May 15, 2018 - quality and product differentiation on customer satisfaction in commercial banks in ...... The researcher will ask permission to the respondent.
FACTORS INFLUENCING CUSTOMER SATISFACTION IN COMMERCIAL BANKS: SOME SELECTED BANKS IN MOGADISHU
BY
ABDIKAFI MOHAMUD ALI WARSAME ABDINASIR ABDULLAHI MOHAMED ADAM DAHIR FARAH GEDI
A GRADUATION PROJECT SUBMITTED IN PARTIAL FULFILLMENTS OF THE REQUIREMENTS FOR THE DEGREE IN BACHELOR OF BANKING AND FINANCE
FACULTY OF MANAGEMENT SCIENCES
SIMAD UNIVERSITY MAY, 2018
ABSTRACT A Customer satisfaction is an important element to the every organizations existence. On the basis for that reason, the researchers devote the majority of the time by looking factors influencing customer satisfaction in commercial banks: some selected banks in Mogadishu. The main objectives of the study were to identify the influence of service quality and product differentiation on customer satisfaction in commercial banks in Mogadishu Somalia. The method of was quantitative cross-sectional data and researchers took a sample for a 73 respondents. The study showed that most respondents agreed that service quality and product differentiation have an influence on customer satisfaction. As correlations showed, that service quality has moderate positive relationship to the customer satisfaction, while product differentiation has week positive relationship to customer satisfaction. Finally, the researchers would recommend to the management of the banking industry to update and improve product qualities and product innovation of the banks. Second, the researchers recommend to the management of commercial banks to emphasize and develop service quality measurement tools, in order to satisfy their customers.
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ABASTARACT B Qanancsanaanta macaamiisha waa qodob muhiim u ah shirkad walba ee ganacsi. Iyadoo taas loo sababeynaayo, waxaan waqtigeena u hurnay inaan baarno sheeyaasha saameynta kuleh qanacsanaanta macaamiisha ee bankiyada ganacsiga: gaar ahaan qaar laga soo xushay bankiyadaas ee magaalada Mogadishu soomaaliya. Ujeedooyinka ugu waaweyn ee diraasadu waxay ahaayen in la aqoonsado saameynta ay ku leeyihiin tayada adeega iyo kala duwanaanta agabyadu qanacsanaanta macaamiisha bankiyada mogadishu soomaaliya. Qaabka baaristu wuxuu qaab tiro ah oo aan waqtiyeysnayn. Sidoo kale waxaan qaadanay tiro macaamiil ah oo gaareysa 73 macaamiil. Diraasadu waxay tusisey jawaab celiyaashuna tilmaameen in tayada adeega ay bixiyaan bankiyadu saameyn kuleedahay
qanacsanaanta
macaamiisha.
Sidoo
kale
waxay
jawaabaha
ka
qeybqaatayaasha diraasadu muujiyeen in agabka ay bixiyaan bankiyada uu saameyn ku leeyahay qanancsanaantooda. Waxaa sido taxliilka xiriirku muujiyey in xiriir dhexdhexaad ah oo togan uu ka dhexeeyo tayada adeega bankiyadu bixiyaan iyo qanacsanaanta macaamiisha. Sidoo kale wuxuu taxliilka xiriirku muujiyey in agabka ay bankiyadu bixiyaan uu saameyn diciif oo togan ku leeyahay qanancsanaanta macaamiisha. Ugu danbeyn, waxaan usoo jeedinaynaa maamulka bankiyada iney hormariyaan adeega ay bixinayaan tayadiisa iyo weliba cusbooneysiintiisa.
