ANALYSIS OF CUSTOMERS’ SATISFACTION WITH BANKING SERVICES

ABSTRACT
This study was undertaken to analyze the customers’ satisfaction with banking services with specific focus of Standard Chartered Bank in Tanzania. The specific objectives of the study were: to assess the level of customer satisfaction basing on customers intention to remain as clients; to examine the level of customer satisfaction basing on customers intention to recommend the service of the Standard Chartered Bank to third parties; and to measure the overall level of customer willingness to pay a higher price for services rendered by Standard Chartered Bank. A total of 135 respondents were sampled by using non-probability convenient sampled technique, and data was collected by means of a self-administered questionnaire. Data on socio-economic characteristics of the customers was analyzed by using descriptive analysis. Mann-Whitney test was applied to compare satisfaction levels between satisfied and dissatisfied customers.  Results show that majority of the customers were satisfied with the Standard Chartered Bank.  Nonparametric results show that customers were satisfied with the quality and service time (p p p p > 0.1). Basing on the findings of the study it is recommended to that the Standard Chartered Bank should maintain the quality of financial services offered by the bank. This can be done by institutionalizing quality control and assurance measures as well as a strong monitoring and evaluation system for the services quality within the bank.  ACKNOWLEDGEMENTS I would like to thank the Almighty God for helping me to finish my master’s degree programme and my family who played great role in my study for their continuous support and encouragement.   I would again like to thank my employer (Tanzania Immigration Division) for the permission granted on pursuing this course with Open University of Tanzania.   My sincere thanks also channeled to my supervisor Dr .C.Matoka for his support, directives and challenges which molded me to this stage. I also acknowledge and appreciate the warm and lovely support and contribution from all academic staff, Dr. W. Pallangyo, Dr. T. Katunzi, Dr. W. Mboya, Mr. Kalanje, Dr.P.Ngatuni, Dr.Mutagwaba, Dr.Kihwellu and Dr. J .Yonaz for their academic assistance and support during the course of my study. Furthermore, I would like to extend my acknowledgement to standard chartered Bank (Head Office), Human Resources department in particular for the cooperation expressed during the data collection exercise under their Head of Human Resources Department Madam Soraya Shareef. Also, I would like to acknowledge the contribution of my respondents who filled my questionnaires during the data collection.   Finally, I would like to thank my fellow students, my friends and all other individuals who supported and encouraged me in one way or another throughout my academic safari with Open University of Tanzania.      TABLE OF CONTENTSCERTIFICATION ……………………………………………………………………………………… ii COPYRIGHT ……………………………………………………………………………………………. iii DECLARATION ……………………………………………………………………………………….. iv Date DEDICATION …………………………………………………………………………………… iv ABSTRACT ………………………………………………………………………………………………. vi ACKNOWLEDGEMENTS ……………………………………………………………………….. vii LIST OF TABLES …………………………………………………………………………………….. xi LIST OF FIGURES ………………………………………………………………………………….. xii LIST OF ABBREVIATIONS, ACRONYMS AND SYMBOLS ………………….. xiii CHAPTER ONE ………………………………………………………………………………………… 1 1.0  INTRODUCTION ……………………………………………………………………………….. 1 1.1  Background of the Problem …………………………………………………………………… 1 1.2  Statement of the Problem………………………………………………………………………. 3 1.3  General Objective ………………………………………………………………………………… 5 1.4  Specific Objectives ………………………………………………………………………………. 6 1.5  Research Questions ………………………………………………………………………………. 6 1.6  Significance of the Study ………………………………………………………………………. 6CHAPTER TWO ……………………………………………………………………………………….. 8 2.0LITERATURE REVIEW …………………………………………………………………… 8 2.1  Definition of Key Concepts …………………………………………………………………… 8 2.1.1 Customer Service …………………………………………………………………………………………… 8 2.1.2 Customers’ Satisfaction ………………………………………………………………………………….. 8 2.1.3 Cost of Switching Bank ………………………………………………………………………………… 10 2.1.4  Customer Loyalty ……………………………………………………………………………………….. 