Determinants of Service Quality and their impact on Customer Satisfaction

ST. MARY’S UNIVERSITY

SCHOOL OF GRADUATE STUDIES

DETERMINANTS OF SERVICE QUALITY AND THEIR IMPACT ON

CUSTOMER SATISFACTION: THE CASE OF COMMERCIAL BANK OF
ETHIOPIA

(Selected Branches in Addis Ababa)

BY

ZEWDITU KEBEDE

ID NO. SGS/0760/2007A

JANUARY, 2017

ADDIS ABABA, ETHIOPIA

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 Determinants of Service Quality and their impact on Customer Satisfaction

DETERMINANTS OF SERVICE QUALITY AND THEIR IMPACT ON

CUSTOMER SATISFACTION: THE CASE OF COMMERCIAL BANK OF
ETHIOPIA

(Selected Branches in Addis Ababa)

BY

ZEWDITU KEBEDE

ID NO. SGS/0760/2007A

THESIS SUBMITTED TO ST. MARY UNIVERSITY, SCHOOL OF

GRADUATE STUDIES IN PARTIAL FULFILMENT OF THE
REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS IN
MARKETING MANAGEMENT

JANUARY, 2017

ADDIS ABABA, ETHIOPIA

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 Determinants of Service Quality and their impact on Customer Satisfaction

ST. MARY’S UNIVERSITY

SCHOOL OF GRADUATE STUDIES

DETERMINANTS OF SERVICE QUALITY AND THEIR IMPACT ON

CUSTOMER SATISFACTION: THE CASE OF COMMERCIAL BANK OF
ETHIOPIA

(Selected Branches in Addis Ababa)

BY: ZEWDITU KEBEDE

APPROVED BY BOARD OF EXAMINERS

___________________________________ ______________________

Dean, Graduate Studies Signature

___________________________________ ______________________

Advisor Signature

___________________________________ ______________________

External Examiner Signature

___________________________________ ______________________

Internal Examiner Signature

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 Determinants of Service Quality and their impact on Customer Satisfaction

Table of Contents
Table of Contents ……………………………………………………………………………….....i
Acknowledgements….………………………………………….…………………………………v

List of Tables …………………………………………………………………………………….vi

List of Figures……………………………………………………………………………………vii
Acronyms………………………………………………………………………………..............viii
Abstract…………………………………………………………………………………………...ix

Chapter One: Introduction

1.1 Background of the study………………………………………………………………………1

1.2 Statement of the Problem………………………...……………………………………………3

1.3 Research question……………………………………………………………………………..5

1.4 Objectives of the Study………………………………………………………………………..5

1.4.1 General objectives…………………………………………………………………...5

1.4.2 Specific Objectives……………………………………………………………….....5

1.5 Significance of the Study………………………………………………………………….......5

1.6 scope of the study…………………………………………………………………………..…6

1.7 Limitation of the study…………………………………………………………………..…….6

1.8 Definitions of terms…………………………………………………………………………...6

1.9 Structure of the Paper………………………………………………………………………….7

Chapter Two: Review of related Literature

2.1 Introduction………………………………………………………..……….…………………8
2.2 Theoretical review…………………………………………………………………………….8
2.2.1 Definitions of Service…………………………………………………………………….8

2.2.2 Characteristics of Service….……………………………………………….…................8

2.2.3 Classification of Service……………………………………………………….....9

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 Determinants of Service Quality and their impact on Customer Satisfaction

2 2.4 Banking Services………………………………………………………………......10

2.2.5Service quality……………………………………………………………………………...10

2.2.5.1 The Need for Service Quality…………………………………………………....11

2.2.5.2Benefits of services Quality …………………………………………………...12

2.2.5.3 The SERVQUAL approach ……………………………………………………..12

2.2.5.4 SERVQUAL dimensions ……………………………………………………….13

2.2.5.5 Critiques of SERVQUAL……………………………………………………………….14

2.2.5.6 Model of Service Quality Gaps ……………………………………………................15

2.2.5.7Closing the Customer Gap………………………………………………………………18

2.2.5.8 Using SERVPERF to Measure Service Quality………………………………………..20

2.2.6 Customer satisfaction………………………………………………………………………21

2.2.6.1 Customers‟ Expectations of Service quality…………………………………….21

2.2.6.2Customers‟ Perception of Service quality……………………………………22
2.2.6.3Levels of Expectations…………………………………………………………..23
2.3Empirical review……………………………………………………………………………..23

2.4Conceptual framework……………………………………………….………………...…….24

Chapter Three: Research Design and Methodology

3.1 Research Design……………………………………………………………………………..26

3.2 Populationand Sampling Techniques………………………………………………………. 27

3.3 Types of Data and data collection instruments ……………………………………………...28

3.4 Questionnaire Design………………………………………………………………………...28

3.5 Method of data analysis……………………………………………………………………...29

3.5.1 Model specification………………………………………………………………...29

3.6Validity and Reliability test………………………………………………………………….29

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 Determinants of Service Quality and their impact on Customer Satisfaction

3.6.1 Validity…………………………………………………………………………….29
3.6.2 Reliability…………………………………………………………………………..30

Chapter Four: Data Analysis, and Interpretation

4.1 Background Information of Respondents……………………………………………………31
4.2 Service Quality Dimensions of CBE………………………………………………………...33
4.2.1 Tangibility Dimension……………………………………………………………..34
4.2.2 Reliability Dimension……………………………………………………………...35
4.2.3 Responsiveness Dimension ………………………………………………………..35
4.2.4 Assurance Dimension ………………………………………………………..........36
4.2.5 Empathy Dimension………………………………………………………….……37
4.3 Overall customer satisfaction towards service quality.............................................................38
4.4 Satisfaction level of commercial Bank of Ethiopia‟ customers……………………………...39
4.5 Correlation Analysis…………………………………………………………………………39
4.6 Regression analysis…………………………………………………………………………..41
4.7 Coefficients of Service Quality Dimensions ………………………………………………...42

4.7.1 the Most Predictor of Overall Customer Satisfaction …………………………………….43

4.7.2 Normality and Multicollinearity Test …………………………………………………….44

Chapter Five: Summary of Findings, Conclusions, and Recommendations

5 Introduction ……………………………………………………………………………………46

5.1 Summary of Key Findings …………………………………………………………………..46

5.1.1. Background Information of Respondents………………………………………....46

5.1.2. Measure of Customer perception of Banking Services……………………………46
5.1.3 Level of SERVQUAL Dimensions mostly utilized by CBE………………………47

5.1.4 Measure of Customer Expectations of Banking Services………………………….47

5.1.5 SERVQUAL gap…………………………………………………………………..48

5.1.6 Level of customer satisfaction……………………………………………………..48

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 Determinants of Service Quality and their impact on Customer Satisfaction

5.1.7 Summary of Correlation and regression analysis………………………………….48

5.2 Conclusions…………………………………………………………………………………..50
5.3 Recommendations…………………………………………………………………………....51
5.4 Area for further studies………………………………………………………………………52

References ………………………………………………………………………………………53
Appendices………………………………………………………………………………………56
Declaration page…………………………………………………………………………………60
Endorsement page ……………………………………………………………………………….61

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 Determinants of Service Quality and their impact on Customer Satisfaction

Acknowledgments
I would like to thank the Almighty God who gave me strength to do my thesis. I also wish to
express my sincere thanks and gratitude to my advisor Tesfaye Wolde (PhD) for his excellent
guidance, encouragement and helpful advice during the whole process of research writing.

I would also like to thank my husband, Ato Kassahun Mekuria, for his financial support, and
encouragement. Without his support, I could not have completed my study. I also wish to thank
my family (Specially Fasika) for their moral support and advice to finish my study.

Last but not the least, I would also like to thank my staff and my classmates who share me their
idea and provided me moral and valuable information related to the research work.

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 Determinants of Service Quality and their impact on Customer Satisfaction

ACRONYMS

CBE – Commercial Bank of Ethiopia

SERVQUAL –Service quality

ATM - Automated Teller's Machine

MIS - Management Information system

A.A – Addis Ababa

P- Perception

E-Expectation

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List of Tables
Table 3.1: Status of Questionnaires Distributed to CBE customers………………………..........28

Table 3.2: Reliability Statistics..…………………………………………………………………30

Table 4.1: Gender Distribution of the Respondents……………………………………...............31

Table 4.2: Age Distribution of Respondents……………………………………………………..32
Table 4.3: Educational level of respondents……………………………………………………..32
Table 4.4: Descriptive Statistics on Tangibility Dimension……………………………………..34
Table 4.5: Descriptive Statistics on Reliability Dimension ……………………………………..35
Table 4.6: Descriptive Statistics on Responsiveness Dimension…………………………….......36
Table 4.7: Descriptive Statistics on Assurance Dimension……………………………………...36
Table 4.8: Descriptive Statistics on Empathy Dimension……………………………………….37
Table 4.9: Overall means score of customer satisfaction on service quality and the Gap between
customers‟ expectation and perception ………………………………………………………….38
Table4.10: Overall Customer Satisfaction Level………………………………………………...39
Table 4.11: Correlation between service quality dimensions with satisfaction by overall service
Quality……………………………………………………………………………………40
Table 4.12: Model summary……………………………………………………………………..42
Table 4.13:Coefficients ………………………………………………………………………....42
Table 4.14: predictors of Customer Satisfaction……………………………………………........43
Table: 4:15 Testing of assumption ………………………………………………………………46

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 Determinants of Service Quality and their impact on Customer Satisfaction

LIST OF FIGURES
Figure 2.1: Service Quality Gaps Model………………………………………………………...17

Figure 2.2: The conceptual frame work of this study……………………………………………………………….25

Figure 4.1: Correlation Model…………………………………………………………………………………………………41

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Abstract
The general objective of this study is to identify the determinants of service quality and their
impact on customer satisfaction. The outcome of study will enhance the Bank‟s competitive
position in the banking industry and ensure its survival. Convenient sampling technique was
employed in the study with Statistical Package for Social Scientist (SPSS) used in the analysis. In
this research, the SERVQUAL instrument developed by Parasuraman (1985), has been applied
in designing the questionnaire by using five dimensions of service quality: tangibility, reliability,
responsiveness, assurance, and empathy. Questionnaires are distributed to 400 customers of the
twenty three selected branches in Addis Ababa area. The questionnaire aimed to determine the
level of customers‟ expectation and perception towards the service quality of the bank. The
results revealed that the assurance, responsiveness and empathy dimensions raised the highest
level of expectation, whereas the, assurance, empathy and responsiveness dimensions fulfilled
the highest level of perception. The findings showed that the dimensions of service quality such
as tangibility, reliability, responsiveness, assurance, and empathy are positively correlated to
customer satisfaction. Data collected from respondents are analyzed by using descriptive,
correlation, and regression analysis. It can be concluded from the analysis that customers were
satisfied with service delivery of CBE.

Keywords: Service Quality, Customers‟ expectation and perception, Customer Satisfaction,

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 Determinants of Service Quality and their impact on Customer Satisfaction

CHAPTER ONE
Introduction
In this introductory chapter, background of the study, statement of the problem, significanceand
objectives of the study, research questions, and limitation of the study, scope of the studyand
structure of the paper are discussed.

