IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY

Running head: IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING
INDUSTRY
Impact of Service Quality on Customer Loyalty in Baking Industry
Name of the Student
Name of the University
Course ID

IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY1
Abstract
The paper intends to analyze the effect of service quality on loyalty of customers in the
banking industry. Banking sector is one vital sector for an economy in terms of its contribution
to the economic growth and development. Growing competition with local and foreign banks
significantly increases competition within the baking sector. The increasing competition in the
competition makes it vital for marketers to focus of service quality. In order to measure service
quality, the paper takes five attributes of service quality namely tangibles, reliability,
responsiveness, assurance and empathy. Sample responses are collected from 100 university
student related to different dimension of service quality. The collected responses are then
analyzed using statistical techniques of factor analysis, correlation coefficient and regression
analysis. Result obtained from the analysis suggests that there is a significant positive
association between the five different dimension of service quality and customer loyalty. This
implies an improvement in tangibility, reliability, responses, empathy and assurance banks can
improve customer loyalty. Further, regression analysis has been done to estimate the relation
between customer loyalty and different dimension of service quality. All the attributes of service
quality however do not have a significant influence of customer loyalty in the banking sector. It
is only reliability that is found to have a positive significant impact on customer loyalty.

IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY2
Table of Contents
Chapter 1: Introduction....................................................................................................................6
1.1 Background of the study........................................................................................................6
1.2 Problem statement.................................................................................................................7
1.3 Research aim..........................................................................................................................8
1.4 Research questions.................................................................................................................8
1.5 Research objective.................................................................................................................9
1.6 Structure of the research........................................................................................................9
Chapter 2: Literature Review.........................................................................................................10
2.1 Service Quality....................................................................................................................10
2.2 Service quality model..........................................................................................................12
2.2.1 Tangibility.....................................................................................................................13
2.2.2 Reliability.....................................................................................................................14
2.2.3 Responsiveness.............................................................................................................14
2.2.4 Empathy............................................................................................................................15
2.2.5 Assurance......................................................................................................................15
2.3 Customer Loyalty................................................................................................................16
2.4 Linkage between service quality and customer loyalty.......................................................17
2.4.1 Customer Loyalty and Tangibles......................................................................................19
2.4.2 Customer Loyalty and Reliability.................................................................................19

IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY3
2.4.3 Customer Loyalty and Assurance.................................................................................19
2.4.4 Customer Loyalty and Empathy...................................................................................20
2.5 Hypotheses...........................................................................................................................23
Hypothesis 1..........................................................................................................................23
Hypothesis 2..........................................................................................................................24
Hypothesis 3..........................................................................................................................24
Hypothesis 4..........................................................................................................................24
Hypothesis 5..........................................................................................................................25
2.6 Conceptual framework ........................................................................................................25
Chapter 3: Methodology................................................................................................................25
3.1 Outline of the research method............................................................................................25
3.2 Research onion.....................................................................................................................26
3.3 Research Philosophy............................................................................................................27
3.4 Research Approach..............................................................................................................28
3.5 Research design...................................................................................................................29
3.6 Data collection method........................................................................................................30
3.6.1 Quantitative data...............................................................................................................30
3.6.2 Collection of primary data............................................................................................31
3.6 Method of sampling and sample size...................................................................................31
3.7 Technique of data analysis...................................................................................................32

IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY4
3.8 Ethical consideration...........................................................................................................32
3.9 Limitation of the data...........................................................................................................32
3.10 Time frame.........................................................................................................................33
Chapter 4: Result Analysis and Discussion...................................................................................34
4.1 Factor Analysis....................................................................................................................34
4.1.1 All variables..................................................................................................................34
4.1.2 Tangibles.......................................................................................................................38
4.1.3 Reliability.....................................................................................................................39
4.1.4 Responses.....................................................................................................................41
4.1.5 Assurance......................................................................................................................42
4.1.6 Empathy........................................................................................................................43
4.1.7 Customer loyalty...........................................................................................................44
4.2 Reliability............................................................................................................................45
4.2.1 Tangibles.......................................................................................................................45
4.2.2 Reliability.....................................................................................................................46
4.2.3 Responses.....................................................................................................................47
4.2.4 Assurance......................................................................................................................47
4.2.5 Empathy........................................................................................................................48
4.2.7 Customer Loyalty.........................................................................................................48
4.2.6 Composite variables......................................................................................................49

IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY5
4.3 Correlation Analysis............................................................................................................49
4.4 Regression Analysis.............................................................................................................51
4.5 Discussion............................................................................................................................54
Chapter 5: Conclusion...................................................................................................................55
5.1 Conclusion...........................................................................................................................55
5.2 Linking with the research objective.....................................................................................56
5.3 Recommendation.................................................................................................................56
5.4 Limitation and scope of further research.............................................................................56
References......................................................................................................................................58

IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY6
Chapter 1: Introduction
1.1 Background of the study
In the financial market banks are considered as important players playing a key role in
smooth functioning of an economy. Considering today’s world of a highly competitive
environment in the corporate sector services quality has turned out to be an important element to
develop customer loyalty resulting in satisfaction among customers. Factors related to quality of
services of different banks are considered as important factors helping banks to improve their
performance and determine successful operation in terms of higher profitability and larger
market share (Tee, Preko and Tee 2018). Service companies consider quality of service as a vital
instrument to develop their competitive advantage within the industry. Since competition among
different banks vary based on product differentiation, variation in services appear as the main
competitive tool. By offering a better quality service banks are able to attract a large group of
customer. Banks therefore carry out structural adjustment to make variation in service quality to
increase their competitiveness. Banks have a vital and significant role to play in development of
financial sector which in turn reflected in economic growth of a nation (Iddrisu et al. 2015). An
efficient baking system contributes to growth of different other sectors of the economy.
Domestic banks often face challenges to compete with global organization. Banks therefore need
a better understanding about changing requirement of customers and should adopt the latest
system of information technology to effectively compete on the global platform. Besides, banks
have the responsibility to offer best quality services to the customers to enjoy a sustainable
competing advantage. Given the critical service quality of businesses, it becomes challenging for
service providers to appropriately measure the service quality. The difficulty in measuring
quality of service arise from diversity, intangibility and problems of separation. In regard to this,

IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY7
services are required to be modelled using an independent framework to explain and measure
quality of service. Among different framework of service quality, the most widely used model is
the one built by Parasuraman et al., 1985, 1988. This is the most popular model in the field of
service quality dimension (Dubey and Srivastava 2016). This model by incorporating five main
dimensions of service quality helps to understand impact of overall service quality of behavior of
customers. Improvement in the delivery of service in the banking sector is expected to influence
service quality and customer loyalty. Customers use a range of attributes or dimensions for
identifying quality of services as offered by the banks. The attributes used by customers to
identify quality of service in turn are based on customer satisfaction. These are the indicators for
measuring service quality and customers’ loyalty (Izogo and Ogba 2015). As found in past
researches service quality influences loyalty of customers.
1.2 Problem statement
Banking sector today is considered as one of the driving force stimulating economic
growth of a nation. The commercial bank within a nation works as a financial intermediary in the
economy. Their objective is to accumulate profit through lending and borrowing to the individual
and other needed sector Banks aim to maximize its profit through transaction with different
profitable organization and issue various types of instrument of credit (Kaura, Durga Prasad and
Sharma 2015). In any economy, banks therefore hold an important position and contributes
significantly to the building process of the economy. In the context of an advanced economy,
banking sector forms the key element in the money market system making commendable
contribution to the economic development of a nation. The functions performed by banks in a
country include acceptance of deposits and issuing loans and offering a range of other services to
individual and other business ventures (Ngo and Nguyen 2016). Commercial banks have