12 2.2  Theoretical Review …………………………………………………………………………….. 12 2.2.1 Assimilation Theory ………………………………………………………………………………………. 13 2.2.2 Contrast Theory ……………………………………………………………………………………………. 13 2.2.3 Assimilation-Contrast Theory …………………………………………………………………………. 14 2.2.4 Negativity Theory …………………………………………………………………………………………. 15 2.2.5 Disconfirmation Theory …………………………………………………………………………………. 16 2.2.6 Cognitive Dissonance Theory …………………………………………………………………………. 16 2.2.7 Adaptation-level Theory ………………………………………………………………………………… 17 2.2.8 Equity Theory ………………………………………………………………………………………………. 17 2.2.9 Hypothesis Testing Theory …………………………………………………………………………….. 18 2.3 General Discussion …………………………………………………………………………….. 18 2.4 Empirical study ………………………………………………………………………………….. 20 2.5  Research Gap …………………………………………………………………………………….. 25 2.6  Conceptual Framework ……………………………………………………………………….. 25CHAPTER THREE ………………………………………………………………………………….. 29 3.0  METHODOLOGY …………………………………………………………………………… 29 3.1  Research Paradigm …………………………………………………………………………….. 29 3.2  Research Design ………………………………………………………………………………… 30 3.2.1 Area of the Study …………………………………………………………………………………………. 303.2.2  Population of the Study ……………………………………………………………………………….. 30 3.2.2 Sample and Sampling Techniques ………………………………………………………………….. 31 3.3  Data Collection ………………………………………………………………………………….. 32 3.4  Data Collection Method ………………………………………………………………………. 32 3.5 Validity …………………………………………………………………………………………….. 34 3.6 Reliability …………………………………………………………………………………………. 35 3.7 Ethical Clearance ……………………………………………………………………………….. 36 CHAPTER FOUR …………………………………………………………………………………….. 37 4.0  FINDINGS AND ANALYSIS OF DATA …………………………………………… 37 4.1  Introduction……………………………………………………………………………………….. 37 4.1  Socio-demographic Characteristic of the Respondents ……………………………. 37 4.2  Customer Royalty ………………………………………………………………………………. 38 4.3  Bank Switching Cost ………………………………………………………………………….. 42 4.4  Word of the Mouth Promotion …………………………………………………………….. 46 4.5  Dimensions of Customer Satisfaction …………………………………………………… 47CHAPTER FIVE ………………………………………………………………………………………. 52 5.0  CONCLUSION AND RECOMMENDATIONS …………………………………. 52 5.1  Introduction……………………………………………………………………………………….. 52 5.2  Validation of Research Questions ………………………………………………………… 53 5.2 Recommendations………………………………………………………………………………. 55 5.3 Policy Issues On Customer Satisfaction in the Banking Sub Sector ………….. 56 5.4 Areas of Future Studies ………………………………………………………………………. 56REFERENCE …………………………………………………………………………………………… 58 APPENDICES ………………………………………………………………………………………….. 70 LIST OF TABLES Table 3.1: Sampled Customers ………………………………………………………………………. 32 Table 4.1: Description of the Respondents ………………………………………………………. 38 Table 4.2: The Mann-Whitney and Wilcoxon Ranks Table of the Original Values.. 48 Table 4.3: Mann-Whitney and Wilcoxon Tests Table ……………………………………….. 50 LIST OF FIGURES Figure 2.1: Satisfaction Function Between Perceived Quality and               Expectations ……………………………………………………………………………… 21 Figure 2.2: Conceptual Framework of Relationship between Customer      Satisfaction and Service Quality ……………………………………………………. 26 Figure 4.2: Proportion of Interviewee According To Their Satisfaction of         Quality of Services ………………………………………………………………………. 40 Figure 4.3: Proportion of Interviewees According To Their Satisfaction with Welcoming Attitude of Bank Staffers …………………………………………….. 41 Figure 4.4: Proportion of Customers Who Are Satisfied or Dissatisfied With Accuracy of Financial Services ……………………………………………………… 42 Figure 4.5: Customers’ Loyalty amid Higher Service Charges As Compared To Other Banks ………………………………………………………………………………… 43 Figure 4.6: Likelihood of Switching Banks In The Near Future …………………………. 44 Figure 4.7: Is Switching Bank Difficult or Not? ……………………………………………….. 45 Figure 4.8: Willingness to Promote the Bank to Other Potential Customers…………. 47 LIST OF ABBREVIATIONS, ACRONYMS AND SYMBOLS DF   Degree of Freedom N   Sample Size SACCOS   Savings and Credit Cooperative Societies  SERVQUAL  Service Quality Scale  SPSS   Statistical Package for Social Scientists Computer Software for Data Analysis  USA   United States of America VIKOBA   Informal Savings and Credit Cooperative Societies  χ2   Chi square Statistic 
 

