service quality and customer loyalty. A simple randomized design involves observation and analysis of the independent variables and the relationship between the variables.
3.1 Sample size and sampling procedure
My target population comprises three categories of commercial banks in the UK banking sector. These will be; private banks, public banks and those that owned by foreigners. This will help in determining whether the type of bank affects the quality of service, meeting the demands of customers, value for customers and customer dedication. Getting a sample from these categories of banks will ensure adequate gathering of varied information thus giving a better platform for data analysis. In obtaining a sample size, a stratified random method will be used. This technique will ensure total inclusion of all targeted group and provide a ground for comparison. The research will also include a systematic sampling procedure for determining individual respondents. This will include selecting the Kth number of customers from each selected stratum from the bank (Anderson & Jacobsen, 2000). This technique will cover all elements in the study.
3.2 Research instruments
The research will use questionnaires for collecting data. The questionnaire will take both the qualitative and quantitative approach in which there will be open-ended and close-ended questions. Questionnaires and interviews have been regarded as the best tools for gathering valid and accurate information since the 1920s (Anderson & Jacobsen, 2000). These research instruments have been regarded to enable respondents to give in-depth information about a topic of concern (Anderson & Jacobsen, 2000). According to Fullerton (2005), quantitative research is that which has structured surveys and questionnaires for customers that help in the production of raw data and statistics to help in research. When collecting data using questionnaires, there are three activities involved: designing a questionnaire, giving out the questionnaires and collecting samples from the respondents (Anderson & Jacobsen, 2000). This research will use questionnaires as it enables respondents to give answers per what they feel and it provides confidentiality to the respondents.
3.3 Research Integrities
This research will observe with uttermost strictness, the ethics and values of research. The aspect of discretion and obscurity will be highly implemented to allow the respondents be aware of their safety even in their contribution to the research. The respondents will be assured of protection from any maltreatment by not disclosing their identity. Before they participate in the research, their consents will be sought for to ensure that they are wholeheartedly willing to participate. They will also be allowed to participate from their accord without the use of force.
3.4 Statistical Scrutiny and Clarification
Information from primary and ancillary sources will be collected for this research. In evaluating and deducing this information, a method that is all inclusive will be employed. The research will take on evocative and inferential data analyses methods where evocative will show the disparities between the two variables while inferential will help in comprehending the connection between the variables.
3.5 Research Schedule (Gant Chart)
Chapter 4: Outcomes and Discussions
4.1 Research precincts
Obtaining a qualitative research is problematic as it involves dealing and conversing with people with different attitudes and characters. That said, this research may present challenges such as consolidating the data collected from the primary subjects, giving an ultimately sensible demonstration of findings that can be easily fathomed by the reader and also give information free from partiality. This research will be guided by the set objectives so as to minimise an occurrence of bias and misinterpretation of information.
Chapter 5: Conclusions and recommendations
The business environment is very dynamic in the way they relate to consumers as Fournier (1998) notes; this makes competition stiff as each sector wants to out-smart the other. Having such a competitive environment forces the shareholders in this sector to be more vibrant and on toes in giving their consumers the best of their services to prevent them from shifting to other areas where they feel may offer better services. The aim to ensure customers are loyal to the service providers requires a lot of commitment and sacrifice from the providers; they thus have a mandate of improving their services to ensure they meet consumers' wants and also gain profitability. The commercial banking segment is therefore charged with the responsibility to do research on performance and Customer Relationship Management (CRM), to ensure that they maintain a lead in service provision and meet their customers' expectations.
6 Bibliography
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