1.1Background of the study

Banking is a customer oriented services industry. Customer satisfaction is the key factor for
customer retention and thereby the bank‟s success. Therefore, identifying and improving the
factors that can limit the satisfaction of customer is the crucial step for the bank which wants to
be a step forward than its competitors.Service quality is the result of the comparison that
customers make between their expectations about a service and their perception of the way the
service has been performed (Gronroos, 1984; Parasuraman, 1985, 1988). A number of experts
define service quality differently. Parasuraman. (1985) define it as the differences between
customers, expectation of services and their perceived service.

Here the key to success is to remain competitive and constantly improve the quality of services
to better meet customers' needs, and the key to providing superior services is to clearly
understand and appropriately respond to customers' expectations because customers compare
perceptions with expectations in judging the quality of a firm‟s service offerings.Banks must
convey quality service to ensure success and survival in today‟s competitive banking.

Businesses' ability to understand the needs and expectations of not only their current customers
but also their potential customers and to act in accordance with, this is of utmost importance for
the realization of high levels of customer satisfaction. Therefore, acting with a customer-focused
approach presents itself as a must-have requirement for improving the satisfaction of customers.
According to Hansemark and Albinson (2004) „satisfaction is an overall customer attitude
towards a service provider‟ or an emotional reaction to the difference between what customers
anticipates and what they receive, regarding the fulfillment of some needs, goals or desire.

For the businesses to be able to win customers with potential to add value to them at a higher
level in an increasingly growing competitive market structure they need to provide products and

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 Determinants of Service Quality and their impact on Customer Satisfaction

services that can satisfy the needs of the customers; this is of vital importance in sustaining their
presence in the market. The underlying cause of this can be related to the high level of
expectations of customers at all times and under all circumstances concerning the products and
services that they have been offered. If the perception of the level of quality of products and
services offered to the customer is lower than expected, it can bring about dissatisfaction that is
proportionate to the difference between expectation and perception.

In another aspect, if the customers' perceived service quality is high, then it can lead to high
levels of satisfaction. Therefore, while businesses engage in certain measurements to determine
the satisfaction levels of their customers, they should also determine the differences between
customers' expectations and their perceptions about the realized results at the same time.

The relationship between perception of service quality and customer satisfaction is of great
importance especially for the service sector. It could be suggested that this is because customers
are not only interested in the tangible aspects of the products offered to them in the service sector
but also the intangible aspects of these products in the provision process.

Banking sector in Ethiopia is facing a rapidly changing market. The impact of the economic
problems and financial crisis among the financial institutions creates a great challenge for the
overall banking sectors. At this situation aiming for the customer satisfaction is the most
challenging task for banks. It is a well-known factthat no business can exist without customers.
So they must be satisfied. In any organization, satisfying a customer is the ultimate goal and
objective.Various important parts of banking sector like operations, service quality, employee
satisfaction, customer satisfaction, financing products, efficiency, financial performance are
being studied bymany researchers to better understand and serve the community at large
(Arokiasamy,2013).

This study work focused on determinants of service quality and their impact oncustomers‟
satisfaction in Commercial bank of Ethiopia. The history of the Commercial Bank of Ethiopia
(CBE) dates back to the establishment of the State Bank of Ethiopia in 1942.CBE was legally
established as a share company in 1963.In 1974, CBE merged with the privately owned Addis
Ababa Bank. Since then, it has been playing significant roles in the development of the
country.Pioneer to introduce modern banking to the country. It has more than 1100 branches

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 Determinants of Service Quality and their impact on Customer Satisfaction

stretched across the country. The leading African bank with assets of 359.3 billion Birr as on
March 31th 2016 plays a catalytic role in the economic progress anddevelopment of the
country.The first bank in Ethiopia to introduce ATM service for local users. Currently CBE has
more than 12.4 million account holders and the number of Mobile and Internet Banking users
also reached more than 600,000 as of March 31th 2016. Active ATM card holders reached more
than 1.1 million. It has strong correspondent relationship with more than 50 renowned foreign
banks like Commerz Bank A.G., Royal Bank of Canada, City Bank, HSBC Bank, etc.

CBE has a SWIFT bilateral arrangement with more than 700 others banks across the world. CBE
combines a wide capital base with more than 25,000 talented and committed employees. Pioneer
to introduce Western Union Money Transfer Services in Ethiopia early 1990s and currently
working with other 20 money transfer agents like Money Gram, Atlantic International (Bole),
Xpress Money, etc.

CBE has opened four branches in South Sudan and has been in the business since June 2009. It
has reliable and long-standing relationships with many internationally acclaimed banks
throughout the world.

Source: (CBE) Company Profile dated 25 June 2016.

1.2 Statement of the Problem

Parasuraman, Zeithaml and Berry (1985) state that service quality is more difficult to define and
measure than product quality because services are intangible, heterogeneous (service quality can
vary by customer or producer), and production is inseparable from consumption. As the
competition in service industries is increasing from time to time, the notion of service quality has
become increasingly important. Service quality has been identified as a determinant of market
share, return on investment and cost reduction (Anderson, 1984). Therefore, in order to attract
and retain customers by properly identifying and serving their need, service providers are
actively involved in the process of understanding customers‟ perception of service quality.

Customers have expectations and its own criteria when they evaluate whether the provided
banking services is satisfactory or not. Due to high competition in a banking sector, the

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perception of customers and potential customers are also divided according to the services that
they want to achieve.

Because customer satisfaction is the main concern of business sectors of today, their researchers
are always conducting research about the customers especially on what relates to their
satisfaction. Moreover, because this problem of satisfaction concerns the most unpredictable
stakeholder in the business environment (the customers), who remains the main character that
keeps the business in operation; and because satisfaction varies and changes among individuals,
there is a need for continuous research in this area.

Service provided at a company may not be fully implemented yet and needs some improvements.
Also, if a company would evaluate its own service, the understanding from the perspectives of
customers is very important. What reflected from the customers‟ perspectives could provide a
chance for a company to improve its service quality to the right direction.

Even as researchers continue to debate the determinants of service quality a few important issues
remain unanswered. Is there a universal set of determinants that determine the service quality
across a section of services? Does the service characteristic gets reflected in what customers
expect out of delivery of a particular service? Is there an inherent difference in services because
they must be delivered in a particular way and does that have a bearing on what becomes
important for the customer? Practitioners continue to look for advice and suggestion as to what
constitute service quality for their offers and furthermore, if they tend to reposition their offers
by varying some characteristics of their offers, for example, by increasing or reducing tangibility
or customer contact, etc.

With the current increased competition in the Ethiopian banking industry, studying the
determinants of service quality andtheir impact on customer satisfaction is very much interesting.
There are a number of complaints on the service delivery system of CBE, such as, long waiting
at the banking hall, network failures, inefficient functioning and insufficient number of ATMS,
are the most important problems most branches of CBE that can adversely affect the service
quality and overall customer satisfaction level. No previous study had tested the service quality
dimensions directly to see if it is related to customer satisfactionto my knowledge,therefore, the
study has been designed to identifythe determinants of service quality and their impact on

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 Determinants of Service Quality and their impact on Customer Satisfaction

customer satisfaction using SERVQUAL model.A study is designed to examine service quality
as an independent variable on dependent variable i.e. customer satisfaction.

1.3 Research question

Based on the above problem statement the main research questions are,
1. What are the level of customers‟ expectation and perception towards service quality?
2. What are the discrepanciesorgap between customers‟ expectation and perception towards
service quality?
3. What is the relationship between service quality and customer satisfaction in the bank
and to identify the benefits of these relationships?

1.4 Objectives of the Study

1.4.1 General objectives
The main objective of this study is to identify the determinants of service quality and their
impact on customer satisfaction rendered by CBE.

1.4.2 Specific Objectives

 To assess customers‟ levels of expectation towards service quality ofCommercial Bank
of Ethiopia in five dimensions.
 To analyze the discrepancy or gap between customers‟ expectation and perception
towards service quality.
 To determine the relationship between service quality and customer satisfaction in the
bank and to identify the benefits of these relationships.

1.5Significance of the Study

Due to increasedcompetition for greater market share, customers became a center for all banking
activities. Focusing on customer satisfaction has been the keyto increasing service quality
according to customers‟ expectations in the banking sector (Zairi, 2000). So organizations
mustbetter their services to meet the customers' needs and
requirements.Managersdependoncustomers‟ anticipation of service quality for the competition in
the market (Hoffman andBateson, 2002).

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 Determinants of Service Quality and their impact on Customer Satisfaction

The outcome of this study will be developing the service quality of the bank in order to meet
customers‟ needs and their satisfaction. Furthermore, the study will:

 Serve as guidelines for the formulation of policies on the quality of bank‟s services.
 Help recognize that customers hold different types of expectations for service
performance.
 The study may help CBE management in decision making by understanding the
problems from this findings with regards to the service quality provided.
 Finally, the study will be used as a guide for future researchers who are interested to
conduct a study on the area.

1.6scope of the study

This study covered Commercial Bank of Ethiopiaon selected branches in Addis Ababa area. It
will focus on services quality and customers satisfactions.

1.7Limitation of the study

As in the case of any other researches a number of constraints bound this research, accordingly
the study faced some limitations such as time constraints to gather information and financial
constraints.

1.8 Definitions of terms

Customer satisfaction: is the future intentions of customers towards the service provider, which
is more or less related to the attitude (Levesque, 1996).

Service quality: means the difference between the customer‟s expectation of service and their
perceived service. In this study, the assessment standards of Zeithaml, Parasuraman & Berry
(1990) will be used, which consist of five dimensions: tangibility, reliability, responsiveness,
assurance, and empathy.

SERVQUAL: A multiple-item scale for measuring customer perceptions of service quality

Zeithaml, Parasuraman & Berry (1988).

Customer expectations: define as beliefs about service delivery that function as standards or
reference points against which performance is judged (Zeithaml & Betner, 2003).

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 Determinants of Service Quality and their impact on Customer Satisfaction

1.9 Structure of the Paper

Chapter One, „Introduction‟, introduces to the importance of knowing customer expectation
toward service quality; as it is a key tool by which customers evaluate the quality of a bank.
Also, the company itself can understand that customers evaluate them based on some criterions
and they can develop its service quality at the best possible. Hence, background of the study was
given briefly in this part; followed by Statement of the problem, research question, Objective of
the Study and Significance and scope of the Study and finally limitation of the study.

Chapter Two, „Literature review‟, has been presented in three phases; it discusses, firstly, about
the conceptual review; secondly, empirical review; and thirdly, conceptual/theoretical frame
work.ChapterThree, „Methodology‟, explains the research method, Source of Data, data
collection instruments, sample and sample technique and method of data analysis.

Chapter Four, presents the analysis and discussion of the results of the study. Finally, chapter
five presents a brief summary of the study and the main findings, conclusions with regards to the
new knowledge derived from the research and recommendations for improving service quality.

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 Determinants of Service Quality and their impact on Customer Satisfaction

CHAPTER TWO

Related literature Review

2.1 Introduction
This chapter covers the theoretical reviewed of theories and models, empirical review and
conceptual framework which serve as evidence of the Variables of the study i.e. Service Quality
and Customer Satisfaction.

2.2 Theoretical review

Literature review related to the research work as documented by authorities‟ on services quality
and customer satisfaction.

2.2.1Definitions of Service

According to Phillip Kotler (1999), service is any activity or benefit that one party can offer to
another that is essentially intangible and may not result in the ownership of anything. Cannon
(1998), viewed services as those separately identified, essentially intangible activities which
provide satisfaction and which are not necessarily tied to the sales of a product or another
service. Gronroos (1983) defines service as: "An activity or series of activities of more or less
intangibles nature that normally, but not necessarily, take place in interactions between the
customer and service employees and/or physical resources or goods and / or systems of service
provider, which are provided as solutions to customer problems".

