EVALUATION OF IMPACT OF SERVICE QUALITY ON CUSTOMER RETENTION: A CASE STUDY OF PAKISTANI COMMERCIAL BANKS
[Name of Writer]
[Date of Submission]
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Abstract
The underlying study intends to cover different aspects service quality and its relation with customer retention. In this regard, the objectives has been addressed in this study is based on highlighting the significance of service quality and customer retention and identifying the factors of service quality affecting the customer retention in commercial banks of Pakistan. The nature of the data for this study is mixed, thus the researcher have selected the quantitative and qualitative data together. The data used for this research consists of numeric figures and quantitative and qualitative data information being taken through the interviews. This research is based on first-hand collected data by the research in the form of surveys and interviews. The researcher has implemented the primary data collection method for this kind of study. In this study, the researcher has used SPSS in order to apply the relevant tests over the collected data. The findings of the study revealed that there is a positive association between service quality and customer retention in the commercial banking sector of Pakistan. Therefore, it was recommended that Employees of the banks should be allowed to go out of the box for solving the issues of customers following remaining in the boundaries of the policy.
Table of Contents
CHAPTER 1: INTRODUCTION
Background of Study
The current modernised age of rapid development and advancement has made the business environment highly complex and dynamic that has provided customers with numerous options in the market (George and Kumar, 2014). Customer retention, by increasing their satisfaction level, has become one of the major concerns for organisations because customers are considered as the drivers of the profitability and growth of the firm (Ngo and Nguyen, 2016). Rapid increase in competition and expansion of market has created the need for the organisations to emphasis over their service quality prospects that can contribute in obtaining customer loyalty and retention (Siddiqi, 2011). The term customer retention refers to the capability and potential of the organisation to retain or hold on it customers through products and services that can add value to the profitability and revenues of the firm (Ishaq, 2012). In this regard, factor of quality plays dominant part in enhancing the customer satisfaction level (Karim and Chowdhury, 2014). The study accumulated by Kasiri et al (2017) emphasised that customer retention and satisfaction are two interrelated concepts that trails each other. Customer satisfaction level can be defined as driver of the customer retention because when customers have the satisfactory experience with certain organisation it encourages them to acquire approach same organisation in future as well to obtain their services (Zameer et al, 2015). However, exceptional service quality standards is key to fuel the customer satisfaction level (Awan et al, 2011). In this underpinned study, in-depth discussion over different prospects pertaining to the effect of service quality on customer retention in commercial banks of Pakistan has been conducted.
It is evident that banking sector plays crucial in role development and stability of the economic conditions of the country (Ali and Raza, 2017). Firms operating in banking sector holds significant position in strengthening the financial market and the way money circulates in the country through effective banking system (McKecnie et al, 2011). Generally there are different types of banks operating Pakistan such as commercial banks, Islamic banks, central bank, microfinance, co-operative banks and specialised banks that tend to provide services to the people according to their objectives (Hafeez and Muhammad, 2012). Currently, there are 35 banks operating as commercial banks Pakistan (SBP, 2020). Banking industry of Pakistan is regulated and controlled by the parent node that is state bank of Pakistan that governs the local banks operating in the country under prudential regulations (Khan and Fasih, 2014). Commercial banks are considered as the financial institutions that offers different banking services to customer such as accepting account deposits, saving accounts and giving loans with the goal to earn the substantial amount of profits through interest (Kanwal and Nadeem, 2013). Askari, Bank Alfalah, Allied Bank limited, Citi Bank, Faysal Bank and Bank Al Habib are some of the major commercial banks that are operating different sectors such as public, private and foreign in Pakistan (Naeem, Akram and Saif, 2009)
Changes in dynamics of the world regarding the way system performs and tasks carried out has influenced the way people manage their finances and assets. In 2018, in Pakistan number of bank accounts reached to the 50 million that indicates the substantial reliance of customers over banking firms to manage and secure their finances (Yasir, 2020). However, people in Pakistan possess multiple options to obtain the commercial banking services due to the presence of different banks that are striving hard to deliver exceptional services that can attract the customers towards their firm increasing the profitability (Hafeez and Muhammad, 2012). The pursuit of service quality can be defined as the tool for the organisation operating financial sector to create the competitive advantage by up-scaling the prospects of their services that can help organisation to take lead in the dynamic industry (Siddiqi, 2011). However, in existing competitive environment, maintaining the top position is also the major concern that can be catered through massive customer demand in market. Profitability and stability of commercial banks heavily relies on the number of customers they have because these firms earns through interest and extra profits on services charged by customers (George and Kumar, 2014).
In banking sector, services is the on-going process where banking personnel are required to deal with the hundreds and thousands of customers on regular basis in an efficient manner that can enhance the customer satisfaction level (Al-Tit, 2015). In banking sector, metrics of quality of services relies on the data security, timely response, availability of services and behaviour of the banking staff towards customers (Khan and Fasih, 2014). However, metrics of quality and standards can be different for every organisation depending on the type of services provided by them and target audience. While relying over certain financial institutions, security is one of the imperative prospects that concerns the customers and influence their decision whether they should trust certain bank for their financial valuable or not (Vijay Anand, and Selvaraj, 2013).
Furthermore, rapid surge in usage of internet banking has increased the threat related to data security in banking. According to the News (2018), cyber security and cyber threats is one of the leading issue in banking sector of Pakistan that has affected the customer trust and satisfaction level towards their financial service providers in the negative way. Commercial banks are considered as the customer centric organisation where employees are required to directly deal with the customers and behave appropriately without discriminating among them on the basis of caste, creed, race, appearance, gender, religion and social background (Kasiri et al, 2017). Employees are considered as another imperative asset of organisation that play key role in keeping the organisation operational and add value to its productivity (Kaura and Datta, 2012). While dealing with customers directly, behaviour of employees holds great significance because any unethical or unsatisfactory attitude from employee can result in customer dissatisfaction (McKecnie et al, 2011).
Focusing over these minor aspects helps the organisations to strengthen to their quality of service and create positive perception among customers about their brand. The study by Albarq (2013) advocated that enhancement of customer satisfaction level is the continuous process practised by service oriented organisations because changes in customer expectations level up-scales their expectations level as well that influences the need to enhance the quality of services. Service quality can be considered directly proportional to the customer satisfaction because high standard quality service can help to create the positive perception among customer (Paul et al, 2016). Furthermore, in regard to attain the long-term loyalty and customer retention it is essential for banking firms to emphasis over practices pertaining to customer satisfaction (Liang et al, 2013). For this purpose, underpinned research study incorporates the in-depth details regarding the way service quality affects or influences the customer satisfaction in commercial banking sector of Pakistan.
Aims and Objectives
The underlying study intends to cover different aspects service quality and its relation with customer retention. In this regard, following aims and objectives has been addressed in this study:
- To highlight the significance of service quality and customer retention.
- To identify the factors of service quality affecting the retention of customer in commercial banks of Pakistan.
- To evaluate the impact of service quality on customer retention in commercial banks of Pakistan.
To draw the set of recommendations for the managers working in commercial banks of Pakistan to enhance their service quality.
Research Questions
This particular research contributed answering the following questions:
- What is the significance of service quality and customer retention?
- What are the essential factors of service quality that influences the customer retention in commercial banks of Pakistan?
- What is the impact of service quality on customer retention in commercial banks of Pakistan?
Research problem
The research accumulated by Shahzad and Rehman (2015) stated that in banking sector of Pakistan, massive growth and efficiencies has been observed with the passage of time that has made the financial sector of the country an imperative part for the economic prosperity. However, expansion of the financial sector and rise in competition has laid the local Pakistani banks operating in this particular industry to face cumulative pressure due to the invasion of the foreign commercial banks in the country such as Citi Bank, Industrial Commercial Bank of China limited (ICBC) and Deutsche bank AG (SBP, 2020). Furthermore, rise of competition and dynamic business environment has made the survival and growth of the local commercial banks of the Pakistan negatively.
Foreign commercial banks accumulating profits from people of Pakistan tends to invest in development and growth of their own economy rather than Pakistan economy (Haneef et al, 2012). Furthermore, with the help of strong technological assistance, financial resources and backup’s foreign commercial banks in Pakistan easily attracts the customers towards their organisation. Therefore, these issues and increasing competition in financial sector of Pakistan has created the needs for Pakistani commercial banks to emphasis over their quality standards that can contribute in increasing the customer satisfaction level resulting in obtaining customer retention. In this regard, the underpinned has contributed in addressing the problem by highlighting the way service quality can influence the customer retention in commercial banks of Pakistan that can help in increasing their profitability and market position.
Significance of study
The underpinned research can be highly significant for the management and directors of the Pakistani commercial banks to familiarise them regarding the way improvement service measures can enhance their profitability and contribute in customer satisfaction level. This particular research is imperative to highlight the significance of service quality and customer retention because it helped the banking sector to evolve once again and contribute in economic sustainability of the country. Furthermore, this particular study is highly significant for the government and authorities of Pakistan to familiarise them with the way invasion of foreign commercial banks in the country and their expansion in different regions of the state is threatening the stability of the local commercial banks that directly creating the negative impact on the financial sector of the country. Furthermore, this study is significant for ministries and state bank of Pakistan to draft new service quality standards and regulations that can contribute in attracting more customers that would directly add to the stability of economic position of the country.