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IV
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VI
TABLE OF CONTENTS
CHAPTER ONE
1
INTRODUCTION
1
1.0 BACKGROUND OF THE STUDY
1
1.2
PROBLEM STATEMENT
5
1.3
PURPOSE OF THE STUDY
5
1.4
RESEARCH OBJECTIVES
6
1.5
RESEARCH QUESTIONS
6
1.6
THE SCOPE OF THE STUDY
6
1.7
SIGNIFICANCE OF THE STUDY
6
2.1
DEFINITION OF OPERATIONAL VARIABLES
7
2.1.1
Service quality
7
2.2.1
Product differentiation
7
2.3.1
Commercial banks
7
2.4.1
Customer Satisfaction
7
CHAPTER TWO
8
LITERATURE REVIEW
8
2.0 INTRODUCTION
8
2.1
SERVICE QUALITY
8
2.1
PRODUCT DIFFERENTIATION
2.1.1 2.2
10
Product customization
11
Customer Satisfaction
2.2.1
11
Customer Loyalty
12
2.3
Service Quality, Product differentiation, and Customer Satisfaction.
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2.4
CONCEPTUAL FRAMEWORK
13
CHAPTER THREE
15
VII
15
METHODOLOGY 3.0
INTRODUCTION
15
3.1
RESEARCH DESIGN
15
3.2
RESEARCH POPULATION
15
3.2.1
Sample Size
16
3.2.2
Sampling technique
17
RESEARCH INSTRUMENT
17
3.3
3.3.1
Validity and Reliability of the Instrument
18
3.4
Data Collection Methods
18
3.5
Data Analysis Methods
19
3.6
Ethical Considerations
19
CHAPTER FOUR
20
FINDINGS AND DISCUSSIONS
20
4.0
INTRODUCTION
20
4.1
DEMOGRAPHIC INFORMATION
20
4.2 DATA PRESENTATION AND ANALYSIS
22
4.3 MAJOR FINDING
26
4.4 DISCUSSION
27
CHAPTER FIVE
29
CONCLUSION AND RECOMMENDATION
29
5.0 INTRODUCTION
29
5.1 CONCLUSIONS
29
5.2 RECOMMENDATIONS
30
5.3 FURTHER STUDIES
30
REFERENCES
31
APPENDIX (A): BUDGET
36
APPENDIX (B): ACTION AND TIMEFRAME
37
VIII
APPENDIX (C): QUESTIONNAIRE
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LIST OF TABLES AND FIGURES FIGURE 2. 1: RESEARCHERS, (2018). ............................................................................. 14 TABLE 3.1: SAMPLE DISTRIBUTION ................................................................................ 17 TABLE 4.1.1: DEMOGRAPHIC INFORMATION .................................................................. 20
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TABLE 4.1.2: RELIABILITY ANALYSIS ............................................................................ 22 TABLE 4.2.1: SERVICE QUALITY DIMENSION (RELIABILITY) .......................................... 22 TABLE 4.2.2: ASSURANCE ............................................................................................. 23 TABLE 4.2.3: RESPONSIVENESS ..................................................................................... 23 TABLE 4.2.4: TANGIBILITY ............................................................................................ 23 TABLE 4.2.5: EMPATHY ................................................................................................. 24 TABLE 4.2. 6: SERVICE QUALITY ................................................................................... 24 TABLE 4.2. 7: PRODUCT DIFFERENTIATION ................................................................... 25 TABLE 4.2.8: CORRELATION ANALYSIS ......................................................................... 26
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CHAPTER ONE INTRODUCTION 1.0 BACKGROUND OF THE STUDY During 1980s and 1990s, Global banking and capital market services had made great expansions, due to the significant increase in demand from organizations, government institutions, and financial institutions, for the reason of, financial market conditions. For the first two decades, the Treasury notes and financial assets grew at a rate that is nearly twice the rate of the global economy. In the past twenty years, it was not for the insightful effects of the globalization of financial marketplaces particularly the US. Foreign investments, especially from Japan, who not only gave the funds to companies in the U.S., but also assisted fund to the federal government institutions, thus transitioning the U.S. stock market by far into the biggest in the world (Nguli, 2016). In the new global and highly competitive economy environment, it is crucial that business companies become non-customer-oriented. In order to survive organizations need to produce goods and services of very high quality that result highly satisfied and loyal customers. For several years, customer gratification and satisfaction has been the biggest goal of every organization, since it has been intended to influence company’s market share and customer satisfaction (Dawar, 2013). According to the Nguli (2016), the measurement of consumer satisfaction is not possible unless the critical factors behind the customer satisfaction are determined. There would be both external and internal factors that together influence the customer satisfaction in a bank. Internal factors are variables within the banking sector, which affect the satisfaction of customers. External factors are those variables from outside the bank that influence consumer satisfaction. The internal factors leading to consumer