2.2.2 Characteristics of Service

Kotler (1999), stated that a service has four major characteristics that greatly affect the design of
marketing programs for it. These characteristics are as following:

Intangibility: A service is intangible and cannot be seen, tasted, felt, heard or smelled before it
is bought. For example, a person receiving a haircut cannot see the result before purchase.

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 Determinants of Service Quality and their impact on Customer Satisfaction

Inseparability: Services are produced and consumed at the same time. For instance, as it is in
car hiring. The person rendering the service becomes part of the service as how he does it affect
the quality of the service.

Heterogeneity of Variability: Services are highly variable as they depend on who provides
them and when and where they are provided. For examples, although branches of a particular
bank may be selling and delivering the same service, the quality may not be uniform or
homogenous from branch to branch.

Perishability or Fluctuating Demand: Services are highly perishable since they cannot be
stored. For example, hours when cashiers are idle at the bank cannot be used to expand service
on a busy day when long queues are formed.

2.2.3 Classification of Service

In the option of Churchill and Peter (1995), service can be classified in several ways. These
include the way the service is delivered, the type of organization providing the service and the
type of customers they target.

Means of Delivering the Service: this may be equipment based. In other words, services may be
delivered primarily by equipment, as in the case of movies theatres and airlines or they may be
delivered primarily by people, as in the case of janitorial service and accounting.

The means of delivery influence where quality is most at stake in the product mix. For
equipment based service, Marketers must be concerned that the equipment is of good enough
quality to meet customers need.

They must ensure that the employees who keep the equipment operating or come into contact
with users are skilled and interested in meeting customer needs. Thus, the quality of computer
programming service depends on both the user and the programmers themselves.

Type of Providers: This is another way of classifying service and it is in term of the kind of
organization providing them. Service providers may include businesses, government and non-

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government or not-for-profit making organizations. Business organizations offer goods and

services in order to earn a profit.

Government organization also provides service; include mass transport, state lotteries and the
military.The not-for-profit making organizations also use marketing to help them identify needs
and target services build support for causes and solicit contributions.

2.2.4Banking Services

Basically, banking is a business that is registered to accept deposits from the public and make out
loans. Technically, banks mobilize funds from the surplus units and channel it to the deficit units
of the economy (Luckett, 1994). The objective of this fund channeling is to earn profit. This
function makes banks one of the most important financial intermediaries in every economy and
also assists Central Banks in achieving their monetary policies. Banks earn money in servicing
beyond selling money. Banking services are about the money in different types and attributes
like lending, depositing and transferring procedures. These intangible services are shaped in
contracts. The structure of banking services affects the success of institution in long term.
Besides the basic attributes like speed, security and ease in banking services, the rights like
consultancy for services to be compounded are also preferred.

2.2.5Service quality
Service quality is an imperative element impacting customers‟ satisfaction level in the banking
industry. In banking, quality is a multi-variable concept, which includes differing types of
convenience, reliability, services portfolio, and critically, the staff delivering the service.

Service quality is the result of the comparison that customers make between their expectations
about a service and their perception of the way the service has been performed (Gronroos, 1984;
Parasuraman, 1985, 1988).Parasuraman (1988) define service quality as the gap between
customers‟ expectation of service and their perception of the service experience. A number of
experts define service quality differently.

The service quality from the customer‟s perspective means how well the service meets or
exceeds expectations. Because of the customer-oriented market, service quality is generally
defined from the customer‟s perspective, which is usually termed as perceived service quality
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 Determinants of Service Quality and their impact on Customer Satisfaction

(Fisk, Grove & John 2004).Fisk (2008) define service quality from the service provider‟s
perspective as the degree to which the service‟s features comply with the organization‟s
specifications and requirements; from the customer‟s perspective this implies whether the service
meets or exceeds his or her expectations.

The study showed that increased use of service quality and professional behaviors (such as
formal greetings) improved customer satisfaction and reduced customer attrition. This is well
documented in a study by Leeds (1992), who documented that approximately 40 percent of
customers switched banks because of what they considered to be poor service. Leeds further
argued that nearly three-quarters of the banking customers mentioned teller courtesy as a prime
consideration in choosing a bank.

Banks everywhere are delivering the same products. For example, there is usually only minimal
variation in interest rates charged or the range of products available to customers. Bank prices
are fixed and driven by the marketplace. Thus, bank management tends to differentiate their firm
from competitors through service quality.

Parasuraman, Zeithaml and Berry (1985) described service quality as perceived by consumers
starting from a comparison of how they feel firms should perform on this dimension with what
they actually perceive. Success of a service provider depends on the high quality relationship
with customers. According to (Parasuraman, 1988) Service quality is defined as the overall
evaluation of a specific service firm that results from comparing that firm‟s performance with the
customer‟s general expectations of how firm in that industry should perform.

Kotlerand Armstrong (2012) state that satisfaction is the post-purchase evaluation of products or
services taking into consideration the expectations. Research has shown repeatedly that service
influences on customer satisfaction. Hazlina(2011) proves, Service quality is a magnificent tool
to measure the customer satisfaction.

2.2.5.1The Need for Service Quality

Ennew, Watkins and Wright (1993), mentions that the need for service quality is driven by
customers, employees and a changing business environment. Customers, be the individuals,
households or organizations are increasingly aware of alternatives of the financial services on

11
 Determinants of Service Quality and their impact on Customer Satisfaction

offer, provider organizations and also of rising standard for service. Consequently, expectations
rise and consumers become more critical of quality of service received and so companies can be
complacent.

Furthermore, knowledge of the cost and benefits of keeping existing customers relative to
attracting new ones draws companies‟ attentions to looking after present customers, responding
to their needs and problem developing long-term relationships.

2.2.5.2Benefits of services Quality

Without the focus on service quality, financial service organizations may face complaints from
customers. Further, a proportion of dissatisfied customers will complain and tell a number of
others, generally it is stated that, if a financial company gives a service to one customer, it gain
three, and loses nine when give poor service to one customer, hence it is better to gains three
than losing nine, generating adverse word ofmouth publicity and some may switch to companies.
However, with focus on service quality, an organization can expect a number of
benefits.Customer loyalty through satisfaction increased business and this may lead to attract
new customers; hence customer retention is more cost effective than trying to attract new
customers.

Good service quality enhance corporate image and may provide insulation from price
competition. By excelling service quality of the Bank,customer satisfaction lead to increase in
opportunities for cross-selling, comprehensive and up to date service knowledge and sales
techniques among employee, combined with developing relationships.

2.2.5.3The SERVQUAL approach

The SERVQUAL approach has been applied in service and retailing organizations (Parasuraman,
1988 and 1991). A more reasonable approach to SERVQUAL is to develop or design action
plans that will lead to the improvement of service quality. SERVQUAL provides a technology
for measuring and managing service quality (SQ). Since 1985, when the technology was first
published, its innovators Parasuraman, Zeithaml and Berry, have further developed, promulgated
and promoted the technology through a series of publications.

12
 Determinants of Service Quality and their impact on Customer Satisfaction

A more pragmatic approach to SERVQUAL is to develop or design action plans that will lead to
the improvement of service quality. It is one thing to know that the gap exists but it is perhaps
more important to find ways to close the gap. Berry (1990) also pointed out five imperatives for
improving service quality: defining the service roles, competing for talent, emphasizing service
teams, going for reliability, and being great at problem resolution.

2.2.5.4 SERVQUAL dimensions

One of the most frequently used measures is the SERVQUAL (the name stands for Service
Quality).Which emerges from extensive research in generic determinants of perceived service
quality (Parasuraman, Berry 1985; Parasuraman, Berry 1988; Zeithaml, Parasuraman 1990;
Parasuraman, Berry 1991; Parasuraman, Berry 1993; Parasuraman, Berry 1994).

The developers of the scale contend that, while each service industry is unique in some aspects,
there are five finalized dimensions of service quality that are applicable to service-providing
organizations in general. These dimensions are; Tangibility, Reliability, Responsiveness,
Assurance and Empathy.

a. Tangibility: representing the service physically

This includes physical facilities, equipment, and the physical appearance of on employee.
Parasuraman 1985) defined tangibility as the appearance of physical facilities, equipment,
personnel, and written materials. Ananth (2011) referred to tangibility in their study of private
sector banks as modern looking equipment, physical facility, employees are well dressed and
materials are visually appealing.

b. Reliability: delivering on promise

This refers to the ability to provide the exact required service according to given specifications
and conditions. Reliability depends on handling customers' services problems; performing
services right the first time; provide services at the promised time and maintaining error-free
record. Furthermore, they stated reliability as the most important factor in conventional service
(Parasuraman 1988).

13
 Determinants of Service Quality and their impact on Customer Satisfaction

c. Responsiveness: being willing to help

The inclination and willingness of the employees to serve customerquickly and

properly.Responsiveness defined as the willingness or readiness of employees to provide service.
It involves timeliness of services (Parasuraman, 1985).

d. Assurance: inspiring trust and confidence

Feelings of trust and confidence in dealing with the organization. This reflects the workers'
knowledge and experience and their ability to build self-confidence as well as confidence in the
customers‟ themselves. Parasuraman (1985) defined assurance as knowledge and courtesy of
employees and their ability to inspire trust and confidence.

e. Empathy: treating customers as individual

Understanding the customers' personal needs, taking care of them individually and showing them
all sorts of sympathy and affection, looking at them as close friends and distinguished clients.
Parasuraman (1985) defined empathy as the caring and individual attention the firm provides its
customers. It involves giving customers individual attention and employees who understand the
needs of their customers and convenience business hours.

2.2.5.5Critiques of SERVQUAL

Although SERVQUAL has been widely used in business-to-business and business-to-customer

settings, this does not mean the scale has not been subject to constant re-examination and
criticismOgrajensek, (1999)the main objections to SERVQUAL are as follows:

Object of measurement. It is not clear whether the scale measures service quality or
customer satisfaction.
Length of the questionnaire. The SERVQUAL questionnaire is too long. It could be
shortened by elimination of expectation scores, elimination of certain items (those
without the clear mode) and/or fusion of the interrelated dimensions of reliability,
responsiveness and assurance into one dimension called task-related receptiveness.

14
 Determinants of Service Quality and their impact on Customer Satisfaction

Timing of questionnaire administration. The main issue here is whether to distribute

the questionnaire before or after the service experience. In other words, should
expectations be solicited before the service experience or away from the actual point of
service delivery and unrelated to an encounter? Some researchers compromise by
collecting their data after the service experience at the actual point of service delivery.
Consequently, they fear that this might have loaded their results towards performance,
while those of other researchers might have been loaded towards expectations.
Use of the Likert scale. The issues such as the number and labeling of points or the
inclusion of a middle alternative in the scale are very important. SERVQUAL authors use
a seven-point scale, while in many replication studies a five-point scale is adopted to
increase response rate and response quality.

Another problem is the equality of distances between points on the Likert scale as
perceived by the respondent. It should be noted that one person‟s „complete satisfaction‟
might be less than another‟s „partial satisfaction‟. (Duffy, and Ketchard, 1998).

Furthermore, once the respondents have marked the extreme point and want to express an
even stronger opinion on the next item, this can no longer be reflected in the answer,
since the maximum score has already been given.

