Service quality; Service features; and Customer complaint handling as the major determinants of customer satisfaction in Banking sector: A Case study of National Bank of Pakistan

Ishfaq Ahmed1, Shafiq Gul2, Umer Hayat3, Mohammad Qasim44
Introduction Customer satisfaction, a business term, is a measure of how products and services supplied by a company meet or surpass customer expectation. It is seen as a key performance indicator within business and is part of the four perspectives of a Balanced Scorecard. In a competitive marketplace where businesses compete for customers, customer satisfaction is seen as a key differentiator and increasingly has become a key element of business strategy. The study is intended to identify customer satisfaction and retention is critical for retail banks, and investigates the major determinants of customer satisfaction and future intentions in the retail bank sector. Identifies the determinants which include service quality dimensions (e.g. getting it right the first time), service features (e.g. competitive interest rates), service problems, service recovery and products used. Finds, in particular, that service problems and the bank’s service recovery ability have a major impact on customer satisfaction and intentions to switch. This study investigates the relationship between perceived performance, satisfaction and behavioural intention, and the extent to which each is associated with actual performance, customers' attributions for problems, experience and the level of performance which customers think is possible. The results show that actual performance has both a direct and indirect effect (via perceived performance) on satisfaction. Perceived performance and satisfaction are significantly associated with customer standards of the best possible

Student of MS Management sciences at COMSATS Institute of Information Technology. Assistant Professor COMSATS Institute of information Technology Abbotabad. 3 Student of MS Management sciences at COMSATS Institute of Information Technology 4 Assistant Professor at the department of Management sciences, COMSATS Institute of information Technology
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performance, and satisfaction is also associated with the customer's attribution of the' cause of performance problems. While satisfaction was significantly associated with intention to re-purchase, a significant interaction was found between customer experience and satisfaction. The study also identifies significant bias in customers' assessment of performance. This bias had an asymmetric effect on satisfaction; under-estimation of performance was associated with decreased satisfaction, but over-estimation of performance was not associated with any increase in satisfaction. This paper addresses two areas in the gaps which are being identified in the previous research. First it shows a linear relation ships between different variables and second it tries to explain the hypothesis which are tested using Anova. Organizations are increasingly interested in retaining existing customers while targeting non-customers; measuring customer satisfaction provides an indication of how successful the organization is at providing products and/or services to the marketplace. Customer satisfaction is an ambiguous and abstract concept and the actual manifestation of the state of satisfaction will vary from person to person and product/service to product/service. The state of satisfaction depends on a number of both psychological and physical variables which correlate with satisfaction behaviors such as return and recommend rate. The level of satisfaction can also vary depending on other options the customer may have and other products against which the customer can compare the organization's products. Literature Review Customer satisfaction has been said one of the most widely used study in marketing. The previous research has tries to identify a number of variables of customer satisfaction. Because satisfaction is basically a psychological state, care should be taken in the effort of quantitative measurement, although a large quantity of research in this area has recently been developed. Work done by Berry (Bart Allen) and Brodeur between 1990 and 1998 defined ten 'Quality Values' which influence satisfaction behavior, further expanded by Berry in 2002 and known as the ten domains of satisfaction. These ten

domains of satisfaction include: Quality, Value, Timeliness, Efficiency, Ease of Access, Environment, Inter-departmental Teamwork, Front line Service Behaviors, Commitment to the Customer and Innovation. These factors are emphasized for continuous improvement and organizational change measurement and are most often utilized to develop the architecture for satisfaction measurement as an integrated model. Work done by Parasuraman, Zeithaml and Berry (Leonard L) between 1985 and 1988 provides the basis for the measurement of customer satisfaction with a service by using the gap between the customer's expectation of performance and their perceived experience of performance. This provides the measurer with a satisfaction "gap" which is objective and quantitative in nature. Work done by Cronin and Taylor propose the

