Management Science Letters 3 (2013) 21472154

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Management Science Letters

homepage: www.GrowingScience.com/msl

Investigating the relationship between service quality and customer loyalty: A case study of
banking industry

Aliakbar Aghaeia, Mohammad Ali Mostafapourb*, and Hamid Rezaeib

a
b

Golestan University,Gorgan,Iran
Department of Management and Accounting, Minoodasht Branch, Islamic Azad University, Minoodasht, Iran

CHRONICLE
Article history:
Received January 30, 2013
Received in revised format
20 May 2013
Accepted May 28 2013
Available online
June 1 2013
Keywords:
Quality
Service Quality
Customer loyalty
Melli Bank

ABSTRACT
The present study investigates the relationship between service quality and customer loyalty in
one of Iranian banks in province of Golestan, Iran named Bank Melli Iran. The population of
the study consists of all customers of this branch. Using Kersity-Morgan table and simple
random sampling, a number of 384 customers were selected as the participants of the study.
The method of research is descriptive-correlation with a survey design. SERVQUAL scale and
a researcher-made questionnaire were used to examine service quality and customer loyalty,
respectively. Pearson correlation formula was run to analyze the data. The results showed a
significant relationship between different aspects of service quality and customer loyalty in this
particular branch of bank.

2013 Growing Science Ltd. All rights reserved.

1. Introduction
In the competitive world of business, high service quality plays an essential role for the success of
organizations. However, we need to make sure that delivering good service quality is not a
competitive strategy to be implemented by firms as a distinguishing factor rather it is considered as a
critical factor for the survival and profitability of firms. Business success in the current world of
economy depends entirely on the capability to build distinct product values through developing
innovative product designs and introducing these innovations to the customers, effectively. Despite
the quality of products which is ascertained by specified standards, the quality of services is assessed
in terms of their functionality (Crosby, 2004). The degree of service quality specifies how much the
service has reached or been beyond customers' expectations. In other words, service quality is
associated with the level of customer satisfaction with the fulfillment of requirements, necessities and
expectations. This is necessary to help distinguish among products as well as services and build a
*Corresponding author.
E-mail addresses: [email protected] (M.A. Mostafapour)
2013 Growing Science Ltd. All rights reserved.
doi: 10.5267/j.msl.2013.06.003

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sense of trust and loyalty in customers. Service companies are primarily concerned with engendering
loyalty in customers by improving the quality of services. Successful firms direct their attempts
towards improving the quality of services based on their thoughts into customer requirements and
deficiencies in their current services. When things are not accomplished, properly, they will look for
relevant factors to prevent reoccurrence of failures in future. They may concentrate on innovative
techniques to increase the quality of services and customer loyalty, simultaneously. Service quality is
a newly-developed scientific field with over three decades of research background (Guo et al., 2008).
The term service quality may be interpreted differently by various people. Therefore, we have to
shape a crystal clear definition for the concept of quality in the first place. In addition, adopting a
definition of quality is not only essential but also helps direct employees' attempts towards offering
high quality services. Quality is associated with providing the customer with service or product,
which needs good design quality, adaptation, availability and suitability of service location. Quality
could be also represented on providing customers with what they actually wish. In other words, a
high quality service must correspond with the customer requirements. Therefore, quality can be
described as the correspondence between services offered and customer requirements (Brady &
Joseph, 2001).
International Organization for Standardization (ISO) describes quality as all the components of a
service or product to reach customers needs. Singapore National Productivity Board indicates that it
is the customer but not producer or service provider who specifies the quality. More lucidly, quality is
associated with a set of service or product features, which fulfill customer requirements. Others
defined quality as a broad concept where all parts of a firm are committed to improve the efficiency
of the whole organization so that it would remove deterrent factors and eventually result in complete
adaptation of services to the requirements specified by the customer in minimum costs. Parasuraman
et al. (2000) contend that perceived quality refers to customer judgments of the superiority or
advantage of a product. Perceived quality is a kind of behavior associated with, but not identical to,
perfect satisfaction and can be interpreted by comparing expectations and perceived performance
(Arasli et al., 2004; Babakus & Boller, 1992; Parasuraman et al., 1985).
Hakkak and Zare (2013) investigated relationship between marketing and customers loyalty. The
study designed a questionnaire consists of three parts. The first part was associated with customer
information, the second part considers relationship marketing factors and the third part measures
components of customers loyalty. Cronbach alpha in relationship marketing, loyalty and overall
alpha were measured 0.878, 0.891 and 0.712, respectively. They analyzed the data using LISREL
software and ranked the components of the internal and external latent variables by using the
Friedman test and reported that some components were not meaningful when the level of significance
was five percent.
Darvish et al. (2013) investigated the effect of six factors on electronic banking including easy access,
design, transaction speed, security, information content and customer support on customer
satisfaction. They studied different branches located in north east of city of Tehran, Iran named
Tejarat and selected a sample of 200 customers, designed, and distributed a questionnaire among
them. The results of their survey indicated that all six components significantly influenced on
customer satisfaction. Tajzadeh-Namin et al. (2012) made an assessment on the quality of services of
Tehrans Saman bank and the available gap between customers expectation and perception.
2. Literature Review
2.1. Dimensions of service quality
According to Parasuraman et al. (1998), service quality is the gap between customers' expectations
and perceived performance of a service. In this regard, Kuo et al. (2009) developed SERVQUAL

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model as measure to examine service quality. SERVQUAL service quality includes 5 dimensions and
22 components.
Tangibles

Modern equipment
Considerable physical facilities
Well-dressed employees
Orderly documents (e.g. handouts, filing, invoices, etc.)