While some authors argue that none of these problems matter as long as the answers are
normally distributed, others point out that in practice the majority of service quality
surveys tend to result in highly skewed customer responses.

2.2.5.6 Model of Service Quality Gaps

The Gaps Model of Service Quality defines service quality as the difference between
customers‟perceived service and expectations of service or in terms of the gap between the
customer‟s perception of what the service actually providesandwhat the service should provide.
It assumes that the smaller the gap, the higher the quality of services. Moreover, if expectations
are greater than performance, then perceived quality is less than satisfactory and hence customer
dissatisfaction occurs (Parasuraman, 1985). One of propose of the SERVQUAL instrument is to
ascertain the level of service quality based on the five key dimensions and to identify where gaps
in service exist and to what extent.

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 Determinants of Service Quality and their impact on Customer Satisfaction

There are five major gaps in the service quality concept (Parasuman, 1991). The gaps are
generally defined as:

Gap 1: Difference between customers‟ expectation and management‟s perceptions of those

expectations, i.e. not knowing what customers expect. This gap is occurred as a result of the lack
of a marketing research orientation, inadequate upward communication and too many layers of
management. It is called positioning gap.

Gap 2: Difference between management‟s perceptions of customer‟s expectations and service

quality specifications, i.e. improper service-quality standards. This gap is occurred as a result of
inadequate commitment to service quality, a perception of unfeasibility, inadequate task
standardization and an absence of goal setting. It is known as the specification gap.

Gap 3: Difference between service quality specifications and service actually delivered i.e. the
service performance gap or the delivery gap. Guidelines for service delivery do not guarantee
high-quality service delivery or performance.

Gap 4: Difference between service delivery and the communications to customers about service
delivery, i.e. whether promises match delivery. It exists when the promises communicated by the
business to the consumer do not match the consumers‟ expectation of those external promises.
This is known as a communication gap.

Gap 5: Difference between customer‟s expectation and perceived service. This gap depends on
size and direction of the four gaps associated with the delivery of service quality on the
marketer‟s side.

The Gap on which the SERVQUAL methodology has influence is Gap 5. Gaps 1-4 are within
the control of an organization and need to be analyzed to determine the cause or causes and
changes to be implemented which can reduce or even eliminate these four gaps emerge from an
executive perspective on a service organization‟s design, marketing and delivery of service.
Moreover, they contribute to another gap, mentioned earlier; Gap 5 Which is the discrepancy
between customers‟ expected services and the perceived service actually delivered.

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 Determinants of Service Quality and their impact on Customer Satisfaction

According to the Gaps Model of service quality, when what is delivered matches what is
expected, customers find the service acceptable. If the service provided is better than what they
expected that is when perception is better than expectation exceptional service materializes.

Consequently, when expectations and perceptions are ranked on a scale, the gap is a number
reflecting the difference between the two expectation rankings minus perception ranking. If there
is a poor service gap, a minus number occurs. If the number, by chance, is zero, service is
acceptable (expectations match perceptions). If a positive value emerges (perceptions exceed
expectations), the service organization has achieved exceptional service (Disend, 1991 as cited in
Mussie, 2011).

Figure 2.1: Service Quality Gaps Model

Source: Zeithaml and Bitner, 2003

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 Determinants of Service Quality and their impact on Customer Satisfaction

2.2.5.7 Closing the Customer Gap

The gaps model says that a service marketer must first close the customer gap.

Customer Gap

. Not knowing what customers

expect

Customer . Improper service-quality

standards Customer
expectation
perception
. Service performance gap or the
delivery gap

. Promises not match with

delivery

Gap 1: Difference between customers’ expectation and management’s perceptions of those

expectation.

Gap 1

Lack of a marketing research

orientation Management‟s
Customer perceptions of
expectation Inadequate upward those
communication expectations,
Too many layers of management

To fill the gap the managements must be set strategies like,

 Building adequate upward communication.
 Understand customer needs over time and build strong relationships.
 Avoiding too many layers of management.

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 Determinants of Service Quality and their impact on Customer Satisfaction

Gap 2: difference between management perceptions of consumer expectations and service

quality specifications.

Gap 2

- inadequate commitment
to service quality
Management‟s
Service - a perception of
perceptions of
quality unfeasibility
customer‟s
specifications - inadequate task
expectations
standardization
- an absence of goal
setting

To fill the gap the managements must be set strategies like,

 By setting customer-defined performance standards.

 Use service blueprinting as an implementation tools.
 To meet customer expectations, design physical evidence.

Gap 3: difference between service quality specifications and the service actually delivered

Gap 3

- personnel might be poorly trained

- incapable of or unwilling to meet
Service the standard Service
quality - Failure to match demand and actually
specifications supply delivered
- they may be held to conflicting
standards

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 Determinants of Service Quality and their impact on Customer Satisfaction

To fill the gap the managements must be set strategies like,

 Make sure that the companies have trained personnel.

 Willing to meet the standard.
 Matching demand and supply.
 Taking time to listen to customers and serving them fast.

Gap 4: difference between service delivery and what is communicated about the service to
the consumer.
Gap 4

- promises communicated by
the business to the
Service consumer do not match the Communications
delivery consumers‟ expectation to customers
- communication gap about service

To fill the gap the managements must be set strategies like,

 Matching promises with delivery.

 Effectively coordinating actual service delivery and external communications.

Gap 5: difference between consumer expectations and perceptions.

This gap is a function of the other four gaps: that is, Gap 5 = f (gaps 1, 2, 3, and 4). Parasuraman
(1985) seek to measure gap 5 using the SERVQUAL instrument.

2.2.5.8 Using SERVPERF to Measure Service Quality

SERVPERF directly measures the customer‟s perception of service performance and assumes
that respondents automatically compare their perceptions of the service quality levels with their
expectations of those services. The SERVPERF model was carved out of SERVQUAL by
Cronin and Taylor in 1992.

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 Determinants of Service Quality and their impact on Customer Satisfaction

2.2.6 Customer satisfaction

Customer satisfaction is one of the most important issue concerning business organization of all
types, which is justified by the customer oriented philosophy and the principles of continues
improvement in modern enterprise” (Arokiasamy, 2013). Overall customer satisfaction with a
company‟s offerings is determined by comparisons between customers‟ expectations of the
company‟s products or services and their perceptions of the products‟ or services‟ performance
(Oliver1980).
In banking industry, being competitive is already a given factor. Customers expect that banks
should be strong enough even if there are uncertainties in the country, most especially in the
financial stream. In the long run, the customer satisfaction can be the key element of the
organization to prepare another strategy (Gitman and McDaniel, 2005). Thereby it can enhance
its further success and long life cycle.Reichheld and Sasser (1990) suggested that new buyers
cost more to serve than repeat customer, which means that repeat customers are benefiting a
firm‟s cost structure.

The dream of every organizations and so the banks; having a satisfied customer will be injection
for its success and basis to continue its business lifecycle, if achieved through continuous
delivery of satisfactions by reducing resistance and reluctance of the customers towards the
bank‟s offered products and services. If not, just waste of time and fund.

Several studies are conducted in this setting regarding the customer satisfaction. In those studies,
the contradiction occurs in variables that affect the Customer satisfaction. In some studies, price
and variety of product/services are major factors affecting the customer satisfaction with some
other. While in some other studies there is an inverse finding that there is no possibility to
differentiate their price and services, thereby they have less or no impact in Customer
satisfaction.It is generally accepted that satisfaction is a psychological state that results from
consumer experiences after consumption (Pleshko, &Heiens, 1996).

2.2.6.1Customers’ Expectations of Service quality

Customer‟ expectations are believesabout service delivery that function as standards or reference
points against which performance is judged” (Zeithaml, and Bitner, 1996). These authors
develop an argument which is that customers hold different types of expectations for service

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 Determinants of Service Quality and their impact on Customer Satisfaction

performance (Zeithaml and Bitner, 2003). For example as a result the self-service approach used
in food retail sector, supermarket customers may hold different expectations of service
performance compared to those they would have when visiting a bank.

Customers compare their perceptions of service delivery with these reference points when
evaluating service quality and therefore knowing what customers expects is critical in gaining
competitive advantage (Zeithaml and Bitner, 2003). Failure to understand the levels of service
customers expects can mean losing a customer to competitors who are able to meetcustomers‟
expectations and therefore be at a risk of losing business (Zeithaml and Bitner, 2003).

2.2.6.2 Customers’ Perception of Service quality

Literature maintains that customers‟ total perception of a service is based on their perception of
the outcome and the process; where the outcome is either value added or quality and the process
is the role undertaken by the customer (Edvardsson, 1998). Customers‟ perception of
performance is what they experienced (Parasuraman, 1988).The customer‟s perception of quality
of service is based on the degree of agreement between expectations and experience
(Kandampully, 1998).

The result of this comparison is perceived service quality (Gronroos, 1982, 1984; Takeuchi and
Quelch, 1983; Parasuraman, 1985, 1988).Parasuraman, (1988) define perceived quality as a form
of attitude, related but not equal to satisfaction, and results from a consumption of expectations
with perceptions of performance. Therefore, having a better understanding of consumers
attitudes will help know how they perceive service quality in banking operations.

The pivot to the concept of service quality is gap model, which stipulates that service quality is a
function of the difference scores or gap between expectations and perceptions (P – E). The gap
between expectation and performance can be positive (satisfactory), when performance exceeds
expectations or negative (dissatisfaction), when performance falls short of expectations
(Anderson, 1973).Service quality is low, if what is perceived is below expectation, and is high, if
what is perceived meets or exceeds expectation. The result of this comparison is perceived
service quality (Gronroos, 1982, 1984; Takeuchi and Quelch, 1983; Parasuraman, 1985, 1988).

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 Determinants of Service Quality and their impact on Customer Satisfaction

2.2.6.3 Levels of Expectations

Customers hold different types of expectations about service, the highest type of these are
desired service and adequate service (Zeithaml, Bitner and Gremler, 2009) “Desired service is
the level of service the customer hopes to receive” (Zeithaml, Bitner and Gremler, 2009). It is a
combination of what customers believe “can be” and “should be” (Zeithaml, Bitner and Gremler,
2009).The expectations signal the level of customer hopes and wishes and belief that they may
be fulfilled, thus failure to meet these expectations may result to customers cutting down on
purchase (Zeithaml, Bitner and Gremler, 2009).Customers generally accept that the service
would not always be performed according to their expectations and this is formerly known as
adequate service (Zeithaml, Bitner and Gremler, 2009). Adequate service is the level of service
that customers will accept (Zeithaml, Bitner and Gremler, 2009). Though customers‟ hopes and
wishes may still be high, they however have a certain level of understanding in cases where
receiving desired service does not seem possible at all (Zeithaml, Bitner and Gremler, 2009). For
example customers are used to the self-service approach used in supermarket and therefore have
certain levels of understanding or tolerance towards food retailers‟ service delivery.

2.3 Empirical review

Empirical studies show that the quality of service offered is related to overall satisfaction of the
customer. Most researchers suggest that a high level of service quality should be delivered by the
service provider is the tool for achieving a high level of customer satisfaction. As the quality of
services improves the level of customer satisfaction will increases.

Regarding the competitive environment, there is a need for banks to plan theirstrategies that will
differentiate them from others. This can be achieved through thedelivery of high service quality.
The practice of excellent service quality has been proventhat customer satisfaction will
significantly lead to customer loyalty (Caruana, 2002).

