Effect of Service Quality on Customer Satisfaction in Commercial Bank of Ethiopia, Branches in Wolaita Sodo

Research Article

Austin J Bus Adm Manage. 2022; 6(1): 1049.

Effect of Service Quality on Customer Satisfaction in Commercial Bank of Ethiopia, Branches in Wolaita Sodo

Sharecho NS¹* and Raghava D²

¹Department of Management, University of Gondar, Gondar, Ethiopia

²Department of MBA, QIS College of Engineering & Technology, Andhra Pradesh, India

*Corresponding author: Natnael Salfore Sharecho, Department of Management, University of Gondar, Gondar, Ethiopia

Received: January 21, 2022; Accepted: February 17, 2022; Published: February 24, 2022


There is increased demand for higher quality services as consumers all over the world in all sectors become more quality conscious. The objective of this study was to assess the effect of service quality on customer satisfaction in the Commercial Bank of Ethiopia branches in Wolaita Sodo town. For this purpose, 383 respondents were selected from target population and 22 item likert scaled SERVPERF instrument questionnaires were distributed and 344 valid responses were analyzed. The correlation analysis indicated that there were positive and significant relationship between all service quality dimensions and customer satisfaction. Regression analysis which was performed to study the effect of service quality on customer satisfaction found that four service quality dimensions: namely, empathy, responsiveness, reliability, and assurance were positively and significantly affect customer satisfaction and the tangibles dimension was insignificant for analyses. Compared with other quality dimensions in SERVPERF instrument, empathy has high effect on customer satisfaction. The bank is recommended to work hard in all quality aspects and give more personal attention to customers, understand the interest of customers, care for their customers, and give prompt service.

Keywords: Service Quality; Customer Satisfaction; SERVPERF


Currently, business environment is becoming more competitive and challenging than it was before. With multidimensional difficulties and demand of globalization, the organizations are forced to reengineer their services and products to improve the service quality and remain competitive in marketplace [1,2]. The issue of quality service is becoming a global concern that needs continuous improvement to fit the unstable environment and changing customer needs. It is a critical for all service industries worldwide as most of the business organizations attempt to sustain their competitive advantage in the marketplace using different strategies. Financial service providing companies like banks mostly differentiate themselves by providing quality services as service quality is the most competitive tool for banks [3,4]. The quality of services offered will determine customer satisfaction and attitudinal loyalty. According to [4], customer satisfaction is a person’s feeling of pleasure or disappointment resulting from comparing a product’s perceived performance or outcome in relation to his or her prior expectations.

The banking industry, like many other financial service industries, is facing a rapidly changing market, new technologies, economic uncertainties, aggressive competition and more demanding customers and the changing climate and these have presented a unique set of challenges to it [5]. According to [6,7], banks operating in Ethiopia are consequently put into lot of pressures resulting from competition on quality service to satisfy the customers and win and sustain in the market place.

In the past, products were the determinants of business success. The most successful firms were firms that were able to produce high quality products. Indeed, today’s quality products are still crucial in business success, however, the quality issues of the past are quite different from the quality issues of today. In the past, quality was defined and determined from the producers’ or service providers’ perspective with little or no consideration of the customer expectations and perceptions. Customers were perceived not to know what they want and therefore accept what is available. This was the era of mass marketing. The mass marketing technique was effective because of less competition and less knowledgeable consumers [8]. But now a days, the success of every business organization hinges on how their customers are served and how the customers evaluate and perceive such services [9].

One of the benefits of banks resulting from its services delivery is enhancing efficiency and effectiveness of their operations so that more transactions can be processed quickly and easily, which will have a fundamental effect on the overall performance of the banks. The customers on the other hand, stand to enjoy the benefit of quick service delivery, reduced frequency of going to banks physically and reduced cash handling, which will give rise to higher volume of turnover [6,9]. However, these developments in the Commercial Bank of Ethiopia seem not to have achieved their aims. Wait in lines (queues), network failure, power interruptions, unavailability of modern equipment and low accessibility of ATM machines, are still seen in the branches of Commercial Bank of Ethiopia (CBE) [10]. Customer complaint is common in CBE branches in Wolaita Sodo town. As indicated in the bank’s annual report most customers continuously complain over poor customer service, lack of balanced focus on major target areas, long process/bureaucratic way of getting some products such as loan, international banking service, import and export letter of credit, insufficient information on products of the bank, employees inability to quickly adopt to the new technology, poor parking services at the respective bank branches and the like [11].