Reliability

Providing the promised service in timely manner

Sincerity in solving customer problems
Improvement in services as soon as possible
Providing the service as promised
Delivering accurate reports

Responsiveness
Employees let the customers know what services they will actually provide
Employees provide customers with immediate services (as soon as possible)
Employees are always willing to help customers
Employees are always available to answer customer questions
Assurance
Employees' behavior will gradually engender customer trust
Customers feel confident in their interaction with the organization
Employees are always polite to customers
Employees have enough knowledge to answer customer questions
Empathy
Individual concern for customers
Adequate business hours for all customers
Employees treat customers with special attention
Employees wish the best of benefits for customers
Employees perceive customers' special needs(Jose&Laura,2010)
Customer loyalty
Traditionally, loyalty refers to adherence to ideology but it has lately been used to business culture to
characterize customers' enthusiasm for continuous work with a firm, exclusive purchase of its
products and services and voluntarily recommending these products and services to friends and
colleagues. Customer loyalty would remain as long as customers under the impression they are
getting better services than otherwise will be offered by other providers. Therefore, customers tend to
buy products or services based on what they think will give them the highest value. The highest value
is associated with the difference between the total value demanded by the customer and the total
expenditure they pay for the product or service (Grnroos, 2009), Oliver offered a rather
comprehensive definition of customer loyalty as the commitment to buy or to select the same product
or service continuously in future purchases though situational impacts and marketing efforts may
potentially change customer behavior.

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In the realm of services, loyalty is broadly defined as the observed behaviors. However, behavioral
scales such as repeat purchase have been criticized because of insufficient conceptual basis and
offering a narrow scope of a dynamic concept. Thus, behavioral view towards loyalty cannot offer a
comprehensive view of the main reasons of loyalty. In return, customers' view in terms of preferences
or tendencies plays essential role in their loyalty. Therefore, repeat purchase may not be even based
on preferences rather it could be because of some limitation, which prevent customer loss. In this
regard, customer loyalty is considered as an attitudinal structure. In addition to behavioral and
attitudinal views towards customer loyalty, cognitive view has also been introduced. The operational
definition of cognitive view centers on the very first product or service coming into the customer's
mind once they make a decision to purchase things or on the very first product or service they may
choose from among other products or services (Landrum et al., 2007; Faghihi et al., 2007).
The stages of building customer loyalty
Oliver has delineated four stages of building customer loyalty as follows:
1. Cognitive loyalty: At this stage, the available data presents the advantage of an offering over
other alternatives. This stage of loyalty centers on customer beliefs. Customers build their own
knowledge based on previous experiences.
2. Affective loyalty: Customers' behaviors towards the organization are influenced by the level
of satisfaction with previous experiences. At this stage, customers' satisfaction reflects their
own happiness. Commitment refers to this stage of affective loyalty. This stage of loyalty is
stronger than the previous one; however, as with the previous stage, there is the vulnerability
of customers' switching to some competitive offerings because evidence has stated that a high
percentage of customers who leave the firm claim to be satisfied with its offerings.
3. Conative loyalty: This stage is associated with an impulse to intend a behavior. The impulse
indicates commitment to repeat buy. This commitment is associated with the customers' intent
to repeat purchase and resembles the impulse. Although customers' intent to repeat purchase
could be forecasted.
4. Action loyalty: This is associated with the study of mechanisms whereby intentions are put
into effect. In the sequences of action control, the intentions developed during previous stages
could be translated into readiness to do action. This pattern is accompanied by additional
desire to overcome the barriers deterring the action. Consequently, action is the necessary
result of the three previous stages(Ueltschy et al., 2007; Vesel & Zabkar, 2009).
3. Materials and methods
The method of research is descriptive correlation with a survey design. The population of the study
consisted of all customers of Bank Melli located in province of Golestan, Iran. Using Kerjesi-Morgan
table and through simple random sampling, a number of 384 customers were selected as the
participants of the study. SERVQUAL scale and a researcher-made questionnaire were used to
examine service quality and customer loyalty, respectively.
The validity of either scale was acknowledged by experts. The reliability of either questionnaire was
estimated using Cronbach alpha formula. In this regard, the reliability indices for the subscales of
SERVQUAL questionnaire included: tangibles (0.87), reliability (0.92), responsiveness (0.81),
assurance (0.78) and empathy (0.83). The reliability of researcher-made customer loyalty
questionnaire was calculated to be =0.91. Using SPSS19 software, Pearson correlation formula was
run to analyze the data.

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4. Findings
The following is the first hypothesis of this survey,
H 0 : There is no significant correlation between the tangibles dimension and customer loyalty.

