INTRODUCTION
The financial services industry is crucial for global economic development and individual well-being, yet the introduction of new services carries inherent risks due to evolving technology, regulatory changes, and heightened customer expectations This has prompted significant structural shifts within the industry, encouraging the removal of traditional sector boundaries to foster competition In light of increasing competitive pressures, many financial organizations are reassessing their previously conservative and costly marketing strategies, recognizing that future success hinges on market-driven processes Consequently, financial institutions worldwide are reevaluating their approaches to meet customer needs and developing strategic business plans to enhance competitiveness and profitability The challenge lies in ensuring that marketing standards in the financial services sector are aligned with market and consumer demands, necessitating a thorough review of marketing strategies by banks to effectively engage customers.
Banks that prioritize high-quality service gain a competitive advantage, as superior service correlates with increased revenues, higher cross-sell ratios, and improved customer retention Providing exceptional service not only attracts new customers through positive word-of-mouth but also enhances productivity, reduces staff turnover, and lowers operating costs, ultimately boosting financial performance and profitability In today's competitive banking landscape, delivering quality service is essential for success and survival Recent research has increasingly focused on the connections between service quality, customer satisfaction, and favorable behavioral outcomes.
Development results from the coordinated interaction of various inputs, with finance being a crucial element for accelerating socio-economic progress According to Leikun Birahnu (1997), financial resources are essential for fostering further development Financial services are delivered by a range of organizations, with banks traditionally specializing in specific offerings such as loans and safe deposits These institutions emerged to meet the demand for services related to financing imports and exports Globally, banking services can be categorized into investment banking and commercial banking, both of which focus on directing savings towards productive uses.
The Monetary and Banking Proclamation No 83/1994 established the legal framework for banking sector investments in Ethiopia, leading to the emergence of the first private banks and increasing the total number of banks to over fourteen This shift has intensified competition within the banking industry since 1994 As a result, banks are now compelled to reevaluate and enhance their marketing strategies to effectively engage with customers in the evolving financial services market.
The intense competition in the banking sector is primarily driven by banks' objectives to mobilize and allocate funds where they are most needed According to Mosad Zineldin, the growth and financial strength of commercial banks are assessed through increases in assets funded by customer deposits These deposits not only generate revenue for banks but also serve as reliable indicators of public confidence in the banking system Consequently, market share in deposits and loans is a valuable metric for evaluating a bank's performance against competitors operating under similar conditions.
As of June 2008, the total deposits in Ethiopia's banking system reached 62.90 billion birr, reflecting a 16.9% annual growth from 53.90 billion birr the previous year, indicating a significant amount of cash circulation in the country The National Bank of Ethiopia's report highlights that the outstanding loans and advances by banks amounted to 48.06 billion birr, showcasing the mobilization of substantial financial resources across various economic sectors However, the financial resources necessary for Ethiopia's rapid socio-economic development are considerably higher, as the economy has experienced an impressive average growth rate of 11% from 2003/04 to 2009/10, underscoring the urgent need for enhanced fund mobilization by banks to support ongoing development efforts.
According to the World Bank, companies in sub-Saharan Africa finance approximately half of their investments through internal savings Although this self-investment can be beneficial, experts argue that retained earnings often fall short, limiting business operations Consequently, these firms must seek additional financial resources from domestic banks and other sources, intensifying competition among banks to mobilize the necessary funds.
To successfully implement the five-year Growth and Transformation Plan (GTP), Ethiopia must enhance domestic savings, with financial institutions, particularly banks, playing a crucial role in mobilizing substantial deposits for financing essential projects Significant policy measures by the Ethiopian government have enabled banks to expand their deposit bases and provide substantial loans across various economic sectors Consequently, banks face the challenge of mobilizing funds to meet demand and increasing the credit volume available to borrowers, resulting in intense competition among them.
Research indicates that enhancing individual clients' financial situations and increasing awareness of banking services have raised customer expectations (Zavvos, 1989) Additionally, globalization, deregulation, and the removal of various subsidies in financial services have intensified competitive dynamics within the banking sector (Gortsos, 1992).
The Central Bank of Egypt (CBE) has undergone significant transformation aimed at enhancing service delivery efficiency and achieving its goal of becoming a world-class commercial bank Over the past two years, the bank has implemented Business Process Reengineering (BPR) recommendations, using the State Bank of India as a benchmark This period has also seen various business development initiatives focused on service excellence, including expanding the branch network, ATMs, and point-of-sale locations nationwide In today's highly competitive banking industry, it is crucial not only to offer a diverse range of products but also to prioritize service quality improvements to maintain a competitive edge.
Service quality in banking revolves around the consistent anticipation and fulfillment of customer needs, making it essential for strategic planning Banks that adapt their strategies to enhance perceived service quality are likely to achieve a competitive advantage While financial service providers may believe they offer high-quality services at competitive prices, it is ultimately customer evaluations that determine quality and satisfaction.
In today's competitive banking landscape, the success of financial institutions hinges on delivering exceptional customer service, making the focus on service quality paramount Despite the lack of comprehensive surveys on service quality and customer satisfaction, the bank has recently engaged external consultants to evaluate these aspects This initiative aims to identify necessary tactical and strategic improvements By understanding customer needs and enhancing service quality, Ethiopian banks can achieve greater customer satisfaction, which is vital for their success and longevity This study seeks to address the existing gaps in knowledge and contribute valuable insights to the field.
In today's competitive financial landscape, banks must adopt differentiated strategies to excel, as no single institution can dominate all product offerings for every customer A crucial aspect of establishing a strong competitive position lies in prioritizing service quality, which significantly contributes to customer satisfaction Banks can achieve success by consistently anticipating and meeting the needs of their clients This study aims to evaluate service quality and customer satisfaction from the perspectives of both depositors and borrowers, identifying areas for improvement to enhance service delivery.
Service quality is defined as the gap between customer expectations and perceived service In today's competitive landscape, it has become a crucial focus of academic research, recognized as essential for maintaining competitive advantage and fostering customer satisfaction (Zeithaml et al., 2000) Consequently, the evaluation of service quality and its dimensions has garnered significant attention from researchers over the past few decades, as these dimensions reflect the criteria consumers utilize when judging service quality.
Cronin and Taylor (1992) introduced the SERVPERF instrument, a streamlined performance-based scale that serves as an alternative to the SERVQUAL model, effectively capturing the essence of service quality through 22 performance items Research has shown that SERVPERF measures service quality more effectively than SERVQUAL This study aims to evaluate the dimensions of service quality from the viewpoints of both creditors and depositors of the Commercial Bank of Ethiopia, focusing on customer satisfaction levels.
The specific objectives of this study were:
• To evaluate the perceptions of customer toward the Service Quality in Selected branch and sections of the Commercial Bank of Ethiopia
• To determine the nature of relationships between service quality and satisfaction
• To ascertain which aspects of service quality dimensions have significant impact on the customer satisfaction
• To uncover whether these relationships exhibit similar patterns between creditors customers and depositors customers.
• To identify and rank the perceptions of customers toward the dimensions of service quality; and
• To identify the areas that needs to improve by banks to deliver superior quality of service.
Statement of the Problem
As banks navigate a competitive financial landscape with diverse products and services, they must adopt differentiated strategies to establish a strong competitive position A crucial factor in achieving this is the emphasis on service quality, which plays a vital role in customer satisfaction By consistently anticipating and meeting customer needs, banks can enhance their service offerings This study aims to assess service quality and customer satisfaction from the perspectives of both depositors and borrowers, identifying areas for improvement that will enable banks to deliver superior service quality.
Research Objectives
Service quality is defined as the gap between customer expectations and their perceived service experience In today's competitive landscape, it has become a crucial focus of academic research, recognized as essential for maintaining a competitive edge and fostering positive customer relationships (Zeithaml et al., 2000) Consequently, the evaluation of service quality and its dimensions has garnered significant attention from researchers over the past decades, as these dimensions reflect the criteria consumers use to assess service quality.
Cronin and Taylor (1992) introduced the SERVPERF instrument, a streamlined performance-based scale that serves as an alternative to the SERVQUAL model, effectively defining service quality through 22 performance items Previous studies have shown that SERVPERF measures service quality more effectively than SERVQUAL The primary goal of this research is to evaluate the dimensions of service quality from the perspectives of customers, both creditors and depositors, at the Commercial Bank of Ethiopia, and to assess the overall level of customer satisfaction.
The specific objectives of this study were:
• To evaluate the perceptions of customer toward the Service Quality in Selected branch and sections of the Commercial Bank of Ethiopia
• To determine the nature of relationships between service quality and satisfaction
• To ascertain which aspects of service quality dimensions have significant impact on the customer satisfaction
• To uncover whether these relationships exhibit similar patterns between creditors customers and depositors customers.
• To identify and rank the perceptions of customers toward the dimensions of service quality; and
• To identify the areas that needs to improve by banks to deliver superior quality of service.
Scope of The study
Data will be collected from four grade-four branches in each district of Addis, along with the Business and Corporate unit and Commercial credit borrowers at the Head office.
The sample of the data only focuses on creditors, and depositors.