Rationale of study
Efficient banking system holds imperative position in strengthening the economic conditions of the country because it concerns with the way money circulates within the system. Furthermore, banking is one of the crucial business sectors of Pakistan and source of income from thousands of employee. The rationale behind conducting the study over banking sector is to highlight the significance of customer retention and service quality in banking sector because slowdown of Pakistan economy has made the financial sector highly vulnerable (The News, 2020). If foreign commercial banks starts to expand its operations rapidly in Pakistan, it might affect the position of Pakistani commercial banks negatively effecting the stability of financial sector and economy of the country. Therefore, reason behind conducting the study over customer retention in relation service quality is to encourage the commercial banks in Pakistan to develop the best quality standards that can increase their customer base and become preferred commercial by people. Furthermore, most of the previous study have been conducted over the entire banking sector of Pakistan to examine their service and customer satisfaction. However, has contributed in bridging the gap by narrowing down the focus on commercial banks of Pakistan only.
Structure of Study
First chapter covers the introduction section that highlights details about background of study, objectives, research problem, significance and rationale. Next section of the research covers the literature review that includes the critical analysis, theoretical framework and conceptual framework. Third chapter in the study incorporates the discussion over research methodology and data collection methods adopted by the researcher in particular study. Fourth chapter highlights the analysis of data accumulated through different sources and detail objective vice discussion to ensure research problem and objectives has been addressed properly. Lastly, Fifth chapter covers the conclusions and recommendation section of the study including the brief summary of findings.
CHAPTER 2: LITERATURE REVIEW
Introduction
Quality of service has become the most important challenge for banking sector all over the world. Majority of the banks all over the world use service quality as their tool to retain their customers. Moreover, customers have also become very conscious of the service quality delivered by commercial banks (Ajmal et al., 2018). The research conducted by Sari et al. (2018) highlighted that now in this modern era, the challenge has been increased in the banking sector to sustain their competitive position in the service sector by providing excellent quality and services products to the consumers in all over the world, specifically in the developing countries. The acquiring cost of the consumers is much higher than the retaining cost for banks hence, retention is a major element in bank’s strategy. Moreover, the regular customers understand new products very quickly than new customers due to which regular customers buy more products that help banks in producing profits and providing bank with the competitive edge.
Furthermore, Khan and Fasih (2014) discussed that regular customer also indirectly promote the services of the bank to others that increase customer trust in the specific bank. In the industry of banking, the competition has been increased from the past decade in which several banks compete for customer retention and base. Approximately, the services of all banks are same and presented as duplicate products due to which customers are attracted through the name of the products due to which banks have been differentiating their products in the global world. Moreover, the price and quality of the products also matter a lot. Customer retention is the most essential and challenging tool that has been used in the majority of banks to sustain the competitive advantage and gain profit. The strategies and patterns have been changed in the Pakistan’s Banking Industry.
The banking sector has nowadays majorly focused on the working condition of banks from the last decade due to which, banks in Pakistan are focusing on some effective strategies and techniques of promoting to retain their consumers by accomplishing the requirements of consumers and maintain them as regular customer (Hafeez and Muhammad, 2012). This chapter highlights the importance of service quality for consumer retention, the banking sector of Pakistan has been taken as the case study of this research. This research not only identifies the importance but also analyse and recognise the features that affect the banking sector to service quality and customer retention.
Concept of Service quality
According to the research by Urban (2013), in general, the quality of service can be well-defined as the delivery system of service for positive output through customer retention, rising profits and developing a positive image in the competitive market. However, the quality of services is directly interlinked with customer retention and the perceived service quality by the customers. Moreover, it found that service quality is not only a term, it is a major factor that impacts positively or negatively on the profitability and performance of an organisation. The term service quality is combined with two different words “service” and “quality”, which majorly focuses on the quality of services available to the users. The word quality emphasise on the specification or standards the organisation promises by generating effective services within the organisation. As the innovation frequency has increased in the banking sector, it will ultimately upgrade the quality process of products.
Moreover, Zameer et al. (2015) highlighted in their research that the customer retention can be increased in the banking sector by increasing the quality of services and providing effective services to their customers. The quality services not only retains the customers in banks but also maintain the loyalty of customers which can benefit in promoting their products and services to other consumers through word of mouth. In the past decade, majority of the customers were not aware of the quality of services due to which majority of the banks did not focus on attracting customers through service quality. Now in this modern era, the awareness of service quality has been increased due to which it is challenging for the banks to design and plan the effective strategy for their customers which more standard quality services. The service quality can be organised by the proper management of employees within the organisation, specifically in banks so that employees can handle customers and fulfil their needs and requirements by providing them effective quality services.
Significance of Service Quality
A modern commercial professional environment is a period of the customers which considers the excellence of services as an important aspect of getting accomplishment in the competitive atmosphere of the business world. Though the improvement in quality of services not only improves the satisfaction level of customers but also helps in increasing the streams of revenue. According to the research conducted by Kaushik (2013), the quality of the service effects the customer’s intention with regards to their purchases. The basic component in the quality of services is loyalty that is followed by the tangibles, behaviour, as well as the convenience of the employees.
As per the research conducted by Ajmal, Khan, and Fatima (2018), there are four magnitudes of the service quality in the division of banking that are, behaviour, capability, tangibles, and suitability. To satisfy the customer, one has to provide better services while ensuring that there are tech-based security and protection along with the provision of quality information and loyal and user-friendly services. According to Adhikari and Nath (2014), the satisfaction of the consumers is a highly essential aspect with respect to attract or preserve sustainable relations with the customers, more specifically in the sector of banking. This thought-provoking perception lets the service sectors pay more heed on extensively providing quality that tends to impact the satisfaction level of the consumers in a positive way. It is noteworthy to know that if the banks tend to focus on the requirements of the customers and try to achieve their satisfaction level, then definitely, the customers can be sustainably retained.
Factors Affecting Service Quality
Following are the aspects which directly or indirectly impact the service quality,
Reliability
As per the study conducted by Hafeez and Muhammad (2012), the term reliability is well-defined as the capability to accomplish the services which are guaranteed or committed in a dependable and accurate manner. There are some of the measures which can be used for measuring the rate of reliability in the delivery of quality services. That includes the provision of the services which are promised, the dependability of managing and handling the services of the customers, the timely performance and deliverance of all the services and also, the maintenance of the records that are error free.
Responsiveness
The word responsiveness refers to the ability which a company has for providing an appropriate and suitable data or information to the customers when there is any troublesome situation. It is a factor that tends to maintain a mechanism that is required for handling the responses or returns and also in providing needful guarantees. It is basically a willingness to helping the customers and providing them the services which are easy and speedy. As per the research conducted by Awan, Bukhari and Iqbal (2011), there are some measures of responsiveness which include informing the customers about the start of the services, willingness to guide the customers and an attitude to quickly respond to the requests of the customers.
Assurance
Tangibility is the level to which the physical resources, equipment, and the get-up of the staff members or any individual are in an adequate manner. Service quality is also reliant on on the provision of the equipment as well as other resources. According to the research of Hassan et al., (2013), the providers of the services adhere to make their employees’ appearance remarkable and also ensure that the needful equipment is to be provided. This parameter measures the dependability of the customer on the quality of the most visible features.
Tangibles
Assurance is another factor that is about the knowledge as well as the consideration of the workforces and their ability of carrying trust as well as self-confidence. Ali and Raza (2017) have mentioned in their research that to measure the level of assurance while providing quality services to the consumers, it is essential that an employee should ensure its customers with confidence and make him feel safe and secure while doing transactions. Moreover, an employee has to be courteous constantly and also has to abide by his promise of providing quality ensured service.
Empathy
According to the study conducted by Zafar et al., (2012), the term empathy means to provide a gesture of care as well as provide attention to every individual or customer. There are ways of measuring empathy that are focused on the worker’s willingness to being polite and considerate through its consumers. The organisation tends to give equal but focused heed on their concerns, complaints or requests and also to understand their query so that it can be resolved at the convenience of customers.
Current Service Quality Trends in Banking Sector
Today in this modern and competitive world, the banking sector has been become the most important sector for all the population globally due to which the banking sector has designed some strategies to develop effective quality services and products that attract more and more customers and retain them for future (Chaudhry et al., 2016). However, according to the research conducted by Subashini (2016), the present trends of service quality developed the most interesting variable for all the banks. This is because technology has become the most necessary factor for the banking sector and it had to divert business from traditional banking sector to e-banking system. The majority of the banks conduct the survey and take feedback from their customers to improve the service quality from which, it came to know that customers need easy accessibility to transfer money from one place to another.