Banks that excel in quality service can have a distinct marketing edge since improved levels of
service quality are related to higher revenues, increased cross-sell ratios, higher customer
retention (Bennett and Higgins, 1988), and expanded market share (Bowen and Hedges, 1993).
Likewise, provision of high quality services enhances customer retention rates, helps attract new

23
 Determinants of Service Quality and their impact on Customer Satisfaction

customers through word of mouth advertising, increases productivity, leads to higher market
shares, lowers staff turnover and operating costs, and improves employee morale, financial
performance and profitability (Julian and Ramaseshan, 1994). Therefore, delivering quality
service to customers is a must for success and survival in today‟s competitive banking
environment (Samli and Frohlich, 1992).

In the “age of customer” delivering quality service is considered an essential strategy for success
and survival in today‟s competitive environment (Dawkins and Reichheld, 1990). What
constitutes service quality has attracted the attention of researchers all over the world.

The marketing concept suggests that a satisfied buyer will be more likely to repurchase again, or
at least has the intention of repurchasing again, than those who are dissatisfied. They consider
that customer satisfaction and retention the most important long-term objectives of firms.
Reichheld and Sasser (1990) suggested that new buyers cost more to serve than repeat customer,
which means that repeat customers are benefiting a firm‟s cost structure.

Satisfaction is a post consumption experience which compares perceived quality with expected
quality, whereas service quality refers to a global evaluation of a firm's service delivery system.
(Beliyu Girma 2012).

According to Kotler and Armstrong satisfaction is the post-purchase evaluation of products or

services taking into consideration the expectations. Researchers are divided over the antecedents
of service quality and satisfaction. Some believe service quality leads to satisfaction, others think
it‟s not. To achieve a high level of customer satisfaction, most researchers suggest that a high
level of service quality should be delivered by the service provider as service quality is normally
considered an antecedent of customer satisfaction. As service quality improves, the probability of
customer satisfaction increases. (Mesay2012).

2.4Conceptual framework

There are several variables that affect the Customer Satisfaction level. The study investigates
how service quality affects customer satisfaction. Customer satisfaction is a dependent variable
which occurs when the services provided by Commercial Bank of Ethiopia is rated by customers

24
 Determinants of Service Quality and their impact on Customer Satisfaction

as high quality. The study postulates that the quality of the services provided by the Bank
determines the satisfaction rate of customers with the bank. CBE can ensure customer
satisfaction when service performance of the Bank exceeds customers‟ expectation.

When service performance, also known as perception is higher than customers‟ expectation of
SERVQUAL variables, customers will be satisfied and CBE is likely to retain the customers.
However, if service performance is lower than customers‟ expectation of the service, customers
become dissatisfied and they will switch to a competing bank which offers superior service.
When a service provider has excellent physical facilities that are aesthetically appealing; insist
on on-time service delivery which is free from errors; and knowledgeable employees who
consider the customers as the company‟s total wellbeing will result in high quality service
delivery which will lead to customer satisfaction. Notwithstanding, CBE will ensure customer
satisfaction on the ground that service performance is exceedingly higher than customers‟
expectation rather than a mere satisfaction. By this customers will be committed to do business
with CBE, repeat business, and recommend the Bank to friends and associates. A real customer
satisfaction is exhibited when the customer becomes an advocate for the organization without
incentive, maintains or increases its purchases from the Bank as a result of exceptional services.

Tangibility

Expectation
Reliability

Responsiveness Service quality Customer satisfaction

Assurance
Perception

Empathy

Figure2.2: The conceptual frame work of this study

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 Determinants of Service Quality and their impact on Customer Satisfaction

CHAPTER THREE
Research Design and Methodology

This chapter consists of research design, population, sample and sampling techniques, data
collection instruments, method of data analysis.

3.1 Research Design

According to Kothari, (2004), a research design is the arrangement of conditions for collection
and analysis of data in a manner that aims to combine relevance to the research purpose with
economy in procedure.In fact, research design is the conceptual structure within which research
is conducted; it constitutes the blueprint for the collection, measurement and analysis of
data.Descriptive method used, to describe the average member, or the average performance of a
member, of the particular group being studied. In addition, in order to explain the relationship
between service quality and customer satisfaction, explanatory method used.

Descriptive: description refers to the process of defining, classifying, or categorizing phenomena

of interest. Descriptive research is useful because it can provide important information regarding
the average member of a group (Geoffrey Marczyk, 2005). Specifically, by gathering data on a
large enough groups of people, a researcher can describe the average member, or the average
performance of a member, of the particular group being studied.

Explanatory: Being able to describe something and having the ability to predict one thing based
on knowledge of another are important goals of scientific research, but they do not provide
researchers with a true understanding of a phenomenon (Geoffrey Marczyk,2005). One could
argue that true understanding of a phenomenon is achieved only when researchers successfully
identify the cause or causes of the phenomenon. One of the common problems is that descriptive
designs do not provide direct cause and effect relationships (Pauravshukla, 2008).

The emphasis here is on studying a situation or a problem in order to explain the relationship
between variables.

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 Determinants of Service Quality and their impact on Customer Satisfaction

3.2 Population and SamplingTechniques

A population is a completegroup of entities sharing some common set of characteristics. A target

population is the complete group of specific population elements relevant to the research project
(Sigmund, 2003). Based on the CBE (MIS report of March 2016), there is above 12.4 million
account in CBE; out of which, 3,614,981 are found in A.A. The target population for this
research is1, 333,678 from customer data base of twenty three grade four branches.

CBE is organized in fifteen districts. The population belongs to some of these categories have
homogenous behavior. Hence, taking in to account the nature of the study and structure of the
company, the researcher usedconvenient sampling technique, which is a specific type of non-
probability sampling method that relies on data collection from population members who are
conveniently available to participate in the study.The researcher usedconvenientsampling
technique, because thesample selected are convenient to approximate the truth.As the researcher
mentioned above out of 3,614,981 customers in Addis Ababa,1,333,678are taken as the target
population for this study. The size of the sample depends on the kind of data analysis the
researcher want to perform.The sample size of this study is determined by using the formula
developed by Yamane (1967).

Sample size obtained as;

n = N=1,333,678 =400 customers
1 + N (e) 21 + 1,333,678 (0.05)2

Where, n – designates the sample size the research uses.

N - Designates the total number of customers in the target population.
e – Designates maximum variability or margin of error 5% (0.05).
1 – Designates the probability of the event occurring.

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 Determinants of Service Quality and their impact on Customer Satisfaction

Table 3.1: Status of Questionnaires Distributed to CBE customers

District Number of Grade four No. of

branches under each respondents
districts
West 5 87
East 5 87
North 5 87
South 8 139
Total 23 400
Source: Researcher‟s calculation (2016)

A precise definition of the target population is essential and usually done in terms of elements,
sampling units, and sampling frame (Pauravshukla, 2008).A sampling frame is a representation
of the elements of the target population. It consists of a list or set of direction for identifying the
target population.

3.3Types of Data and data collection instruments

In this study both primary and secondary data are used. The secondary data about customer
satisfaction and service quality will be collected from journals, the company‟s websites, books,
and articles and from different research previously done.

The primary data is collected through questionnaires prepared for the bank‟s
customers.Questionnaires were distributed to the customers of the bank at selected branches
during the service hours to customers visited the branch.

3.4Questionnaire Design

Questionnaire survey is used in this study. Questionnaires are defined as the series of questions
aim to gather prompt and accurate information from respondents. The first part of the
questionnaire sought information on demographic characteristics of the respondents. Structured
questionnaire was used to gather relevant data for the study. The second parts of the
questionnaire sought information on customers‟ expectations and performance of service quality
delivery of the bank. The respondents were required to rate their expectations and performance
of bank‟s services on level of importance on a predefined five-point Likert Scale (strongly agree,
agree, neutral, disagree and strongly disagree).The last part of the questionnaires (i.e overall

28
 Determinants of Service Quality and their impact on Customer Satisfaction

customer satisfaction) are measured using five-point scale (very satisfied, satisfied, neutral,
dissatisfied and very dissatisfied).

3.5 Method of Data analysis

The data wasgatheredfrom customers through questionnaire.Statistical Package for Social
Science (SPSS) software version 20 was employed to analyze and present the data through the
statistical tools (descriptive statistics, correlation, and regression data analysis techniques) used
for this study.

3.5.1 Model specification

In this study the equation of multiple regressions is generally built around two sets of variable,
the dependent variables (customer satisfaction) and independent variables (Tangibility,reliability
responsiveness, assurance and empathy). By using regression equation on this study the
researcher was able to be more effective at describing, understanding and controlling the stated
variables.

In multiple regressions we use an equation of

yi= (b0+b1X1+b2X2+--------------+bnXn) +Ei
Where: y=the outcome variable
b0=the coefficient of the first predictor (X0)
b1=the coefficient of the second predictor (X1)
bn=the coefficient of the nth predictor (Xn)
Ei = the difference between the predicted and observed value of y for the ith participant

3.6 Validity and Reliability test

3.6.1 Validity

• Data were collected from the reliable sources, from respondents who have experiences in using
the service of the bank.

• Survey questionnaires were made based on literature review and frame of reference to ensure
result validity.

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 Determinants of Service Quality and their impact on Customer Satisfaction

Validity is concerned with whether the findings are really about what they appear to be about
(Sounders, 2003). Validity defined as the extent to which data collection method or methods
accurately measure what they were intended to measure (Sounders, 2003).

3.6.2 Reliability

A measuring instrument is reliable if it provides consistent results Kothari (2004). Cronbach„s

coefficient alpha has been used to identify the reliability of items used in survey.The higher
Alpha Coefficients indicate higher scale reliability (Santos, 1999: as cited in Eze et al., 2008).

According to Sekaran (2000), reliabilities less than 0.6 are considered to be poor, those in the 0.7
range, acceptable, and those over 0.8 good. The closer the reliability coefficient gets to 1.0, the
better.

Table 3.2: Reliability Statistics

Reliability Statistics
Servqual Cronbach's Alpha N of Items
dimension
Tangibility .977 4
Reliability .987 5
Responsiveness .986 4
Assurance .984 4
Empathy .985 4

Cronbach‟s alpha, a statistical test used to examine the internal consistency of the attributes, was
determined for each dimension.As shown in table 3.2 the value of Cronbach's Alpha for five
dimensionswere found to be above 0.70, it is an indication of acceptability of the scale for further
analysis.

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 Determinants of Service Quality and their impact on Customer Satisfaction

CHAPTER FOUR
Data analysis and presentation
This chapter presents analysis, interpretation and findings of information collected through self-
administered questionnaires.

A total of 400 questionnaires were distributed out of which 372 were returned,eleven
questionnaires were rejected due to invalid. Therefore, 361questionnaires served as data for
analysis to present the findings and draw conclusion. The valid questionnaires which formed the
analysis yielded 90% response rate.

4.1. Background Information of Respondents

The first part of the questionnaire consists of the demographic information of the respondents.
This part of the questionnaire requested information related to demographic characteristics of
respondents. Accordingly, the following variables about the respondents were summarized and
described in the following table. These variables includes: sex,ageand educational level.

Table 4.1: Gender Distribution of the Respondents.