Significance of the Study
In the highly competitive Ethiopian banking sector, the Commercial Bank of Ethiopia recognizes that delivering exceptional service quality is crucial for success and sustainability This study's findings will offer valuable insights on improving service quality, ultimately leading to increased customer satisfaction.
This paper enhances existing knowledge by exploring the relationships among service quality, service quality dimensions, and customer satisfaction within the context of the Commercial Bank of Ethiopia.
Last but not least, the output of this study may serve as a base for further investigation in the area.
Organization of the study
This research report is structured into five chapters, along with sections for references and appendices Chapter one introduces the research topic, while chapter two assesses the theoretical foundations and relevant literature Chapter three discusses the methodology employed to address the research question In chapter four, data analysis and interpretation of the results are presented, utilizing appropriate instruments aligned with the chosen methodology Finally, chapter five encompasses the discussion of results, conclusions, and recommendations.
Limitations
This research evaluates the service quality of the Commercial Bank of Ethiopia and customer satisfaction by analyzing customer perceptions regarding service quality dimensions at branches in Addis Ababa Additionally, it incorporates a literature review of similar studies conducted in other countries, providing a comparative perspective The study will focus on specific limitations to ensure clarity and relevance in its findings.
• The time frame is very limited which limits in-depth treatment of the research topic which could have been done by increasing the number of samples
• There is also limitation of resource especially with respect to finance to travel to the regional states to find more balanced view;
There is a lack of sufficient exclusive studies evaluating the service quality of banks in Ethiopia, highlighting the need for more relevant research to establish a solid factual foundation for the proposed study.
• The challenge in obtaining well organized data both qualitative and quantitative data regarding the study variables as related to the concerned body.
• lack of interest in filling the questioners by the respondents
The sampling frame for this study is derived exclusively from branches and the head office situated in Addis Ababa, which may restrict the generalizability of the findings to respondents across the entire country.
Services are vital economic activities that create value and deliver benefits to customers at specific times and locations, facilitating desired changes for service recipients In both developed and developing countries, services constitute a significant portion of the economy, with service industries dominating advanced economies Research indicates that as economies shift towards service-based structures, the marketing discipline is increasingly recognized as service-oriented For example, in countries like Luxembourg, the United States, France, Denmark, Belgium, and Australia, services contribute over 70% of economic activity In the USA alone, service jobs represent 77% of total employment and 70% of Gross National Product (GNP), with projections indicating that they will generate 90% of all new jobs in the next decade.
The expansion of service industries has been vital for US multinational corporations to enhance their global competitiveness In 1991, these corporations generated over $1.2 trillion in foreign sales from service sectors, accounting for 29% of their total gross revenues.
Many are surprised to discover that the service sector's dominance extends beyond highly developed countries According to World Bank statistics, numerous nations in Latin America and the Caribbean have a service sector that represents a significant portion of their economies.
Literature Review 2.1 Service and Its Nature of Business
Service Definition and its Classification
Services are inherently diverse and challenging to define, as their creation and delivery often involve intangible inputs and outputs Unlike tangible goods such as cars or groceries, services are fundamentally processes or experiences that cannot be owned in the same manner According to Christopher Lovelock, a service is an act or performance provided by one party to another, emphasizing that while it may relate to a physical product, the essence of the service remains intangible and does not typically result in ownership of production factors.
Goods are tangible objects, while services involve actions or performances Early research identified four key differences between them: inseparability, intangibility, heterogeneity, and perishability These distinctions lead to varying strategies for building customer loyalty, as effective approaches differ for goods and services However, critics argue that these characteristics oversimplify reality More nuanced insights highlight nine essential differences in service marketing, including the lack of ownership in services, the intangibility of service products, increased customer involvement in production, and greater variability in service delivery Additionally, services often lack inventories, have a significant time component, and may utilize both electronic and physical delivery channels Ultimately, the primary distinction is that customers gain value from services without acquiring permanent ownership of tangible assets, as seen in scenarios where services involve renting physical items or hiring skilled professionals.
Since the early 1980s, various authors have proposed different service classification taxonomies based on distinct criteria Chase categorizes services according to the level of customer contact during delivery, while Schmenner utilizes a two-dimensional framework that considers the degree of interaction and customization alongside labor intensity More recently, Wemmerlov (1990) introduced a classification scheme that differentiates services based on the degree of process reutilization, the service "object," and customer contact, redefining contact as "direct," "indirect," or "none," in contrast to the binary high/low distinctions of Chase and Schmenner.
Lovelock (1983) proposed a classification of services into four distinct categories, focusing on the nature of what a service organization processes and the methods it employs These organizations may cater to individual customers or provide services related to their possessions.
Among the numerous service classifications, Silvestro et al.’s (1992) production perspective has emerged as integrative of other service typologies Silvestro et al.
(1992) divide service providers into the following three groups that range from lower to higher intensity of customer processing:
Professional services, such as those offered by lawyers, business consultants, and field engineers, are characterized by low customer processing intensity and involve few transactions These services are highly customized, process-oriented, and require extended customer contact times Value is generated primarily by front office service employees, who utilize their judgment extensively to deliver these specialized services.
Service shops, including hotels, rental car agencies, and banks, operate with an intermediate level of customization and require significant judgment from their employees These establishments create value through both their front office interactions with customers and their back office operations.
Mass services, characterized by high customer processing intensity, are typically found in sectors such as retail, transportation, and confectionery, where numerous transactions occur with minimal customer interaction and limited customization In these environments, value is primarily derived from back-office operations, with service employees exercising little judgment Silvestro et al (1992) suggest that as customer-processing intensity decreases, the focus shifts from product to process This shift highlights the intangible nature of service elements compared to the more tangible aspects of products (Zeithaml and Bitner, 2003) Consequently, industries with lower customer-processing intensity tend to offer more intangible services (Francáois et al., 2007).
Lovelock and Wirtz (2007) categorized services based on two dimensions: the "relative involvement of goods" and the "degree of consumer-producer interaction." They identified a spectrum from pure services with minimal goods, like consulting and insurance, to services that incorporate goods, such as air travel and retailing, and finally to services embedded in goods, like music and books Specifically, banking was noted as a sector with medium goods involvement and high consumer-producer interaction, where personal interaction between consumers and service providers is significant In this context, the quality of banking services is largely influenced by the skills and attitudes of the service personnel.
This study focuses on the commercial banking sector within the financial services industry According to Locelock and Wirtz (2007), commercial banking is classified as "medium goods and high customer-producer interactions." This classification highlights the importance of direct interactions between service workers and clients, differentiating it from service work that lacks this immediate customer engagement.
According to Leidner (1993), retail banking jobs are unique because the lines between product, work process, and worker are often blurred, making the quality of customer interaction a crucial aspect of the service provided This study aims to assess how the quality of service influences customer perception, highlighting that the effectiveness of the interaction and the type of service can lead to varying levels of service quality.
Financial services represent a unique category within the broader spectrum of services, characterized by key features such as intangibility, inseparability, perishability, and heterogeneity The creation, introduction, and marketing of new financial services carry significant risks due to the challenges in following a defined development process for intangible offerings Additionally, assessing the success of a newly launched service can be complex and uncertain.
Financial services, as noted by Ennew and Waite (2007), encompass a wide array of offerings aimed at managing individuals' and organizations' finances, particularly their intangible assets like wealth This term broadly includes banking, insurance (both life and general), stock trading, asset management, credit cards, foreign exchange, trade finance, and venture capital Unlike physical goods, financial services are inherently intangible, making them challenging to evaluate or preserve over time.
As a service purchaser, your satisfaction is influenced not only by the final output but also by the quality of service delivery Customers actively observe and assess the production process during their experience, highlighting the importance of service standards as a key criterion for measuring service quality (Zeithaml, 1990).
Service Quality
ISO 9000, 9001, and 9004 define quality as the degree to which inherent characteristics meet specified requirements; high quality is achieved when all requirements are met, while low quality results when they are not This highlights that quality is a relative concept, dependent on the relationship between characteristics and requirements As such, quality cannot be assessed in isolation but must be viewed in the context of specific criteria Furthermore, quality is often described as superiority or excellence, reflecting the consumer's overall perception of an organization's services.
While a universally accepted definition of quality remains elusive, most experts in service quality advocate for a customer-centered approach Notable contributors to this perspective include Eiglier and Langeard, Garvin, Gummesson, Kathawala and Elmuti, Lewis, and Oakland However, it is important to note that customer expectations can often be inconsistent and unpredictable, as highlighted by Haywood-Farmer and Peters.
Defining quality for services is more challenging than for physical goods, as the latter can be assessed through specific physical attributes Quality encompasses various perspectives, and according to Garvin (1988), it can be categorized into five main dimensions.
1 Quality is ‘innate excellence’ This view suggests quite simply that we know excellence from repeated experience of it (either our own or others’) Although it may be one approach that many people would feel comfortable with, from a management perspective it is vague and imprecise.
2 Quality is product attributes This approach assumes that quality is a precise and measurable variable, provided by specified amounts of product attribute (the fuel consumption of a car, its power, its acceleration, etc.) This approach has many attractions because of its specificity and measurability, but fails to take into consideration the needs and preferences of customers.
3 Quality is user-based This approach proposes that definitions of quality are based on the perspective of the customer and the extent to which a product meets those needs.
