Abstract
The aim of this study was to investigate the impact of customer satisfaction on the development of Bank performance, in case of First Bank PLC. Data were collected from four Branches of FB. A sample 307 respondents from the four branches are addressed through questionnaires.
These respondents were selected using systematic sampling method. The collected data were analyzed using statistical tools such as descriptive statistics, correlation, and multiple regression analysis.
The results of the study revealed that there is a positive and moderate relationship between customer satisfaction and Bank performance and positive and high relationship between customer satisfaction and Bank performance.
In addition to this, the study examined that service quality and relationship quality have a significant effect on the development of Bank performance while the impact of customer satisfaction is less significant. Moreover; it is found that relationship quality has more impact than the other variables addressed in this study.
Furthermore, the variables used in this study, (customer satisfaction) significantly explain the variations in Bank performance.
Keywords: Customer Satisfaction, Service Quality, Relationship Quality, Bank performance.
CHAPTER ONE
INTRODUCTION
• Background of the Study
In today’s business, companies are realizing that losing a customer means losing more than a single sale. It means losing the entire stream of purchases that the customer would make over a life time of patronage (Kotler, 2006). It is known that long-term customers are more likely to expand their relationship within the product and the rewards from this group are long term and cumulative (Grayson and Ambler, 1999). Loyal or repeat customers are thought to act as information channels, informally linking networks of friends, relatives and other potential customers to the organization (Shoemaker and Lewis, 1999). The other benefit associated with Bank performance is the lower costs associated with retaining existing customers, rather than constantly recruiting new ones especially within mature, competitive markets (Ehrenberg and Goodhardt, 2000). Different researchers have tried to test the variables believed to bring Bank performance such as, service quality (Zeithaml et al., 1996), customer satisfaction (Chandrashekaran et al., 2007; Lai et al., 2009), customer relationship, customer trust and commitment (Garbarino and Johnson, 1999). These variables influence customer purchase decisions through different degrees depending on the industry and context (Jones and Sasser, 1995). For example, De Rutyer et al. (1998) in his study of determinants of service loyalty in five different service sectors found that the determinants vary per industry (i.e. the determinants of one industry cannot be generalized in other industries).
In addition to this, for the purpose of determining the antecedents of loyalty, several authors have looked at customer satisfaction and have shown the two concepts’ have close relationship (e.g. Jones and Sasser, 1995; Sheth and Sisodia, 1999). Higher levels of customer satisfaction can lead to a reduction of the perceived benefits of alternative suppliers and hence to higher repurchase intentions (Anderson and Sullivan, 1993). Moreover, Anderson and Srinivasan (2003), claim that “a dissatisfied customer is more likely to search for information on alternatives and more likely to yield to competitor than is a satisfied customer”.
On the other hand, the theoretical relationship between service quality and loyalty has been confirmed empirically in several studies, example (Bloemer et al, 1998; Boulding et al., 1993; Cronin et al., 2000; Fornell, 1992). Cronin et al. (2000) reported that, service quality has a significant positive effect on behavioral intentions (loyalty). Bloemer et al. (1998) found that quality has both a direct influence and an indirect influence (through satisfaction) on loyalty. Furthermore the finding of Gronroos (1994) revealed that, the aim of relationship marketing is to establish, maintain, and enhance relationships with customers and other partners, at a profit, so that the objectives of the parties involved are met. Similarly, Rapp and Collins (1990) suggested that the goals are to create and maintain lasting relationships between the firm and its customers that are rewarding for both sides which is achieved by a mutual symbiosis and fulfillment of promises. In other words, a key objective is to foster Bank performance (Ndubisi 2003a, b).
The history of insurance service is as far back as modern form of banking service in Ethiopia which was introduced in 1905. The first significant event that the Ethiopian insurance market observation was the issuance of proclamation No. 281/1970 and this proclamation was issued to provide for the control & regulation of insurance business in Ethiopia (Hailu Zeleke, 2007). Consequently, it created an insurance council and an insurance controller's office.
The controller of insurance licensed 15 domestic insurance companies, 36 agents, 7 brokers, 3 actuaries & 11 assessors in accordance with the provisions of the proclamation immediately in the year after the issuance of the law.
After four years that is after the enactment of the proclamation, the military government that came to power in 1974 put an end to all private enterprises. Then all insurance companies operating were nationalized and from January 1, 1975 onwards the government took over the ownership and control of these companies & merged them into a single unit called Ethiopian Insurance Corporation. In the years following nationalization, Ethiopian Insurance Corporation became the sole operator. After the change in the political environment in 1991, the proclamation for the licensing and supervision of insurance business heralded the beginning of a new era. Immediately after the enactment of the proclamation in the 1994, private insurance companies began to increase.