The research of Hussain et al., (2017), discussed that the current e-banking system has been become the most trending service in the entire world, specifically in Pakistan due to which the majority of the customers fulfil their requirements through the website or mobile application of their specific bank. Moreover, customers are also becoming satisfied through the e-banking system. This trend not only enhances the service quality but also increased customer retention because now people want to reduce their time in physically visiting banks for the transaction and other formalities. Ray and Ghosh (2014) highlighted that the technology of e-banking not only decrease their time of transaction but also increases the profit of banks in Pakistan and globally. However, as the competition increased in the e-banking system, several complexities have been developed among different banks in the competitive market. For this, banks are developing an innovative approach to maintain the competitive environment and become the leader of the market.
Moreover, Dar (2012) asserted that there is an important connection among innovation of technology and profit. As the cost of innovation increased, the cost of profit ultimately increased, which helped in increasing the loyalty of customers through service quality with different approaches. There are several features that affect the customer’s satisfaction, specifically in the electronic-banking system through easy convenience, accessibility, and privacy, etc. To improve the financial management system, currently banking industry of Pakistan has been developed proactive engagement. With the incorporation of advanced analytics, improved data and spread opportunities and channels, the financial institutions have been spreading and expanding their services according to the customer needs and satisfaction to maintain their retention. Husnain and Akhtar (2016) emphasised that the proactive trend in a financial institution means to update consumers through message delivery by the capability of SMS and by mobile banking. Moreover, banks get in touch with customers by interacting with customers through call or feedback form to analyse the performance of new services and their influence on customer satisfaction and retention. Furthermore, the banks also developed their new feedback services for their customers to provide some recommendations to their banks through which they can enhance their services, in which the majority of the customers take an active part so that services of banks can give effective benefit to the customers.
Conceptualising Customer Retention
According to Chahal and Dutta (2014), the majority of the banks spend their time, resources and energy to develop customer trust through establishing an effective approach according to needs and requirements of customers. Customer retention can be elaborate as the process of engaging current regular consumers to remain purchasing goods and services. The concept of customer retention is different from customer achievement because majority of the businesses use some specific techniques to retain their customers. Moreover, Santouridis and Veraki (2017) discussed that banks retain their customers by offering them insurance programs and other e-banking facilities through which they stay connected with their banks. The retention rates of the banks are totally dependent on the strategies that developed by banking sector for refraining them to switch to rivals. Loyalty of customers is the most essential feature that can sustain customer retention and the majority of banks follow customer loyalty approach through which they recognise the needs of customer’s need and manage them by developing a specific approach that benefits both customer and bank.
From the research of Chitra and Subashini (2013), it is asserted that banking sector maximises the profitability level by increasing customer retention through safe and secure services that develop the trust of customers. The picture given below shows the reasons why the customer leaves the bank. The consumer satisfaction and the attention of banks to their customers are the most two important factors that retain the customer in the banking sector. The figure below shows that approximately 68 percent of people leave the bank and switch to other banks because they did not get proper attention and treatment with their respective bank and 14 percent of people are not fulfilled with the excellence of the services of the bank due to which they left or switch bank.
Figure 1 Percentage and reason of customers for leaving bank
(Source: Chitra and Subashini, 2013)
Customer retention is the most essential element for the profitability of the banking system due to which it has become the challenge for every bank to develop effective strategies and approach to retain their customers specifically in developing countries like Pakistan (Fatima, and Razzaque, 2014).
Significance of Customer retention
Customer retention is necessary for getting the achievement in service businesses including the likes of banks. The service quality is a significant feature in the retention of the customers. With the increasing pace of time, it has been identified that the quality of service is linked with the customer retention. As the customers tend to experience an improved service, their level of expectation also increases. According to the study of Abdul-Fatawu (2016), the customer starts making mindful and unconscious judgments between different experiences with regards to the services that are regardless of the functioning sector.
The ability of the company for attracting and retaining the new customers is basically one of the core functions regardless of the offering of the products. This tends to capture the market and the attention of the customers. The customer retention refers to the likeness, identification, commitment, trusting, and enthusiasm of the consumers to indorse others, or have the intention to repurchase. As per the study conducted by Chuani (2017), customer retention points toward a sustainable commitment on the side of the customers and the company for maintaining the relationship.
The customer retention has been promoted as a flexible as well as a more reliable source of a higher level of performance. It offers a wide range of benefits that includes retention in employees, their higher level of satisfaction, provision of the quality service, sensitivity in terms of lower cost and price, constructive words of appreciation, greater number of shares in the market, higher rate of efficacy and quality assuring productivity. As per the research conducted by Daniel (2016), customer retention is considered to be the main goal in businesses that tend to practice the relationship with respect to marketing. Though the literal meaning and dimension of the customer retention may tend to vary among the industries and companies, there is a general focus of all the companies on the economic benefits which they can gain through customer retention.
As the tenure of customer grows, the purchasing volumes tend to grow, and the customers agitate while their replacement cost fall. In conclusion to this, the already engaged customers tend to pay a higher cost than the newly developed customers. Haruna (2015) has stated in his research that the grabbing cost the attention of a new consumer is five times more than the cost of keeping the previously engaged customer satisfied. All this requires potential efforts for inducing those customers who are satisfied with switching away from the existing suppliers. Customer retention can be done in two ways that are by moulding the high switching barriers or by delivering a better quality to keep customers satisfied.
Overview of Banking Industry of Pakistan
The banking sector of Pakistan includes approximately 31 banks, from which, there are five banks that are based in the public sector while the foreign banks are four in number. According to the study conducted by Michaels (2017), the local banks in the country are about 22 which are privately operating. In Pakistan, there are six banks that are the biggest contributors to the economy and have the major portion of the assets of the banking sector. To be more particular, the deposits which such banks make up are more than 57 percent while the rate of giving advances ranges up to 53 percent in the economy. These banks include, Habib Bank Limited (HBL), National Bank Limited (NBL), United Bank Limited (UBL), MCB Bank Limited, Allied Bank Limited (ABL) and Bank Alfalah Limited.
The banking sector industry is controlled by the State Bank of Pakistan (SBP), that administers the national banks under the domain of its prudential regulations which are known as PR in the language of the banking sector. Also, the banks also obey the international standards of Basel III. In addition, this sector has a huge potential. According to research conducted by Abidi and Chandio and Soomro (2014), the number of the bank accounts make a contribution of 43 million approximately in a large populace of 195 million. The reasons of this great modification can be credited to the inadequate accessibility of the technology in Pakistan, the hatred or reluctance for the banks because of the religious and ethnic reasons and also, the countless size of the unaware population living in the rural areas.
The potential of the banking sector is day by day increasing with the high speed technology and mobile internets, the start of Islamic banking and the increased level of awareness with regards to the benefits of banking in Pakistan. With respect to the overall performance, Aftab (2012) has stated in his research that the banking sector of the country is progressing. From the year 2009 to 2016, the total number of assets has improved from PKR 6,516 billion to PKR 15,134 billion that has doubled over a span of 7 years. The deposits of the banks have risen up to PKR 11,092 billion from PKR 4,786 billion. Whereas, the lending ratio has increased up to PKR 5,025 billion from PKR 3,240 billion.
Since the year 2009, the rate of investments has been exponentially increasing after PKR 1,737 billion to PKR 7,625 billion in 2016 (Michaels, 2017). These changes took place in the time duration when the prudential regulation imposed great strictness for the banks that have been opposing in the industry. In the previous years, SBP has to be big enough so that the banks function well in the macroeconomic situations. According to the study conducted by Mirza, Berglan, and Khatoo (2016), in the year 2017, the performance of the banks was not so satisfactory because the interest rate had increased. It happened since there was a very big chunk of the securities of government that got developed in the period of June or July in 2016.
These were the reserves which the banks credited back in the year 2011-12 when the interest rates had an upward shift. As now the large chunk of these securities are mature and have left the market, it is predictable that the margins of net-interest in the banks will rapidly increase in the year 2017, whereas the NFI i.e. non-funded income will also have a downward shift due to reduced unrealised securities increases making many revenues than what is being accessible in the market (Shah and Khan, 2017). Nevertheless, the earnings will continue to be in check because, for the past years, many banks are clearing their balance sheets. Through the provision of the limited expenses, the future outlook of the banking sector will get stronger with the sharp increase in the rate of GDP.
Due to the low discount rates, the banks are now reverting back to their business of lending. These large chunks will be a means of a large source of funds for the market and this will let the business market expand more. Not only this, but it is also expected that a great deal of investments would be there due to the China-Pakistan Economic Corridor (CPEC) through which, the industry of infrastructure and development would grow more (Michaels, 2017). Though the lending business of the local banks in CPEC has limitations and is divided among HBL, UBL and Chinese banks, the impact of the mega infrastructure projects will provide ease to the banking sectors in the upcoming years.
Impact of Service Quality on Customer Retention
According to Zafar et al. (2012) the influence of the excellence of services on the consumer retention and loyalty of customer is significant and crucial to understanding in a growing economy like Pakistan. The element of consumer satisfaction is the most significant element in customer retention and loyalty. As the world is becoming modern, people are become more conscious about the quality of products and services and the banking system of Pakistan has developed more focused strategies to satisfy their customers’ building trust and loyalty.