4 Quality is supply-based This approach has similarities with the product attributes based approach in that it centers on conformance to internally developed specifications. This is largely an operations-driven approach, which focuses on productivity and cost consideration.
5 Quality is value-based This approach emphasizes the trade-off between performance and price, and is often described as ‘affordable excellence.
Service quality is often perceived as subjective, relying on customers' perceptions of how well a service meets their needs and expectations This user-based approach aligns with the inherent nature of services, yet the criteria for evaluating service quality can be complex and challenging to define Customers assess services not only based on outcomes but also consider the delivery process and the overall context in which the service is provided.
Quality is a primary focus for organizations, particularly in the services sector, with the banking industry being no exception However, there is a lack of publicly available and standardized measures to evaluate the perceived quality of banking services Existing tools are often tailored by individual banks to address specific issues or are general instruments not specifically designed for banking Among these, SERVQUAL, developed by Parasuraman et al., stands out as the most widely used scale, utilized in both its original and adapted forms by various banks to assess service quality.
Quality products and services enhance competitiveness by reducing costs through minimized waste and deficiencies, while also fostering a strong reputation that attracts and retains customers The concept of service quality has generated significant interest in research, yet defining and measuring it remains challenging, with no consensus achieved (Wisniewski, 2001) Most studies on service and product quality have focused on developed nations (Herbbig and Genestre, 199; Yaves et al., 1997), despite the rapid growth of the service sector in emerging countries, making it difficult to apply findings from developed contexts to these markets (Yonggue et al., 2001).
Service quality is a crucial focus in service research, recognized as a key factor influencing business performance and the long-term sustainability of companies High service quality enhances customer satisfaction, which significantly boosts positive word-of-mouth, fosters attitudinal loyalty, and increases purchase intentions.
According to Christopher Lovelock's principles of service marketing and management, physical goods typically possess high "search attributes," which customers can assess before purchase, such as color, style, and price In contrast, some goods and services highlight "experience attributes," discernible only during or after consumption, like taste and wearability, while "credence attributes" are difficult for customers to evaluate even post-consumption, as seen in services like surgery and auto repairs Service quality is primarily subjective, based on customers' perceptions of how well a service meets their needs and expectations Understanding how customers evaluate service is crucial for managing quality, as they compare actual service received against their expectations If the service meets or exceeds expectations, it is perceived as high quality; if it falls short, the quality is deemed poor (Christine et al, 2004).
Service quality is often defined as the degree to which a service fulfills customer needs and expectations It is characterized by the gap between customer expectations and the actual perceived service When customer expectations exceed the service performance, perceived quality falls short, leading to customer dissatisfaction.
Perceived service quality in the banking sector is defined as the gap between customers' expectations of service and their actual experiences with the bank's offerings According to Howcroft (1991), it involves meeting customer needs satisfactorily and aligning with their expectations Zeithaml (1988) emphasizes that perceived quality reflects consumers' overall assessment of a product or service's excellence This judgment is shaped by comparisons made by consumers between what they expect and what they perceive they receive (Lewis, 1989) Ultimately, the perceived service quality arises from the difference between the services customers receive and the services they anticipate from their bank.
Service quality in banking, as defined by Howcroft (1991), revolves around consistently anticipating and meeting customer needs and expectations This customer-centric approach does not assume that customers possess prior knowledge or technical skills, while also recognizing that service should consider their experiences Furthermore, it highlights the importance of understanding the evolving nature of customer expectations, emphasizing the need for proactive anticipation (R.F Blanchard et al, 1994).
Identifying the components of perceived quality remains challenging, with perception and expectations being two key elements Researchers widely agree that customer expectations serve as benchmarks for assessing a company's performance However, there is debate regarding the role of expectations in perceived service quality, leading to two conflicting paradigms: the disconfirmation paradigm, which posits that customers compare their actual service experiences against their expectations, and the perception paradigm, which argues that expectations can be irrelevant or even misleading in evaluating service quality.
Measurement and Perspective of Service Quality
In today's fast-paced marketplace, effective new product development is essential for success, requiring management to implement robust processes to ensure future profitability A critical aspect of this development is the timely and effective measurement of success and failure, which has become increasingly complex due to multiple product mandates Developing precise metrics that align with new product objectives enables timely adjustments post-launch and offers valuable insights for future product generations Nevertheless, this measurement challenge presents a significant dilemma for executives in the service sector.
The financial services industry is increasingly recognizing the need for a comprehensive approach to measuring success, moving beyond traditional financial metrics This shift allows executives to better connect the outcomes of new services with their original objectives However, the adoption of multidimensional measures raises important questions regarding the effectiveness and types of measurement techniques currently in use This research aims to benchmark existing measurement methods in the financial services sector, assess their usefulness to management, and identify additional measurement approaches that could enhance decision-making (Scott et al., 1996).
The development and launch of new financial services carry inherent risks due to the challenges in measuring success, which differs from tangible products Traditional metrics like profitability and unit sales only partially reflect success; factors such as cross-sales, customer loyalty, and perceived quality are also crucial While conventional success measurements remain relevant, innovative tools are being created to better assess service success, marking the beginning of a new approach Companies that excel in measuring the success of their new services can refine their development processes, gaining a competitive edge in the market.
The measurement of new product success is increasingly important to both executives and scholars, yet there is no consensus on the most effective techniques for this purpose Notably, as highlighted by Yaves et al (1997) and Bahia and Nantel (2000), banks lack a publicly recognized standard scale to assess perceived quality in both service and product offerings, leaving quality measurement in banking a topic of ongoing debate This absence of measurable quality standards is particularly concerning given the vital role of banking services in national economies and the global emphasis on quality issues (Yongue et al., 2003) Research on service quality has evolved in two main directions: one originating in Europe, particularly Scandinavia, and the other in North America, as noted by Christine T Ennew and Nigel Waite in Financial Services Marketing (2007) According to Brady and Cronin (2001), researchers typically adopt one of these two conceptual frameworks in their studies.
The Nordic perspective on service quality
According to Grönroos, customers develop expectations and evaluate service delivery based on two key aspects: functional quality and technical quality Functional quality refers to the manner in which the service is provided, encompassing attributes such as friendliness, helpfulness, and politeness during the service encounter For instance, in the context of a financial planner, functional quality pertains to how the planner interacts with clients In contrast, technical quality focuses on the actual service outcome, assessing how accurately and effectively the service is delivered, such as the quality of financial advice provided Together, perceptions of functional and technical quality shape the overall image of the organization and influence customers' overall perceptions of quality.
High-quality service delivery hinges on both functional and technical quality, necessitating strong technical and interpersonal skills Research in financial services indicates that functional quality often outweighs technical quality in importance Many personal customers perceive financial services as complex and challenging to comprehend, leading them to evaluate their experience based on interactions with service providers rather than the inherent quality of the services offered (Christine et al., 2007).
The North-American perspective on service quality
The North American perspective on service quality, as defined by Parasuraman et al (1985, 1988), emphasizes the comparison between consumer expectations and perceptions They identified five key dimensions for evaluating service quality: reliability, tangibility, empathy, assurance, and responsiveness To effectively measure service quality, it is essential to gather data on customer expectations and their perceptions in these areas To facilitate this, Parasuraman et al created the SERVQUAL questionnaire, designed specifically to assess these five aspects of service quality.
In the competitive business landscape, key challenges in managing service quality include effectively measuring quality and optimizing resource allocation for improvement To enhance service quality, it is essential to identify the service attributes most valued by customers and accurately assess their importance However, existing literature on service-quality metrics presents conflicting evidence about which dimensions most significantly influence overall customer satisfaction.
However, providing excellent service quality is widely recognized as a critical business requirement (Voss et al., 2004a; Vilares and Coehlo, 2003; Van der Wiele et al., 2002).
Service quality is not merely a corporate offering; it is a crucial competitive weapon vital for corporate profitability and survival Despite its importance, particularly in the services sector, the concept of service quality remains complex, with limited agreement on the key drivers for effective delivery While many service companies acknowledge that excellent service quality is essential for international success, those operating in diverse cultural contexts often find that widely used measures, such as SERVQUAL, are less relevant and meaningful outside developed countries.
SERVQUAL and its Criticism
Quality measurement and control in products is more established and easier to implement than in services due to the unique characteristics of services, which include intangibility, heterogeneity, and inseparability Consequently, evaluating service quality is more challenging for customers compared to goods, as it involves not only the outcome but also the process of service delivery This complexity necessitates multiple observations to accurately assess service quality and establish theoretical links Additionally, many service attributes cannot be measured or verified prior to purchase, complicating consumer perceptions of service quality.
To ensure a positive perception of service quality, it is essential to meet or exceed customer expectations Various dimensions of service quality have been proposed to address this (Brady & Cronin, 2001) When the actual service provided does not align with customer expectations, a gap emerges that must be bridged through strategies aimed at adjusting either expectations or perceptions, or both (Parasuraman et al., 1985; Zeithaml et al., 1990).
The SERVQUAL model, developed by Parasuraman et al in the mid-1980s, has become a leading framework in service marketing, influencing both academic research and practical applications This model focuses on the gap between perceived service quality and expected service quality, making it a valuable tool for understanding consumer perceptions Initially, SERVQUAL identified ten dimensions of service quality, including reliability, responsiveness, and competence, which were later streamlined to five core dimensions: reliability, responsiveness, empathy, assurances, and tangibles.