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approval and satisfaction in a banking industry includes; products deliver by the bank, management practices, and customer service. Internal factors are those factors that affecting systems from and within the bank; that in one way or another affect customer satisfaction. These factors can be categorized in many ways, for examples, service quality, and product differentiation practices. Auka, Bosire, and Matern (2013), argued that service quality is one of the crucial success factors that affect the competitiveness of a service companies. A bank can differentiate itself from other competitors by offering high quality service. Otherwise, customer will not purchase or hold services and products from the bank. If the bank develops the quality of service, then the consumer will be loyal to the bank to take that service many times. Customers feel well-secured and high satisfaction when they get quality service. Product differentiation practices are currently a priority for managers of many commercial banking organizations and it is a driver of performance and a key of growth as organizations in this industry operate in an extremely competitive and dynamic environment. There are many forms of banking innovations in the banking sector which include relationship banking, automated teller machines, telephone banking, internet banking, branch networking, electronic funds transfer and real time gross settlement system (Nguli, 2016). According to Macesich, (2000), some areas were commercial banks have done a lot of innovation include; The automated teller machine (ATM), agency banking and mobile banking, real- time gross settlement (RTGS), WAN and electronic Funds Transfer. During the last 40 years, customer satisfaction has been considered as one of the most crucial theoretical and practical issues for most marketers and customer researchers (Jamal, 2002). Overall Customer satisfaction thus reveals, “The general
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evaluation of the activities carried out by a given business organizations in relation to the expectations accumulated after various contact between the customer and the company (Bitner and Hubber, 1994). From the beginning of the “customer service revolution” almost twenty years ago, business researchers have focused on customer satisfaction and customer-oriented companies. Commercial advisors, businesses and others have continued to work to identify the attributes of organizations that regularly satisfy their customers, to improve tools for monitoring client satisfaction, and to build constant quality development systems that respond to consumer feedback. Although much of the studies have been conducted by and for the corporate world, customer service and satisfaction is not limited to the private sector (Gatari, 2016). In global , customer satisfaction is important factor, since one might not get an opportunity to redo the service, if the experience is identified by a consumers as unsatisfactory (Gatari, 2016). Narteh and Kuada, (2014) argued that banks can only provide satisfactory consumer service, if standards, procedures, and policies for service quality exist in the business. This is because the quality of service plays a great role in achieving and improving customer satisfaction. According to Munari et al., (2013) the industry of banking considers customer satisfaction as the one of most critical and crucial criteria for assessing and evaluating the relationship that the bank has with the marketplace. As such that result, the customer satisfaction is regarded as a fatal driver in banks performance techniques. In Africa, Admirable customer service is key factor to success in Africa’s banking sector. Indeed, whereas just 3 years ago, the customers of the bank customers said that the financial stability of their bank was the top reason and sole factor they were continuing their banking relationship, today’s banking customers are clearly more focused on the products they receive from their bank. It is worth noting, however, that
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while financial stability fell into second stage as a critical reason for maintaining a bank account, and it remains a crucial factor for almost a 25 percent of Africa’s banking customers. In fact, the percentage of those that cited financial stability as a factor rose by 2.5% between 2013 and 2016 suggesting that – in some marketplaces more will need to be strengthen the banking system. In a part of that, the shift away from financial stability reflects the growing strength of Africa’s banking markets and regulation. However, it is also being driven by increased awareness of customer rights (largely the result of successful national financial inclusion programs) and greater competition between players. At the same time, Africa’s diaspora and business travelers are returning home with increased expectations of their banks based on their international experience. This points to a valuable opportunity for Africa’s banks to differentiate themselves based on excellent customer service which, in turn, should allow them to increase market share and improve loyalty amongst existing customers. In fact, of customers that said they were contemplating changing their banks, almost a third said it was because of service quality (KPMG, 2016). Festinger’s (1957), proposed a theory called Dissonance theory, which suggests that customers make some kind of cognitive comparison between expectations about the product and the perceived product performance. According to the theory, consumers look to avoid dissonance by changing perceptions about a particular product to make substantial alignment in accordance with the expectations. When the expectations and the actual product performance do not match, the consumer will feel some degree of tension. To relieve this tension, the customer will engage adjustments in either expectations or the perceptions of the product’s actual performance. Moreover, Carl smith and Aronson (1963) put another theory called negativity theory, which describes that any discrepancy of performance from expectations will