"confirmation/disconfirmation" theory of combining the "gap" described by Parasuraman, Zeithaml and Berry as two different measures (perception and expectation of performance) into a single measurement of performance according to expectation. According to Garbrand, customer satisfaction equals perception of performance divided by expectation of performance. The usual measures of customer satisfaction involve a study with a set of statements using a Likert scale. The customer is asked to evaluate each statement and in term of their perception and expectation of performance of the organization being measured. The University of Michigan's American Customer Satisfaction Index (ACSI) is a scientific standard of customer satisfaction. Academic research has shown that the national ACSI score is a strong predictor of Gross Domestic Product (GDP) growth, and an even stronger predictor of Personal Consumption Expenditure (PCE) growth. On the microeconomic level, research has shown that ACSI data predicts stock market performance, both for market indices and for individually traded companies. Increasing ACSI scores has been shown to predict loyalty, word-of-mouth recommendations, and purchase behavior. The ACSI measures customer satisfaction annually for more than 200 companies in 43 industries and 10 economic sectors. In addition to quarterly reports, the ACSI methodology can be applied to private sector companies and government agencies in order to improve loyalty and purchase intent.

The Net Promoter score is a management tool that can be used to gauge the loyalty of a firm's customer relationships. It serves as an alternative to traditional customer satisfaction research. Companies obtain their Net Promoter Score by asking customers a single question (usually, "How likely is it that you would recommend us to a friend or colleague?"). Based on their responses, customers can be categorized into one of three groups: Promoters, Passives, and Detractors. In the net promoter framework, Promoters are viewed as valuable assets that drive profitable growth because of their repeat/increased purchases, longevity and referrals, while Detractors are seen as liabilities that destroy profitable growth because of their complaints, reduced purchases/defection and negative word-of-mouth. Companies calculate their Net Promoter Score by subtracting their % Detractors from their % Promoters. The Kano model is a theory of product development and customer satisfaction developed in the 1980's by Professor Noriaki Kano that classifies customer preferences into five categories: Attractive, One-Dimensional, Must-Be, Indifferent, Reverse. The Kano model offers some insight into the product attributes which are perceived to be important to customers. Kano also produced a methodology for mapping consumer responses to questionnaires onto his model. SERVQUAL or RATER is a service-quality framework that has been incorporated into customer-satisfaction surveys (e.g., the revised Norwegian Customer Satisfaction Barometer) to indicate the gap between customer expectations and experience. J.D. Power and Associates provides another measure of customer satisfaction, known for its top-box approach and automotive industry rankings. J.D. Power and Associates' marketing research consists primarily of consumer surveys and is publicly known for the value of its product awards. Other research and consulting firms have customer satisfaction solutions as well. These include A.T. Kearney's Customer Satisfaction Audit process, which incorporates the Stages of Excellence framework and which helps define a company’s status against eight critically identified dimensions.

One of the newest and most innovative customer satisfaction measurement methodologies is called Gustometria. Gustometria is real time measurement of customer and employee satisfaction. Customers are invited to answer a short survey by touching the "gustometer" screen with their fingers. The responses are collected immediately by the Gustometria servers which tabulate the results in real time. Management can then log into their private website and use the sophisticated business intelligence reports which are built in to the Gustometria system. The rewards to firms that establish a loyal customer base have been well documented (Armstrong and Symonds, 1991; Heskett et al., 1994; Reichheld and Sasser, 1990). In general, increased loyalty leads to lower costs of servicing the firm’s customers, reduced marketing expenditures, increased business from the existing customer base and greater profits. These rewards are particularly true in the retail banking sector. By increasing loyalty, a retail bank:
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reduces its servicing costs (i.e. accounts do not have to be opened or closed, and credit ratings do not have to be established;

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gains knowledge of the financial affairs and needs of its customers (thereby allowing effective and efficient targeting); and

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has an opportunity to cross-sell existing and new products and services.

In one case, a retail bank that increased its customer retention rates by 5 per cent increased its profits by 85 per cent (Reichheld and Sasser, 1990). Improving customer satisfaction, and thereby retention rates, can come from a variety of activities available to the firm. The existing evidence suggests that major gains in customer satisfaction are likely to come from improvements in:
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Service quality; Service features; and Customer complaint handling.