The SERVQUAL measure is widely recognized as an effective tool for assessing service quality in the retail banking sector, particularly in developing countries (Angur et al., 1999) Many researchers have employed the SERVQUAL or its modified versions, as highlighted in the International Trade & Academic Research Conference (ITARC) in London (2010) However, the SERVQUAL scale (Parasuraman et al., 1988) faces criticism from various scholars for issues such as paradigmatic objections, reliance on gap scores, and challenges in measuring expectations and the generalizability of its dimensions (Cronin and Taylor, 1992; Brown et al., 1993) Additionally, concerns regarding reliability, discriminant validity, and variance restriction arise from the use of computed difference scores Consequently, some researchers have proposed integrating expectation and perception into a single measure, which has demonstrated superior reliability and validity compared to the SERVQUAL scale (Babakus and Boller, 1992; Brown et al., 1993; Dabholkar et al., 2000).
Two significant criticisms of SERVQUAL have emerged within the paradigmatic objections Firstly, it is argued that SERVQUAL relies on an expectations disconfirmation model instead of an attitudinal model of service quality This reliance is problematic as SERVQUAL draws from the disconfirmation model prevalent in customer satisfaction research, where customer satisfaction is defined by the interplay between expectations and actual outcomes When expectations align with actual performance, customer satisfaction is achieved; however, exceeding those expectations can lead to customer delight.
Customer dissatisfaction arises when expectations surpass actual outcomes Cronin and Taylor (1992; 1994) argue that SERVQUAL is fundamentally flawed due to its inappropriate application of the disconfirmation model.
Perceived quality is best understood as an attitude, a notion supported by various scholars who critique Parasuraman et al for their reluctance to define perceived service quality in attitudinal terms Despite previously asserting that service quality is akin to an attitude, the authors have faced scrutiny Cronin and Taylor advocate for the use of the adequacy-importance model in measuring attitudes related to service quality, while Iacobucci et al emphasize that short-term evaluations of quality and satisfaction fundamentally reflect attitudes.
In 1994, critics of Cronin and Taylor's work argued that their claims about the disconfirmation paradigm being flawed overlook significant prior research in service quality literature They contend that this work fails to incorporate established knowledge from economics, statistics, and psychology Andersson (1992) specifically points out SERVQUAL's neglect of previous social science insights, emphasizing the need for a more deductive approach Furthermore, Parasuraman et al.'s methodology is criticized for being overly inductive, as it shifts from specific observations to broad theoretical conclusions, thus abandoning the principle of scientific continuity (Francis, 1995).
Secondly, a related set of criticisms gaps model refer to the value and meaning of gaps identified in the disconfirmation model Babakus and Boller (1992) found the use of a
The "gap" approach to measuring service quality is often seen as intuitively appealing; however, it has been suggested that the difference scores may not offer any new insights beyond what is already captured by the perceptions component of the SERVQUAL scale Research indicates that the perceptions score is the primary factor influencing the gap score, largely due to a tendency for respondents to rate their expectations highly.
(1994) that take a different tack on the incorporation of expectations measures.(Francis,
Research suggests that consumer expectations regarding service experiences may not always be clearly defined or established prior to consumption Instead, expectations can develop concurrently with the service itself, leading to the formation of “experience-based norms” post-experience, as proposed by Kahneman and Miller (1986) Additionally, Babakus and Inhofe (1991) highlight that expectations might be influenced by social desirability bias, where individuals feel pressured to express high expectations to conform to societal norms.
Critics of the SERVQUAL model have raised concerns about the measurement of expectations, arguing that expectations may not significantly influence the conceptualization of service quality In their 1988 study, Parasuraman et al defined expectations as the desires or wants of consumers, reflecting what they believe a service provider should deliver rather than what is actually offered The expectations component aims to assess customers' normative expectations, as outlined by Parasuraman et al in 1990.
In the customer satisfaction literature, Zeithaml et al (1991) discuss the ideal standard, while A Tea (1993a) critiques the vagueness of the expectations component in the SERVQUAL instrument, raising concerns about respondents' interpretations This suggests that the expectations aspect of the model may lack discriminate validity In response, Parasuraman et al (1991b; 1994) have redefined expectations to better align with the services customers anticipate receiving.
“excellent service organizations”, rather than “normative” expectations of service providers, and by vigorously defending their inclusion in service quality research
Critics of service quality concepts, such as the "moments of truth," argue that service delivery occurs through multiple customer-service staff interactions, evident in settings like hotels and hospitals Research by Carman (1990) suggests that customers assess service quality based on these various encounters, which do not align neatly with a single Responsiveness factor but rather reflect specific hospital functions In contrast, Parasuraman et al assert that service quality is a broader construct, not tied to individual incidents, as demonstrated in their development of SERVQUAL and SERVPERF as universal measures across different industries (Cronin and Taylor, 1992; Parasuraman et al., 1988) Nonetheless, they acknowledge that SERVQUAL can be tailored to meet the unique research needs of organizations, emphasizing the importance of context in ensuring construct validity, as noted by Rossiter (2002).
Concerns regarding the number of dimensions and their stability across various contexts are paramount in the study of service quality (SQ) Several researchers have proposed alternative conceptualizations of SQ measurements For instance, Grönroos (1984) identified three key components: technical quality, functional quality, and reputational quality, while Lehtinen and Lehtinen also contributed to the discourse on SQ measurement.
In the realm of service quality, various scholars have identified key components and dimensions For instance, Hedvall and Paltschik (1989) highlight the importance of willingness and ability to serve, alongside physical and psychological access Similarly, Leblanc and Nguyen (1988) outline five critical elements: corporate image, internal organization, physical support of the service system, staff/customer interaction, and customer satisfaction levels Additionally, Kang & James (2004) emphasize that SERVQUAL prioritizes the service delivery process over other service attributes, such as technical outcomes, suggesting that it may not fully capture the technical aspects of service quality (K Ravichandran et al., 1995).
Overview of Banking
2.2.1 Banking and the Nature of Service
Governments worldwide are actively pursuing economic development, with varying levels of success, and access to investment capital is crucial for this progress A robust banking sector plays a vital role in facilitating economic growth As institutional boundaries blur, organizations traditionally defined by their type, such as banks and insurance companies, are now offering a wider array of financial services This shift reflects a trend where diverse organizations provide various financial solutions, moving beyond their historical specialization in specific services.
Banks are evolving to meet the growing demand for essential services such as loans, safe deposits, and financing for international trade (Christine, 2007) Banking services can be categorized into investment and commercial banking, with the latter focusing on assisting corporations in securing funding at optimal rates while effectively channeling savings into productive endeavors Understanding the evolving needs and expectations of customers is crucial for banks to create value (Ugur et al., 2003) Deposit mobilization serves as a key strategy for banks to gather resources, acting as a fundamental function of their operations and a vital source of working capital (Mohn) Additionally, the development and expansion of the banking system foster new opportunities for households and businesses to save for the future.
The banking industry functions as a service sector focused on customer funds and their management (Danie, 1990) According to Mosad Zindldin, the growth and financial strength of commercial banks are assessed by the increase in assets financed through customer deposits Customers not only generate funds for banks but also serve as a measure of confidence in the banking system Consequently, market share in deposits and loans provides a valuable tool for evaluating a bank's relative performance against competitors operating under similar conditions (Mosad, 1996).
Saving and investing are fundamentally different from lending and credit, with saving focusing on sacrificing present consumption to prepare for future needs, while investing involves using accumulated funds to generate income or capital growth In the banking context, saving is characterized by regular contributions, regardless of the asset class, whereas investment refers to the deployment of lump sums into various assets, such as cash, bonds, equities, or property Some banking practitioners define saving as a cash-based asset class, contrasting with investment, which targets non-cash assets.
Developing countries, particularly in sub-Saharan Africa, face significant challenges due to low domestic investment, with average saving rates around 15% of GDP during the 1990s, falling short of the 25% of GDP needed to meet the millennium development goals To achieve an average growth rate of 8% per annum, these nations require substantial investment, yet the lack of a diverse and competitive financial system hampers their ability to attract necessary savings The current financial infrastructure, characterized by slow transaction speeds and limited intermediaries, fails to generate the loans essential for economic progress Therefore, enhancing the availability of financial resources is crucial for strengthening financing institutions and fostering economic growth.
The absence of savings impacts individuals, financial institutions, and national economies (Elser et al, 1999) For individuals, limited saving options result in a lack of financial security and liquidity to meet their needs Financial institutions face increased reliance on external financing due to insufficient savings facilities In Ethiopia, the total banking system deposits reached birr 78.2 billion in 2008/09, with only 15.19 billion mobilized in deposits, highlighting a significant gap With 636 bank branches serving approximately 121,000 people each by June 2009, there is a pressing need to extend banking services to unbanked populations across Africa to enhance domestic savings, targeting a goal of 17.4% by the end of 2007 E.C.
Increasing the flow of funds into the banking system enhances the availability of credit and other financial services, crucial for national development Loans, one of the oldest financial services, play a vital role in income smoothing, allowing consumers to enjoy present consumption based on anticipated future earnings This approach is justifiable when future income surpluses are expected to offset current income deficits Additionally, it is sensible for significant purchases, like residential mortgages, but challenges emerge when there is a disconnect between expected consumption and actual future income.
