Analysis of Service Quality Impact on Customer Loyalty in Banking

This report delves into the crucial relationship between service quality and customer loyalty within the banking sector. It investigates the impact of the SERQUAL model, encompassing tangibles, reliability, responsiveness, assurance, and empathy, on customer loyalty. The research employs a quantitative approach, collecting data from 100 university students to assess their perceptions of service quality across these five dimensions. Statistical techniques, including factor analysis, correlation coefficients, and regression analysis, are utilized to analyze the data and determine the strength and nature of the relationships between service quality dimensions and customer loyalty. The findings suggest a positive association between the five dimensions of service quality and customer loyalty, with reliability exhibiting a significant positive impact. The report provides detailed analyses of each dimension, presenting the results of factor analysis, reliability tests, correlation analysis, and regression analysis. It also includes a comprehensive literature review, outlining the existing research and theoretical frameworks related to service quality and customer loyalty. Finally, the report concludes with a summary of the key findings, recommendations for banks, and limitations of the study, as well as suggestions for future research.

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

1IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
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.

2IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
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

3IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
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

4IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
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

5IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
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

6IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
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,

7IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
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

8IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
significantly expanded their range of financial services offered to their clients along with its
focus on improving service quality. Therefore, studying the impact of service quality dimensions
on customer loyalty has become crucial for understanding the behavior of banks.
1.3 Research aim
The research paper aims to find out how SERQUAL affect customer loyalty in the baking
industry. In order to investigate the impact of SERQUAL the paper uses five dimensions of
service quality as suggested in the ‘RATER’ model. The five main dimensions of service quality
are Reliability, Assurance, Tangibles, Empathy and Responsiveness. The aim is to examine the
impact of each of the five dimensions on customer loyalty in the banking sector.
1.4 Research questions
The primary research question of the paper is given as
 Does the service provided in the bank affect the loyalty and banking of customers?
Investigation of the primary research question involves addressing the following secondary
research questions.
 Does factors related to reliability dimension of service quality affect loyalty and banking
of customers?
 Does factors related to assurance dimension of service quality affect loyalty and banking
of customers?
 Does factors related to tangibles dimension of service quality affect loyalty and banking
of customers?

9IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
 Does factors related to empathy dimension of service quality affect loyalty and banking
of customers?
 Does factors related to responsiveness dimension of service quality affect loyalty and
banking of customers?
1.5 Research objective
Based on the research aim and research questions the primary research objective of the
paper can be stated as
 To investigate how SERQUAL affects loyalty of customers in the banking industry.
In order to fulfil the primary research objective, the research paper considers the following
secondary research objectives
 To investigate how reliability affects loyalty of customers in the banking industry.
 To investigate how assurance affects loyalty of customers in the banking industry.
 To investigate how tangibility affects loyalty of customers in the banking industry.
 To investigate how empathy affects loyalty of customers in the banking industry.
 To investigate how responsiveness affects loyalty of customers in the banking industry.
1.6 Structure of the research
The entire research paper is segregated into five main chapters. The first chapter is
introduction which include background of the research, research aims, research questions and
research objectives. The second chapter is literature review which discusses past literatures in the
chosen area of research. The third chapter is methodology which includes methods used in data

10IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
collection and analysis of data. The fourth chapter is presentation of result and analysis. The fifth
chapter is conclusion which summarizes findings of the research.
Chapter 2: Literature Review
Quality of service is regarded as one important factor determining success of banks.
Service quality helps the bank to differentiate itself from its competitors. Realizing important of
service quality researchers have given considerable attention to determine several factors related
to dimension of service quality. Study made in this field have found that service quality results in
satisfaction among customers leading to repeated purchase of the product from the same service
provider (Paul, Mittal and Srivastav 2016). This by increasing loyalty among customers results
in larger revenue in longer term. Variations in the performances of services offered provide
opportunities to enhance service quality and increases loyalty among customers.
2.1 Service Quality
In today’s world because of increasing prevalence of intense competition the aspect of
service quality has become one important area of research. The studies have considered the
service quality as one important tools to increase customer satisfaction and customer loyalty.
Quality of service is regarded as a competitive advantage having a supporting relationship with
customer satisfaction. In the service industry also service quality has become one of the valuable
tools to increase customer loyalty (Osman, Mohamad and Mohamad 2015). As considered in a
paper developed by Saghier, and Nathan (2013), service quality is a vital concept in the service
industry especially for financial services. This is particularly relevant for financial service
provider since they face difficulty in showing much product differentiation to their customers.
Different researchers have pursued their study on service quality (El Saghier and Nathan 2013).

11IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
There are a number of theoretical and empirical models that have been built for addressing issues
related to quality of service and drawn insights regarding importance of enhancing service
quality in various dimension. Various definitions and measures have been used to define quality
of service. Despite there is no consensus among researchers on a single definition of service
quality. One paper defined service quality as a complete evaluation as made by customer
services (Al-Azzam 2015). In some other papers researchers defined researched defined
customer service as the extent to which services offered by the organization helps to meet
necessity and satisfaction of the customers. Service quality is often described as the difference
between normative expectations of customers regarding service offered and their perception
about the performances of services. One study developed the service quality definition as it is an
overall evaluation of the particular service of an organization resulted from a comparison of
performance of a firm in line with normal expectation of its customers regarding how the firm
should behave in the industry. Different firms in the service industry especially banks should
understand various attributes related to service quality for designing a suitable marketing
strategy. For example, customers of a bank will use name of the particular bank, guarantees
offered by the bank, reliability of the bank and other facilities provided by the bank before
selecting particular bank. When marketers are able to rightly understand the attributes that
customers use to assess the service quality they are in a better position to manage marketing
strategy. It will also help them to manage its customers by influencing their perception of the
service quality (Zameer et al. 2015). Observing quality of service has been found to play a
crucial role in high involvement industries like that of banking service. Studies confirmed that
banks place a relatively high value on managing customer relationship both for retail and
commercial customers. The five major dimension of service quality are tangibility,

12IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
responsiveness, empathy, assurance and reliability. Each of the dimensions has its own
importance in determining service quality and customer loyalty.
2.2 Service quality model
Researchers worked on the aspect of service quality recognized the increasing importance
of quality of service and therefore focused on developing a model of service quality for different
industries. The model on service quality popularly called gasp model was built by a group of
American authors namely A.Parasuraman, Len Berry and Valarie A. Zeithaml. In order to
develop the service quality model, they carried out a systematic research considering the period
ranged from 1983 to 1988. The model figures out the main components of service quality,
develops a measurement scale for each dimension of the service quality and then gives
suggestions regarding possible reasons behind the problems of service quality (Al-Tit 2015). The
original model first identified ten different dimensions related to service quality. However, series
of testing and retesting found existence of autocorrelation among some of the dimensions.
Taking into consideration the autocorrelation dimensions of overall service quality have been
reduced leaving only five dimensions of service quality – Reliability, Assurance, Tangibles,
Empathy and Responsiveness. These are the five dimensions that are considered to present
overall service quality across a variety of industries. In the field of management, the service
quality model is known as ‘RATER’ formed by the first letter of each dimension.
Businesses use the instrument of SERVQUAL for measuring problems related to
potential service quality. The service quality model assists in diagnosing the possible causes
behind the service quality issues. The model is based on the paradigm of expectancy-
confirmation which indicates that customers have their own perception regarding how a

13IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
particular service delivered fulfill their expectation about the delivered service (Amin 2016). The
following simple equation is used to conceptualize service quality
Service Quality ( SE ) =Perception of individual customer ( P ) −Expectation of individual customer( E)
Service quality thus is simply defined as the difference between perception of individual
consumer of the offered service and expectation of the individual about the delivered service. In
situation where perception of service received is lower than expectation of the customer service
quality is presumed to be low. In contrast when perception of the individual is greater than
expectation then service quality tends to be greater.
The importance of different dimension of service quality are discussed as follows
2.2.1 Tangibility
Tangibles are regarded as organizations’ representatives, materials, physical facilities,
various equipment along with materials related to communications. The physical environment
conditions in an organization work as an evidence of attention and care paid to the details
regarding services offered by the provider. One study summarized tangibility as the physical
confirmation to the services offered. Previous papers defined tangibility appearances of service
as equipment, physical facilities, written and personal materials. Physical facilities, physical
appearances, equipment and understanding of staff all are considered as important components
of tangibility dimension (Makanyeza and Chikazhe 2017). So far as service quality is concerned
tangibility refers to the equipment used for disseminating information and communication
technology, physical facilities and appearance which include ambience, air-conditioning,
lighting, seating arrangement and others. The tangible aspect of service quality also includes
personnel offering different services of the organization. In a research by Kasiri et al. (2017)

14IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
related tangibility of service quality with physical appearance, physical facilities, personnel,
equipment and written materials. The research considers tangibles as facilities and services
offered by banking employees to as perceived by the customers (Kasiri et al. 2017).
2.2.2 Reliability
In the context of service quality reliability refers to the responsibility of service providers
to offer a dependable, accurate, promised and consistent services to its clients. Reliability of the
service providers depends on measures for addressing various service issues as faced by
customers, giving right service on the first time, providing timely services to the customers and
maintaining record of error free services. Researchers consider reliability as one of the most
significant factors in case of conventional services. In a paper by Khan et al (2018) mentioned
that for a firm reliability refers to offering a constant and precise service or benefits to its
customers (Khan, Lima and Mahmud 2018).
2.2.3 Responsiveness
With regard to service quality, literatures defined service quality as willingness of the
organization help its customers in times of need and give a prompt response to the customers. In
specific context, responsiveness is the readiness or willingness of the employees to offer service.
It consists of prompt or timeless service offering. In the paper developed by Khan et al. (2018)
defined responsiveness as eagerness of the organization to encourage customers and to provide
promised benefits (Khan, Lima and Mahmud 2018).
Another paper however defined responsiveness as the timelessness and speed in the
delivery of services. In this regard, responsiveness include speed, less time for waiting, timely
delivery of customer service and minimal time of queuing. Responsiveness also include

15IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
readiness or eagerness of employees to offer service benefits to the customers. More importantly,
it is the timeliness of service offering.
2.2.4 Empathy
In simple terms ‘empathy’ in the context of service quality is the provision of care and
attention given to individual customers. One research paper stated that the empathy dimension of
service banking service quality refers to the arrangements that banks made to cater needs of the
respective clients. In the context of empathy as one dimension of service quality, the banking
personnel should be able to recognize their customers by their name (Leninkumar and Campus
2016). The employees need to provide needed services to individual customers showing empathy
in the service behavior.
2.2.5 Assurance
The dimension of ‘Assurance’ in the service quality model implies courtesy and
knowledge of the employees to show confidence and trust to the clients. Khan et al (2018), in
their research paper stated that assurance is the dimension of service quality where information
passes to the customers with certainty and trust (Khan, Lima and Mahmud 2018). Most of the
previous studies in this area related assurance with knowledge and courtesy of employees of the
organization that help to provide service and build confidence among the customers. When
skilled employees treat their customers with respect and developing a feeling that they can trust
the organization, it increases assurance of customers.
2.3 Customer Loyalty
Customers’ loyalty towards a particular organization constitutes an important part of
business strategy of an organization having significant influence on profitability of the company.

16IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
In the banking sector, it is very crucial for banks to take proper care of grievances of its customer
such that they remain attracted to the banks. If not then in a highly competitive industry,
customers have the tendency to switch to other competitors offering customers a better quality
service. Some past literatures interpreted customer loyalty as true loyalty rather than tendency of
repeat purchase which is real commitment towards a brand irrespective of any other
commitment. The concept of customer loyalty has been evolved in different ways (Peng and
Moghavvemi 2015). These include delivery of information to the customers regarding what the
organization is going to do for them, proper communication with customers in order to solve
problems faced by them, send wishes to the customers on the date of particular occasion and
such other. One literature considered customer loyalty as one multi-dimensional aspect
incorporating both positive and negative responses from customers. It is however possible that
even a loyal customer is not always satisfied with services provided by the organization. A study
based on Swedish customer found that quality and customer satisfaction are the two important
aspects for all organizations. In industries such as hospitals, railways and banks customer
satisfaction appeared to be more important than customer loyalty in determining profitability of
the firm. Studies showed that a satisfied customer tends to be more loyal compared to a
dissatisfied customer.
Customer loyalty is an important concept that has attracted significant amount of research
in the area of analyzing behavior of customers since several years. In recent past, researchers and
managers have given increasing focus in studying customer loyalty. Researchers found several
benefits that company may enjoy by improving customer loyalty. This has encouraged several
companies to take measures that can increase customer loyalty. However, some studies found
despite significant efforts to make customers more loyal, there is a tendency among customers to

17IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
switch if given with attractive opportunities by other competitor. Researches on customer loyalty
therefore are not able to provide a generalized conclusion to understand the perspective of
customers’ loyalty (Kiran and Diljit 2017). One paper viewed customer loyalty as commitment
of the customers toward the particular brand or approach taken by the brand. In some paper
loyalty is interpreted as expectation of customers in order to continue its relation with the
particular company. In this sense, brand loyalty reflects the attachment of a customer to the
particular brand. Previous researches in this field found two important dimension associated with
customer loyalty. One is emotional or attitudinal loyalty and other is behavioral loyalty (Mackey
and Gass 2015). Behavioral loyalty is modeled is reflected in terms of repeat purchase made by
the customer. This indicates preference of customers towards the service or the brand overtime.
The attitudinal loyalty in contrast models intension of customers not only to repurchase the
product or service but also to recommend indicating a good measure of loyalty of customer by
the researchers.
2.4 Linkage between service quality and customer loyalty
Service quality tends to have a close relation with customer loyalty. Some researchers
asserted that it is satisfaction among customers rather than quality of services that has a stronger
influence on purchasing decision of customers. There are however researchers who stressed that
customers’ loyalty has significant influence of buying decision made by the customers. They
have provided sufficient empirical evidences to support the assertion that increase in quality of
services increases purchasing intension of customers for any company. One study concluded that
increase in service quality resulted in increase in market share of the firm and led to repeat
purchase by customers which in turn reflects customer loyalty (Giovanis, Athanasopoulou and
Tsoukatos 2015). Various other studies supported this finding. Another study after making

18IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
research on service quality and customer loyalty stated that when organizations successfully
enhance quality of service, this led to a decline in unfavorable intentions of customers while
increasing favorable intentions of customers toward buying the product or service. In the banking
industry, there are still demand for traditional services despite faster spread of internet based
system. Different researches have been conduct to find out different attributes that can increase
quality of service of an organization. These studies found competence as one of the main
variables that help to strengthen marketing relation of an organization. The main argument
behind considering competence as one of the important variables in strengthening marketing
relation is that customers have a tendency to give greater value to and further nurture relationship
with more competent individuals. Competence in the context of service quality can be derived
from different types skill such as intellectual, technical, commercial and social skills. Researches
focusing on organizational behavior found that there exists a great power to influence other in
terms of possession of knowledge and skills valued by others. Handling of conflict implies
capability of service providers to lower disagreements. It is necessary to eliminate the conflicts
or to deal with the conflict with intelligence or it should be subject to open discussion. Another
study concluded that customers’ loyalty and nature of relationship with the firm in future
depends upon the past relationship with the same while deciding over available alternatives. In
the banking industry, it has been observed that ability of bank to manage conflict determine
satisfaction and loyalty of customers (Unidha. and Sentani 2017). One paper conducting research
on restaurant industry established that both service quality and customer satisfaction influence
re-patronage in the industry.
The past literatures found a strong relationship between quality of service and customer
loyalty. Evidences confirmed a direct and strong relation of customer loyalty with different

19IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
attributes of service quality. Studies indicated service quality enhances customer loyalty. If level
of customers tends to be high, then it also helps to promote customer loyalty. In a highly
dynamic and competitive world attainment of high levels of customer loyalty especially in the
service sector has become one of the challenging task for most of the organizations. Many of the
previous researchers proved that eagerness of customers to make repeat purchase and
recommend the product or service constitutes customer loyalty. These group of researchers also
concluded that various dimensions of service quality have a strong positive association with
customer loyalty.
2.4.1 Customer Loyalty and Tangibles
In the ‘RATER’ model tangibles are identified as one important element of the service
quality. Paper developed by Wang (2015) concluded that a better ambience of banks helps to
improve customer loyalty in a better manner. Another paper examined the association between
customer loyalty and service quality considering the banking sector of Sweden. The research
found that banks can strengthen their relationship incorporating combinations of tangibles and
intangible attributes with premium quality (Wang 2015).
2.4.2 Customer Loyalty and Reliability
Past studies attempted to examine the relation between reliability dimension of service
quality and customer loyalty. A study was conducted on banking sector of Malaysia to scrutinize
the impact of service quality and customer loyalty. The study found that reliability is one of the
strongest dimension in the service quality model which influence customer loyalty.
2.4.3 Customer Loyalty and Assurance

20IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
Some studies suggested that assurance has the much stronger influence on customer
loyalty compared to other dimensions of service quality. Later on, it was also concluded that
customer loyalty helps to improve customer satisfaction leading to an improvement of financial
performance of banks (Khan and Fasih 2014).
2.4.4 Customer Loyalty and Empathy
In the service sector especially for banking industry, because of high degree of
competition and increasing importance of customers’ base loyalty, giving attention and care to
individual customers has become an important part of the marketing strategy. When service
delivery staffs are committed to provide a premium quality of services to the customers and are
able to efficiently handle customers’ conflict then it can contribute to repurchase intention of
customers.
One literature based on public services of Malaysia attempted to explain service quality by
analyzing the perception and expectation of external customers. The study conclude the most
vital element of service quality is the tangibles. The paper found that tangibles have the lowest
perception score. The paper also found that the service quality gap is neither highest nor lowest
among the external customers. Author of the paper concluded that these group of consumers
have the highest degree of expectation on the reliability dimension of public service.
Most literatures found that service quality has a vital impact of customer loyalty.
Maintenance of a standard service quality is one of the important prerequisite for retaining the
valuable consumers. This also provides the organization a competitive advantage in the industry.
Studying service quality dimension therefore has become an important area of research
especially for baking sector. In this regard, one study conducted on baking sector of Sri Lanka.

21IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
The markers in Sri Lanka have found it increasingly important to retain loyal customers. To do
this the management should be able to meet diversified demand of their customers. This study
depicted that among the five dimensions of service quality tangibles, empathy and reliability
have a significant positive influence in determining customer loyalty (Leninkumar and Campus
2016). The two other attributes such as assurance and responsiveness in contrast had positive but
statistically insignificant impact on customer loyalty. The paper recommended that banks should
take more care on delivering more tangible, reliable and customized service for retaining
customers. Authors of the paper found that the average value of empathy was significantly lower
relative to other dimension while the impact of empathy on service quality is greater than the
comparable dimensions. Banks therefore need to give more attention towards improving the
empathy dimension by enhancing care given to individual customers in terms of addressing
specific needs of them.
One research study was conducted on telecommunication sector of Ghana to assess
influence of service quality on customer loyalty. The paper found that service quality dimension
such as tangibles, responsiveness and assurance had no statistically significant influence on
telecommunication industry of Ghana. Reliability and empathy in contrast found to have a
positive significant influence on customer loyalty. The author stated that customer loyalty in one
important aspect that banks should consider to make high profit. In case of cellular service
industry, customers do not consider switching to other network as threat as they can keep the
same number. The author suggested that cellular service industry should use loyalty program as
an important instrument for keeping valuable customers. In the awake of emergence of different
foreign banks, it is extremely important for local banks to provide customers the best quality of
service to lower incentive to switch to other banks. A paper developed by Firend A. Rasheed

22IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
(2014) concluded that improvement in the quality of service results in an increase in number of
subscribers in different services (Rasheed and Abadi 2014). Further study made by Segoro
(2013) stated that in an organization customer loyalty can be retained by enhancing customer
satisfaction. Customer satisfaction in turn increases when the organization can successfully
increase relationship quality and service quality (Segoro 2013). Study conducted by He, (2014)
on service quality of casino, customer loyalty and customer satisfaction indicated that service
quality has a direct impact on customers. Findings of the paper showed that the loyalty members
are directly influenced by level of satisfaction and there is an indirect influence of service on
loyalty of customers (Shi, Prentice and He 2014). Organizations can attain nonmember loyalty
by giving attention on variety of services offered. The paper supported the finding that service
quality has statistically significant influence on customer loyalty and customer satisfaction based
on the research outcome on casino service quality. Different dimensions of service quality
aspects account a significant variation in the behavior of gamblers (Ismail and Yunan 2016).
Four dimensions of service quality namely tangibles, reliable, responsiveness and assurance
found to have a positive significant influence on customer loyalty while empathy was found to
have a negative influence on customer loyalty. There are though differences in findings of the
previous literatures investigating the relation between customer loyalty and service quality
dimensions regarding which attributes affects customer loyalty the most all found significant
influence of some attributes of service quality on customer loyalty.
One research was designed to investigate the relation between quality of service and
loyalty of customers in the banking sector of Sudan. This paper considered both attitudinal
loyalty and behavioral loyalty. Like most common model of service quality, the research study
took five dimensions of service quality. The paper found that in case of attitudinal loyalty

23IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
tangibles, empathy, responsiveness and assurance have positive significant stimulus on customer
loyalty. The impact of reliability the customer loyalty of banking sector however found to be
statistically insignificant (Mohmmed, Ibrahim and Ali 2017). For behavioral loyalty, tangibles,
empathy and responsiveness were obtained as significant determinant of customer loyalty.
Behavioral loyalty in contrast had insignificant relation with assurance and reliability in banking
sector of Sudan.
Research on telecommunication sector of Kenya studied the relation between service
quality and customer loyalty. The paper attempted to carry out a research to examine the effect
of service quality not only on customer loyalty but also on relationship management with
customers. The paper employed traditional model of service quality as suggested by Persuraman
et al. (1988). Result showed a positive relation between service quality and customer loyalty and
that of customer relation management (Unidha and Sentani 2017). In the paper tangibility was
found to have a statistically significant influence on customer loyalty of the sector. Result of the
paper was consistent with findings of most of the previous studies.
Tangibles, reliability, responsiveness, assurance and empathy all found to constitute a
strong affirmative relation with customer loyalty in terms of measured correlation coefficient.
Study found that empathy had the maximum influence on customer loyalty. This study
concluded that all the parameters of perceived service quality except tangibles had a positive
significant influence on customer loyalty (Tee, Preko and Tee 2018). The research study based
on telecommunication sector of Ghana confirmed a statistically significant influence of all the
five attributes of service quality on customer loyalty.
2.5 Hypotheses

24IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
Considering objectives of the research and findings of the previous literatures following
five hypotheses are developed to analyze the linkage between service quality dimension and
customer loyalty.
Hypothesis 1
Null hypothesis (H01): There is no statistically significant influence of tangibles on loyalty of
banking customers.
Alternative hypothesis (H11): There is a statistically significant influence of tangibles on loyalty
of banking customers.
Hypothesis 2
Null hypothesis (H02): There is no statistically significant influence of responsiveness on loyalty
of banking customers.
Alternative hypothesis (H12): There is a statistically significant influence of responsiveness on
loyalty of banking customers.
Hypothesis 3
Null hypothesis (H03): There is no statistically significant influence of empathy on loyalty of
banking customers.
Alternative hypothesis (H13): There is a statistically significant influence of empathy on loyalty
of banking customers.
Hypothesis 4

25IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
Null hypothesis (H04): There is no statistically significant influence of assurance on loyalty of
banking customers.
Alternative hypothesis (H14): There is a statistically significant influence of assurance on loyalty
of banking customers.
Hypothesis 5
Null hypothesis (H05): There is no statistically significant influence of reliability on loyalty of
banking customers.
Alternative hypothesis (H15): There is a statistically significant influence of reliability on loyalty
of banking customers.
2.6 Conceptual framework
Chapter 3: Methodology
This chapter discusses the research methodology that has been employed for the current
research paper. In order to arrive at desirable result and fulfill research objectives the researcher
need to adapt an appropriate research method. Designing suitable research methodology includes
selection of research approaches, design of the research and particular research strategies
Service Quality Attributes
 Tangibles
 Responsiveness
 Reliability
 Assurance
 Empathy
Customer Loyalty

26IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
(Mackey and Gass 2015). The section describes research methodology used in the current
research considering research aim and research objectives.
3.1 Outline of the research method
In the research method, the researcher portraits aim of the designed research
methodology. Effective and suitable techniques of researches have been used to reach to specific
result. In view of nature of the research, the researcher has selected research philosophy as
positivism which has been found to be most applicable for the current research process. While
choosing the research approach, the researcher has chosen deductive research approach as it
could be suitable for deriving result of the analysis. The chosen technique for research design is
the explanatory research design.
3.2 Research onion
In the process of designing research methodology the research has a crucial role to play.
This is a popular tool explaining the entire research methodology. Using research onion, the
researcher can derive the effective research result. The research onion is considered as a useful
way where researcher can obtain effective result after completion of six separate tasks. The
research onion consists of six different steps of research methods that could be beneficial for the
researcher (Kumar 2019). Moreover, research onion is helpful in effective application of research
philosophy, research strategies and time horizon required to conduct the research.

27IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
Figure 1: Research Onion
(Source: Flick 2015)
3.3 Research Philosophy
The idea of research philosophy is to identify the research essence with the use of
appropriate research paradigm. There are four different methods for research philosophy such as
positivism, realism, interpretivism and pragmatism. Research philosophy comprises of certain
characteristics which include ontology, axiology and epistemology. The philosophy of positivism
depends upon reality with the use of scientifically proven methods. The philosophy of
interprevitism depends on the understanding of recognition and experience of the human beings.
The positivism philosophy is considered as helpful for analyzing data collected using both
qualitative and quantitative research approaches (Bresler and Stake 2017). The realism
philosophy relates to the objects of particular research study. The philosophy of pragmatism is a

28IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
combination of two philosophies of interpretivism and positivism. This kind of philosophy is
considered to be more accurate to derive the research outcome.
Objective of the current research is to analyze the effect of service quality on customer
loyalty. More specifically, the researcher aims to find out different attributes of service quality
which determine customer loyalty in the banking industry. In view of the research objective, the
researcher has chosen positivism philosophy for connecting relevant theories and models used in
past literatures with the present scenario (Ledford and Gast 2018). In this case, the positivism
philosophy is most suitable for evaluating gathered responses as it is based on scientifically
proven methods.
3.4 Research Approach
In the research design, one crucial step for reaching at desirable and actual research
outcome is to select a suitable research approach. An appropriate research approach assists the
researcher to choose every step in order to perform the desired research activities. In the area of
research two common research approaches are deductive research approach and inductive
research approach. As stated by researchers, deductive approach is based on examination of
available theories and models that are related to the research study with the help of collected data
(Silverman 2016). Inductive research approach in contrast is the one that allow the researcher to
develop a new set of theories and models based on research outcome.
Since the current research is based on evaluation of impact of service quality on customer
loyalty, the researcher has chosen deductive research approach. For meeting the research
objective, quantitative analysis has been used using the collected responses. Besides the
positivism research philosophy has direct link with quantitative data analysis where collected

29IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
data are evaluated using past trend, proven facts and models. Deductive research approach is
therefore considered as most suitable one to derive the desired result of the present study.
Inductive research approach has not been considered since it does not involve qualitative and
quantitative data analysis. The current research paper has not made any attempt to build new
model or theories using the obtained research outcome (Quinlan et al. 2019). Inductive approach
is therefore not chosen since human responses have received major priority here.
3.5 Research design
The research design gives the researcher the opportunity for guiding the research study
close to the targeted research goals. As suggested by most researchers, research design attempts
to offer the research reference by restricting the desired results where remaining part of the
complete research is done based on the mentioned objectives. Researchers commonly use three
different types of research design such as explanatory research design, descriptive research
design and exploratory research design. The explanatory research design describes cause and
effect relation by predicting possible outcome of the current research process (Humphries 2017).
The descriptive research design defines and explores specific problems and issues related to
current study. This type of research approach gives researcher a scope to widen the knowledge
base and increase understanding of the research area. The exploratory research design is
primarily used for identifying the possible force behind issues of the current research. The main
focus of this form of research design is to confront the research problems by drawing insights
from the current research.
Focus of the current research is to evaluate the impact of service quality on customer
loyalty in the banking sector. For this purpose, the research includes description of factors that
influence service quality of the industry. The research paper therefore aims at exploring the

30IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
reasons behind variation in service quality of the industry. After analyzing the collected data, the
paper also provides recommendation to improve service quality of the sector. Given the nature
and objective of the study, the researcher chooses descriptive research design as the suitable
research design (McCusker and Gunaydin 2015). The other types of research design are not
applicable since they cannot effectively explain the issues and reasons related to the research.
3.6 Data collection method
Data is the key to conduct a successful research study. The method for gathering required
data depends on nature of the research and the desired findings to be obtained. Two broad
categories of nature of data are primary data and secondary data. Data is considered as secondary
data when collected from different secondary sources such as journals, books and official
websites with the objective of understanding the historic and speculative conditions (Walliman
2017). The secondary data helps to understand the past and ongoing trend of the selected
research issue. In the field of research, there is a greater tendency of using secondary data since
they are instantly available from different secondary sources.
Primary data in contrast are collected directly from the targeted individuals and are
therefore considered more authentic relative to secondary data. The current study has relied to
primary data with data collected from the targeted group of population that is university students
in United Kingdom. Primary data can further be divided into two groups namely qualitative data
and quantitative data. The study uses quantitative data. Because of limited time availability to
conduct the research the researcher is unable to collect qualitative data.
3.6.1 Quantitative data

31IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
Quantitative data indicates fragmented information that can be analyzed to use the
information in line with research objectives. This kind of data offers information regarding
human perception relayed to information of the particular study. Quantitative data therefore
requires a relatively larger sample for making proper evaluation (McCusker and Gunaydin
2015). The current study selects university student as the targeted respondents to find out
problems related to service quality of different banks.
3.6.2 Collection of primary data
The researcher has collected primary data by conducting survey among the university
students using different banks in United Kingdom. A planned questionnaire has been designed
which is mostly close ended. Most researchers consider survey as the best way to collect data
using a relatively large sample. The current study has designed questionnaire considering the
research objective. Since the intention is to investigate consequence of service quality on
customer loyalty the research questionnaire includes questions covering different dimension of
service quality and customer loyalty. For collecting the data, the researcher invited using social
media platform. The questionnaires are then distributed among the students to gather their
responses on service quality of the banks they are currently using and how loyal they are towards
the banks.
3.6 Method of sampling and sample size
Sampling refers to the method using which targeted respondents of the research are
selected as a subset of a large population group. The technique of sampling assists the researcher
to select the most appropriate group of primary data for gathering information matching aims and
objectives of research. In the current research paper, the method of simple random sampling has

32IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
been used for surveying the university students since it has equal probability to select any student
of the group. Hence, for the research study quantitative data are gathered using simple random
sampling technique from a large population. For performing a robust research quantitative data
needs to be collected consisting a relatively large sample. The study therefore has selected 100
university student for the purpose of sample survey.
3.7 Technique of data analysis
In order to arrive at desirable result, the collected data needs to be analyzed using
different analytical techniques. Researchers stated that selection of appropriate technique of data
analysis is crucial to obtain desired result and draw conclusion. Additionally, the suitable data
analysis method helps to keep transparency of the gathered data and its interpretation. The data
analysis has been performed using statistical software of SPSS. Statistical techniques used for the
purpose of data analysis include factor analysis, test for reliability, correlation and regression
analysis. Factor analysis has been performed to find out important factors best describing each of
dimension of service quality. The test of reliability helps to understand whether the collected
data are reliable and therefore can give robust result. The technique of correlation coefficient
estimates association of customer loyalty with different aspects related to service quality. Lastly,
regression analysis has been conducted to establish a statistical relation between different service
quality attributes and that of customer loyalty.
3.8 Ethical consideration
In the research paper, proper code of conduct has been followed to carry out the process
of data collection. While gathering the survey questionnaire the researcher avoids delicate
question to the survey participant. Participation in the survey is based on mutual consent. Identity

33IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
of the respondents has kept confidential. The researcher has not entertained use of the data for
any business purpose and used it only for academic purpose.
3.9 Limitation of the data
The researcher has collected primary data from a sample of university students in United
Kingdom. Genuineness of the obtained information is the key obstacles to reach the research
outcome and accomplish the research. In case, if the students do not reveal the actual information
regarding the banks then the researcher faces problem in identifying actual issues related to
service quality of banking sector and making proper recommendation.
3.10 Time frame
Task Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Week
7
Week
8
Week
9
Topic selection
and search for
justification
Constructing
literature
Selecting proper
techniques of r
Data collection
Data analysis and
representation
Review of the

34IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
outcomes
Conclusions and
recommendations
Submission of
draft of the
project
Printing and final
submission
Chapter 4: Result Analysis and Discussion
4.1 Factor Analysis
Factor analysis refers to the statistical method that is employed to describe variability
among the observed variable in relation to a relatively lower number of variables known as
factors (Bandalos and Finney 2018). For describing the explanatory power of different service
quality attributes and customer loyalty, factor analysis has been done the variables.
4.1.1 All variables
Table 1: Result of factor analysis for all variables together
Factor Analysis
Communalities
Initial Extraction
Tangible1 1.000 .768
Tangible2 1.000 .736
Tangible3 1.000 .671
Tangible4 1.000 .578

35IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
Reliability1 1.000 .649
Reliability2 1.000 .675
Reliability3 1.000 .634
Reliability4 1.000 .537
Reliability5 1.000 .626
Response1 1.000 .659
Response2 1.000 .689
Response3 1.000 .675
Response4 1.000 .679
Assurance1 1.000 .689
Assurance2 1.000 .667
Assurance3 1.000 .745
Assurance4 1.000 .714
Empathy1 1.000 .601
Empathy2 1.000 .706
Empathy3 1.000 .732
Empathy4 1.000 .754
Empathy5 1.000 .735
CustomerS1 1.000 .683
CustomerS2 1.000 .771
CustomerS3 1.000 .750
CustomerS4 1.000 .638
CustomerS5 1.000 .744
Extraction Method: Principal Component Analysis.
Total Variance Explained
Component Initial Eigenvalues Extraction Sums of Squared
Loadings
Rotation Sums of Squared
Loadings
Total % of
Variance
Cumulative
%
Total % of
Variance
Cumulative
%
Total % of
Variance
Cumulative
%
1 9.475 35.093 35.093 9.475 35.093 35.093 3.484 12.904 12.904
2 1.905 7.057 42.150 1.905 7.057 42.150 3.140 11.631 24.536
3 1.770 6.556 48.706 1.770 6.556 48.706 3.036 11.244 35.780
4 1.628 6.028 54.734 1.628 6.028 54.734 2.948 10.920 46.700
5 1.479 5.476 60.210 1.479 5.476 60.210 2.775 10.277 56.977
6 1.224 4.532 64.741 1.224 4.532 64.741 1.671 6.191 63.167
7 1.023 3.788 68.529 1.023 3.788 68.529 1.448 5.362 68.529
8 .966 3.579 72.108

36IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
9 .822 3.044 75.152
10 .740 2.741 77.893
11 .710 2.629 80.522
12 .656 2.429 82.951
13 .537 1.989 84.940
14 .498 1.846 86.787
15 .451 1.669 88.455
16 .420 1.554 90.010
17 .403 1.492 91.502
18 .350 1.295 92.797
19 .323 1.198 93.995
20 .278 1.031 95.026
21 .257 .954 95.979
22 .227 .840 96.819
23 .214 .792 97.611
24 .203 .752 98.362
25 .176 .652 99.015
26 .159 .588 99.603
27 .107 .397 100.000
Extraction Method: Principal Component Analysis.
Component Matrixa
Component
1 2 3 4 5 6 7
Tangible1 .455
Tangible2 -.489
Tangible3 .583
Tangible4 .469
Reliability1 .465
Reliability2 .462
Reliability3 .601
Reliability4 .653
Reliability5 .667
Response1 .631
Response2 .756
Response3 .624
Response4 .626
Assurance1 .599 -.551

37IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
Assurance2 .500
Assurance3 .561 -.527
Assurance4 .599
Empathy1 .655
Empathy2 .629
Empathy3 .648
Empathy4 .689
Empathy5 .695
CustomerS1 .718
CustomerS2 .689
CustomerS3 .542
CustomerS4 .661
CustomerS5 .571 -.518
Extraction Method: Principal Component Analysis.
a. 7 components extracted.
Rotated Component Matrixa
Component
1 2 3 4 5 6 7
Tangible1 .830
Tangible2 .811
Tangible3 .685
Tangible4 .522
Reliability1 .769
Reliability2 .755
Reliability3 .564
Reliability4 .534
Reliability5
Response1 .710
Response2 .619
Response3 .661
Response4 .736
Assurance1 .686
Assurance2 .695
Assurance3 .810
Assurance4 .689
Empathy1 .500
Empathy2 .690

38IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
Empathy3 .792
Empathy4 .685
Empathy5 .694
CustomerS1 .517
CustomerS2 .482 .560
CustomerS3 .822
CustomerS4 .594
CustomerS5 .815
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 7 iterations.
Component Transformation Matrix
Component 1 2 3 4 5 6 7
1 .489 .434 .451 .398 .397 .199 .118
2 .238 -.055 -.150 -.738 .440 .299 .299
3 -.356 -.672 .404 .227 .292 .247 .246
4 -.530 .469 -.233 .140 -.110 .523 .374
5 .526 -.309 -.191 .192 -.537 .232 .460
6 .093 -.168 -.721 .432 .492 -.001 -.123
7 -.108 .112 -.031 .045 .144 -.695 .685
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
Result of factor analysis conducted all the variables together shows that the factors
account a considerable large proportion of all the variables. The cumulative variance as
explained by the factors is obtained as 68.529%.
4.1.2 Tangibles
Table 2: Result of factor analysis for Tangibles
Factor Analysis
Communalities

39IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
Initial Extraction
Tangible1 1.000 .435
Tangible2 1.000 .469
Tangible3 1.000 .544
Tangible4 1.000 .509
Extraction Method: Principal
Component Analysis.
Total Variance Explained
Component Initial Eigenvalues Extraction Sums of Squared Loadings
Total % of Variance Cumulative % Total % of Variance Cumulative %
1 1.957 48.917 48.917 1.957 48.917 48.917
2 .764 19.096 68.014
3 .754 18.847 86.861
4 .526 13.139 100.000
Extraction Method: Principal Component Analysis.
Component Matrixa
Component
1
Tangible1 .660
Tangible2 .685
Tangible3 .738
Tangible4 .713
Extraction Method: Principal
Component Analysis.
a. 1 components extracted.
From the factor analysis result of tangibles, it has been observed that the last of two
factors (neat appearing employees and associated materials) accounts a relatively larger
proportion of tangibles relative to the first two factors (up-to-date and physical facilities). Four
factors of tangibles account for a cumulative variance of 48.917%.

40IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
4.1.3 Reliability
Table 3: Result of factor analysis for Reliability
Factor Analysis
Communalities
Initial Extraction
Reliability1 1.000 .404
Reliability2 1.000 .514
Reliability3 1.000 .656
Reliability4 1.000 .666
Reliability5 1.000 .461
Extraction Method: Principal
Component Analysis.
Total Variance Explained
Component Initial Eigenvalues Extraction Sums of Squared Loadings
Total % of Variance Cumulative % Total % of Variance Cumulative %
1 2.700 54.009 54.009 2.700 54.009 54.009
2 .842 16.849 70.859
3 .675 13.507 84.365
4 .427 8.531 92.896
5 .355 7.104 100.000
Extraction Method: Principal Component Analysis.
Component Matrixa
Component
1
Reliability1 .636
Reliability2 .717
Reliability3 .810
Reliability4 .816
Reliability5 .679
Extraction Method: Principal
Component Analysis.
a. 1 components extracted.

41IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
The second, third and fourth factors of reliability account a larger proportion of reliability
compared to first and fifth factor. The sincerity of bank to solve problem, first time performance
of the bank and promise of the banks to provide timely service are more important compared to
factors like bank’s promise to do something in certain time and bank’s ability to offer error free
service. The cumulative variance explained by different factors of reliability is 54.009%.
4.1.4 Responses
Table 4: Result of factor analysis for Responses
Factor Analysis
Communalities
Initial Extraction
Response1 1.000 .644
Response2 1.000 .745
Response3 1.000 .636
Response4 1.000 .646
Extraction Method: Principal Component
Analysis.
Total Variance Explained
Component Initial Eigenvalues Extraction Sums of Squared Loadings
Total % of Variance Cumulative % Total % of Variance Cumulative %
1 2.671 66.773 66.773 2.671 66.773 66.773
2 .505 12.634 79.406
3 .474 11.859 91.266
4 .349 8.734 100.000
Extraction Method: Principal Component Analysis.

42IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
Component Matrixa
Component
1
Response1 .802
Response2 .863
Response3 .797
Response4 .804
Extraction Method: Principal
Component Analysis.
a. 1 components extracted.
For responses all the attributes account a significant proportion of responses. The
explained cumulative variance in this case is 66.73 percent.
4.1.5 Assurance
Table 5: Result of factor analysis for Assurance
Factor Analysis
Communalities
Initial Extraction
Assurance1 1.000 .662
Assurance2 1.000 .578
Assurance3 1.000 .713
Assurance4 1.000 .623
Extraction Method: Principal Component
Analysis.
Total Variance Explained
Component Initial Eigenvalues Extraction Sums of Squared Loadings
Total % of Variance Cumulative % Total % of Variance Cumulative %
1 2.576 64.403 64.403 2.576 64.403 64.403
2 .602 15.054 79.457
3 .457 11.435 90.892

43IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
4 .364 9.108 100.000
Extraction Method: Principal Component Analysis.
Component Matrixa
Component
1
Assurance1 .814
Assurance2 .761
Assurance3 .844
Assurance4 .789
Extraction Method: Principal
Component Analysis.
a. 1 components extracted.
In case of assurance, all the attributes account a significant proportion of assurance. The
explained cumulative variance in this case is 66.403 percent.
4.1.6 Empathy
Table 6: Result of factor analysis for Empathy
Factor Analysis
Communalities
Initial Extraction
Empathy1 1.000 .517
Empathy2 1.000 .596
Empathy3 1.000 .707
Empathy4 1.000 .660
Empathy5 1.000 .671
Extraction Method: Principal
Component Analysis.
Total Variance Explained

44IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
Component Initial Eigenvalues Extraction Sums of Squared Loadings
Total % of Variance Cumulative % Total % of Variance Cumulative %
1 3.151 63.022 63.022 3.151 63.022 63.022
2 .798 15.953 78.975
3 .397 7.949 86.924
4 .365 7.299 94.222
5 .289 5.778 100.000
Extraction Method: Principal Component Analysis.
Component Matrixa
Component
1
Empathy1 .719
Empathy2 .772
Empathy3 .841
Empathy4 .812
Empathy5 .819
Extraction Method: Principal
Component Analysis.
a. 1 components extracted.
All the five factors of empathy are almost a good extractor the particular service quality
dimension. The explained cumulative variance in this case is 63.022 percent.
4.1.7 Customer loyalty
Table 7: Result of factor analysis of Customer Loyalty
Factor Analysis
Communalities
Initial Extraction
CustomerS1 1.000 .592
CustomerS2 1.000 .623

45IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
CustomerS3 1.000 .646
CustomerS4 1.000 .589
CustomerS5 1.000 .658
Extraction Method: Principal Component
Analysis.
Total Variance Explained
Component Initial Eigenvalues Extraction Sums of Squared Loadings
Total % of Variance Cumulative % Total % of Variance Cumulative %
1 3.107 62.134 62.134 3.107 62.134 62.134
2 .728 14.552 76.686
3 .519 10.383 87.069
4 .347 6.931 94.000
5 .300 6.000 100.000
Extraction Method: Principal Component Analysis.
Component Matrixa
Component
1
CustomerS1 .769
CustomerS2 .789
CustomerS3 .803
CustomerS4 .767
CustomerS5 .811
Extraction Method: Principal
Component Analysis.
a. 1 components extracted.
4.2 Reliability
The reliability analysis refers to the examination of level of consistency between different
measures of selected variables. In order to perform reliability test, the current paper uses value of
Cronbach’s alpha which assess the consistency of the scale of measures used for the selected

46IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
variable. Most studies considered the minimum acceptable value of Cronbach’s alpha as 0.70 to
ensure reliability (Bonett and Wright 2015). However, for ease of research value of Cronbach’s
alpha above 0.60 is taken acceptable minimum value of reliability.
4.2.1 Tangibles
Table 8: Result of Reliability test for tangibles
Scale: ALL VARIABLES
Case Processing Summary
N %
Cases
Valid 100 100.0
Excludeda 0 .0
Total 100 100.0
a. Listwise deletion based on all variables in the
procedure.
Reliability Statistics
Cronbach's
Alpha
N of Items
.649 4
4.2.2 Reliability
Table 9: Result of Reliability test for reliability
Scale: ALL VARIABLES
Case Processing Summary
N %
Cases
Valid 100 100.0
Excludeda 0 .0
Total 100 100.0

47IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
a. Listwise deletion based on all variables in the
procedure.
Reliability Statistics
Cronbach's
Alpha
N of Items
.785 5
4.2.3 Responses
Table 10: Result of Reliability test for responses
Scale: ALL VARIABLES
Case Processing Summary
N %
Cases
Valid 100 100.0
Excludeda 0 .0
Total 100 100.0
a. Listwise deletion based on all variables in the
procedure.
Reliability Statistics
Cronbach's
Alpha
N of Items
.832 4
4.2.4 Assurance
Table 11: Result of Reliability test for assurance
Scale: ALL VARIABLES

48IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
Case Processing Summary
N %
Cases
Valid 100 100.0
Excludeda 0 .0
Total 100 100.0
a. Listwise deletion based on all variables in the
procedure.
Reliability Statistics
Cronbach's
Alpha
N of Items
.813 4
4.2.5 Empathy
Table 12: Result of Reliability test for empathy
Scale: ALL VARIABLES
Case Processing Summary
N %
Cases
Valid 100 100.0
Excludeda 0 .0
Total 100 100.0
a. Listwise deletion based on all variables in the
procedure.
Reliability Statistics
Cronbach's
Alpha
N of Items
.853 5
4.2.7 Customer Loyalty
Table 13: Result of Reliability test for customer loyalty

49IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
Scale: ALL VARIABLES
Case Processing Summary
N %
Cases
Valid 98 98.0
Excludeda 2 2.0
Total 100 100.0
a. Listwise deletion based on all variables in the
procedure.
Reliability Statistics
Cronbach's
Alpha
N of Items
.842 5
4.2.6 Composite variables
Table 14: Result of Reliability test for composite variables
Scale: ALL VARIABLES
Case Processing Summary
N %
Cases
Valid 100 100.0
Excludeda 0 .0
Total 100 100.0
a. Listwise deletion based on all variables in the
procedure.
Reliability Statistics
Cronbach's
Alpha
N of Items
.816 6

50IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
The reliability test of individual component in the data set shows that for the variables,
the value of Cronbach’s alpha is either close to 0.70 or above that implying the data set is
reliable and therefore can be used to obtain robust result.
4.3 Correlation Analysis
The analysis of correlation coefficient is used to find out the degree of association between two
targeted variables. If the value of correlation coefficient is positive, then it indicates a positive
relation between the two variables. In contrast a negative value of correlation coefficient implies
an inverse association between the variables. Value of correlation coefficient signifies relative
strength of the relationship between the variables (Schober, Boer and Schwarte 20180. The
relation is week if the value of correlation is close to 0 while the relation is said to be stronger
when value of the coefficient is close to 1. Table 15: Correlation matrix between customer
Loyalty and different dimension of Service Quality
Correlations
TANG REL RESP ASSUR EMP CLOYAL
TANG
Pearson Correlation 1 .355** .280** .257** .338** .318**
Sig. (2-tailed) .000 .005 .010 .001 .001
N 100 100 100 100 100 100
REL
Pearson Correlation .355** 1 .487** .414** .428** .484**
Sig. (2-tailed) .000 .000 .000 .000 .000
N 100 100 100 100 100 100
RESP
Pearson Correlation .280** .487** 1 .555** .523** .484**
Sig. (2-tailed) .005 .000 .000 .000 .000
N 100 100 100 100 100 100
ASSUR
Pearson Correlation .257** .414** .555** 1 .487** .479**
Sig. (2-tailed) .010 .000 .000 .000 .000
N 100 100 100 100 100 100
EMP
Pearson Correlation .338** .428** .523** .487** 1 .464**
Sig. (2-tailed) .001 .000 .000 .000 .000
N 100 100 100 100 100 100

51IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
CLOYAL
Pearson Correlation .318** .484** .484** .479** .464** 1
Sig. (2-tailed) .001 .000 .000 .000 .000
N 100 100 100 100 100 100
**. Correlation is significant at the 0.01 level (2-tailed).
The table above shows estimated correlation coefficient between customer loyalty and
that of five components of service quality aspect namely tangibles, reliability, responses,
assurance and empathy. The correlation coefficient between customer loyalty and tangibles is
0.318. The correlation coefficient is positive meaning customer loyalty has a positive association
with tangibles. That means customer loyalty tends to be increased with improvement in
tangibles. There is a positive association between customer loyalty and that of reliability with
value of correlation coefficient being 0.484. Customer loyalty is positively correlated with three
other dimensions of service quality namely responsiveness, assurance and empathy with
respective value of correlation coefficient being 0.484, 0.479 and 0.464. Therefore, all the five
attributes of service quality is positively associated with customer loyalty meaning that there is
possibility of increase in customer loyalty with improvement in these attributes of service
quality. Value of each of the correlation coefficient between customer loyalty and each of the
attributes of service quality is less than 0.5 meaning a moderate degree of association between
the variables. Reliability and responsiveness have a relatively stronger relation with customer
loyalty compared to other attributes of reliability as shown from the relatively larger value of
correlation coefficient (Fry 2019). All the estimated correlation coefficients are significant at 1%
level of significance implying that the association between service quality and customer loyalty
is statistically significant.
4.4 Regression Analysis

52IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
The regression analysis helps to establish a causal relation between two or more targeted
variables. Regression analysis has been performed to compute a relation between customer
loyalty and each of the attributes of service quality (Chatterjee and Hadi 2015). In the regression
analysis customer loyalty is taken as dependent variable and service quality attributes such as
tangibles, reliability, responses, assurance and empathy are taken as independent variables.
Result of the regression analysis is presented in the following table
Table 16: Result of the regression
Variables Entered/Removeda
Model Variables
Entered
Variables
Removed
Method
1
EMP, TANG,
REL, ASSUR,
RESPb
. Enter
a. Dependent Variable: CLOYAL
b. All requested variables entered.
Model Summary
Model R R Square Adjusted R
Square
Std. Error of the
Estimate
1 .618a .382 .349 .579
a. Predictors: (Constant), EMP, TANG, REL, ASSUR, RESP
ANOVAa
Model Sum of Squares df Mean Square F Sig.
1
Regression 19.456 5 3.891 11.615 .000b
Residual 31.492 94 .335
Total 50.948 99
a. Dependent Variable: CLOYAL
b. Predictors: (Constant), EMP, TANG, REL, ASSUR, RESP

53IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
Coefficientsa
Model Unstandardized Coefficients Standardized
Coefficients
t Sig.
B Std. Error Beta
1
(Constant) 1.003 .456 2.198 .030
TANG .104 .103 .090 1.005 .318
REL .221 .096 .226 2.290 .024
RESP .152 .106 .155 1.431 .156
ASSUR .185 .095 .200 1.947 .055
EMP .128 .082 .159 1.549 .125
a. Dependent Variable: CLOYAL
From the regression result value of R square is obtained as 0.618. The R square value
implies that service quality attributes together account 61 percent variation in the customer
loyalty. The ANOVA table shows value of significant F is 0.000. The significant F value is
smaller than 5% level of significance meaning the overall model is statistically significant. The
respective value of regression coefficient associated with tangibles, reliability, responsiveness,
assurance and empathy are 0.104, 0.221, 0.152, 0.185 and 0.128. Positive values of regression
coefficients indicate a positive relation between customer loyalty and service quality attributes.
This in turn means that with improvement in each of the dimensions of service quality customer
loyalty enhances and vice-versa (Fox 2015). P value associated with tangibles is 0.318. The p
value exceeds the significance level of 5% implying acceptance of null hypothesis of no
significant relation between tangibles and customer loyalty. In case of reliability, obtained p
value is 0.024 which is lower than 5% significance level. This indicates rejection of null
hypothesis of no significant relation between reliability and customer loyalty. For responsiveness
associated p value of 0.156. The p value in this case exceeds the significance level of 5%
implying acceptance of null hypothesis of no significant relation between responsiveness and

54IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
customer loyalty. Associated p value for assurance is 0.055. The p value exceeds the significance
level of 5% implying acceptance of null hypothesis of no significant relation between customer
loyalty and assurance. For empathy also p value (0.125) is higher than significant value at 5%
level of significance. The null hypothesis of no significant association between empathy and
customer loyalty therefore is accepted.
4.5 Discussion
The main research hypothesis of the current research paper is to examine the relation
between customer loyalty and service quality. Result from the regression analysis shows that
tangibles do not have any statistically significant influence on customer loyalty. This finding is
consistent with some previous studies. It however contradictory to results of the papers
concluding tangibles are statistically significant determinant of customer loyalty (Khan, Lima
and Mahmud 2018). The analysis suggests that reliability is positive significant determinant of
customer loyalty. The result is similar to findings of some previous paper indicating reliability to
be a significant factor affecting customer loyalty. This contradicts findings of the papers that
concluding customers may stay with an organization even when they are dissatisfied since they
do not have any other choice. The reliability dimension of service quality includes that banks
keep their timely promise, they take care of their customers whenever they face problems, banks
provide proper service on the first time, banks offer service as per the promise and banks are
promised to offer error free service. Banks therefore by focusing on these dimensions can
increase loyalty of customers which helps in increasing profitability of banks. So far the service
quality dimension of responsiveness is taken into consideration, the analysis found a positive but
insignificant relation between customer loyalty and responsiveness. The findings in regards to
responsiveness do not support findings from previous literatures (Rasheed and Abadi 2014).

55IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
Most of these studies concluded that responsiveness is a significant determinant of customer
loyalty. The fourth attribute of service quality is assurance. Result of the regression suggests
acceptance of null hypothesis stating no statistically significant influence of responsiveness on
customer loyalty. The result related to assurance is contradicting to findings of most of the prior
studies concluding assurance has considerable influence in determining customer loyalty. The
impact of empathy on customer loyalty also found to be statistically insignificant.
Chapter 5: Conclusion
5.1 Conclusion
In today’s world of increasing competition marketers have found it extremely important
to achieve a high level of customer satisfaction. This in turn increase loyalty among the
customers and help an organization to main long term profitability. In case of service sector,
improving service quality seems to be an important aspect to increase customer loyalty. Service
sector especially financial services play an important role to fuel economic growth of an
economy. Banks being the key players in the financial service sector helps to secure a steady
growth and development of an economy. Since there is very little scope of product
differentiation in the banking sector improving service quality is one important aspect of
profitability. The paper analyzes importance of service quality on customer loyalty in the
banking sector. The model of service quality has been developed following the ‘RATER’ model.
The five dimension of service quality in the model are Reliability, Assurance, Tangibles,
Empathy and Responsiveness. To evaluate the impact of service quality on customer loyalty in
the banking sector each of the dimension of service quality has been analyzed using different
attributes. 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

56IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
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.
5.2 Linking with the research objective
The primary research objective of the paper is to investigate the relation between service
quality and customer loyalty in the banking industry. To address the main research question, the
paper divides service quality into five different dimensions such as tangibles, reliability,
responses, assurance and empathy and then analyzes relation between each attribute of service
quality and customer loyalty. Result derived using statistical techniques reveal that there is a
strong positive correlation between each of service quality dimension and that of loyalty among
customers. That means as each of the dimension of service quality improves, there is a
possibility of increase in customer loyalty. Among five different factors determining service
quality in the banking sector reliability seems to be a positive significant determinant of service
quality. This signifies providing customer a reliable service can increase loyalty among the
customers.
5.3 Recommendation
The analysis found that tangibles, reliability, responsiveness, assurance and empathy
have a significant positive association with customer loyalty. Banks therefore should incorporate
these factors as an important part of marketing strategy to enhance customers. In a highly
competitive environment offering a premium service quality should be the main focus of banks

57IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
while designing business strategy. Among the five different service quality attributes more
attention should be given on improving reliability of different banking services.
5.4 Limitation and scope of further research
The main limitation of the current research is limited sample. For the purpose of the study
the sample contains only university students. There is other group of people in the economy who
uses various banking services. These people are not included in the sample. Customer
satisfaction is another crucial aspect affecting customer loyalty. The study however does not
include any dimension of customer satisfaction. There are other factors such as management of
customer relation, types of service provided and other which might influence customer loyalty
and are not included in the current research. Further researches can be conducted considering the
missing aspect of the present research to make a more robust analysis.

58IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY IN BAKING INDUSTRY
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