First Bank PLC S.C. (FB) is one of the first few pioneer private insurance companies in Ethiopia launched following the liberalization of the financial sector in 1994. With well-founded experience and customer oriented service, FB is progressing in renewing its commitment to excellence. FB has 33 branches throughout the country in which 22 of them are found in Addis and the remaining 11 are found in other regions of the country. Currently, the Company has around 28,500 customers (both corporate client and individual customer) who are found in their data base (WWW.awashinsurance.com).
• Statement of the Problem
Today business organizations are struggling to get more customers and satisfy their needs and want through their offerings. They are promoting their goods/services through different ways for the customers. They spend a lot on advertizing and other communication mixes to attract as many customers as possible and to win the customers of their competitors. But it is believed that, it is more profitable to retain customers than to acquire new ones (Hogan et al., 2003; Lee-Kelley et al., 2003). It is clear that every business organization need to increase its profits by fulfilling the requirements of its customers for its long term operation. But this cannot be achieved without retaining customers hence loyal customers are less likely to change provider because of price, and they also tend to recommend the business to others (Reichheld and Sasser, 1990; Reichheld and Teal, 1996). This highlights the critical importance of Bank performance for companies and especially for those operating in service industries because, service providers compete with companies very similar to themselves so that, they often respond by employing customer retention strategies (Egan, 2004 p. 133).
In our country it is not common to see organizations that are committed in building loyal customers due to several reasons; it may be because of lack of knowledge on the area, the organization may be dependent on traditional marketing system, lack of commitment, and many other reasons. Since competition in the service sector is increasing, organizations have to work on loyalty and change their current customers to loyal and get competitive advantage over the others. To develop loyal customers’ organizations need to know what makes customers loyal and the constructs of loyalty. Therefore, this study was undertaken to know the extent of relationship and significance of customer satisfaction on the development of Bank performance in the case of First Bank PLC.
• Research Questions
The following important questions are raised in this study.
• What is the contribution of customer satisfaction for the building of Bank performance?
• How does service quality affects Bank performance?
• To what extent does relationship quality lead to Bank performance?
• Which of the variables/factors (customer satisfaction, service quality, and relationship quality) have significant effect to build customers loyalty?
• Objectives of the Study
• General Objectives of the Study
The major objective of the study was to find out the contributions and significance of customer satisfaction in developing Bank performance.
• Specific Objectives of the Study
The specific objectives of the research are to:-
• examine the contribution of customer satisfactions to Bank performance.
• investigate the impact of service quality on Bank performance.
• identify the extent of relationship between relationship quality and Bank performance.
• identify which of the three variables/factors (customer satisfaction, service quality, and relationship quality) plays a significant role in building loyal customers.
• Hypotheses of the Study
In line with the above objectives of the study, the following hypotheses were formulated and investigated.
Ho1: there is no significant relationship between customer satisfaction and Bank performance.
Ha1: there is significant relationship between customer satisfaction and Bank performance.
Ho2: there is no significant relationship between service quality and Bank performance.
Ha2: there is significant relationship between service quality and Bank performance
Ho3: there is no significant relationship between relationship quality and Bank performance.
Ha3: there is significant relationship between relationship quality and Bank performance.
• Definition of Terms
Customer satisfaction is a person’s feeling of pleasure or disappointment resulting from comparing a product’s perceived performance (or outcome) in relation to his or her expectations” (Kotler, 2003, p. 36). It is the extent to which a product’s perceived performance matches a buyer’s expectation (Kotler, 2006, p 19).
Service quality is the delivery of excellent or superior service relative to customer expectations (Zeithaml and Bitner, 1996, p. 117).
Relationship quality is the’’ level of relationship between a business and the customer in which the level determines how well an organization meets the customer’s needs, Crosby et al (1990).
Bank performance is “a deeply held commitment to re-buy or re-patronize a preferred product/service consistently in the future, thereby causing repetitive same-brand or same brand set purchasing, despite situational influences and marketing efforts having the potential to cause switching behavior” .Oliver (1999, p.34).
• Significance of the Study
This study has the following importance. It
• shows the impacts of customer satisfaction, service quality, and relationship quality on Bank performance.
• identifies which of the variables (customers satisfaction, service quality or relationship quality) plays a significant role to develop loyal customer
• gives some recommendations for Insurance companies, the areas that need attention to make customers loyal.
• serves as a spring board for other researchers to investigate further using more branch offices operating in the Insurance Company.
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