The Ethiopian government's significant policy measures have enabled financial institutions, including banks, to expand their deposit bases and provide substantial loans to various economic sectors, thus enhancing the volume of funds available for credit and supporting national development According to the National Bank of Ethiopia's 2006/07 annual report, outstanding loans and advances from banks amounted to 48.06 billion, reflecting the mobilization of considerable financial resources across the economy However, the actual impact of financial resources on socio-economic development is even greater, as the economy has experienced robust growth over the past six years, driven by government-led development policies that prioritize public investment, agricultural commercialization, and private sector investment.
Banking serves as a crucial intermediary function that underpins sustained economic growth (Christine, 2007) Over the past two decades, various regulatory, structural, and technological changes have profoundly transformed the global banking landscape (Angur et al., as cited by Ugur Yaves).
In today's competitive financial landscape, banks are compelled to adopt differentiated strategies to stand out among a diverse array of financial products and services A crucial method for establishing a robust competitive position is through product and service differentiation, which helps create a distinct image of the bank and its offerings in the minds of customers Additionally, maintaining strong competitive positions can be achieved by implementing barriers to competitive actions, ensuring long-term sustainability in the market.
Customer service is the cornerstone of any bank, as customers have specific needs that they expect the bank to meet In the banking industry, which is fundamentally a service sector focused on managing customers' finances, the demand for services continues to grow This creates a membership-like relationship between banks and their clients, emphasizing the ongoing nature of their interactions.
In the evolving banking landscape of the 21st century, banks must establish a strong identity to deliver world-class services and meet the high expectations of customers, shareholders, and employees The financial sector has undergone significant changes, prompting customers to demand top-quality services With numerous options available, customers are unwilling to settle for anything less than excellence, compelling banks to align their offerings with these aspirations.
The history of banking in Ethiopia began with the establishment of the Bank of Abyssinia in 1905, which was managed by the British-owned National Bank of Egypt until 1931 After being fully acquired by the Ethiopian government, it was renamed the Bank of Ethiopia and operated until the Italian invasion in 1936 According to the 2009/10 annual report of the Commercial Bank of Ethiopia (CBE), the state bank was founded in 1942 to serve both commercial and central banking functions In 1963, the Commercial Bank of Ethiopia was legally established to take over the commercial banking activities from the state bank.
The Ethiopian Economic Association's annual report reveals that on January 1, 1975, the military government nationalized private banks, financial institutions, and insurance companies Notably, the former private banks, Addis Ababa Bank, Banco di Roma (Ethiopia), and Banco di Napoli (Ethiopia), were merged to form Addis Bank Subsequently, on July 1, 1980, Addis Bank and the Commercial Bank of Ethiopia merged to establish the Commercial Bank of Ethiopia Additionally, the Savings and Mortgage Corporation and the Ethiopia Saving and Home Ownership Public Association combined to create a new Housing and Saving Bank The Agricultural and Industrial Development Bank remained the government's primary agent for medium and long-term credit, although overlaps in credit types existed among various banks from 1974/75 to 1991/92 Both the Commercial Bank of Ethiopia and the Agricultural and Industrial Development Bank extended medium and short-term finance to the agricultural and industrial sectors, while the Housing and Saving Bank specialized in mortgage loans, which were also offered by the Commercial Bank of Ethiopia, leveraging its extensive branch network to serve as an agent for specialized banks across the country.
The 1994 monetary and banking proclamation marked a significant shift in Ethiopia's economic policy, establishing the National Bank of Ethiopia as an independent judicial entity separate from the government This legal framework, outlined in Proclamation No 83/1994, facilitated investment in the banking sector, leading to the entry of the first private bank shortly after its enactment As a result, the number of banks in the industry increased to fourteen, enhancing competition within the banking sector compared to the pre-1994 landscape.
Research Method
The study focused on the Commercial Bank of Ethiopia, which offers a variety of banking services through its 422 branches nationwide Services include deposits, credit, and transfers The research utilized specific methods, including research design, approach, data sources, sampling techniques, data collection methods, and analysis instruments to ensure comprehensive findings.
Research Design and Approach
The research design strategy is derived from the research problem, utilizing structured questionnaires to collect primary data from a large population The survey was crafted to be concise yet effective in maximizing respondent engagement, resulting in an explanatory study.
The design aimed to link the dimensions of service quality and customer satisfaction with the scores obtained from a 22-item assessment tool, focusing on customer perceptions and their overall satisfaction with the services provided.
On the other hand, service quality was operationalized by using Parasuraman et al.’s
In 1988, a widely recognized 22-item, five-component model of service quality was developed, encompassing tangibles, reliability, responsiveness, assurance, and empathy This study utilized the SERVPERF scale to measure these components and adopted a quantitative research approach through survey research and questionnaires By employing statistical methods, the researcher aimed to assess the service quality and customer satisfaction levels of the CBE, ultimately producing quantifiable results.
Sources of Data
This study utilized both primary and secondary data sources Secondary data was gathered from various resources, including internal newsletters, national bank reports, financial association publications, and relevant articles Primary data was collected through a survey questionnaire method, with the researcher having direct access to respondents at the Commercial Bank of Ethiopia To enhance the data collection process, the researcher also followed up with some respondents via telephone A total of 384 questionnaires were distributed across four bank branches and two credit units, with follow-up calls made to clarify information and provide feedback.
Target Population and Sample of the study
The population refers to the entire group of individuals, objects, or events that a researcher is interested in studying (Diamantopoulos and Schlegelmilch, 2006) For this research, the sampling was confined to Addis Ababa due to limitations in time, resources, and convenience As of September 30, 2011, the Commercial Bank of Ethiopia (CBE) had a total of 2,962,615 depositors nationwide, with 1,103,242 located in Addis Ababa, while the number of creditors was 6,380 across the country and 2,533 in Addis Ababa.
The Commercial Bank of Ethiopia (CBE) has organized its branches into four categories—Grade-I, Grade-II, Grade-III, and Grade-V—to streamline administration Recent studies indicate that branch classification is based on key parameters such as customer volume, daily transactions, transaction values, and profit contributions Consequently, Grade-IV branches are expected to serve a larger customer base than lower-grade branches While all branches provide similar services, their locations reflect different societal demographics; for example, the Merkato branch primarily serves trade customers, while the Arate Killo branch caters to academicians Therefore, understanding the stratification of customers across these branches is crucial for the study's context.
The bank categorizes its borrowers into three distinct groups: business and corporate, commercial, and consumer customers, based on factors such as loan exposure, business sales transactions, and their income contributions to the bank Currently, the consumer borrower segment is limited to condominium borrowers, who are selected by the government for loan disbursement Consequently, data for this research was exclusively gathered from these two borrower categories.
• Depositors of the four grade-four branches from each districts located in Addis Ababa and this includes 'Nifas silk' branch, 'Mehalgebeya' branch, 'Arat killo' branch and 'Finifine' branch.
• Creditors of the bank from business and corporate process unit, and commercial credit process at the head office of the Bank.
The study utilized a structured questionnaire to collect data from 384 customers, employing a disproportionate stratified systematic random sampling method This approach involved selecting sample members from various branches or strata, ensuring that each was chosen systematically Disproportionate sampling was necessary due to the varying sizes of the populations within each branch, allowing for a more representative analysis despite some strata being smaller or larger than others.
In the application of systematic random sampling, the researcher utilized an Excel program to organize the name list of depositors from four branches This method involves randomly selecting the first unit, with subsequent units chosen at fixed intervals Based on this approach, the nth item from each stratum was identified for selecting additional respondents, as shown in the table A similar selection process was applied to credit customers, ensuring consistency in sampling methodology.
To identify the respondents, we focused on four grade-four branches in Addis Ababa: 'Nifas Silk,' 'Finfine,' 'Aratkillo,' and 'Mehal Gebeya.' These branches were chosen based on their operational size and strategic locations, ensuring representation from various city directions Each branch caters to distinct occupational demographics: 'Mehal Gebeya' serves primarily traders, 'Aratkillo' attracts academicians, 'Finfine' is frequented by private and government organizations, and 'Nifas Silk' mainly serves local residents Additionally, creditors will be selected from the Business and Corporate unit and the Commercial Credit unit.
Determining the right number of participants is crucial, as a larger sample size enhances representativeness and reduces sampling error According to the researchers' sampling table, an adequate total sample size is essential for reliable results.
384 samples will be selected from the four branches The total number of depositors and credit unit is presented as follows:
K th The first random selected items
Business and corporate credit unit 459
The researcher conducted data collection over 15 days at various times and locations to ensure a diverse customer sample Utilizing self-administered questionnaires, data was gathered from four branches and two credit units of the Commercial Bank of Ethiopia A total of 384 questionnaires were distributed, with 267 returned after two weeks, comprising 120 depositors and 147 credit customers, resulting in a response rate of 69.5%.
Depositor questionnaires were distributed by front-line customer service staff, including customer service officers and managers, while borrower questionnaires were provided by customer relationship managers.