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interrupt the individual, which produce “negative energy.” Affective feelings and pleasure toward a good or service were inversely related to the degree of the discrepancy appeared. This theory relates to this research as the study focuses on factors influencing customer satisfaction of commercial banks in Mogadishu. It is, therefore, the responsibility of the bank staff to ensure that they meet the customer expectations to retain them, which causes the increase of their profits. 1.2 PROBLEM STATEMENT Many of academicians and scholars around the world have emphasized the importance of clients. Top performing financial institutions, customers are the main reason for their existence in marketplace, and they are very dependent. The customers are not only the reference of issue. Therefore, the Banks should never wish that customers “should drive away” because their future and protection was put in risk. These forms the main reason banks in the current times are giving too much commitment to customer gratification, retention, and faithfulness (Zairi, 2000). Despite service quality, product differentiation, customer feedback and banks culture played an important role by maintaining customers who are loyal to the bank and many banks provided the efforts to improve their customer satisfaction, there is still evidence of challenges on quality of the service, and product differentiation that leads to customer satisfaction. (Felix, 2017). Therefore, this study will investigate to what extent that service quality, and product differentiation influences, customer satisfaction in commercial banks in Mogadishu. 1.3 PURPOSE OF THE STUDY The purpose of this study will be to establish factors that influence customer satisfaction in some commercial banks in Mogadishu.
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1.4 RESEARCH OBJECTIVES 1. To evaluate the influence of service quality on customer satisfaction in the commercial banks. 2. To examine the effect of product differentiation on customer satisfaction in commercial banks. 1.5 RESEARCH QUESTIONS 1. To what degree service quality influence customer satisfaction in the commercial banks? 2. To what degree does product differentiation in commercial banks influence customer satisfaction? 1.6 THE SCOPE OF THE STUDY This study mainly will focus on factors affecting customer satisfaction of some selected commercial banks. This study would be carry out in 2018 as cross-sectional studies. The study will conduct in Mogadishu with main concentration on some selected commercial banks in Mogadishu. 1.7 SIGNIFICANCE OF THE STUDY This study will determine the factors influencing customer satisfaction within Mogadishu Commercial Bank. The findings of this study may be used by the commercial banks marketing team, management and interested stakeholders in the designing, review and Implementation of appropriate mechanisms and policies to ensure that the bank customers are Satisfied with the bank services. Other players in the banking sector can also examine the factors that influence customer satisfaction at commercial banks and borrow leaf for the improvement of the customer satisfaction as to apply at their organizations.
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1.8 DEFINITION OF OPERATIONAL VARIABLES 1.8.1
Service quality
An assessment of how well a delivered service conforms to the client's expectations. Service business operators often assess the service quality provided to their customers in order to improve their service, to quickly identify problems, and to better assess client satisfaction. The SERVQUAL Instrument measures the five dimensions of Service Quality. These five dimensions are tangibility, reliability, responsiveness, assurance, and empathy. 1.8.2
Product differentiation
Product differentiation is the delivery of different products and service by an organization to consumers that will fit their purpose and achieve the objective of the business. 1.8.3
Commercial banks
Privately owned financial institution, which accepts demand and time deposits, makes loans to individuals and organizations, and provides services such as documentary collections, international banking, trade financing. 1.8.4 Customer Satisfaction Customer satisfaction is referred to the general evaluation based on business activities carried out by organizations in relation to client opinions that has been collected over a period, because of the customer using the organizations goods or services. Customer satisfaction would be measured on to the degree of customer loyalty.