Customer retention and service quality
Hassan et al. (2013) highlighted that the most important aspect is the service value on retention of customers in the banking sector of Pakistan. The majority of the banks monitor and evaluate their customer retention through the excellence of their services on daily and monthly basis which ensures to maximise the loyalty, consumer satisfaction and improved customer retention. The figure below shows that consumer retention is the most important feature that drives the majority of the revenue of the banking sector in Pakistan. 52 percent revenue is generated from customer retention whereas customer acquisition and other factors come after customer retention in emerging more profit in the banking sector of Pakistan.
Figure 2 Factors affecting growth of bank
(Source: Chitra and Subashini, 2013)
The positive consumption experience safeguards the services and product quality. Whereas several customers who visit banks did not give a guarantee to revisit the bank, for this banks need to provide them effective services through which their loyalty level increase from the services of the bank.
Reliability and Customer Satisfaction
From the research of Sabir et al. (2014), it is illustrated that the connection among service excellence dimensions and customer retention was examined by through the lens of reliability. An important and constructive relationship among service reliability and customer retention was found that helps to boost the profit and increase the trust level of customers with the banks. It is observed that a positive association decree among consumer retention and service quality and bank performance are all directly and indirectly dependent on the reliability and dependency of customers and bank on each other. Moreover, Toor et al. (2016) discussed that the advancement of technology has increased the reliability of customer on banks through the online banking system and mobile bank by using apps on every location and everywhere conveniently which has become the most important and reliable source for all the customers of the bank. This also creates competition in the competitive market due to which the challenge of developing a more effective approach has been increased in this dynamic competitive world.
Service quality and customer loyalty
According to the research conducted by Khan and Fasih (2014), there has been a strong and effective affiliation among customer loyalty and service superiority that impacts on buyer retention. The level of customer retention in the banking sector increased by increasing customer loyalty which automatically increased by the services quality and attention provided by the banks. Whereas, in the competitive environment, the banking sector achieving the biggest challenge of maintaining the customer loyalty because in Pakistan, approximately all the services are similar in the banking sector and everyone provide those similar services with alternate names and procedures due to which it is most challenging for the Pakistan’s banking sector to maintain the customer loyalty. Moreover, the loyalty of customers has a potential impact on consumer retention which affects the profitability level of the bank.
Theoretical Framework
Resource-Based View
According to the study of Barney (2012), the Resource-Based View pursues to define the competitive advantage of an organisation and its performance according to the resources that customers need to fulfil their requirements. The resource-based view theory was designed to evaluate the resource control that are valuable, rare and non-imitable and could not be replaced. This theory suggested that the company need to analyse the need for resources of their customers by evaluating and taking feedback from them and analysing the competitive source to fulfil the demanded resources. Moreover, Ahmed et al. (2017) highlighted while implementing resource-based view theory to analyse the effect of facility quality on the customer retention in the banking sector of Pakistan came to know that the banks provide service to their customer according to the resources that their consumers needed to sustain their position in the competitive market. The capabilities and resources in banking are the main and important focus because it defines the performance of the organisation by analysing the customer retention rate through service quality. To rise a competitive edge in the banking sector, they must not have static resources; it should be unique from other banks so that more and more customers can easily retain and it could be the most reliable approach for the banking sector of Pakistan.
SERVQUAL Model
Ali and Raza (2017) highlighted that the instrument of multi-dimension research is SERVQUAL, which was designed to capture and evaluate the opportunities of consumers and their observations of the services provided by the organisation through five proportions of service quality. The model of SERVQUAL was recognised on the paradigm of expectancy disconfirmation, which defined and elaborated the service quality according to consumer satisfaction and it leads to customer retention with the organisation. Moreover, Ahmed et al. (2017) discussed that in the banking sector, the pressure has been increased to determine and establish services that attract the customers and majorly focused on the on-going performance and improvement of banks and their consumers. Providing resources and financial access to customers with an effective strategy can lead to customer satisfaction. Through the SERVQUAL model, the banking sector easily measured and set approaches that are significant for consumer satisfaction and this model also explains that customer satisfaction reduced the gap of customer retention by providing service quality by banks. The SERVQUAL is the most successful popular for the quality services that mostly implemented in the majority of the banks of Pakistan.
Conceptual Framework
In this chapter, some of the factors have been identified that have a direct or indirect influence on the service quality. In the banking sector, these indicators have a vital role in the determination of the excellence of the services. The performance of the banks is not based on the medium that it is using for the deliverance of services whether manual or online, but they are more inclined on the reliable services that ensure quality and meet up their level of satisfaction. The factor of reliability is the capability of delivering services as per the commitment. The point of attraction for the customers is undoubtedly the factor of trust.
Moreover, the customers remain satisfied if they get a timely response to whatever their concerns are, with respect to the services delivery. Giving assurance to the customers through the insurance that the company is highly concerned about safeguarding their trust is the responsible attitude that tends to increase the level of quality services. The provision of the tangible equipment and other resources is very important in order to have better services. Furthermore, the element of empathy builds up a connection between the consultant and the customers which tend to develop a long-term relationship. Overall, having these factors ensures that the better services excellence is to be provided to the customers that meet their satisfaction level.
Summary
In a nutshell, this chapter is comprehensively designed to discuss and estimate the influence of the service quality on the consumer retention. This topic is discussed in the background of the banking sectors of Pakistan. The quality of services is the delivery system of the services with a positive result by the customer retention while ensuring that the profits rise, and a constructive image is developed in the rivalry market. Though, the quality of services is directly associated with the customer retention and the service quality which is supposed by the customers. Consumer retention is significant for getting success in service businesses just like banks. The quality of service is a significant aspect in the retention of the customers.
With the increasing time period, it is identified that the service quality is interconnected with the customer retention. As the customers tend to experience an improved service, their level of expectation also rises. Currently, in Pakistan, there is the trend of e-banking which is the most preferable due to its speediness and easy services. The majority of the customers fulfil their requirements through the mobile application of their specific bank in the country. This has not only increased the service quality but also the customer retention that has reduced the number of visits and other formalities. The service quality is based on some of the significant factors that are reliability, responsiveness, assurance, tangibles, and empathy. These indicators have a vital role in the determination of the quality of the services.
CHAPTER 3: METHODOLOGY
Introduction to the Chapter
Methodology used in this study is being discussed in this chapter. To make the research substantial, the selection of methodology is highly essential to avert the research in a right direction which is suitable to the focus of the research and is also convenient for the researcher. In this chapter, the researcher has discussed the major aspects of methodology which are used to obtain distinguishable and significant outcomes. Moreover, the application of research approach and research philosophy are also the important part of the methodology. Design of the research is also been considered to identify the nature of the research that whether it is based on qualitative or quantitative grounds. Other fundamental details are also discussed in this section such as types of investigation, method of sampling and sample size which are selected accordingly to amplify the accuracy of the results. Lastly, data analysis, ethical guidelines and research limitation faced during the conduction of this research has been discussed.
Research Philosophy
This aspect is highly vital to define the trajectory in which the research is going to be conducted. It defines the process of how the data for the research will be gathered, analysed and utilized in accordance to the possible outcomes. It involves two factors epistemology and doxology. Epistemology defines something which is known to be true. On the other hand, doxology refers to something which is believed to be true. These two aspects covers multiple research philosophies regarding research approach. The research philosophy is further divided into multiple types including interpretivism, pragmatism and positivism (Sekaran and Bougie, 2016). According to the past literature, majorly used philosophies are interpretivism and positivism. Interpretivism allows the researcher to interpret the components of the subject and make sure that it is conducted organically. This philosophy is mostly used for qualitative analysis. In contrast to interpretivism, positivism involves the approach which depend on the scientific evidence of the subject in the form of experiments (Hovorka and Lee, 2010). It allows the researcher to understand the study in an objective manner.
Mixed method approach is being used in this study, this is why the researcher has selected the pragmatism research philosophy to carry out this study where the researcher has included the both quantitative and qualitative data to identify study the factual and subjective information in comparison.
Research Approach
To practice the appropriate way of research conduction, research approach is also very fundamental. Research approach have two main types which are vastly used by the researchers, such as inductive and deductive approach. Inductive approaches are the one where researcher tends to utilize the material provided from past studies and does not develop their own theory. While deductive approach means the approach in which researcher proposes their own hypothesis and does not limit the research to the already introduced theories and researches (Gottfredson and Aguinis, 2017). The selection of the research approach is based on its nature whether it is qualitative or quantitative.
Researcher has applied the deductive research approach in this study to obtain the estimated conclusions. The reason to use this approach is that the study has analysed the qualitative and quantitative data together to investigate the previously developed hypothesis which were tested in this study.
Design of Research
Design of research is a core element of research study in which methods and logical reasoning to solve a research problem are provided. The two generally used research designs are quantitative and qualitative designs. Qualitative research design refers to the data analysed and collected on the basis of its quality and content (Maxwell, 2012). The data in qualitative design is non-numeric because it is detailed. It usually consist the data collected from participants through interviews or questionnaire. Whereas, the researcher opt for quantitative design when the data is numeric because in quantitative design data is mostly consist of quantifiable and numeric figures.