Instruments
Perceived quality is defined as the customer's overall attitude towards service excellence, often assessed through a single question rated from poor to excellent (Rust and Oliver, 1994) However, service quality perception is generally understood to be influenced by multiple quality attributes (Grünroos, 1990; Hauser and Clausing, 1988).
In their research, Zeithaml et al (1990) developed the SERVQUAL multi-item scale, which identifies key criteria influencing customer perceptions of service quality The scale encompasses reliability, representing the technical quality of the service outcome, alongside tangibles, responsiveness, assurance, and empathy, which collectively reflect the functional quality of the service delivery process.
The literature reveals a lack of consensus regarding the most suitable service quality model, with SERVQUAL attracting significant interest from researchers despite ongoing debates about its validity Key criticisms of SERVQUAL include variations in scoring, issues with applicability and dimensionality, and questions surrounding its overall validity Notable critical evaluations of SERVQUAL have been conducted by Asubonteng et al (1996) and Buttle, highlighting these concerns.
The SERVPERF scale, introduced in 1996, serves as an effective tool for assessing overall service quality Lee et al (2000) conducted an empirical comparison between SERVQUAL, which measures performance against expectations, and the performance-only model, SERVPERF, finding the latter to yield superior results This study opts for the SERVPERF scale to enhance respondent engagement and minimize boredom by utilizing varied question purposes Customer perceptions will be gathered using a 5-point Likert scale, where 1 indicates strong disagreement and 5 indicates strong agreement, with data collected from bank customers through personal interactions.
The study will measure service quality as the independent variable using the SERVPERF scale, based on Parasuraman et al.’s (1988) established framework of 22 items across five dimensions: tangibles, reliability, responsiveness, assurance, and empathy The dependent variable, satisfaction, will be assessed through a five-item measure corresponding to these dimensions Respondents will rate their satisfaction on a seven-point scale, from “very dissatisfied” to “very satisfied.” For example, to evaluate satisfaction with the bank's tangible elements, participants will consider the appearance of the bank's facilities, equipment, personnel, and communication materials The overall satisfaction score for each respondent will be calculated by combining their ratings across the five dimensions.
Methods of Data Analysis
The data analysis technique utilized involved systematically organizing case details, categorizing information into significant themes, and identifying patterns This process included logical analysis, ultimately leading to conclusions that evaluate the implications of the data in support of the research propositions.
The analysis of participant data utilized both descriptive and inferential statistics, employing a 22-item seven-point Likert scale to assess perceived service quality This scale ranged from "strongly disagree" (1) to "strongly agree" (7) and encompassed key service quality dimensions: Tangibles, which refer to the physical facilities, equipment, and appearance of personnel; Reliability, indicating the ability to deliver promised services dependably and accurately; Responsiveness, reflecting the willingness to assist customers and provide prompt service; Assurance, highlighting employee knowledge and courtesy that foster trust; and Empathy, which involves the caring and individualized attention offered to customers.
The questionnaire data was organized in an electronic spreadsheet for analysis, utilizing SPSS software for statistical evaluation This analysis identified opportunities for improving service delivery To ensure data reliability and validity, tests of goodness, t-tests, and multiple regression analysis were applied to test the hypotheses.
The demographic analysis of 267 bank customers reveals key insights into customer profiles based on age, gender, occupation, and customer type The data indicates a significant male dominance among respondents, with 78.8% identifying as male and 21.3% as female Age distribution shows that 42.3% of customers are under 30 years old, while 50.6% fall within the 30-45 age range Additionally, 45% of respondents are over 45, highlighting a diverse age spectrum among the bank's clientele.
In a survey of respondents' customers, traders represented the largest group at 55.4%, while government and private employees, along with academicians, demonstrated a notable preference for the bank, accounting for 31.5% and 9.4% respectively Other occupations made up just 3.1% of the total sample.
analysis and interpretations 4.1 Sample Profile
Test of Goodness of Data
The output provides tabulated frequency distributions of each variable These tables list each score and the number of times that it is found within the data set
N Minimum Maximum Mean Std Deviation overall customer satisfaction 267 1 5 3.89 990
The analysis reveals that tangibility scores range from 1.50 to 5, with a mean of 3.827 and a standard deviation of 0.77 Reliability scores also range from 1.20 to 5, yielding a mean of 3.6854 and a standard deviation of 0.8278 For responsiveness, the mean is 3.7959 with a standard deviation of 0.8232, while assurance shows a mean of 3.955 and a standard deviation of 0.786, both ranging from 1.25 to 5 Empathy scores vary from 1.20 to 5, resulting in a mean of 3.7049 and a standard deviation of 0.78219 Customer satisfaction ranges from 1 to 5, with a mean of 3.89 and a standard deviation of 0.99 The data indicates that most means and standard deviations are similar, suggesting that the standard deviation effectively represents the data A smaller standard deviation relative to the mean indicates that data points are closely clustered around the mean, while a larger standard deviation suggests a wider spread of opinions among customers Overall, the findings indicate that customers express similar opinions, and the means are reliable representations of the data.
To ensure accurate measurement of specific concepts in research, it is crucial to develop instruments that effectively assess the intended variables Utilizing high-quality measurement tools enhances result accuracy and improves the scientific integrity of the study Therefore, evaluating the "Goodness" of the developed measures is essential, confirming that they accurately reflect the intended variables Researchers achieve this by applying two key elements of measurement: validity and reliability.
Validity refers to the extent to which a measure accurately reflects the concept it aims to represent (Hair et al., 2007; Kazi, 2010) Content validity specifically assesses the alignment between individual items and the overarching concept (Fujun et al., 2007) In this study, content validity is ensured by reviewing relevant literature and adapting instruments utilized in prior research.
Reliability of a measure refers to its ability to provide consistent and bias-free results over time and across various items within the instrument It assesses the "goodness" of a measure by ensuring that a scale consistently reflects the construct it aims to measure The current study employs multiple items for all constructs except customer satisfaction, necessitating the use of internal consistency methods This approach evaluates the homogeneity of items within the measure, ensuring they collectively assess the same concept and that respondents perceive each item similarly High correlations among items indicate strong internal consistency, as highlighted by Hair et al (2007) and cited by Kazi (2010) The Cronbach's coefficient alpha is a widely used metric for assessing internal consistency reliability, with higher values indicating a more reliable measuring instrument; a coefficient close to one signifies excellent internal consistency.
Funji et al (2007), as cited by Kazi (2010), indicate that a Cronbach alpha of 0.70 is the acceptable threshold for demonstrating internal consistency among attributes The customer satisfaction measurement scale utilized is based on the work of Cronin and Taylor (1992), employing a five-point Likert scale that ranges from "1 - strongly agree" to "5 - strongly disagree." However, it is important to note that the internal consistency reliability method was not applied in this case due to the use of a single-item instrument.
The basic reliability analysis should be performed on each subscale of the total items, focusing on the corrected item-total correlation values These values indicate the correlation between each item and the overall questionnaire score Ideally, all items should show a strong correlation with the total score; thus, items with a corrected item-total correlation below 0.30 may indicate a lack of alignment with the scale In cases where these low-correlation items are identified, they may need to be removed to enhance reliability (Andy, 2010) Fortunately, for this dataset, all items exhibit a corrected item-total correlation above 0.3, which is a positive sign and confirms the reliability of the scale.
The values in the "Alpha if item deleted" column indicate the potential change in Cronbach's α if specific items are removed from the scale A higher α after deletion suggests improved reliability, signaling that items with significantly greater α values than the overall α should be considered for removal Ultimately, we aim for a Cronbach's α value between 0.7 and 0.8, and in this case, the α is slightly above 0.8, aligning with Kline's recommendations (as cited by Andy, 2010), which suggests good reliability for the scale.
According to Funji et al (2007), a Cronbach alpha value of 0.70 is considered the acceptable threshold for demonstrating internal consistency among attributes (Kazi, 2010) Items that significantly increase the alpha value when removed may need to be excluded to enhance reliability However, in this study, none of the items would notably impact the reliability if deleted Consequently, the analysis of the five service quality dimensions and their respective subscale items is conducted and presented below.
Scale: Tangibility service quality Dimension
0.762 a Listwise deletion based on all variables in the procedure.
Item-Total Statistics Table six
Scale Mean if Item Deleted
Scale Variance if Item Deleted
Cronbach's Alpha if Item Deleted
CBe has modern looking equipment
Phisical facilities are visually appealing
Bank's employees are neat- appearing
Materials associated with the services are visually appealing
The analysis of the tangibility dimension of statistics reveals that the SPSS output shows a Cronbach's alpha (α) value of 0.761, indicating good reliability All values in the "corrected item-total correlation" column exceed 0.3, which is favorable Additionally, the "alpha if item deleted" values suggest that removing any item would not enhance the overall reliability, confirming that each item positively contributes to the overall α Since the overall α is above 0.7, it demonstrates excellent reliability for the measured items.
Scale: Reliable service quality Dimension
0.852 a Listwise deletion based on all variables in the procedure.