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CHAPTER TWO LITERATURE REVIEW 2.0 INTRODUCTION This chapter will provide literature review based on research questions of the study. Literature review on the extent to which service quality influence customer satisfaction in the banking industry will be presented first, followed by the extent to which product differentiation in the banking industry influence customer satisfaction, and third, it presents the relationship between these two factors and customer satisfaction, and finally, it presents the conceptual framework of the variables. Chapter summary of major reviews will be presented at the end of this chapter. 2.1 SERVICE QUALITY Johnston (1995) defined Service quality as customers’ overall impressions of a company’s services in terms of relative supremacy or inferiority. In addition to that, service quality consideration not only to meet but also to exceed consumer expectations, and should include a continuous development process (Lloyd-Walker & Cheung, 1998). In addition to that, Lloyd and Cheung proposed that service quality consideration was not only to meet but also to exceed consumer wants and needs, and should include a continuous development process. Since of economic trends throughout history, the concept of 'quality' has dramatically changed. 'Quality' derived from the Latin word 'Qualitas', which describes to the nature of an individual or the nature of an object. In the past, Quality meant precision and perfection. Quality is such a crucial issue that it is considered as significant concept in our daily life. Quality is mainly considered as a strategic organizational tool. Moreover, the persistent need of improving service companies and
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upgrading their services necessitates the measuring the quality of service they provide. This asset in checking the quality progress and providing bases for developing it (AlDararkah, 2002). Grönroos, (1990) proposed that customers assess banks’ performance mainly on the way of their interpersonal contacts, relationships, and communication. Service quality arises from a comparison of the difference between service expectations developed before an encounter with banks and the performance opinions gained from the service delivery based on the service quality dimensions (Bloemer et al., 1998). Parasuranam suggested the five dimensions of service quality and those dimensions include tangibles, reliability, responsiveness, assurance, and empathy. These dimensions are the basis for service quality measurement (Parasuramanet al., 1988). Parasuraman et al. (1991a) argued that reliability was mainly concerned with the outcome of service whereas tangibles, responsiveness, assurance, and empathy were concerned with the service delivery process. The customers not only judge the accuracy and dependability (i.e. reliability) of the delivered service but they also judge the other dimensions as the service is being delivered. Service reliability is the extent of discrepancy between customers’ normative perceptions for availability of that service when needed and the real availability rates, when service is needed This inconsistency is usually occasion by the fact that business companies can promise customers given services, however, the supply of those services may not be guaranteed (Consuegra, Molina, and Esteban 2008). Moreover, responsiveness is the organized reaction towards the customers' needs and wants that is timely, and within the anticipation of the customer (Gritti and Foss 2010). Gupta and Dev (2012) on the other hand, defined responsiveness at the intensive efforts of a company does, to ensure that customer needs are met within particular times. This
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includes sending timely feedback, and ensuring clients’ queries and concerns are addressed promptly. According to Jiang and Wang (2008), assurance is the credibility and the ability for to inspire trust and confidence in their customers. Most often assurance is measured by the way banks demonstrate ‘competence’ in service provision. When a bank has the right set of skilled and knowledgeable to provide required service, they inspire confidence in customers, which enhances the assurance customers have in the bank (Arasli, Smadi & Katircioglu, 2009). According to Jayaraman, Shankar and Hor, (2010) tangibility refers to the physical aspects of a product or service. In the banking industry, this refers to the physical attributes of the bank and its services, such as the banking building, the banking halls aesthetics, the waiting area, the banking seats, and accessibility. Rahman (2014) defines empathy as the caring behavior that is usually extend to an individual in personalized manner. Further, empathy is entails the way in which someone feels the pain, or struggle of another person, and extends a helping hand. 2.1
PRODUCT DIFFERENTIATION Product is one of the most important drivers of bank strategy. Billions of dollars
spent by banks anxious to gain access to new product areas. Strategic alliances have come and gone and the bank assurance model has been in and out of fashion on more than one occasion. According to Didier, considering a marketing perspective, quality denotes a product's ability to satisfy a customer's requirements. On this wise, this definition focuses entirely on the customer, and how the customer thinks a product will fit that purpose. Parasuraman, Zeithaml and Berry, (1991a) mentioned on the necessity of distinguishing product quality from sendee quality, as the aspects which are assessed differently. Consumers use product specific intrinsic cues to evaluate product quality.