The nature of the data for this study is mixed, thus the researcher have selected the quantitative and qualitative data together. The data used for this research consists of numeric figures and quantitative and qualitative data information being taken through the interviews.
Types of Investigation
Research investigation methods helps in monitoring the methods of the research which have been used to execute the study. According to the previous studies, there are three types of investigation which are mainly used namely as explanatory, exploratory and descriptive investigations. Explanatory research investigation is the one focusing on cause-effect inter-relationship, and discuss the relationship between multiple variables used in the past studies, journals and articles and also called the casual investigation (Barsalou, 2016). In contrast, exploratory investigation researcher tends to opt for the subject which is not discussed in detailed manner in the past studies and it could also be a totally new proposition which was not considered previously. Descriptive investigation is the one where all the aspects of the study is thoroughly discussed in a suitable manner.
This research is revolving around the cause and effects of the variables that are under study, this is why researcher has selected the explanatory research investigation method. However, these are the factors which have been studied before but the study is using all of them together to investigate the selected topic of the research.
Methods of Data Collection
Method for collection of data for the research is selected in accordance to the accuracy of results and objectives of the research (Cooper, 2016). This is also the same as sampling method and sampling technique. In quantitative research design, to attain the appropriate interpretation of data, the data must be sufficient and significant. Generally, two major methods for the collection of data are being used by researchers to carry out the study that are secondary and primary. The raw and direct methods for the collection of data come under the category of primary methods of data collection. While, the data used in secondary data collection method is from past literature, journals and studies.
This research is based on primarily collected data by the research with the help of surveys and interviews. The researcher has implemented the primary data collection method for this kind of study.
Sampling Method
Mainly, two major methods of data sampling are probability non-probability which has been adopted by the researchers according to the past studies (Uprichard, 2013). Probability sampling methods refers to the one where all the participants of the study have equal number of chances. Whereas, the number of chances given to the participants are not equivalent in the non-probability data method of sampling. Moreover, the probability method for sampling is divided into stratified and simple random data sampling techniques. In stratified data sampling techniques, the data is categorized in multiple sub group which was collected by the researcher from the large group of people in comparison to the simple random data collection technique which is unbiased.
Due to the realistic nature of non-probability data collection technique, it is most commonly used sampling method by the researchers. It is also divided into three kinds namely as convenience, non-convenience and snowball data sampling methods. As it is somehow indicates by the name of it, the convenience methods allows the researcher to conduct the study according to their convenience and accessibility. On the contrary, the snowball sampling technique is the one where the data is transferred between participants of the research. As the study required the researcher to collect the primary data due which it was necessary that the researcher should collect the data himself. Therefore, in this research, the conductor has preferred the non-probability and convenience data sampling techniques to prioritize their availability and accessibility. For interviews, the snowball sampling is selected
Sampling Size
When it comes to select the sample size of this study, it is necessary that the sample should be sufficient enough to represent the population which should be targeted by the study. Researcher has focused the commercial banks of Pakistan to investigate their service standards and the impact they are creating through their services. Therefore, it becomes clear that the sample should be large, as the population of this study includes all the commercial banks of Pakistan. For that particular reason, qualitative in being collected from 5 managers of commercial banks. However, the quantitative data is being collected from 150 customers of the banks to know their response regarding the service of the banks they are providing to them.
Data Analysis
This section of the study is highly crucial in relation to the conclusion of the study because it analyses the data collected to carry out the research whether it is primary or secondary (Smith, 2015). It is adopted in consideration of the data sampling method. The data utilized in quantitative researches are mostly analysed by the statistical and mathematical methods. The suitability of selection of the variables, dependents and covariates is vital for this part of the research. There are multiple statistical tools available for this purpose which is used to perform the analysis of the data including regression, correlation, ANOVA and etc. To maintain the substantiality of the data and objectives the data should be assessed in appropriate manner. The commonly used software for data analysis are SPSS and MS Excel.
In this study, the researcher used SPSS to apply the relevant tests over the collected data. However, the quantitative data has been analysed with the help of thematic analysis. While focusing the tests of the quantitative data, researcher decided to apply the regression and correlation analysis considering their relevancy to the study. In addition to that, frequency analysis has also been used in this study to analyse the quantitative data in detail.
Sampling Strategy
Sampling techniques are defined as identifying a sub-set of population that can be used in research process to represent entire population. The sample members are involved in data collection process for empirical data, the analysis and results of which are considered to be applicable on total population. General categories of sampling techniques are probability and non-probability sampling techniques (Brannen, 2017). The basic difference between probability and non-probability sampling techniques is that the former requires that the probability to participate and get recruited is distributed equally in the entire population while the former is free of any such restrictions. The main benefit of probability sampling techniques is higher reliability while the main limitation is that the researcher must have access to complete target population (Eriksson and Kovalainen, 2015). Since the target population in this study is marketing professionals in the UK, therefore it is a huge and the researcher did not have adequate means and channels to access all professionals in the UK. Hence probability sampling techniques were not feasible in this study (Walliman, 2015).
The sampling in this study was done using the convenience sampling technique. The convenience sampling can be used to access population members in the nearest vicinity and as per own convenience of researcher (Taylor, Bogdan, and DeVault, 2015).
The sampling process for questionnaire participants began with interacting with marketing professionals using social media channels and the researcher asked them to provide email addresses. The researcher sent blank questionnaire, blank consent form and research background in MS Word format to those participants who agreed to participate in the study. The researcher sent 156 emails and in response 100 complete questionnaire with signed consent forms were gathered. The data collection process was stopped at 100 sample size as it is an adequate sample size for statistical analysis. The same technique and process was applied for interview participants. Each interview was conducted using one-to-one interviews through multimedia applications in the smartphone. All discussions were recorded and then transcripts were prepared using the MS Word format.
Data Analysis Techniques
The data analysis technique is defined as a process that converts raw data into meaningful results and inferences and conclusions are drawn from results. Therefore are different data analysis techniques for quantitative and qualitative data. In case of quantitative data, statistical techniques are used (Silverman, 2016). The statistical techniques are highly appreciated in research community as they provide results in the form of tables and graphs which makes it easier to understand and analyse the data and interpret easily. However, statistical analysis cannot be chosen for qualitative analysis and they provide limited inferences as compared to qualitative data (Bryman, 2016).
This study used three statistical techniques commonly used in social research processes. The frequency analysis, correlation technique, and regression model were used to understand and analyse the quantitative data and explore the impact of social media marketing on sports marketing within the context of Nike. The impact of each variable in the conceptual framework was gauged using these techniques. The results and interpretations are presented in the following chapter.
For qualitative data analysis technique, there are several techniques which include thematic analysis, grounded theory, and content analysis, among others. In this study, the researcher used thematic analysis. Thematic analysis is a technique that enables the researcher to choose a set of keywords and then search them in large pieces of text(s), such as interview transcripts and sort the most relevant data called the categories. Once the relevant data is collected, the researcher further refines the data and identify common patterns and similarities in different pieces. These similarities and patterns are termed themes (Brannen, 2017).
The same technique and process was applied in this study. Since the interview questions were formulated using keywords from objectives, therefore, the researcher used thematic analyses and used the same keywords for search for themes in the interview transcripts. The results of the thematic analysis are presented in the form of a narrative in following chapter.
Ethical Guidelines
It is the ethical responsibility of researcher to ensure the confidentiality regarding information assessed from the participant. This research has considered the information available in the past literature, and all the rightful authors of those studies are credited in this study. Researcher has also followed the guideline to avoid the occurrence of plagiarism in this study which is considered an international crime if found in any documentation.
Limitations
It has been studied that there are some of the limitations in every study, therefore it is necessary that the researcher should identify and explain all the limitation itself. However, if the limitations are not being defined by the researcher, it is probable that these limitations would be considered as the weaknesses of the study. In this study, the researcher was provided with the limited time in which the study should have been completed. In addition to that, the budget was also limited, due to which the researcher was unable to meet the customers in person in order to obtain their responses for quantitative data. However, both of the limitations resulted in a way that the researcher could not exceed the sample size of the study, therefore, it is possible that the future study studying the similar topic increasing the sample size would present the different results.
CHAPTER 4: RESULTS AND ANALYSIS
Introduction
The current chapter is aimed towards providing analysis on the data that has been gathered by the researcher. For presenting the data analysis, the interviews and survey questionnaires were carried out and its findings are presented in this chapter for better understanding the research phenomenon. The interviews have been carried out by the managers and survey questionnaire has been carried out by the customers of the commercial banking sector. The chapter is comprised of demographic analysis, correlation and regression along with the frequency analysis. The findings of the interviews have been presented in the form of thematic analysis and the chapter finally concludes with discussion on the objectives of the study.
Demographic Analysis
This section explains the demographic information of the research participants that has been selected for this study.
The first table explains the gender of the respondents and from the above figures, it can be asserted that out of 150 respondents, 83 were male and remaining 67 respondents were female depicting a majority of male respondents in the study.
The table presented above explains the age of the respondents and from the table, it can be asserted that majority of the respondents were from the age group of 25-30 years. The second highest age group is estimated to be 31-36 years who have participated in this study.