Sex Frequency Percentage (%)

Female 131 36.3
Male 230 63.7
361 100.0
Source: Researcher‟s calculation (2016)

According to Table 4.1 above36.3% of the respondents were females and the rest 63.7% were
males. This shows that majority of the respondents were male.

Figure 4.1: Gender of respondents

80
60
Percentage

40 63.7
20 36.3

0
Female Male
Gender
Source: Researcher‟s calculation (2016)

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 Determinants of Service Quality and their impact on Customer Satisfaction

Table 4.2: Age Distribution of Respondents

Age Frequency Percentage (%)

18-21 - -
22-34 46 13
35-44 174 48
45-54 100 28
>55 41 11
Total 361 100.0
Source: Researcher‟s calculation (2016)

Regarding the age of the respondents, according to table 4.2 above, the largest group (48.2%)
werein the 35-44 years age group.

Figure 4.2: Age of respondents

50%
45%
40%
35%
30%
25% 48%
20%
15% 28%
10% 13% 11%
5%
0%
22-34 35-44 45-54 >55
Age

Source: Researcher‟s calculation (2016)

Table 4.3: Educational level of respondents

Level of education Frequency Percentage (%)

School leaving certificate 78 21.6
Diploma 144 39.9
Degree 134 37.1
Masters 2 .6
Others 3 .8
Total 361 100.0
Source: Researcher‟s calculation (2016)

As we can observe from table 4.3 above, the majority of the respondents were grouped under the
educational level of Diploma covering 39.9% of the total respondents. The rest of the

32
 Determinants of Service Quality and their impact on Customer Satisfaction

respondents were categorized under the educational level of Degree, School leaving certificate,
others and Masters with covering 37.1%, 21.6%, .8% and .6% respondents respectively.

Level of Education

School leaving certificate

Diploma
Degree
Masters
Others

Figure 4.3: Level of Education

4.2 Service Quality Dimensions of CBE

After reviewing the literature, a five service quality dimensions made up of twenty one(21)
factor questionnaire was developed to measure service quality in Commercial Bank of Ethiopia.
Each question was based on a five-point weighted likert scale as shown below:

1- Strongly Disagree 2- Disagree 3- Neutral 4- Agree 5- Strongly Agree

In order to measure the level of service quality delivery, the five dimensions: tangibility,
reliability, responsiveness, assurance and empathy developed by Parasuraman (1988) were used.
The performance of the services delivered was measured by the customers‟ expectation and
perception of the SERVQUAL dimensions, a descriptive statistics on the responds from the
customers were used to undertake the needed measurements. The quality gap according to
Parasuraman (1988) is the difference between perception (P) and expectation (E). (Q= P-E).
When Q is positive it implies customers are satisfied and when negative dissatisfied.

33
 Determinants of Service Quality and their impact on Customer Satisfaction

4.2.1 Tangibility Dimension

Tangibility deals with the appearance of physical facilities, equipment, and appearance of
personnel, and communication materials, descriptive statistics were taken based on the
expectation and the perception of the customers of the bank.

Table 4.4: Descriptive Statistics on Tangibility Dimension

Mean Gap
Tangibility Dimension Perception Expectation P-E

1 Commercial Bank of Ethiopia has up-to-date 4.10 4.06 0.04

equipment and technology
2 CBE‟s physical facilities are visually appealing 4.04 4.00 0.04
3 CBE‟semployees are well dressed and neat 4.02 4.02 0.00
4 The physical facilities and technology of 4.00 3.99 0.01
Commercial Bank of Ethiopia goes with the type of
service provided.
Average 4.04 4.02 0.02
Source: Researcher‟s calculation (2016)

From Table 4.4 indicate that customer perception of tangibles dimension was ranked at the
highest level (4.04). This implies that customers of the bank are satisfied because their
perceptions are higher than what they expect from the bank. Out of the items, customers are very
much interested in CBE‟s up-to-date equipment and technology used to deliver the services.
Among the tangibles, the item „Commercial Bank of Ethiopia has up-to-date equipment and
technology‟ produced the highest mean (4.10). This is consistent with the quality service
practices of the Bank. Mean score for the perception were found to be relatively higher than its
expectation for each of the factors considered.

34
 Determinants of Service Quality and their impact on Customer Satisfaction

4.2.2 Reliability Dimension

Reliability dimension of a company is the ability to perform the promised service dependably
and accurately, in this study, the researcher deals with the promise of performing a task, solving
customer‟s problems and taking sincere interest in the problems solving and others.

Table 4.5: Descriptive Statistics on Reliability Dimension

Mean Gap
Reliability Dimension Perception Expectation P-E
5 The staff can provide you the services as promised 4.10 4.06 0.04
6 The staff provide you accurate information 4.11 4.09 0.02
7 The staff perform the service right at the first time 4.02 4.00 0.02
8 The staff offer you some help 4.06 4.02 0.04
9 Keep records accurately 4.03 3.98 0.05
Average 4.06 4.03 0.03
Source: Researcher‟s calculation (2016)

On the issue of reliability of the services delivered by Commercial Bank of Ethiopia, five items
were measured. The mean scores of the items in Table 4.5 for both expectation and perception
indicate that the services of Commercial Bank of Ethiopia are reliable. Customers are provided
with the services as promised and when there are problems, the bank shows interest and the
preparedness to deal with the problems customers are encountered with. Out of the five items
measuring service reliability, item„the staff provides you accurate information‟ yielded highest
score of (4.11)for its perception. This means that Commercial Bank of Ethiopia‟s staff are well
trained to give accurate information.

4.2.3 Responsiveness Dimension

Responsiveness is the willingness to help customers and provide prompt service and others such
as making information available to customers and not appearing too busy to respond to request.It
is essential that bank staffs are willing and able to help customers, provide prompt service and
meet customers‟ expectation.

35
 Determinants of Service Quality and their impact on Customer Satisfaction

Table 4.6: Descriptive Statistics on Responsiveness Dimension

Mean Gap
ResponsivenessDimension Perception Expectation P-E
10 The staffs tells you exactly when services will be 4.17 4.04 0.13
provided
11 The staff gives you prompt service 4.13 4.06 0.07
12 The employees are willing to help you 4.16 4.14 0.02
13 Staff respond to requests promptly 4.11 4.09 0.02
Average 4.14 4.08
Source: Researcher‟s calculation (2016)

Table 4.6 indicates that overall expectation towards responsiveness dimension was at the high
level (4.08). „The employees are willing to help you‟ received the highest ranking of expectation
at (4.14). It shows that the customers are satisfied when they received help from the staff. The
table also shows that overall perception towards responsiveness was at a high level (4.14).
Generally, customers‟ expectation and perception towards responsiveness of the bank falls under
high level of customer satisfaction.

4.2.4Assurance Dimension

The assurance dimension refers to the knowledge and courtesy of employees and their ability to
inspire trust and confidence including competence, courtesy, credibility and security.

Table 4.7: Descriptive Statistics on Assurance Dimension

Mean Gap
Assurance Dimension P-E
Perception Expectation
14 The staff makes you feel safe 4.17 4.08 0.09
15 The staff have required skill to perform service 4.21 4.07 0.14
16 The staffs are trustworthy. 4.32 4.10 0.22
17 Employees have the knowledge to answer 4.26 4.16 0.1
customers‟ questions.
Average 4.24 4.10 0.14
Source: Researcher‟s calculation (2016)

36
 Determinants of Service Quality and their impact on Customer Satisfaction

The descriptive statistics on the assurance shows that, the expectation of the customers as well as
its perception was all recorded a mean far above4.0; this show that customers agree that there is
an assurance to transact banking business with Commercial Bank of Ethiopia. An item
„employees are trustworthy‟ yielded the highest mean score of 4.32 for the perception factor.
Meaning employees of Commercial Bank of Ethiopia are trustworthy in their dealing with
customers. The grand mean score of 4.24 is also an indicator of customers having assurance in
Commercial Bank of Ethiopia.

4.2.5 Empathy Dimension

The empathy dimension represents the provision of caring and individualized attention to
customers including access or approachability and knowing specific needs, effective
communication, and convenient time management to the customers.

Table 4.8: Descriptive Statistics on Empathy Dimension

Mean Gap
Empathy Dimension Perception Expectation P-E
18 Employees are able to communicate effectively with 4.17 4.07 0.10
you.
19 Employees shows personal attention to you 4.37 4.01 0.36
20 Employeesknows your specific needs 4.10 4.05 0.05
21 Convenient time management 4.20 4.12 0.08
Average 4.21 4.06 0.15
Source: Researcher‟s calculation (2016)

Table 4.8 shows that overall expectation concerning empathy dimension is the highest level
(4.06). „Convenient time management‟yielded highest score of4.12) was considered the most
important expectation. Effective communication among divisions within the bank and with
customers, and time management are some of the main factors that contribute to customer
expectation. The table also indicates the overall perception of the empathy dimension which is at
the highest level (4.21). „Employees shows personal attention to you‟ yielded the highest mean
score of 4.37 for the perception factor. Which indicate that customers are treated as „king‟.

37
 Determinants of Service Quality and their impact on Customer Satisfaction

4.3 Overall customer satisfaction towards service quality

Table: 4.9Overall means score of customer satisfaction on service quality and the Gap between
customers‟ expectation and perception.

Service Quality Dimensions Mean Gap

Perception Expectation P-E
1 Tangibility 4.04 4.02 0.02
2 Reliability 4.06 4.03 0.03
3 Responsiveness 4.14 4.08 0.06
4 Assurance 4.24 4.10 0.14
5 Empathy 4.21 4.06 0.15
Over all mean score 4.14 4.06 0.08
Source: Researcher‟s calculation (2016)

Table 4.9 shows that assurancedimensionis the most important dimension with the highest mean
value (4.24) and (4.10) perception and expectation respectively.The study reveals that, assurance
such as the knowledge and courtesy of employees and their ability to inspire trust and confidence
including competence, courtesy, credibility and security are the most vital factor in which both
the customers‟ expectation and perception are very high as compared with the other dimensions.

Table 4.9alsoshows that overall satisfaction of expectation on the five dimensions is at high level
(4.06) which is significant. The result of customers expectation shows that assurancedimensions
is at the high level (4.10) followed by responsiveness (4.08), empathy (4.06), reliability (4.03),
and tangibility (4.02) in descending orders. Most customers expect the employee to be effective
in assurance and responsiveness, customers‟ expectation is high regarding these dimensions.

The table also indicates that overall satisfaction of perception on the five dimensions is at a high
level (4.14). Most customers perceived assurance the most important dimension at (4.24),
followed by empathy (4.21), Responsiveness (4.14), reliability (4.06), and tangibility (4.04) in
the descending order.

The SERVQUAL gap is calculated between the mean score of perceptionandexpectation. The
findings of the study show the difference between perceptionandexpectationas shown in table
above 4.9. The study shows that the overall level of perception of tangibility, reliability,

38
 Determinants of Service Quality and their impact on Customer Satisfaction

responsiveness, assurance, and empathy are higher than level of expectation, which is positive
gap.

4.4 Satisfaction level of commercial Bank of Ethiopia’ customers

The last questionnaire was presented in a five scale question about their view of the overall
satisfaction they have experienced throughout their stay. That means, in order to know the
overall customers‟ satisfaction fourquestion is asked concerning customers‟ overall satisfaction
of CBE.

