Assessing the effects of service quality on customer loyalty. A case of First Allied Bank Limited.

Customer loyalty is one of the key objectives of most financial institutions in today’s increasingly competitive business environment. The intense competition in this sector has led firms to develop several strategies in order to obtain competitive edge in the financial market place. These strategies range from the generic strategies such as cost leadership, differentiation and focus with specific strategies such as customer relationship management, total quality management, customer complaint management and business process reengineering strategies among others. The latter strategies are adopted primarily in order to bolster the service quality and the quality of service delivery in the banking institutions. These strategies if adopted properly are expected to reduce cycle and service times; eliminate errors; reduce bureaucracy; deliver personalized products and services; build lasting relationship with customers; and eliminate non-value adding processes in the banking institutions with the view to delivering quality services and products. This study aimed at assessing the effect of service quality on customer loyalty in banks. Specific objectives for the study include: Identification of service quality strategies at First Allied Bank; measurement of customer perception of service quality at First Allied Bank and assessment of the relationship between service quality and customer loyalty at First Allied Bank. A sample of 100 people comprising managers, employees and customers was selected for the study from which primary data was collected through the administration of questionnaires. Data was analyzed using statistical package for service solutions computer software (SPSS). The results revealed that First Allied bank adopt service quality strategies such as good customer care strategy; prompt responsiveness to customer needs; employing professionals as staff; Know your customer service quality strategy and customer relationship management strategy. Correlation and regression analysis was used to determine the relationship between service quality and customer loyalty The study also revealed that there exist strong positive relationships between the five service quality dimensions: tangibles, responsiveness, reliability, assurance and empathy and customer loyalty at First Allied bank. This means that as service quality increases, customer loyalty at First Allied bank increases. The study through customer loyalty construct ‘customer willingness to pay higher prices for the same services of the bank’ estimated that 40 percent of customers are likely to switch to other banks should the bank increase its charges whiles 60 percent will remain with the bank. the study recommends that the bank automate its business processes or adopt other forms of Business Process Reengineering strategies to ensure that service failures and service errors due to manual work processing are eliminated to promote customer loyalty. The study also recommends that the bank undertake regular and frequent maintenance of systems and regular training of employees to reduce service failures and errors The study recommends that First allied bank adopt and implement hybrid strategy as its competitive strategy in order to concurrently achieve differentiation and lower price relative to its rivals in order to achieve customer loyalty for both price sensitive and non-price sensitive customers of the bank.

Source: KNUST