Frequency Analysis
This section explains the results of the questionnaires which has been taken from the customers of the commercial banking sector of Pakistan.
The first question which has been asked from the respondents of the study is associated with the fact that the customers are provided with the requested services or products and they are easily available at the bank or not. To this question, around 11% respondents positively responded to the question. However, a cumulative 34% of the respondents were strongly agree with the statement. The 41% of the participants remained neutral with the question statement and a total of 24% strongly negated with the question statement.
The second question which has been asked from the respondents of the study is related to the issued invoices are accurate. To this question, around 9.3% respondents positively responded to the question. However, a cumulative 42% of the respondents were strongly agreed with the statement. The 34% of the participants remained neutral with the question statement and a total of 23% strongly negated with the question statement. This implies that most of the respondents were in the favor of the statement that issued invoices are accurate.
The following question which has been asked from the respondents of the study is associated with the fact that the customers are provided with the reliable information about the services or products. To this question, around 20% respondents positively responded to the question. However, a cumulative 54% of the respondents were strongly agreed with the statement. On the other hand, the 32% of the participants remained neutral with the question statement and a total of 14% strongly negated with the question statement.
This question is related to the fact that whether the customer service representatives are helpful for the customers or not. To this question, around 12% respondents positively responded to the question. However, a cumulative 48% of the respondents were strongly agreed with the statement. The 34% of the participants remained neutral with the question statement and a total of 17% strongly negated with the question statement. This explains that a majority of the respondents were in the favor of the statement being asked.
The first question which has been asked from the respondents of the study is associated with the fact that the customers are provided with the customized services on their request. From the findings of this question, around 10% respondents positively responded to the question. However, a cumulative 35% of the respondents were strongly agreed with the statement. The 41% of the participants remained neutral with the question statement and a total of 16% strongly negated with the question statement.
The first question which has been asked from the respondents of the study is associated with the fact that the customer’s services representatives provide good responses to the queries of the customers. To this question, around 8% respondents positively responded to the question. However, a cumulative 38% of the respondents were strongly agreed with the statement. The 30% of the participants remained neutral with the question statement and a total of 24% strongly negated with the question statement. The findings of this question imply that the respondents of the banks are provided with the timely resolution of their queries and hence the staff tends to be well-trained and quality conscious because they care about the customer’s wants and needs.
The following question pertains to the fact that the bank assures for the provision of good services to the customers in terms of commercial activities. To this question, around 22% respondents positively responded to the question. On the other hand, a cumulative 55% of the respondents were strongly agree with the statement that the bank provides good services to the customers. The 24% of the participants remained neutral with the question statement and a total of 20% strongly negated with the question statement.
The question which has been asked from the respondents of the study is associated with the fact that there is a provision of on-going information and status of the complaints and queries. To this question, around 18% respondents positively responded to the question. However, a cumulative 49% of the respondents were strongly agreed with the statement. The 37% of the participants remained neutral with the question statement and a total of 13% strongly negated with the question statement.
This question is asked about whether the instructions on helpline can be easily understood. To this question, around 22% marked strongly agree, 34% marked agree, 32% marked neutral. Furthermore, a total of 11% marked negative towards the statement being asked from the respondents. The analysis of the following statement implies that the instructions provided on the helpline can be easily understood by the customers which are quite necessary for the banks that their user-friendly services should always be assisting the customers.
The question which has been asked from the respondents of the study is associated with the fact that the customer’s complaints are resolved at the earliest. To this question, around 34% respondents positively responded to the question. However, a cumulative 72% of the respondents were strongly agreed with the statement. Only 21% of the respondents were in the favor of a neutral response. Lastly, only 6% of the respondents marked negative to the student.
This question is related to the overall satisfaction of the customers with the banking services offered to them and level of their retention. To this question, around 34% respondents positively responded to the question. However, a cumulative 74% of the respondents were strongly agreed with the statement. Only 18% of the respondents remained neutral with the statement which implies that either they do not understand the question or does not want to answer. Lastly, only 6.7% of the respondents disagree with the statement.
This question is related to the fact the customers are satisfied with the personal contact with the staff members of the banks. To this question, around 27% respondents positively responded to the question. Conversely, a cumulative 71% of the respondents were strongly agreed with the statement. Only 22% of the respondents remained neutral with the statement and finally, only 6% marked disagree in questionnaire regarding the fact that the customers are satisfied with the personal contact with staff.
This question is related to the fact the customer experience with their respective banks is enjoyable. To this question, around 35% respondents positively responded to the question. However, a cumulative 71% of the respondents were strongly agreed with the statement. Only 22% of the respondents remained neutral with the statement which implies that either they do not understand the question or does not want to answer. Finally, only 6% marked disagree in questionnaire regarding experience.
The question which has been asked from the respondents of the study is associated with the fact that the customers are provided with the services that could meet their expectations. To this question, around 25.3% respondents positively responded to the question. However, a cumulative 59% of the respondents were strongly agreed with the statement. Furthermore, the 30% of the participants remained neutral with the question statement and a total of 10% strongly negated with the question statement. This explains that majority of the customers were of the opinion that their bank meet their expectations.
Correlation Analysis
The main aim of the following study is focused on assessing the relationship between service qualities on the retention of the customers in the case of banking industry of Pakistan. For this purpose, a correlation analysis has been carried out for the purpose of assessing the relation between dependent and independent variables. In this case, a survey has been carried out so that the correlation analysis can be conducted. The table presented below explains the correlation between the variables of the study.
From the table presented above, it can be clearly observed that the results are significant. Based on this table, positive and strong association has been identified between reliability and customer retention as the estimated value for the correlation is .636 with .000 significance value. Similarly, the correlation between responsiveness, assurance and customer retention is estimated at 0.955 depicting a strong correlation. The factor of service quality i.e. tangibles is found to be at .957 correlated with the customer retention. Moreover, the relation between empathy and customer retention is estimated at .974.
Regression Analysis
This section deals with the explanation of regression analysis where the identification of the impact of independent variable with the dependent variable is constructed on the study. The regression analysis is regarded as the most useful statistical test for evaluating the relation between the two variables In the context of this study, the results of regression analysis are presented below,
From the table of the model summary presented above, it can be assessed that the value of R-square is .0985, which means that variance in all the independent variables of this study including, responsiveness, tangibility, empathy and customer retention are explaining 98.5% variations on the variable for the actual usage. Considering the value assessed on the R-square, a fitness of the model can be observed in this research.
The table presented above explains the ANOVA of the study which explains that the empathy, reliability, assurance and other related factors of the service quality are the predictors of the customer retention. Moreover, the significance value is also estimated at .000 explaining that there is strong prediction of both dependent and independent variable relation.
The coefficient table mainly explains the significance of the variables which are taken into consideration as independent variable. It can be observed that only assurance and responsiveness are found to be not significant, whereas, rest of the variables are significant for the customer retention.
Thematic Analysis
Significance of Service Quality and Its Trend in Banking Sector
Service quality is known as the delivery system of service for best output which also helps in retaining the customer. It plays a major role in rising profits and developing a positive image in the competitive market. It is investigated that service quality is directly associated with customer retention and service quality has been perceived by the customers (Kaushik, 2013). Service quality is regarded to be important in every aspect of the businesses as from the respondents it is analysed that:
“I consider service quality to be most important aspect in the business as it helps in satisfying the needs as well as demands. People consider is very important as it helps the organisation in meeting the expectations of the customers as well as it also help in competition with the competitors as well as environmental actors, nature of services and the factors which affects the organisation internally.”
From the previous researches it is analysed that the improvement in service quality not only improves the satisfaction level of the customers but also helps in increasing the streams of revenue which is very important for the organisation as well as the employees working in it (Urban, 2013). As per the response of another respondent:
“The main benefit which I consider through the service quality is that it helps in enhancing the revenues. This is possible by retaining the higher percentage of the customers that already exists as well as it attracts several customers by positive words and the rates of existing customers are also increased with the help of this. This is my point of view but other contradicts from my point of view. There are people that consider service quality to be important as it determines the satisfaction of customers. The consider quality as a prime thing which affects the success and failure of the business. Most of the people associates quality with the consistency but the main thing which should be considered is that the products are mainly developed as per the quality standards of the company.”
As per the study, it is analysed that for satisfying the customer, the company has to provide better services while ensuring that there is complete security and protection along with the provision of quality information and easy services (Husnain and Akhtar, 2016). On asking regarding the trends of service quality in the banking sector, it is recorded from the respondents that:
“E-banking system the most trending service in the whole world, which is also considered as the main trend in banking sector which provides customers service quality. The mobile banking is the efficient and effective way which ensures that the customers are getting their work done on time and without moving from their place. Majority of people records this as the best example of service quality which is been practiced all over the world as the most common trend.”
It is investigated that most of the organisations in banking sector have incorporated latest technology to provide service quality which helps them in retaining the customers.