CHAPTER ONE

INTRODUCTION

1.1 Background of the Problem

Banking subsector like many other sector is not free from the influence of globalisation. In so far, globalization alongside regulatory, structural and technological factors has caused significant changes in this subsector. This in turn has led to profound cut throat competitive pressures (Grigoroudis et al, 2002).    On the other hand customer satisfaction emerged to be cornerstone of increased demand of banking services and indeed, is recognized as a key business strategy of every bank. In fact customer satisfaction is not only a prerequisite for a successful and competitive bank but also a benchmark against which many banks have set their standards. According to Anubav (2010) maintaining existing customers for organisations is ever more important than the ability to capture new ones. Customers are critical for any bank success without which the survival of a bank in the market will be in jeopardy.   In modern economics, banking sector performs its activities with significant role side by side manufacturing and other sectors. Bank managers are therefore more concerned about quality of service and client satisfaction (Olorunniwo et al., 2006). Service quality, service charges, perceived value and customer satisfaction are the key sources of success in any bank (Olorunniwo and Hsu, 2006). Issues that affect service quality and customer satisfaction have operational and marketing orientations. The improvement of service quality, perceived value, and satisfaction ensure customer loyalty (Kuo et al., 2009; Lai et al., 2009; Wu and Liang, 2009).   Commercial banking sector is very important for the economic development of the country. Financial services rendered to the community stimulate economic opportunities. However the customer’s satisfaction from banks plays the great role to the development of the community. The banking Industry is high competitive with banks not only competing among other financial institution (Kaynak and Kucukemiroglu, 1992).   Hull 2002, said that most of banks product developments are easy to duplicate and when banks provide nearly identical services. Since customer have more choice and more control long lasting and strong relationship with them are critical to achieve and maintain competitive advantages as a consequences and earnings. However due to the similarity of the offers of many financial services loyal customers have huge value since they are likely to spend/buy more. Peter and Donnely argued that satisfied customers can be loyal customers, the literature furthermore reveals that services quality. Customer’s satisfaction will make a great foundation for return business and they may also bring in their friends and associates.    Other authors have brought out theories relating customer satisfaction and service quality in their researches. Wang and Hing-Po, (2002) showed that the dynamic relationship among service quality, customer value are key factors of customer satisfaction. Customer satisfaction is an outcome of good internal feelings arising from quality services (Henning and Thurau, 2003). Satisfaction in banking subsector represents the extent to which banking products and services meet customer needs. According to various authors, customer satisfaction can be measured by looking at different dimensions such as service quality, customer loyalty, repurchases behaviour and trust, among others (Anderson and Fornell, 2001; Anderson and Mittal, 2000, with conclusion that a satisfied customer is loyal and contributes to profitability.  

1.2 Statement of the Problem

The issue of sustaining sufficient profitability within the banking sector in the global business environment could not be overemphasized. In fact, without having a wider customer base the prospects of making profit in a bank are dim. That’s why a number of researches have been undertaken in various parts of the world to establish a link between customer satisfaction and variables such as bank profitability and retention, among others.    As the financial institutions struggle to expand their reach, customer satisfaction with services rendered by such institutions has become an issue (Kotler, 2009). Service quality is one of main elements of customer satisfaction and their intention to purchase (Peter and Vassilis, 1997). According to Wilson et al., (2008) customer satisfaction is influenced by the quality of product and services offered by institutions quality. Other crucial determinants of customer satisfaction include price, personal and situational factors (Lee et al., 2000). If these determinants are not satisfactory capable of convincing customers royalty, the overall competitiveness of a business will be at a stake (Wilson et. al., 2008; Wen-Yi et al., 2009).  According to Gustafsson, et al., (2005) customer satisfaction occurs when customer needs and expectations are met all the time, every time throughout the life of a product or service. Customer satisfaction results from either the quality of banking services, quality of service, engagement of the customer, price factors and meeting or exceeding customers’ expectations, consuming products and services (Prabhakar, 2005). If the performance of a bank falls short of these expectations, the customer becomes dissatisfied. If the performance matches expectations, the customer is satisfied. If the performance exceeds expectations, the customer is delighted. Only delighted customers or highly satisfied customers stay loyal to the services provider (Salmen and Muir, 2003; Dubrovski, 2001).   Although entrance of technology have enhanced customer satisfaction in the banking sub sector, with impact on increased customers retention, still much is need to make financial services firms become customer’s first preference (Waqarul and Bakhtiar, 2012). Amid an economy of innovative technologies and changing markets, poor quality of service has been blamed to contribute to customer dissatisfaction. In addition, insufficient innovations in establishing new financial products and services add salt to the injury, exacerbating further the level of customer dissatisfaction.    These jeopardize the ability of banks to stay competent leading to poor opinion financial firms among customers (Puja and Yukti, 2010). With the ensuing mistrust among the customers, the leverage of financial firms to stay in the market hangs at a stake (Tiwary, 2011). The financial sector reform set in motion the liberating interest rates, eliminating administrative credit allocation, strengthening banks of Tanzania’s role in regulating and supervising financial institutions, restructuring state owned financial institutions and allowing entry of private banks into the market.     However, despite of the financial reforms accesses by large segment of the rural or urban population to financial services particularly from commercial banks has remained stunted. In additional, the service satisfaction to community also played the alarming note to the community and growth of economic activities. This is to say in the long run will make it hard for the bank to achieve economic development objectives and those expected with community at large if there is no strategic plan to curb these drawbacks.   In recognition of the significance of customer satisfaction in sustainable profit making in banking subsector, this study intended to examine customers’ satisfaction with banking services with particular focus of Standard Chartered Bank –Tanzania. The result of this study has managerial and academic implications. Managers of commercial banking service providers can use the findings as sources of reference to manage their business and improve their service quality, and academicians can use the finding for application of service marketing field and further extension of this topic or related topics so as to enhance the banking sub-sector contribution to economic growth and poverty alleviation.

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