INVESTIGATION OF CUSTOMERS PERCEPTION OF SERVICE QUALITY IN FINANCIAL INSTITUTION

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The issue of service quality has become critical to efforts geared towards maintaining competitive advantage. Since financial institutions such as banks compete in the market place with generally undifferentiated products, service quality becomes a primary competitive weapon (Staord, 1996). Technological changes are causing many banks to rethink their strategies with respect to the services offered to both commercial and individual customers. Bennett and Higgins (1993) have argued that 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 and higher customer retention. The era when the banking industry was erroneously perceived as a sellers’ market is long gone. The banking sector experienced a “boom” in the 1980s because of liberalization and low entry requirements by the regulatory authorities as well as the high premiums that could be derived from trading in foreign exchange (round tripping).

One of the ways through which banks can meet the expectations of their customers is by continually striving to provide quality service. The average Nigerian bank customer is more enlightened today than perhaps ten years ago. He/she wants more value for money and believes that that value can be found next door. Because of the relatively high incidence of poverty of 54% (CBN, 2009), many Nigerian bank customers tend to be price-sensitive. Many banks subscribe to the fact that high customer satisfaction will lead to greater customer loyalty (Yi, 1991; Anderson and Sullivan, 1993) which in turn, leads to future financial gains. Consequently, many organizations that have embraced a culture of providing superior service quality have been found to be market leaders in terms of sales as well as customer loyalty and retention (Anderson and Sullivan, 1993). Service quality, especially in the banking sector, has been a popular research topic.

Gefen (2000) defined service quality as “the subjective comparison that customers make between the quality of the service that they want to receive and what they actually get.” Sudesh (2007) reported that the poor service quality in public sector banks is mainly due to deficiency in tangibility, as well as a lack of responsiveness and empathy. On the other hand, private sector banks were found to be more refined in this regard. Overall, foreign banks were relatively close to their customers’ expectations in term of the various dimensions of service quality. Furthermore, the study revealed the presence of service quality variations across demographic variables. It suggests that bank management should pay attention to potential failure points and respond to customer problems (Sudesh, 2007). Banks should pay attention to service quality to increase customers’ loyalty to the company, willingness to pay, customer commitment, and customer trust (Hazra and Srivastava, 2009). Therefore, there is a need to emphasize the understanding of multidimensional constructs of service quality and its implications in a competitive environment. A satisfied customer does not necessarily become loyal, while customers may maintain a relationship with a company despite being dissatisfied (Matos et al., 2013). Cowling at al (1995) in developing countries service quality also used to evaluate a financial institution by looking its performance. So they explain on the basis of customer expectation due to the performance and the perception of the service received that is very important because the financial institution are not matured enough in Africa compared to Europe hence through that gap can be identified. Chaoprasert and Elsey, (2004) show how it is important for the banks to focus on service quality as a main tools to attack a competitor because people can compare the quality and choose the best.