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Intrinsic cues like flavor or color etc. are an inseparable and integral part of the product. Simultaneously, consumers also trust the relevant extrinsic product cues such a price, brand name, and store name as indicators of product quality. 2.1.1
Product customization
Product customization has been recognized as an effective means to meet individual customers' needs. It is imperative to assist customers in making informed decisions with regard to company capabilities and the added value of customization. Customer value analysis not only empowers customers to express their preferences for various product features explicitly, but it also facilitates the company's justification of different customization solutions. Facing the buyers' market, many industries are shifting from mass production to mass customization. Previously homogenous markets have evolved to be fragmented and heterogeneous, where customers may express their individual needs (Parasuraman, Zeithaml, and Berry, 1994). Quality, in the sense of satisfying individual customers' needs, has become a major differentiating factor among products. It becomes more acceptable that customers are willing to pay more for products that utter to their individual sizes, tastes, styles, needs, or expressions. In response to this trend, manufacturers tend to proliferate their products and generate a huge amount of variety. Nevertheless, the explosion of product variety inherently leads to high costs in design, production, inventory, and logistics. In addition, the practice of making a wide variety of products available and letting customers vote on the shelf seems not only to be wasteful, but also tends to constrain customers' ultimate satisfaction (Nguli, 2016). 2.2 Customer Satisfaction Many researchers (Lovelock, Patterson and Walker, 2001) conceptualize customer satisfaction as an individual's feeling of pleasure or disappointment resulting from
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comparing a product's perceived performance (or outcome) in relation to his or her expectations. Customer satisfaction has been traditionally studied in marketing area as one of the critical attitudinal variables that may influence customer behavior. Most of the studies of satisfaction in marketing literature are based on the disconfirmation theory. It postulates that, the feeling of satisfaction is a result of the comparison between perceptions of a product's performance and expectations (Oliver, and Swan, 1989). This concept, representing psychological assessment procedures, provides an understanding of expectations, desires, experiences, and performances that may affect customer attitudes. Based on this theory, McKinney, Yoon and Zahedi, (2002)'s study suggested that the difference between expectations and actual performance on system quality and information quality is likely to determine Web customer satisfaction. Customers who are satisfied with a purchased product will buy the same product again, more often (Reichheld, 1996), and will also recommend it to others (Oliver and Swan, 1989). Customer satisfaction is commonly related to two fundamental properties, including the customer's judgment of the quality of the product and his evaluation of the interaction experience he or she has made with the product provider. This approach typically treats customers as information systems users, and focuses primarily on user satisfaction with websites (Ongoto, 2010). 2.2.1
Customer Loyalty
Customer satisfaction that leads to retention and loyalty improves profitability principally by reducing costs incurred in acquiring new customers (Reichheld, 1996). There is, however, a distinction between customers who are simply retained and those who are loyal. The concept of consumer inertia implies that some customers are only being retained, rather than expressing loyalty. Truly loyal customers are usually portrayed as being less price-sensitive and more inclined to increase the number and/or
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frequency of purchases. They may become advocates of the organization concerned and play a role in the decision making of their peers or family. Customer loyalty is therefore not the same as customer retention, as loyalty is distinct from simple repurchase behavior. Loyalty is only a valid concept in situations where customers can choose other providers (Colgate et al., 1996). 2.3 Service Quality, Product differentiation, and Customer Satisfaction. study conducted by Aliata, Ojera, & Mise, (2016), revealed that service quality significantly contributed to customer satisfaction. The study concluded that service quality contributes to customer satisfaction in commercial banks. Pearson product moment used to establish the relationship between the five dimensions of service quality and customer satisfaction. The findings indicated that the highest significant association existed between assurance and customer satisfaction. The overall correlation was implying that there was a significant association between service quality and customer satisfaction. The study concludes that there is a relationship between service quality and customer satisfaction (Aliata et al., 2016). Nguli, R. K. (2016), Revealed that there is a positive relationship between banks’ product differentiation and customer’ satisfaction. In addition, Nguli proposed that commercial banks’ product differentiation significantly influences on customer satisfaction. This is because customers want to embrace the use of new technology, which is brought by innovations. The study was concluded that unit change in product differentiation will cause a positive change in customer satisfaction. 2.4 CONCEPTUAL FRAMEWORK A concept is a representation image or symbols of an abstract idea. Felix, (2017), defines the conceptual image as a complex mental formulation of experience about the
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study. The Model of the study is determined in figure 1, where the independent and dependent variables are shown as a diagram.