H 1 : There is a significant correlation between the tangibles dimension and customer loyalty.

Table 1 demonstrates the summary of Pearson correlation coefficient along with meaningful level.
Table 1
The summary of Pearson correlation coefficients
Tangibles
Customer loyalty

Pearson correlation
Sig (two-tailed)
N
Pearson correlation
Sig (two-tailed)
N

Tangibles
1
384
0.742
0.000
384

Customer loyalty
0.742
0.000
384
1
384

As shown in the Table 1, the correlation coefficient for hypothesis 1 was calculated to be 0.742. Since
the level of significance in this test equals Sig=0.000, which is smaller than =0.05, there is a
significant correlation between the two variables. Accordingly, H0 is rejected but H1 is supported.
With regard to the positive value of this coefficient (+), there is direct relationship between the two
variables.
H 0 : There is no significant correlation between the reliability dimension and customer loyalty.

H 1 : There is a significant correlation between the reliability dimension and customer loyalty.

Table 2
The result of Pearson correlation ratios
Reliability
Customer loyalty

Pearson correlation
Sig (two-tailed)
N
Pearson correlation
Sig (two-tailed)
N

Reliability
1
384
0.671
0.000
384

Customer loyalty
0.671
0.000
384
1
384

As shown in Table 2, the correlation coefficient for hypothesis 2 was calculated to be 0.671. Since the
level of significance in this test equals Sig=0.000 which is smaller than =0.05, there is a significant
correlation between the two variables. Accordingly, H0 is rejected but H1 is supported. With regard to
the positive value of this coefficient (+), there is direct relationship between the two variables.
H 0 : There is no significant correlation between the responsiveness dimension and customer loyalty.

H 1 : There is a significant correlation between the responsiveness dimension and customer loyalty.
Table 3
The result of Pearson correlation ratios
Responsiveness
Customer loyalty

Pearson correlation
Sig (two-tailed)
N
Pearson correlation
Sig (two-tailed)
N

Responsiveness
1
384
0.691
0.000
384

Customer loyalty
0.691
0.000
384
1
384

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As shown in the table, the correlation coefficient for hypothesis 3 was calculated to be 0.691. Since the
level of significance in this test equals Sig=0.000 which is smaller than =0.05, there is a significant
correlation between the two variables. Accordingly, H0 is rejected but H1 is supported. With regard to
the positive value of this coefficient (+), there is direct relationship between the two variables.
H 0 : There is no significant correlation between the assurance dimension and customer loyalty.

H 1 : There is a significant correlation between the assurance dimension and customer loyalty.

Table 4
The result of Pearson correlation ratios
Assurance
Customer loyalty

Pearson correlation
Sig (two-tailed)
N
Pearson correlation
Sig (two-tailed)
N

Assurance
1
384
0.572
0.000
384

Customer loyalty
0.572
0.000
384
1
384

As shown in Table 4, the correlation coefficient for hypothesis 4 was calculated to be 0.572. Since the
level of significance in this test equals Sig=0.000 which is smaller than =0.05, there is a significant
correlation between the two variables. Accordingly, H0 is rejected but H1 is supported. With regard to
the positive value of this coefficient (+), there is direct relationship between the two variables.
H 0 : There is no significant correlation between the empathy dimension and customer loyalty.

H 1 : There is a significant correlation between the empathy dimension and customer loyalty.

Table 5
The result of Pearson correlation ratios
Empathy
Customer loyalty

Pearson correlation
Sig (two-tailed)
N
Pearson correlation
Sig (two-tailed)
N

Empathy
1
384
0.631
0.000
384

Customer loyalty
0.631
0.000
384
1
384

As shown in Table 5, the correlation coefficient for hypothesis 5 was calculated to be 0.631. Since the
level of significance in this test equals Sig=0.000 which is smaller than =0.05, there is a significant
correlation between the two variables. Accordingly, H0 is rejected but H1 is supported. With regard to
the positive value of this coefficient (+), there is direct relationship between the two variables.
5. Results and discussion
Considering the fact that the present findings showed a significant correlation between service quality
and customer loyalty and that the present study investigated different aspects of service quality for
the proposed case study including reliability of services, service specificity, service professionalism,
speed of service, service facilities, employees' physical appearance and behavior and their interest in
offering service to the customers, it is recommended that the management of the proposed case study
conduct periodical surveys to examine its customers' loyalty since customer needs are variable over
the course of time. The employees need to dress up uniformly so that customers may judge their
physical appearance as appropriate.

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A new research department may be established in the bank in order to study new banking services
which may increase the diversity of this case studys services and specialty. Finally, it is
recommended that employees be trained to shape similar behavior towards all customers. Banks may
provide free counseling services for their customers about the plans proposed by the customers and
use this service as an advantage in including or excluding the customers. Such services would be of
bilateral value. On the one hand, counseling would help the customers make better decisions and thus
take fewer risks. On the other hand, providing such services would increase loyalty in customers and
reduce banking risks.
Acknowledgment
The authors would like to thank the anonymous referees for constructive comments on earlier version
of this work.

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