Item-Total Statistics Table Eight
Scale Mean if Item Deleted
Scale Variance if Item Deleted
Cronbach's Alpha if Item Deleted
CBE does so as promised by the bank to do so
The bank shows a sincer intrest in solving the problem
The bank perform the srvices right the first time
Banks provides its services at the time it promise the first time
14.80 11.024 756 622 796 the bank insist in error-free records
The analysis of the reliable subscale, encompassing items 5 through 9, reveals promising results, as indicated in tables 7 and 8 All values in the "Correlated Item-total correlation" column exceed 0.3, demonstrating strong correlations Additionally, the "alpha if item deleted" values are all below the overall reliability score of 0.851, suggesting that removing any of these items would not enhance reliability Overall, the reliability coefficient (α) surpasses 0.8, confirming a high level of reliability for this subscale.
Scale: Responsiveness service quality Dimension
0.803 a Listwise deletion based on all variables in the procedure
Item-Total Statistics Table Ten
Scale Mean if Item Deleted
Scale Variance if Item Deleted
Cronbach's Alpha if Item Deleted employees of the bank tell you exactly when service will be performed
11.40 7.112 494 247 811 employees of the bank gives you prompt service
11.30 6.030 689 528 718 employees of the bank are always willing to help you
11.30 6.090 724 561 701 employees of the bank are never too busy to respond to your request
The analysis of responsiveness dimensions, specifically items 10, 11, 12, and 13 in Table 10, reveals that all corrected item-total correlations exceed 0.3, indicating good reliability While items with significantly higher alpha values than the overall alpha may require removal to enhance scale reliability, none of the items in this case would notably impact the overall reliability if deleted Question 10 is the least reliable, with its removal potentially raising the alpha from 0.804 to 0.811; however, this change is minimal, and both alpha values indicate an acceptable level of reliability.
Scale: Assurance service quality Dimension
4 a Listwise deletion based on all variables in the procedure.
Item-Total Statistics Table Twelve
Scale Mean if Item Deleted
Scale Variance if Item Deleted
Cronbach's Alpha if Item Deleted
The behavior of employees of the bank installs confidence in customers
You feel safe in your transaction with the bank
Employees of the bank are courteous with you
Employees of the bank have the knowledge to answer your questions
The assurance subscale, comprising items 14 to 17, demonstrates strong reliability, as indicated by the correlated item-total correlation values exceeding 0.3 Additionally, the alpha if item deleted values are all lower than the overall reliability score of 0.796, suggesting that removing any of these items would not enhance reliability Consequently, the overall alpha falls between 0.7 and 0.8, confirming good reliability for this subscale.
Scale: Empathy service quality Dimension
0.815 a Listwise deletion based on all variables in the procedure
Item-Total Statistics Table Fourteen
Scale Mean if Item Deleted
Scale Variance if Item Deleted
Cronbach's Alpha if Item Deleted
The banks gives you individual attentions
The bank has operating hours of convenient to all its customer
The bank has employees who gives you personal attention
The bank has best interest at heart
Employees of the bank understand your specific needs
The values in Table 14, specifically under the "Corrected Item-Total Correlation" column, all exceed 0.3, indicating a strong correlation The "Alpha if Item Deleted" values reflect the overall reliability coefficient (α), which stands at 0.817 Notably, none of the items, except for item 19, would enhance reliability if removed, as deleting item 19 would only marginally increase α to 0.835 Overall, these findings demonstrate a commendable degree of reliability, with the α value exceeding 0.8, signifying good reliability.
The first Hypothesis testing (H1)
The first research question explores the differences in perceived service quality between borrowers and depositors at the Commercial Bank of Ethiopia To investigate this, the initial hypothesis will assess the varying importance placed on service quality dimensions by these two groups.
H1a: Credit customers give different weight for the services quality dimensions than depositors.
H1о: Credit customers give the same weight for the services quality dimensions than depositors
This study employed the t-test analysis using SPSS software to test the hypothesis The independent t-test was chosen as it is suitable for scenarios involving two experimental conditions with different participants assigned to each condition.
Group Statistics Table Fifteen customer type N Mean Std Deviation Std Error Mean
The independent t-test output includes two tables, with the first table providing summary statistics for the two experimental groups: depositors and borrowers The depositor group consists of 120 participants, reporting a mean perception of service quality at 3.856 and a standard deviation of 0.839, with a standard error of 0.077 In contrast, the borrower group has 147 participants, showing a higher mean perception of 4.04 and a standard deviation of 0.732, with a standard error of 0.060 Both groups exhibit lower scores in reliability, with borrowers averaging 3.78 (standard deviation of 0.753, standard error of 0.062) and depositors averaging 3.575 (standard deviation of 0.902, standard error of 0.082) in reliability perception across the five service quality dimensions.
Independent Samples Test Table Sixteen
Levene's Test forEquality of Variances t-test for Equality of Means
95% Confidence Interval of the Difference
Std Error Difference Lower Upper
The second table displays the key test statistics, featuring two rows with values for the test statistics, with one row specifically labeled for clarity.
When analyzing variances, we categorize them as either "Equal variances assumed" or "Equal variances not assumed." To determine if the variances of two groups are significantly different, we can use Levene's test, which functions similarly to a t-test by testing the null hypothesis that the variances are equal A significant result (p ≤ 0.05) indicates that the variances differ significantly, violating the assumption of homogeneity Conversely, a non-significant result (p > 0.05) suggests that the variances are roughly equal, allowing us to accept the null hypothesis In our analysis, since the p-value is greater than 0.05 for some dimensions, we refer to the statistics under "Equal variances assumed." However, for dimensions such as reliability, responsiveness, assurance, and empathy, where Levene's test yields a p-value less than 0.05, we will use the statistics from the "Equal variances not assumed" row.
The t-test analysis reveals significant findings regarding the tangible dimension of service quality, with a p-value of 0.02, indicating a notable difference between the perceptions of depositors and borrowers This supports the first hypothesis, suggesting that borrowers do not perceive the tangible aspects of service quality in the same way as depositors However, for the other four dimensions—reliability, responsiveness, assurance, and empathy—the p-values exceed 0.05, indicating no significant differences between the two groups Consequently, the null hypothesis stands for these dimensions, as borrowers and depositors assign equal importance to them.
The Second Hypothesis testing (H2-H6)
The third research question focuses on identifying which service quality attributes most significantly impact overall customer satisfaction at the Commercial Bank of Ethiopia To explore this, the remaining five hypotheses will analyze the relationship between various dimensions of service quality and customer satisfaction levels.
Mean Std Deviation N overall customer satisfaction 3.89 990 267
Overall Reliability Scores 3.6854 82784 267 Overall Responsiveness
The table above displays the mean and standard deviation for each variable in our dataset, revealing that the average satisfaction level among respondents is 3.89 Additionally, the overall perceived service quality exceeds 3.5 across all five dimensions.
Pearson's correlations, as noted by Andy F (2010), require interval data to accurately measure the linear relationship between two variables The correlation matrix serves as a valuable tool for assessing relationships between predictors and outcomes, as well as for detecting multicollinearity However, to determine the significance of the correlation coefficient, additional assumptions must be met, including the normal distribution of data The SPSS output displays correlation coefficients for five variables, indicating perfect self-correlation (r=1) along the diagonal Social scientists typically consider a probability value below 0.05 as statistically significant, suggesting a genuine effect A correlation coefficient effectively summarizes the relationship between two variables, ranging from -1 (perfect negative correlation) to +1 (perfect positive correlation), as described by Welkowitz et al (2006) and Morgan et al (2004).
This section tests five hypotheses using sample data analyzed through the SPSS program, with detailed interpretations of each hypothesis and their results presented below.
H2a: The tangible dimension of perceived service quality is positively correlated with the customer satisfaction of the bank.
H2o: The tangible dimension of perceived service quality is not positively correlated with the customer satisfaction of the bank.
The analysis presented in Table 18 reveals a medium positive correlation (r = 0.55) between the tangibles dimension of perceived service quality and customer satisfaction in the banking sector With a significant p-value of 0.000, which is less than the 0.05 threshold, we reject the null hypothesis, confirming the relationship's statistical significance.
H3a: The reliability dimension of perceived service quality is positively correlated with the customer satisfaction of the bank.
H3o: The reliability dimension of perceived service quality is not positively correlated with the customer satisfaction of the bank.
The analysis reveals a correlation coefficient (r) of 0.544 between the reliability dimension of perceived service quality and customer satisfaction at the Commercial Bank of Ethiopia With a p-value of 0.000, which is below the significance level of 0.05, the hypothesis is rejected This indicates a positive relationship between reliability and customer satisfaction in this context.
H4a: The responsiveness dimension of perceived service quality is positively correlated with the customer satisfaction of the bank.
H4o: The responsiveness dimension of perceived service quality is not positively
Correlated with the customer satisfaction of the bank.
The analysis reveals a significant positive correlation (r = 0.605) between responsiveness and customer satisfaction at the Commercial Bank of Ethiopia, with a p-value of 0.000, indicating statistical significance Consequently, the null hypothesis is rejected, affirming that improved responsiveness enhances customer satisfaction.
H5a: The assurance dimension of perceived service quality is positively correlated with the customer Satisfaction of the bank.
H5o: The assurance dimension of perceived service quality is not positively correlated with the customer satisfaction of the bank.
The analysis reveals that assurance is the most significant predictor of customer satisfaction at the Commercial Bank of Ethiopia, with a strong correlation coefficient of 0.606 and a p-value of 0.000, which is below the 0.05 threshold Consequently, the null hypothesis is rejected, confirming a substantial positive relationship between assurance and customer satisfaction.