Independent variables Service quality
Dependent variable
Responsiveness Assurance Reliability Tangibility
Customer satisfaction
Product differentiation
Product customization
Figure 2. 1: Researchers, (2018).
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Customer loyalty
CHAPTER THREE METHODOLOGY 3.0 INTRODUCTION This chapter will present an overview of the methodology that will be used to guide the study. It discusses the research design, target population, the sample size and sampling technique, questionnaire, validity and reliability of the research. 3.1 RESEARCH DESIGN Epetimehin and Ekundayo (2011) define a research design as the framework that is used to guide a researcher in conducting a study. This includes how data will be collected, the procedure that will be adopted in determining which data will be need to be collected for the study. This study will adopt a descriptive research design. Since it allows the research objectivity, and it will enable the researcher to summarize data using descriptive and inferential statistics. Descriptive research portrays an accurate profile of persons, events, or situations (Saunders, Lewis and Thornhill, 2003). The dependent variable is customer satisfaction, while service quality and product differentiation are independent variables. The research method is quantitative research with crosssectional data. 3.2 RESEARCH POPULATION Copper and Schindler (2014) defines a study population as a set of elements, or objects from which statistical sample is drawn. Equally, Saunders, et al., (2014) defines a study population as the total group of elements, possessing common observable characteristic, that a researcher is interested in conducting a study; a population constitutes the total sum of objects and elements from which a researcher wishes to draw conclusions. For this study, the overall population is the customers of commercial
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banks and the target population of this study is two commercial banks, Salam Somali Bank, and premier Bank. However, to find the actual number of customers in commercial banks become difficulty due to the confidentiality of these banks, so on the bases of that reason, the total population of the study is unachievable. 3.2.1
Sample Size
A Sample size is the sample unit that proportionally represents the entire population. (Copper & Schindler, 2014). According to the nature of the target population where numbers of the target population are many, a sample will be taken.. Sampling criteria:
Customer account holders after 2017 will not be a part from the sample, because of their less experience about the bank.
Foreign account holders will not be apart from the sample, because of their less availability.
Since the number of population is unachievable and researchers cannot determine the exact number of sample size, therefore, it is applicable to use croncobach’s population proportion formula to specify the sample size.
Population proportion formula can be used when the actual number of the population is unachievable or unknown, or cannot be estimated. The sample size can be derived by computing the minimum sample size required for accuracy in estimating proportions by considering the standard normal deviation set at 95% confidence level (1.96) (Mensah, 2014).