Table: 4.10 Overall Customer Satisfaction Level

Customers Overall Satisfaction Mean Std.

dev.
1 Over all I am satisfied with the service of bank. 4.10 1.246
2 I would continue with the bank in the future. 4.12 1.201
3 I would recommend the bank service for others. 4.16 1.242
4 Considering the type of bank services the quality of service is 4.08 1.133
excellent.
Over all Mean score 4.11
Source: Researcher‟s calculation (2016)

According the above table 4.10 concerning the satisfaction issue, almost all the related question
mean is positive which implies as more of CBE customers are satisfied with service of the bank.
The item „I would recommend the bank service for others‟ score the highest level (4.16).

4.5 Correlation Analysis

The correlation analysis was done to assess the relationship between service quality dimensions
with satisfaction by overall service quality.A correlation coefficient is a very useful means to
summarize the relationship between two variables with a single number that falls between -1 and
+1 Field (2005). A correlation analysis with Pearson´s correlation coefficient (r) was conducted
on all variables in this study to explore the relationships between variables. To interpret the
strengths of relationships between variables, the guidelines suggested by Field (2005) were
followed, mainly for their simplicity. His classification of the correlation efficient (r) is as

39
 Determinants of Service Quality and their impact on Customer Satisfaction

follows: 0.1 – 0.29 is weak; 0.3 – 0.49 is moderate; and > 0.5 is strong. The result is shown in
table 4.11 below.

Table: 4.11 Correlation between service quality dimensions with overall customer satisfaction

Tangibility Reliability Responsive Assurance Empathy Overall Overall

Pearson Pearson ness Pearson Pearson Service customer
Correlation Correlation Pearson Correlation Correlation satisfaction
quality
Correlation
Tangibility 1
Pearson
Correlation
Reliability .931** 1
Pearson
Correlation
Responsive .883** .961** 1
ness
Pearson
Correlation

Assurance .842** .912** .951** 1

Pearson
Correlation
Empathy .889** .956** .980** .933** 1
Pearson
Correlation

Overall .912** .973** .974** .930** .975** 1

Service
quality
Overall .915** .978** .969** .925** .967** .995** 1
customer
satisfaction
**correlation is significant at the 0.01 level (2-tailed).
Source: Researcher‟s calculation (2016)

Table 4.11 shows that there is a positive and significant correlation between customer
satisfaction and service quality dimensions. From which customer satisfaction has higher
correlation with reliability (r = 0.978**) and lower correlation with tangibility (r = 0.915**)
dimensions of service quality. Over all service quality dimension is strongly correlated (r =
0.995**) with customer satisfaction.

The higher inter-correlation among the independent variables is between responsiveness and
reliability dimensions (correlation coefficient of 0.961**). Next to responsiveness andreliability,
assurance has been found to be statistically and positively correlated with responsiveness (r =

40
 Determinants of Service Quality and their impact on Customer Satisfaction

0.951**). In the third place, empathy is found to be statistically and positively correlated with
assurance(r = 0.933**), and finally reliability has been found to be positively correlated with
tangibility (r=0.931**).

Figure 4.1: Correlation Model

Tangibility

.912**
Reliability
.915**

.973** .978** .969**

Customer
Responsiveness Service quality satisfaction
.974** .995**

.930** .925**

.975**
Assurance .975

.967**

Empathy

Source: Researcher‟s calculation (2016)

4.6 Regression analysis

The regression analysis has been conducted to measure the variables that explain the variance in
the overall customer satisfaction. The result has been shown in model summary below.

41
 Determinants of Service Quality and their impact on Customer Satisfaction

Table 4.12: Model summary

Model R R Adjusted R Std. Error of

Square Square the Estimate
1 .985a .971 .970 .234

a. Predictors: (Constant), empathy, tangibility, assurance,

reliability, responsiveness
b. Dependent variable: overall customer satisfaction
Source: Researcher‟s calculation (2016)

Analysis: The result indicated that correlation of the five independent variables with the
dependent variable is (R = .985). From the table above, (R Square = .971).The model summary
table reports the strength of the relationship between the model and the dependent variable,
overall customer satisfaction. R, the multiple correlation coefficients, is the linear correlation
between the observed and model-predicted values of the dependent variable. R Square, the
coefficient of determination, is the squared value of the multiple correlation coefficients.

4.7Coefficients of Service Quality Dimensions

Table: 4.13 Coefficients

Model Unstandardized Standardized t Sig.
Coefficients Coefficients
B Std. Error Beta
(Constant) .022 .053 .413 .680
tangibility .053 .026 .051 2.021 .044
reliability .491 .041 .518 11.992 .000
1 responsiveness .186 .058 .186 3.208 .001
assurance .036 .033 .032 1.090 .276
empathy .228 .050 .214 4.512 .000
a. Dependent Variable: customer satisfaction

Source: Researcher‟s calculation (2016)

The coefficient table for service quality dimensions indicates the beta values of the
independent variables. From this the regression equation is derived as:

42
 Determinants of Service Quality and their impact on Customer Satisfaction

Regression Equation

Y = a + bX1 + bX2 + bX3 + bX4…

CS = = .022 + -.051TAN + -.518REL + .186RES + .032ASS + .214EMP
Where,
CS = Customer satisfaction
TAN = Tangibility
REL = Reliability
RES = Responsiveness
ASS = Assurance
EMP = Empathy

4.7.1 the Most Predictor of Overall Customer Satisfaction

The findings of the regression analysis reveal that the customers‟ perceived service quality
provided by CBE and where by the overall customer satisfaction was determined largely by five
factors respectively by their rank order; namely, reliability, empathy, responsiveness, tangibility,
assurance.

The relative importance of the significant predictors is determined by looking at the standardized
coefficients. Reliability has the highest standardized coefficient and the lowest significance,
which means reliability, is the best predictor.

Table: 4.14 predictors of overall Customer Satisfaction

Standardized
Dimension Coefficients T significance Rank
Beta
reliability .518 11.992 .000 1st

empathy .214 4.512 .000 2nd

responsiveness .186 3.208 .001 3rd

tangibility .051 2.021 .044 4th

assurance .032 1.090 .276 5th

Source: Researcher‟s calculation (2016)

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 Determinants of Service Quality and their impact on Customer Satisfaction

A regression analysis examines the relation of the dependent variable to specified independent
variables. The objective is to identify whether relationship between variables exists, which is
usually based on a study of the correlation between variables. In order to establish the impact
that each dimension has on the dependent variable, the study checked the Standardized
Coefficients. The impacts of “Reliability”, “Empathy”, “Responsiveness”, “Tangibility”, and
“Assurance” on customers‟ satisfaction with the bank are .518, .214, .186, .051, and .032
respectively, in their descending order indicating that Reliability has the highest impact on
customer satisfaction. Therefore, CBEhas to work hard to improve the tangibility and assurance
dimensions in order to enhance the customer satisfaction level.

4.7.2 Normality and Multicollinearity Test

Normality was assumed due to the large sample size (Green et al., 2000). The assumption of
normality is important to select the data analysis method as Andy (2005) noted the whole
rationale behind hypothesis testing relies on having normally distributed population and so if this
assumption is not met then the logic behind hypothesis testing is flawed. Thus testing whether
the sample data differ significantly from normal is important in addition to sample adequacy.

The issue of Multicollinearity that arises in multiple regression analysis also considered which
means the effects of each independent variable are difficult to distinguish as they become more
correlated (Hair et al., 1998). To measure this phenomenon tolerance, variable inflation factor
(VIF), and the condition index are used which describe the “degree to which each independent
variable in explained by other independent variables”.

a
ANOVA

Model Sum of Squares df Mean Square F Sig.

b
Regression 642.068 5 128.414 2337.788 .000

1 Residual 19.500 355 .055

Total 661.568 360

a. Dependent Variable: customer satisfaction

b. Predictors: (Constant), empathy, tangilbility, assurance, reliability, responsiveness

44
 Determinants of Service Quality and their impact on Customer Satisfaction

The above ANOVA tests table shows the acceptability of the model from statistical perspective.
The regression row indicates information about the variation accounted by the model. While, the
residual row indicates information about the variation that is not accounted for the model or
show the variation as a result of extraneous variables. The regression and residual sum of squares
are approximately 97/3, which indicates that about 97% of the dimension variation is explained
by the model.

a
Table: 4:15 Test of assumption Coefficients

Model Unstandardized Standardized t Sig. Collinearity

Coefficients Coefficients Statistics

B Std. Error Beta Tolerance VIF

(Constant) .022 .053 .413 .680

tangilbility .053 .026 .051 2.021 .044 .129 7.761

reliability .491 .041 .518 11.992 .000 .045 22.458

1
responsiveness .186 .058 .186 3.208 .001 .025 40.581

assurance .036 .033 .032 1.090 .276 .095 10.565

empathy .228 .050 .214 4.512 .000 .037 27.002

a. Dependent Variable: customersatisfaction

Collinearity diagnostics‟ was performed on the variables as part of the multiple regression
procedure. This can pick up on problems with multicollinearity that may not be evident in the
correlation matrix. The results are presented in the above table of Collinearity Statistics. Two
values are given: Tolerance and VIF. Tolerance is an indicator of how much of the variability of
the specified independent variable is not explained by the other independent variables in the
model and is calculated using the formula 1–R2 for each variable. If this value is very small (less
than 0.10), it indicates that the multiple correlation with other variables is high, suggesting the
possibility of multicollinearity. The other value given is the VIF (Variance inflation factor),
which is just the inverse of the Tolerance value (1 divided by Tolerance). VIF values above 10
would be a concern here, indicating multicollinearity (Julie Pallant, 2005).

Tolerance value of Reliability, responsiveness, assurance and empathy dimensions are very small
which is less than 0.10, and their VIF value are greater than 10 indicating multicollinearity.

45
 Determinants of Service Quality and their impact on Customer Satisfaction

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

5 Introduction

This chapter gives a summary of key findings of the study presented according to the objectives
of the study. Conclusions are drawn from the findings and recommendations are given to help
improve the quality of the services delivered by Commercial Bank of Ethiopia.

5.1 Summary of Findings

The finding demonstrated that there is positive significant relationship between the SERVQUAL
dimensions and customer satisfaction. This means that the overall service quality dimensions
have significant impact on customer satisfaction.

5.1.1Background Information of Respondents

The demographic characteristics of respondents showed that the majority of the respondents
(64%) are male and 48% of respondents are 35 to 44 years of age.

5.1.2 Measure of Customer perception of Banking Services

Service performance is based on the services received or experienced by a customer, in this

study, the study of perceptions service dimensions were used to measure the service quality
delivery of Commercial Bank of Ethiopia, hence the performance of the bank. Evidently, it was
found that, all the service quality dimension factors used, had a mean score beyond 4.0 (80.00%)
indicating a higher performance comparative to the scale of measurement.

Looking at the factors measuring tangibility, the highest mean score was (4.10)representing the
factor „Commercial Bank of Ethiopia has up-to-date equipment and technology‟ and the least
mean score was (4.00)representing the factor „the physical facilities and technology of
Commercial Bank of Ethiopia goes with the type of service provided‟.

The five factors used to measure reliability all gave average score more than (4.0) and it is also
on the high side of the scale of measurement. The items „the staff provide you accurate

46
 Determinants of Service Quality and their impact on Customer Satisfaction

information‟ gave the highest average score of (4.11)while the least average score (4.02) was the
item „the staff perform the service right at the first time ‟.

When we look the factors measuring responsiveness, the highest mean score was (4.17)
representing the factor „the staff tells you exactly when services will be provided‟ and the least
mean score was (4.11) representing the factor „Staff respond to requests promptly‟.