H6a: The empathy dimension of perceived service quality is positively correlated with the customer satisfaction of the bank.
H6o: The empathy dimension of perceived service quality is not positively correlated with the customer satisfaction of the bank.
The findings indicate a significant positive correlation between the empathy associated with perceived service quality and customer satisfaction at the Commercial Bank of Ethiopia, evidenced by a p-value of 0.000 and a correlation coefficient of 0.547 Consequently, the null hypothesis is rejected.
Std Error of the Estimate
5 668 e 446 435 744 020 9.571 1 261 002 a Predictors: (Constant), Overall Assurance Scores b Predictors: (Constant), Overall Assurance Scores, Overall Empathy Scores c Predictors: (Constant), Overall Assurance Scores, Overall Empathy Scores, Overall
Reliability Scores d Predictors: (Constant), Overall Assurance Scores, Overall Empathy Scores, Overall
Reliability Scores, Overall Responsiveness Scores e Predictors: (Constant), Overall Assurance Scores, Overall Empathy Scores, Overall
Reliability Scores, Overall Responsiveness Scores, Overall Tangibles Scores f Dependent Variable: overall i am satisfied with the service provided by the bank
The linear regression coefficients, including Multiple R and R², allow us to evaluate the model's fit to the study's data Multiple R indicates the correlation between observed values and those predicted by the regression models, with higher values signifying a stronger correlation This coefficient ranges from -1 to 1, where a positive value suggests that an increase in the predictor variable raises the likelihood of the event occurring, while a negative value indicates a decrease in likelihood Additionally, a low R value suggests minimal contribution to the model Ultimately, R² reflects the proportion of variation in the outcome variable explained by the model, similar to simple regression interpretations.
The summary table highlights the values of R and R² for the derived model, indicating the multiple correlations between overall customer satisfaction and five service quality dimensions: reliability, responsiveness, assurance, tangibility, and empathy Notably, the assurance dimension accounts for 36.7% of the variation in overall customer satisfaction, while empathy and reliability contribute 2.9% and 1.4%, respectively In contrast, responsiveness contributes 1.6%, and tangibility accounts for 2% of overall customer satisfaction.
Total 260.629 266 a Predictors: (Constant), Overall Assurance Scores b Predictors: (Constant), Overall Assurance Scores, Overall Empathy Scores c Predictors: (Constant), Overall Assurance Scores, Overall Empathy Scores,
Overall Reliability Scores d Predictors: (Constant), Overall Assurance Scores, Overall Empathy Scores,
Overall Reliability Scores, Overall Responsiveness Scores e Predictors: (Constant), Overall Assurance Scores, Overall Empathy Scores,
Overall Reliability Scores, Overall Responsiveness Scores, Overall Tangibles
Scores f Dependent Variable: overall i am satisfied with the service provided by the bank
The analysis of variance (ANOVA) output report reveals significant findings regarding customer satisfaction The summary table displays various sums of squares and degrees of freedom for different dimensions, with the F-ratio being crucial Notably, the overall assurance dimension has an F-ratio of 153.74, significant at p < 0.05, indicating a strong relationship Similarly, the combined F-ratio for the five dimensions is 42.02, also significant at the 0.05 level This suggests that there is less than a 0.05 percent probability that such a large F-ratio would occur by chance Consequently, the regression model demonstrates a significantly improved prediction of customer satisfaction, explaining 44.6% of the variance (R²) through the five independent service quality dimensions.
B Std Error Beta Zero-order Partial Part Tolerance VIF
Overall Assurance Scores 551 085 437 6.494 000 606 371 311 505 1.982 Overall Empathy Scores 303 085 240 3.560 000 547 214 170 505 1.982
Overall Assurance Scores 472 090 375 5.255 000 606 308 249 441 2.265 Overall Empathy Scores 198 094 157 2.097 037 547 128 099 403 2.482 Overall Reliability Scores 214 086 179 2.483 014 544 151 118 432 2.314
Overall Assurance Scores 295 111 234 2.660 008 606 162 125 284 3.527 Overall Empathy Scores 158 095 125 1.674 095 547 103 078 393 2.546 Overall Reliability Scores 163 087 137 1.873 062 544 115 088 412 2.428
Overall Assurance Scores 233 111 185 2.099 037 606 129 097 274 3.647 Overall Empathy Scores 137 093 108 1.470 143 547 091 068 391 2.559 Overall Reliability Scores 101 088 084 1.142 255 544 071 053 390 2.563
Overall Tangibles Scores 253 082 197 3.094 002 550 188 143 523 1.911 a Dependent Variable: overall i am satisfied with the service provided by the bank
The SPSS output table details the model parameters, including the beta values and their significance Specifically, the intercept (b0) is 0.212, indicating that when the five service quality dimensions are not considered (X=0), the model predicts a customer satisfaction score of 0.212 The slope of the regression line (b) reflects the change in the outcome associated with a one-unit change in the predictor variable, highlighting its significance in predicting the outcome For a predictor to be considered impactful, its value must differ from 0 and be substantial relative to its standard error Generally, a significance level below 0.05 suggests a genuine effect, as agreed upon by social scientists (Andy, 2010) Thus, increasing the perceived quality of the assurance dimension by one unit will positively influence customer satisfaction.
Our model indicates that an additional 0.185 units of satisfaction can be expected The coefficient table highlights the influence of the five independent variables on customer satisfaction, revealing which factor is the most significant Notably, the standardized coefficient beta shows that responsiveness has the highest impact, with a value of 0.199.
The details of the five perceived service quality dimensions showed a significant effect on customer satisfaction in order of importance as follows:
Excluded Variables Table Twenty Two
The analysis identifies several predictors in the model, including Overall Assurance Scores, Overall Empathy Scores, Overall Reliability Scores, and Overall Responsiveness Scores, which collectively influence customer satisfaction with banking services The dependent variable is the overall satisfaction expressed by customers regarding the services provided by the bank.
Finding, Conclusion and Recommendations 5.1 Finding
Conclusion
This study aims to evaluate the quality of service dimensions from the perspectives of both creditors and depositors at the Commercial Bank of Ethiopia, focusing on customer satisfaction levels It identifies key attributes that shape customer experiences within the bank The first objectives include assessing customer perceptions of service quality across selected branches and determining if these perceptions differ between creditors and depositors Findings reveal that borrowers perceive the tangible aspects of service quality more favorably than depositors, while both groups assign equal importance to the dimensions of reliability, responsiveness, assurance, and empathy in service quality.
The study aims to explore the relationship between service quality and customer satisfaction, identifying which service quality dimensions significantly impact satisfaction levels Findings reveal a positive correlation between all service quality attributes and customer satisfaction, with assurance showing the strongest correlation, followed by responsiveness Conversely, reliability exhibits the weakest positive correlation These results suggest that bank customers prioritize fundamental service quality aspects, particularly responsiveness and assurance, highlighting the importance of delivering promised services and instilling confidence.
A positive correlation between the service quality dimensions of assurance and responsiveness indicates that as bank employees enhance these attributes, customer satisfaction also rises This trend is similarly observed in the other three service quality attributes, albeit to a lesser extent Consequently, even in an era of technological automation in banking, customers still place a high value on personal interactions This finding aligns with the research conducted by Mosad.
In a study conducted in 1996, it was revealed that the friendliness and helpfulness of bank personnel are crucial factors influencing customer selection and perception of banks compared to their competitors The findings suggest that bank managers should prioritize being reliable, reassuring, and responsive to customer needs Even with the evolving banking landscape, customers continue to evaluate service quality mainly based on the personal support provided by employees, rather than on technological advancements (Arasli et al., 2005a).
Recommendations
This study establishes a clear relationship between service quality dimensions and customer satisfaction at the Commercial Bank of Ethiopia It validates the SRVPEF measurement as an effective tool for assessing both service quality and customer satisfaction in this banking context Consequently, bank management is encouraged to utilize this instrument to evaluate service quality Given that the research confirms a positive correlation between the five dimensions of service quality and customer satisfaction, it is crucial for the bank to prioritize and enhance all aspects of service quality to better meet customer needs.
In the current study, assurance demonstrates the strongest positive correlation with customer satisfaction, highlighting the importance of trust in the service provider's competence Customers derive their confidence primarily from the skills and professionalism of the service provider's staff If customers lack assurance in the provider's abilities, their satisfaction will inevitably decline To enhance customer satisfaction, the Commercial Bank of Ethiopia must prioritize professionalism and competence in service delivery, emphasizing assurance alongside other service quality dimensions.
The behavior of employees of commercial bank of Ethiopia installs confidence in customer
you feel safe in your transaction with commercial bank of Ethiopia
employees of commercial bank of Ethiopia are consistence courteous with you
employee of commercial bank of Ethiopia have the knowledge to answer your questions
To enhance customer confidence and satisfaction, banks should prioritize comprehensive training programs for their employees, focusing particularly on frontline staff Motivating these employees to exhibit courteous and caring behavior in all interactions is essential Additionally, the limitations of this study highlight the need for further research, which should involve larger samples and encompass all banks nationwide to provide more robust insights.
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