Factors of service quality affecting customers and way organisation retain their customers
Based on the questions asked from the respondents, various responses have been obtained regarding the factors of service quality that have an impact on customers and also on banking sector of Pakistan in terms of retaining their customers as one of the respondents stated,
I think that there are some factors associated with service quality of commercial banks that impact the customer retention of these organisations. These factors include tangibility of the services, responsiveness of services provided, reliability of services and empathy within the services. These factors are highly essential in terms of increasing the effectiveness of services within different commercial banks that lead towards customer retention and long term relationship between banks and their customers.
Another respondent stated,
Based on my knowledge regarding this, services responsiveness and reliability of services are highly important for the banking sector operating in Pakistan in terms of impacting customers and increasing their satisfaction level towards the banking services. Moreover, I would like to add that the contemporary banking sector in Pakistan has the primary focus on increasing the services quality in order to retain its customers that could lead them towards getting the competitive advantage and long term growth.
Based on asking questions regarding this theme, one of those respondents said,
As you can see that the competition among commercial banks has increased rapidly that has led these banks towards focusing on improving the service quality that lead towards satisfying customers. Moreover, it depends on the equipment and strategies used to improve services, showing complete attention to individual customers, assuring effectiveness and quick services to customers and also building an effective system for customers in order to improve the service quality that have a positive impact on the customer retention.
On the basis of these responses obtained from respondents, it can be analysed that tangibles, responsiveness, reliability, empathy also the use of technology lead towards improving the service quality of commercial banks through which customer retention can be ensured and also it could bring positive impacts in terms of increasing number of customers. Since the competition has increased rapidly within the commercial banking sector of Pakistan and also the increase in the expectation level of customers having bank accounts, banks are required to become more efficient within their services as customers want to be felt valuable and to be treated with increased value by banks. This leads them towards becoming loyal towards a bank and there is a lower probability of customers switching their banks. This could be in regards to the responses obtained that commercial banks need to focus on in order to gain competitive advantage and a long term growth.
Strategies for Improving Service Quality for Better Customer Retention
When it comes to get recommendations regarding the improvement of service quality in the banking sector of Pakistan, various responses have been collected from respondents in terms of knowing their opinion regarding bringing improvement within service quality. Upon asking questions, one of the respondents stated,
“According to my opinion, commercial banks need to realize the importance of improving their service quality in order to facilitate their customers more effectively. As the influence of technology has increased within the business sector specifically into banks, therefore, the usage of technology should also be within enhancing services of banks. This could lead towards increasing efficiency of services and also lead towards higher customer satisfaction.”
Another respondent stated,
I would suggest that the banking sector of Pakistan should focus on the service quality factors and should work on increasing the responsiveness and reliability of their services and delivering it on time. As most of the customers have issues regarding the responsiveness and reliability of services as most of the commercial banks are not efficient in their services and do not fulfill their promises with customers. It ultimately impacts the credibility of bank that becomes highly negative and risky for banks in terms of growing within the highly competitive environment as customers switch to other banks instantly. Therefore, this needs to be realized by the contemporary banking sector so that they could retain their customers and direct towards a sustainable growth.
Based on these responses collected from respondents, it becomes evident that the commercial banks operating in the Pakistani banking sector need to focus on enhancing their service quality in an effective manner. There is a primary need of focusing on responsiveness and reliability of services provided by the banking sector that could lead towards the improvement of service quality and could help commercial banks retain their customers in an effective manner. Moreover, these recommendations are also significant in terms of making banks achieve competitive advantage in a highly competitive business environment and also to direct the bank towards a sustainable growth in the banking industry operating in Pakistan.
Discussion
To highlight the significance of service quality and customer retention.
When it comes to the significance of service quality and customer retention, the previous literature highlights the significance of service quality and customer retention within the organisational context. Moreover, the findings carried out in this specific study are also based on the significance of these aspects. According to the study conducted by Ajmal et al (2018), service quality is based on meeting and satisfying needs of customers in the most effective manner. The study conducted by states that service quality has become highly essential due to the increasing expectations of customers and due to external environmental factors such as increasing competitors that are increasing the pressure on organisations towards ensuring high quality within their services (Khan and Fasih, 2014).
Besides this there are various other studies conducted in this study area that highlight the importance of service quality and customer retention within an organisation. Findings that have been carried out in this study based on the responses obtained from the respondents reflect similar concepts of service quality and customer retention within the organisational perspective. It was found that various responses were based on the increasing effectiveness of services and also the impact of higher effectiveness and efficiency of service on retaining a customer in terms of the increasing satisfaction level of customers.
The study conducted by Sari et al (2018) states that customers demand effectiveness in services and also want to be treated in an effective manner that require services to be of high quality that could satisfy customers. In this competitive era where the organisational competition is increasing rapidly, there is a higher probability of customers switching to other organisations just because of the lack in service quality that lead towards the dissatisfaction of customers (Hafeez and Muhammad, 2012). Therefore, the findings carried out in this study and the findings that are in the previous studies show similar outcomes indicating service quality and customer retention to be highly essential for the growth of an organisation in terms of gaining maximum profitability and also to get competitive advantage out of it. Based on both of these findings, it could be considered that customer retention and service quality are highly important for the service sector as their revenues only rely on the services offered by them that could increase the customer value if organisations focus on service quality and customer retention.
To identify the factors of service quality affecting the customer retention in commercial banks of Pakistan.
There are some factors associated with service quality that have an impact on customer retention in commercial banks of Pakistan. According to the study conducted by Hafeez and Muhammad (2012), there are certain factors of service quality that include reliability of the service, responsiveness of the service, assurance of the service, tangibles of the service and empathy. There are various studies that highlight these factors to be highly important within the service quality in terms of affecting customer retention within an organisation. When it comes to the commercial banking sector of Pakistan, findings carried out through conducting surveys in different commercial banks reflected similar factors responsible for increasing customer retention within these banks (Awan, Bukhari and Iqbal, 2011).
The most highlighted factors of service quality impacting customer retention in commercial banks of Pakistan included tangibles, reliability, responsiveness and empathy. According to the study conducted by Zafar et al (2012), these factors determine the service quality of the banking sector operating in Pakistan. Tangibles include the equipment and appearance of the physical facilities with services, reliability includes the ability of the banking sector towards delivering promised services in an effective manner. Responsiveness includes the willingness towards providing services and building an effective communication between customers and service representatives and lastly empathy is related towards showing good care of customers and giving attention to each of the customer.
However, there has been a similarity observed within the findings in the responses generated by the respondents through survey questionnaires. These respondents also highlighted these four distinct factors that have an impact on the customer retention within the commercial banking sector operating in Pakistan. Based on the frequency analysis and the thematic analysis carried out in this study, responsiveness and reliability of services that banks provide to customers are most important indicators of improved service quality that lead towards customer retention. It has also been found in this study that the customer retention has become highly significant due to increased competition among different commercial banks operating in Pakistan. Therefore, it becomes essential that banks should focus on improving their quality of services so that they could retain their customers and do not let customers to switch their accounts to other banks. This could impact the profitability and growth of commercial banks due to increased emphasis on the service quality to attain competitive edge within the banking industry of Pakistan.
To identify the factors of service quality affecting the customer retention in commercial banks of Pakistan.
The impact of service quality on customer retention has been discussed in various studies conducted by different researchers and also this study carries out findings associated to the service quality and its impact on customer retention in commercial banks of Pakistan. According to the study conducted by Daniel (2016), service quality has a significant impact on customer retention as customers demand more effectiveness in the service and also require services to be highly efficient.
The study conducted by Haruna (2015) states that improved service quality has a positive impact on retaining customers for a long period of time that also lead towards attaining competitive advantage based on the quality of the service. Besides these studies, there are various other studies that identify the relationship between service quality and customer retention. However, the findings carried out in this study through conducting interviews and survey questionnaires, it has been found that service quality within the Pakistani commercial banking sector impacts customer retention significantly that could have either positive or negative results based on the impacts.
It could further be elaborated on the basis of the level of quality in the services provided by different commercial banks operating in the Pakistani banking industry determines the retention of customers within those specific banks. Hence, on the basis of these responses obtained from respondents, it could be stated that the findings carried out in this study and the findings carried out in previous studies regarding the impact of services quality on customer retention are similar as it all indicates the significant impact. According to the study conducted by Aftab (2012), Pakistani banking sector is highly dependent on the effectiveness within the service quality as it operates in a highly competitive industry where there are multiple commercial banks operating in the industry. These banks are focusing on enhancing their quality of their services in order to keep their customers highly satisfied and to increase their profitability. Moreover, the increasing impact of service quality on customer retention is also due to the increasing expectations of customers from the organisation. Therefore, this could be assessed that the findings in the previous studies and in this studies indicate the drastic impact of service quality on customer retention in terms of its increasing significance within the contemporary commercial banking industry operation in Pakistan.
CHAPTER 5: CONCLUSION AND RECOMMENDATIONS
Introduction of the Chapter
This chapter is providing the conclusion of the study. There are various sections in this chapter such as summarized findings, where the findings which are provided in the fourth chapter of the study. Later to that a section is included in which the findings of the study are concluded and based upon these findings, recommendations have been provided in the next section. However, a section has been included in the end of the chapter where the researcher has discussed the future implications for the future researcher studying the similar study.