Most studies conducted in this area are limited to single branch and they used descriptive statics to analyze their data [12,13]. But this study considered five branches of CBE providing service in Wolaita Sodo town and analyzed the effect of service quality on customer satisfaction by using both descriptive and inferential statistics. Furthermore, no published research done in this study area is available. For this purpose, it deemed necessary to conduct the study.

Literature Review

The concept of service

The concept of service is used and defined in various perspectives by many scholars. A service is a commodity with no physical existence, usually created and consumed at the same time [14]. According to [15], it is any act or performance one party can offer to another that is essentially intangible and does not result in the ownership of anything.

Services have a special characteristics compared to products. They are intangible in nature, cannot be mass produced, cannot be inventoried and stored after production due to the fact that services and consumers of services are inseparable, and cannot be produced until the consumer is ready to consume them [15]. According to [14], services to be produced and delivered to the end user, service providers integrate their most valuable resources like employees, technologies, physical resources, governing systems and customers as well in the best possible way so that service quality can be assured. He also indicated that unlike a product, customers of service see and perceive a service from its process point of view and how it is delivered to them and this gives service to have a characteristic of process consumption.

Service quality

Service quality, on the other hand, is the difference between customer expectations of service and perceived service performance [16]. According to them, if expectations are greater than performance, then perceived quality is less than satisfactory and hence customer dissatisfaction occurs. As indicated by [14] the notion of service quality involves more than the outcome quality; the methods and manner by which the service is delivered are of great importance.

There are different models proposed for measuring service by different scholars. Gronroos model divides customer’s perception about the quality of a specific service into two dimensions, i.e. technical and functional quality [14] and it is also known as Technical/ Functional Quality framework. The gap model of the service quality called SERVQUAL was proposed by [17] in which the operationalized service quality is the gap between performance expectation and perceptions of customers. According to them, SERVQUAL has five quality attributes i.e., empathy, responsiveness, tangibles, assurance and reliability.

Customer expectations of service quality are reference points against which service delivery is compared only at beginning. The level of expectation can vary widely depending on the reference point the customer hold. Customer expectations embrace several elements including desired and adequate service which customers hope to receive, predicated services which customers anticipate of receiving and a zone of tolerance which indicates the extent to which customers are willing to accept the variation between the desired and adequate service levels [17].

Customer perceived service quality is the customers own perception of the service based on different factors contributing to the service which extends from the process to the final outcome [16]. Perceptions are consumer judgment about the actual service performance by a given company. According to [17], it is overall assessment of the organization service based on the complete experience of the service delivery process and they are subjective.

According to [17], when evaluating service quality, consumer examines five dimensions; tangibles, reliability, responsiveness, assurance and empathy. Tangibles are concerned with physical facilities, equipment and appearance of employees and management team. Reliability indicates “the ability to perform the promised service dependably and accurately” or “delivering on its promises” [16]. Responsiveness, according to [17], indicates the willingness of the firm’s staffs to help customers and to provide them with prompt service. Assurance is concerned with the knowledge and good manners or courtesy of employees. It also indicates the ability of employees with the help of the knowledge possessed to inspire trust and confidence that will strongly strike the level of customer satisfaction. Finally, empathy entails caring, approachability, easiness of contact, effort in understanding the customers’ needs and provision of individualized attention to customers by personnel of the firm [16].

Models of service quality

Suitable model to measure service quality is needed in order to be active in the competition and get the competitive advantages in high competitive market. For this purpose, there are some models developed by researchers for measuring service quality. The interest of the researchers increased in the recent years in finding the best and comprehensive model for measuring customers’ perception on the service quality as it may lead to satisfaction or dissatisfaction of customers which in turn crucial for performance of the company [9]. Some of the most used service quality models which are more accepted in field of service quality measurement are:

Gronroos model: The early conceptualization of service quality model is formed by Gronroos in 1982. He believed that if a firm wants to be successful, it is vital for the business operator to understand the customers’ perception on the service provided. Service quality management means matching the perceived quality with expected quality and keeping this distance as small as possible in order to reach customers’ satisfaction [14]. In the model, he suggested three dimensions of service quality i.e., technical (outcome), what customers received as a result of interaction with a service firm; functional (process), how a technical service received by customer; and corporate image, the customers’ view of corporate or brand. According to him, by comparing the first two factors of service the quality, expected and received by the customers, one can get the perceived service quality (Figure 1).