Not surprisingly, there are strong linkages between service quality dimensions (e.g. courteous service providers) and overall customer satisfaction (Anderson and Sullivan, 1993). However, there has been considerable debate as to the basic dimensions of service quality (see Brown et al., 1993 and Cronin and Taylor, 1992, for reviews), the measurement of these dimensions (Brown et al., 1993; Parasuraman et al., 1993; Smith, 1995; Teas, 1993), and the components of customer satisfaction (Hausknecht, 1990; Yi, 1990). Surprisingly, little empirical research has examined the importance of service quality dimensions in determining customer satisfaction (Fisk et al., 1993). Extensive research has been conducted on developing and measuring service quality (Brown et al., 1993; Cronin and Taylor, 1992; Parasuraman et al., 1985, 1988; Teas, 1993). A review of this literature suggests the following:
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The contention that service quality consists of five basic dimensions (Parasuraman et al., 1988) is very questionable (Brown et al., 1993; Cronin and Taylor, 1992; Teas, 1993). Instead, the number and composition of the service quality dimensions are probably dependent on the service setting (Brown et al., 1993; Carman, 1990). Empirical evidence and theoretical arguments suggest that there may be two overriding dimensions to service quality; the core or outcome aspects (contractual) of the service, and the relational or process aspects (customer-employee relationship) of the service (Gronroos, 1985; McDougall and Levesque, 1994; Morgan and Piercy, 1992; Parasuraman et al., 1991b).

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The contention that service quality should be conceptualized and measured as a gap between expectations and performance is very questionable (Brown et al., 1993; Cronin and Taylor, 1994; Smith, 1995; Teas, 1994). The evidence suggests that service quality should be based on performance measures alone (Brown et al., 1993; Cronin and Taylor, 1994; Teas, 1994).

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Items used to measure service quality should reflect the specific service setting under investigation (Carman, 1990).

To elaborate on the two major dimensions of service quality, Parasuraman et al. (1991) summarized the nature of the core (outcome) and relational (process) constructs: While

reliability is largely concerned with the service outcome, tangibles, responsiveness, assurance, and empathy are more concerned with the service process. Whereas customers judge the accuracy and dependability (i.e. reliability) of the delivered service, they judge the other dimensions as the service is being delivered (p. 41).While the number of underlying dimensions has been shown to vary with the service setting, it appears reasonable to suggest that the service core and relational dimensions will emerge in nearly all cases as they form the basis for the service. Customer satisfaction is also related to the service offering. With retail banking, the convenience and competitiveness of the provider’s offerings can be expected to affect a customer’s overall satisfaction and ongoing patronage. Research has shown that location is a major determinant of bank choice (Anderson et al., 1976; Laroche and Taylor, 1988; Thwaites and Vere, 1995). Underlying location are the customer benefits of convenience and accessibility which are enabling factors that make it easy for the customer to do business with the bank. The bank’s ability to deliver these benefits on an ongoing basis to its existing clientele will probably impact on customer satisfaction. Another determinant of bank choice is competitive interest rates (Laroche and Taylor, 1988). While differences in rates, either savings or borrowings, are likely to be minimal between competing banks, customers are concerned that they are getting competitive rates on savings or loans because of the impact on their financial situation. Again, customer satisfaction is likely to be influenced by the perceived competitiveness of the bank’s interest rates. A major reason why customers switch service providers is unsatisfactory problem resolution (Hart et al., 1990). When customers face a problem, they may respond by exiting (switching to a new supplier), voicing (attempting to remedy the problem by complaining) or loyalty (staying with the supplier anticipating that “things will get better”) (Hirschman, 1970). Given that customers of retail banks have relatively high switching costs, it is likely that a dissatisfying experience will evoke a passive reaction (no complaint) or a complaint. Given that the customer complains, the bank’s response can lead to customer states ranging from dissatisfaction to satisfaction. In fact, anecdotal