Summarised Findings
As the study is focused towards the commercial banks of Pakistan, therefore data was collected by the managers of commercial banks as well as the people who have been customer to such banks. Reason for including the customers in this study is that they would be the best respondent for the study considering that the study is evaluating the services quality being provided by the banks. In addition to that, it is also necessary to mention that the findings have been obtained through various analysis techniques including demographic analysis, frequency analysis, and correlation and regression analysis. However, the qualitative information is being analyzed through the thematic analysis. With the help of the results obtained through the tests, it has been observed that the majorly analyzed factors of this study based upon which the questionnaire was being developed, has contributed that strong significant impact of the identified factors over the service quality of the banks serving to commercial sector.
It has been observed that the factors which have been included in this study are reliability in terms of the service of banks, responsiveness of the employees for the customers, assurance that the service is being delivered in trusted manner, tangibles of the banks and the empathy which is being perceived by the customers through the behavior of the employees serving at the banks. When it comes to discuss about the responses of the students which reflected in the findings of the study, it has been observed that majority of the people are focused towards the quality of services which is being provided in the commercial banks of Pakistan. However, it has been observed in this study that quality of service is not only being perceived by the customers for the banking sector only but they expect it in general. Therefore, it has become clear that if the banks want to gain an advantage over their competitors, then it is necessary that they should focus the quality of their services. In addition to that, it was also studied that the quality of service makes the organization focused towards identifying the loopholes and enable to look for the remedies.
Another aspect which was observed during the literature review that when it comes to discuss about the service quality of the banks, it is being represented by their methods of service offering. This can also be conceptualized that when the banks are providing the smart solutions for the smart problems rising every day, their service is being considered as quality service. However, in order to provide the smart solutions to their customer, it is necessary that they should have strong analytical skills for identifying the needs of their customer, this will help the banks to enhance their quality standards. In addition to that, it is also important for them to keep close coordination with the front end staff which is directly dealing to the customers and the managers who are dealing the corporate issues of their branch and coordinating with the head offices. Their close coordination is being focused in order to create a strong communication culture where the executives of the banks would be able to get the feedbacks of the employees in terms of the responses of the customers. It can be exampled as the customer facing any issue regarding the tangibles of the bank, they would directly communicate to the front end employee of the bank who would be available and accessible. However, if the bank has a culture where any of the employee can communicate with the senior professionals, it would be possible for them to pass on the information and they would be able to make the counter strategy for improving their quality of services.
In addition to that, respondents of the study were also asked about the responsiveness of the banks which is directly focusing the intention of the employees towards the duty. Therefore, it has been observed that the customers responded that when the employees of the banks are responsive, they feel better as they would be guided about their confusions regarding the issues they have been facing in terms of policies regarding any product of the bank. When it comes to discuss about the product of the banks, it is necessary to mention that the banks are not only providing the services of maintaining the accounts but also they have multiple products which mainly provide the financial assistance to different kind of people for their respective objectives. However, in this regard, the companies reaching to the banks usually get the best response from the bank employees as they are providing a large amount of business in terms of the accounts for their respective employees’ salaries and other objectives such as loans for their business. On the other hand, people having their personal account for saving or current category are likely to be depositing their money in the bank which helps them to generate capital for their banking activities. However, both of the type of customers are important for the banks but the professional and corporate clients are more important for the employees as they are required to meet their respective target which is majorly being achieved by the corporate client. Due to which, most of the employees of the bank dealing the customer relationship tasks usually prefers the corporate clients which creates difficulties for the people having personal accounts in the banks.
In this regard, it becomes necessary for the banks that they should have categories for customer relationship services that either their every employee should have to cater some of the customers maintaining their personal accounts or they should divide them into groups where one of the group should be designated to cater such clients having persona accounts and applying for personal loans or the loans to fulfil their needs such as home loan or vehicle loan. Moreover, it has also been observed in this study that most of the banks outsource their helpline services where the third party service provider deals the query handling for the banks on telephone lines. Therefore, in this regard it is also important that the third party service provider should have sufficient mechanism to control over the quality as they are directly representing the bank to their customers. In such a case, where the third party service provider is not able to maintain the quality of service, it is probable that the image of the bank would be affected directly.
Furthermore, when it comes to discuss about the tangibles of the banks, it has been observed that there is a great impact over the bank services from the tangibles as it gives the first impact over the minds of the customer. For example, a bank failing to maintain the environment of a branch to more professional and employees are using the informal language for communication and working in a culture where nothing is being followed in systematic manner, there is a greater probability that the image of the bank would be affected due to it. In such a case, it becomes necessary that the bank should focus their tangibles in order to enhance the quality of their services. Moreover, the impact of empathy is also being analyzed as an important element as it is necessary that the employees should behave well to the customers and present the true intention to solve the queries of the customers. In addition to that, it was observed that most of the customers believes that whether their problems are being solved or not, but if the employee of the bank has shown the intention to solve their issue, they marked the bank as quality service provider. Therefore, it is also important that the employees should be asked to go out of the box for solving the issues of their customers remaining I the limits of the policies of the bank and if the policy of the bank is not allowing any of the customer to be relieved, they should report the issue to the higher management of the bank so that they would be able to know that their policies are lacking to maintain the quality of the services.
Conclusion
This study was focused towards evaluating the impact of quality of services being provided by the banks for their customer which contribute them to retain their customers. For that particular reason, some of the factors were analyzed which helped the researcher to identify the impact of quality of services over the customers. In this study, data was collected by the employees as well as the customers of the commercial banks in Pakistan in order to gain their responses regarding the quality standards. However, the quality of services is meaning measured through the evaluation criteria in which they were asked about the responsiveness of the employees, reliability of the bank services, assurance they provide to their customers, tangible impact being created over the minds of the customers, and empathy which is being shown by the behavior of the employees. The results have shown that all these factors are significant in terms of evaluating the quality of services being provided by the banks. Therefore, it is being concluded that if the banks are focusing to improve their quality in order to retain their customers, it is important for them to provide the better services from their competitors. As it has been studied in this study that the unique products make it possible for the bank to target the new customers, but if the quality of services are not being maintained, there is are more chances that they would lose the customers and their customer base will start decreasing which would also create a negative word of mouth for them. Based upon the analysis, it has been concluded that better service of quality is needed for the commercial banks in Pakistan to retain their customers or else they may compromise over the product and may transfer their accounts or other business activities to the competitors.
Recommendations
Based upon the findings of the study, there are some of the recommendations being provided to the commercial banks in Pakistan which would help them to improve their quality of services in order to retain their customers.
- Employees of the banks should be allowed to go out of the box for solving the issues of customers following remaining in the boundaries of the policy.
- Close coordination of front end employees with the senior managers should be maintained to get the best feedbacks from the employees regarding the customer related issues.
- Employees working inside the banks should have been trained for improving the soft skills.
- Tangibles of the bank should also be focused and maintained to create a positive impact over the minds of the customers.
- Third party query handling should be evaluated as they are working as a separate entity but representing the banks to their customers.
Future Implication
Similar to any other study, there are some of the elements which have not been included in this study and can be triggered in the future studies which may present the different result. One of the major elements is the sample size, the data has been collected from 150 customers and 5 managers, greater sample size may result in more effective results. Furthermore, it is also possible that the similar study with similar sample size may result in different ways for any other country. In addition to that, future researcher may also include more factors to their respective studies or focus any aspect other than the customer retention.
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Appendices
Questionnaire
Evaluation of impact of service quality on customer retention: A case study of Pakistani commercial banks
Name:
Gender
- Male
- Female
Age
18- 24 years
25-30 years
31-36 years
37-42 years
43 years and above
Strongly Agree | Agree | Neutral | Disagree | Strongly Disagree |
0 | 1 | 2 | 3 | 4 |
Questions | 0 | 1 | 2 | 3 | 4 |
SERVICE QUALITY |
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Reliability |
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Requested services or products are available at the bank |
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Issued invoices are accurate |
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Product Information is reliable. |
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Responsiveness |
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Customer service representatives are helpful |
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There are customized services for customers’ requests |
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Customer’s services representatives provide good response on queries. |
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Assurance |
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Bank assures to provide good customer service |
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Provision of on-going information and status of queries and complaints |
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Provision of tracking facility |
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Tangibles |
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The atmosphere of the branches is quite clean and welcoming. |
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The staffs are also presentable. |
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The instructions on helpline can be easily understood. |
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Empathy |
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The representatives give personal attention. |
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The staffs care about client’s concerns. |
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Client’s complaints are resolved at earliest. |
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Customer Retention |
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Considering everything, I am satisfied with my Bank |
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I am satisfied with the personal contact with staff |
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My experience with this bank has been enjoyable |
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My bank always meets my expectations |
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I am always provided with good incentives and discounts. |
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Interview Questions
- In your opinion what is the importance of service quality?
- What are the main factors in your opinion that are most important to a customer?
- What are the current trends in banking sector regarding service quality?
- How well do you retain customers in your organisation?
- Please recommend some strategies through which you think service quality can be improved and customers can be retained?
View More Samples
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