Out of the four factors used to measure „assurance‟ the factor „the staffs are trustworthy‟ yielded
the highest mean score of (4.32) while the least average score (4.17) were items „the staff makes
you feel safe‟. The average scores of all the factors were more than 4.0, making it high and agree
by the customers that the Bank gives assurance to customers.

The four factors used to measure „empathy‟ gave average score of more than 4.0. Additionally,
the highest average score of (4.37) was given by the factor „employee‟s shows personal attention
to you‟ while the least average score (4.10)was given by an item „employee‟s knows your
specific needs‟.

5.1.3 Level of SERVQUAL Dimensions mostly utilized by CBE

Ranking of perceived service quality dimensions show the most utilized service quality
dimension of the bank, clearly it was found that, CBE is excelling in terms of performance, the
factors of the dimensions were aggregated and the grand mean score computed. By comparing
the responses of the customers to the service delivered, the grand average scores established that
the most utilize dimension of CBE is the assurance which had the highest mean score of
(4.24)relative to the rest of the SERVQUAL dimensions. Tangibility which yielded(4.04)the
least average grand score.

5.1.4 Measure of Customer Expectations of Banking Services

The expectations of customers on factors measuring service tangibility yielded various average
scores. Out of the items, customers are very much interested in „Commercial Bank of Ethiopia
has up-to-date equipment and technology‟ used to deliver the services with the highest average
score (4.06).

47
 Determinants of Service Quality and their impact on Customer Satisfaction

With regards to service reliability, the five items measured gave out high average scores above
4.00 except the item „Keep records accurately‟ which yielded (3.98). Out of five measurement,
„the staff provide you accurate information‟ with highest mean score of (4.09).

The measure of customers‟ expectation on service responsiveness yielded high average scores
for each item. Out of the four measurements „the staffs are willing to help you‟ score highest
i.e.(4.14).

With the service „assurance‟, four items were measured. The highest score (4.16) of the item
expect that „employees have the knowledge to answer customers‟ questions.‟

Customers‟ expectation on service empathy measures the relationship and interactions between
the Bank and the customers. The results indicate that customers expect CBE to give‘Convenient
time management‟ this yielded the highest score of (4.12).

5.1.5 SERVQUAL gap

The study focused further on the gap between customers‟ expectation and their perception of the
bank. The results showed that the overall mean score of perception (m=4.14) is higher than
expectation (m=4.06) in all dimensions, yielding (0.08) a positive SERVQUAL gap. Hence,
customers are satisfied with all dimensions of service quality.

5.1.6 Level of customer satisfaction

In order to know the overall customers‟ satisfaction fourquestionswere asked concerning

customers‟ overall satisfaction of CBE. The mean score of overall customer satisfaction is 4.11
which imply that the customers of the bank are satisfied.

5.1.7Summary ofCorrelation and regression analysis

Regarding correlation analysis, tangibility has been found to be significantly and positively
correlated with customer satisfaction (r = .915**, p< .01), reliability is found to be significantly
and positively correlated with customer satisfaction (r = .978**, p< .01), and responsiveness is
found to be significantly and positively correlated with customer satisfaction (r = .969**, p<
.01). Assurance is found to be significantly and positively correlated with customer satisfaction
(r = .925**, p< .01), and Empathy is found to be significantly and positively correlated with

48
 Determinants of Service Quality and their impact on Customer Satisfaction

customer satisfaction (r = .967**, p< .01). The result shows that service quality dimensions are
strongly correlated with customer satisfaction.

The regression analysis reveals that the customers‟ perceived service quality provided by CBE
and where by the overall evaluations of customer satisfaction was determined.The relative
importance of the significant predictors is determined by looking at the standardized coefficients.
Reliability has the highest standardized coefficient and the lowest significance, which means
reliability is the best predictor. This indicates that reliabilityhas the highest impact on customer
satisfaction.

49
 Determinants of Service Quality and their impact on Customer Satisfaction

5.2 Conclusions

From the demographic data of the respondents one can concluded that, there is potential for the
bank to retain its customer for long period of time as the majority of its customers are aged
below 44 years.

The study assessed the level of quality service delivery and its effect on customer satisfaction at
CBE. Generally, the responses to service quality dimensions used to measure the performance of
the banking services provided by CBE established that the bank services are relatively high. All
items measuring the service quality dimensions gave average score more than 4.0. The services
are reliable, employees „behavior response confidence in customers, the bank‟s physical facilities
are attractive, equipment for service operations are efficient, and customers are given personal
attention. Apart the high average scores, the level of service performance varies from one
dimension to the other.

Despite the high average scores of service performance, the expectations of the customers on
services also yielded high average scores beyond 4.0 for each of the items measuring the
SERVQUAL dimensions.

The correlation analysis result shows that significant and positive relationships between the five
service dimensions and customers satisfaction. Therefore, improvement in all service quality
dimensions not only brings the level of the service quality to the customers‟ expectation but also
increases customers‟ satisfactions.

By comparing the average scores of the respondents regarding the performance and expectation
of customers of the banking services provided by CBE, the performance of the services provided
yielded higher scores than customer expectation responses. It can be concluded from the analysis
that customers are satisfied with the services of the Bank. To ensure customer retention, CBE
needs to improve all the SERVQUAL dimensions to exceed what the customers expect. By this,
there will be a guarantee to retain the customers.

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 Determinants of Service Quality and their impact on Customer Satisfaction

5.3 Recommendations
 Based on the analysis and the findings, delivering a quality service for customers have a
tremendous effect on customers‟ satisfaction that in turn determines the existence and
success of banks. So, it‟s mandatory that the bank should attempt to maintain consistent
service quality at or above customers‟ expectation by assessing all the service quality
dimensions regularly.
 By enquiring from prospective customers the level of satisfaction on the SERVQUAL
dimensions of the banking services, CBE informed about the area that require
improvement to enhance service performance. Also informed the Bank areas that have
been given less attention, so that decision will be made to upgrade those areas. 
 It is recommended that although, customer‟s perception did exceed the customer‟s
expectation; certain service quality dimensions needs effort in the bank to ensure its
improvement. Service dimensions like tangibility and reliability, effort is needed to
ensure an improvement in these dimensions will help in the overall service quality and a
better customer service delivery in the bank.
 A comparison between expectation and perception indicate a gap, which is positive.
Thus, customer perceptions scores are higher than the scores of customer expectations.
CBE is required to delight customer by perceived performance. This can be done by
finding out from customers what they expect from the Bank and provide accordingly. By
this customers will be compelled by quality of superior service to stay than switching to a
competitor.
 The results of the parameters are determined by the score of the items; when the items are
scored high, the score of the parameters will also be high. This means that when CBE
give each items explained in the chapter four the necessary attention, it is likely that
overall performance can be enhanced. 
 In the present competitive banking environment, most of the banks offer the same or
similar products around the world and service quality is a vital means to differentiate
themselves in the market place. Therefore, to be successful, the bank must provide
quality service to their customers that meets or exceeds their expectations, and the present
study will provide at least some sorts of guidelines to the policy makers of the bank, to
take right decision to improve the quality of services of the bank.

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 Determinants of Service Quality and their impact on Customer Satisfaction

5.4 Area for further studies

CBE should carried out similar and regular researches on its services quality so as to learn what

are the needs and wants of its customers and what changes have been performed in the customers

service quality dimensions and improve its services quality accordingly.

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 Determinants of Service Quality and their impact on Customer Satisfaction

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 Determinants of Service Quality and their impact on Customer Satisfaction

St. Mary‟s University

Marketing ManagementDepartment
Questionnaire to be filled by customers
Dear respondent,
This questionnaire is developed by a post graduate student of St. Mary‟sUniversity in order to
identify theDeterminants of Service Quality and their impact on Customer Satisfaction: A case
study on Commercial Bank of Ethiopia. As your responses to the statements below are of great
importance to my study work, hence I kindly request you to answer the questions carefully and
genuinely. This information will be used only for academic purpose and your responses are kept
confidential.

Thank you in advance for your time and consideration.

Thank you
ZewdituKebede

PartI:Personal data
Please put a ( ) mark to indicate your preference.

1. Gender

Male Female

2. Age

18- 21 35-44 >55

22-3445-54

3. Level of education

School leaving certificate Diploma

Degree Masters

Other

57
 Determinants of Service Quality and their impact on Customer Satisfaction

Part II: Service quality dimensions

This survey deals with your opinion about Commercial Bank of Ethiopia service
deliverysystem.Please show the extent to which you expect and perceive the Bank‟s offering
services should possess described by each statement. There are no right or wrong answers all I
am interested in is a number that best show your expectations and perceptions about the service
delivery system of Commercial Bank of Ethiopia. Based on this please put a tick (√) in the boxes
which mostly explain your attitudes.
a) Level of EXPECTATION towards service quality of CBE
b) Level of PERCEPTION towards service quality of CBE

The score levels are described as:

1- Strongly Disagree 2- Disagree
3- Neutral 4- Agree
5- Strongly Agree
Dimensios Level of expectation Level of perception
Tangibility 5 4 3 2 1 5 4 3 2 1
1 Commercial Bank of Ethiopia has up-to-date
equipment and technology

2 CBE‟s physical facilities are visually appealing

3 CBE‟s employees are well dressed and neat

4 The physical facilities and technology of

Commercial Bank of Ethiopia goes with the type
of service provided.
Reliability

5 The staff can provide you the services as

promised
6 The staff provide you accurate information

7 The staff perform the service right at the first time

8 The staff offer you some help

9 Keep records accurately

Responsiveness
10 The staff tells you exactly when services will be
provided
11 The staff give you prompt service

12 The staffs are willing to help you

58
 Determinants of Service Quality and their impact on Customer Satisfaction

13 Staff respond to requests promptly

Assurance
14 The staff makes you feel safe

15 The staff have required skill to perform service

16 The staff are trustworthy.

17 Employees have the knowledge to answer

customers‟ questions.
Empathy
18 The staff are able to communicate effectively
with you.
19 The staff shows personal attention to you

20 The staff knows your specific needs

21 Convenient time management

Section II: customers overall very satisfied Neutral Dissatisfied very

Satisfaction satisfied Disatisfied
Over all I am satisfied with the
1
service of bank.
I would continue with the bank
2
in the future.
I would recommend the bank
3
service for others.
Considering the type of bank
4 services the quality of service is
excellent.

59
 Determinants of Service Quality and their impact on Customer Satisfaction

DECLARATION

I, hereby declare that the thesis entitled Determinants of Service Quality and their impact on
Customer Satisfaction: (The Case of Commercial Bank of Ethiopia) is my original work prepared
under the guidance of TesfayeWolde (PhD) and has not been presented for a degree in any other
university except where due acknowledgement has been made in the text.

____________________________ _______________________

Name Signature

St. Mary‟s University

June, 2016

Addis Ababa

60
 Determinants of Service Quality and their impact on Customer Satisfaction

Endorsement

This is to certify that Zewditu Kebede has completed her thesis entitled Determinants of Service
Quality and their impact on Customer Satisfaction: (The Case of Commercial Bank of Ethiopia).
As I have evaluated, her thesis, it is appropriate to be submitted as a partial fulfillment
requirement for the Award of Degree in Masters of Marketing Management.

____________________________ _______________________

Advisor Signature

St. Mary‟s University

June, 2016

Addis Ababa

61