evidence suggests that when the service provider accepts responsibility and resolves the problem, the customer becomes “bonded” to the organization (Hart et al., 1990). When customers complain, they give the firm a chance to rectify the problem and, interestingly, if the firm recovers successfully, to increase loyalty and profits (Fornell and Wernerfelt, 1987). Thus, customer complaint handling can have an influence on customer satisfaction and retention. Methodology The subjects of the research are the stakeholders that are directly involved in the research problem and they are the one who are in a better position to say what are the factors or causes Customer Satisfaction in this Case. As these are the stakeholders who are directly involved and affected by the Customer Satisfaction in this Case, the target population was interviewed to hear their views, opinions, and perceptions on the issue. Interviews through research questionnaires were conducted to yield data on opinions and perceptions on what the research respondents considered to be the reasons of Customer Satisfaction in this Case. For the purpose of the study a non-probability sampling design in the form of a convenience sampling method was adopted and considered to be appropriate to gather the data. The purpose for using this sampling method was due to the respondents being easily accessible, their availability, as well as it being less time consuming and inexpensive to gather the required data. Bickle, R., & Papaginnis, G. (2001) contend that “the advantage of non-probability samples is that they are less complicated and more economical than probability samples.” Furthermore, convenience sampling involves collecting information of members of the population that are near and readily available for research purposes. The geographic locations of urban and rural areas of District Abbottabad in which the sampled banks were found were selected. In each of these areas there are both private and public banks. It was the public banks that were of interest to this study. Private Banks were out of the scope of the study. In each geographic location, public banks were sampled in which questionnaires surveys were conducted from customers.

A quantitative methodology was used to assess the reasons of customer satisfaction . The instruments used to gather the data was questionnaires. The structure of the questionnaires was both open-ended and itemized ranking scale of 1-5 i.e. from Never to regularly. Where respondents not only responded to questions asked, but were free to engage in some discussions of whatever issues of significance to the research topic were raised during the interview process. The major issue of designing the questionnaire was to determine measurement questions, which respondents would be asked to answer. During the process of designing a research questionnaire, the following six issues should always be kept in mind. Following these principles might ensure the successful design of the questionnaire. • • • • • • Why is this question asked? What is the aim of asking this question? Is the question of proper scope? Can the respondents answer adequately? Will the respondents answer willingly? Are scales clear?

In this research most of the literature reviewed was in English, thus the questionnaire was first developed in English. However, it was actually used for collecting information in Pakistan. Therefore, the English version had to be translated into Urdu. This translation might have biased the original design of the questionnaire. A number of quality management terms, could not be precisely translated into Urdu. Various measures were taken in order to minimize these potential problems. The English version was translated into Urdu by the author himself. After translation, the questionnaire was discussed with the supervisor. He was asked whether: • • • • The items were stated in a shared vocabulary, The items were precise and unambiguous, There were biased wordings, They could answer these questions.

The supervisor returned the questionnaires with their comments, and some alterations were made according to his suggestions. During the data collecting process questionnaire

was formally pre-tested on various respondents. The author interviewed these people and asked them to provide feedback on ease of comprehension, clarity of the specific items, suggestions for possible change, and suggestions for additional items, etc. Their suggestions were then carefully evaluated by the author and the questionnaire was further modified. After this step, the author was confident that the questionnaire could be used for the large-scale survey. The interviews were supplemented by a review and analysis of banks and state banks of Pakistan and Govt of Pakistan schools records and documents. Altogether there were 150 people were surveyed through questionnaires for this study. Out of the total, 75 respondents were selected from each of the district’s urban and rural part. The customers were mostly accessed by the address taken from the bank or at meeting while there were present at the bank. The research was entirely dependent on primary source of data that is questionnaires for all the variables of the study but was supplemented by the secondary data. The primary date was collected through questionnaires from the customers itself. The dependant variable of the study is Status of Customer Satisfaction. This variable is calculated with the help of questionnaire. The independent variables are service quality; service features; and customer complaint handling. Response from each respondent is quantified with the help of five points Itemized Ranking scale. Each response from the respondent is given some score, (5) for the Regularly and (1) for Never. AIRS (Average Itemized Ranking score) is taken for the items related to each parameter. Higher the score higher will be the level of case. Analysis of variance (Often abbreviated as ANOVA) is

used to test the significance of difference among more than two sample means. According to Richard (2007), in order to use ANOVA we must assume that each of the sample is drawn from a normal population and that each of these population has the same variance, however, this condition is obligatory for large samples.

Hypothesis Testing Hypothesis 1: Service Quality has a positive effect on the level of the customer satisfaction.
Table1: Anova showing the impact of Service Quality on the Customer Satisfaction level:
Model 1 Sum of Squares 5003.809 3008.574 df 14 71 Mean Square 357.420 105.538 F 1.146 Remarks Sig

Regression Residual

(f=3.146, df= 14/ 71, p