z 2 * pq (1.96) 2 * 0.95 * 0.05 73 Formula n ME 2 0.052 Where: n = size of the sample
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Z = standard variation for given confidence level (this case 95% confidence level). P = sample proportion of successes; q=1–p ME= margin of error Table 3.1: sample distribution Bank name
Sample
Premier Bank
36
Salam Somali Bank
37
Total
73
3.2.2
Sampling technique Cox and Hassard (2010) defines a sampling technique as the process a researcher
uses to determine how to pick or identify the actual sample units, that will be used as the respondents of the study. This study uses non-probability sampling procedure; particularly purposive sampling. The researchers selected the sampling technique because it gives the opportunity to choose the member target population who provides the accurate information or data. (Essays, UK. 2013) stated purposive sampling is a way of sampling where the researchers used their purposive to select population members who are good prospects for precise information. 3.3 RESEARCH INSTRUMENT Research instruments describes to devices used to collect raw data such as questionnaires, assessments, structured interview programs and checklists (Seaman 1991). Polit and Hungler (1997) define a questionnaire as “a method of gathering information from respondents about attitudes, knowledge, beliefs and feelings”. This
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study, the researchers will use an adopted and modified questionnaire from Eva Nyawira Gatari, (2016) and Walter Nyariki Ongoto , (2010). 3.3.1
Validity and Reliability of the Instrument
Reliability of an instrument is the degree of consistency with which it measures a variable (Mugenda & Mugenda, 1999). An instrument can be validated by proving that its items or questions are representative of the skills or characteristic that it is intended to measure (Mutai, 2000). The data instrument is designed to collect data that addresses the problem of the study and to achieve the study objectives in this study; the researchers will use the content validity index to provide extensive information about the questionnaire’s validity. Content validity has been defined as the degree to which an instrument has an appropriate sample of items for the construct being measured (Horgas, Yoon, Nichols, & Marsiske, 2008). Moreover, to test the reliability of the study, Cronbach alpha technique will be used for coefficient of 0.7 as benchmark of the reliability of the study. 3.4 Data Collection Methods The study will use structured closed ended questionnaire to collect primary data. Cox and Hassard (2010) defines a research questionnaire as a tool that is used to collect data, that consists of structured questions that a researcher seeks to get answers from the study respondents. Copper and Schindler (2014) posits that a closed structured questionnaire contains question ns that have defined parameters for respondents to choose from as answers, or a Likert scale that limits the scope within with respondents can answer questions. In this study, researchers will administer questionnaire and will be composed of four sections: Section (1): deals with demographic information; Section (2): deals with influence of service quality and customer satisfaction; Section (3): will collect data on
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influence of product differentiation on customer satisfaction. Section (4): will collect data about customer satisfaction, which is dependent variable of the study. The questionnaire will utilize a Likert scale of five levels (strongly disagree, disagree, natural, agree, and strongly agree); because it limits the scope within with respondents can answer questions. 3.5 Data Analysis Methods Creswell (2007) defines data analysis methods as the process a researcher engages to interpret collected data in a manner that answers the study objectives, and in a manner, that makes sense. On the other hand, Copper and Schindler (2014) defines data analysis method as the use the statistical and non-statistical analysis of collected data by a researcher so as findings. Before data analysis is conducted, all data that will be received from respondents, and will be checked for completeness. In addition, data cleaning and coding will be conducted for each questionnaire. Thereafter, data analysis will take place using Statistical Package for Social Sciences (SPSS) tool version 19. Descriptive method will be used to analyze data for this study. Descriptive analytical method will entail using frequencies, percentages, mean, and standard deviation. Data will be presented using tables and figures. Moreover, correlation analysis will be used to analyze the relationship between service quality, product differentiation and customer satisfaction. 3.6 Ethical Considerations The study will ensure that the respondents are assure of the confidentiality of information they will provide. The researcher will ask permission to the respondent prior to conducting the study.
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CHAPTER FOUR FINDINGS AND DISCUSSIONS 4.0 INTRODUCTION This chapter contains findings arising from the analysis of data collected, using questionnaires, presentation of findings and interpretation. The study sought to investigate factors influencing customer satisfaction in Commercial Banks. 4.1 DEMOGRAPHIC INFORMATION This part presents the background information of the respondents who participated in the study, it contains five components, which are respondents by gender, age, educational level, member bank, and last section of the demographic variable is respondent’s main bank. The purpose of this background information was to find out the characteristics of the respondents and to show the distribution of the population in the study. Their distribution is established as the following table’s shows. Table 4.1.1: demographic information VARIABLE Gender
Frequency
Percentage
Male Female Total
37 36 73
51% 49% 100%
Less than 30 years Between 30-34 years Between 35-39 years Between 40-44 years Over 45 years
40 18 13 1 1 73
55% 25% 18% 1% 1% 100%
Primary school level Secondary school
0 3
4%
First degree Masters
47 21
64% 29%
Age
Total Educational level
20
PhD Others Total Which bank are you a member of? Salaam Somali Bank Premier Bank Both Total Main bank Salaam Somali Bank Premier Bank Total
2 0 73
3% 0% 100%
33 28 12 73
45.2% 38.4% 16.4% 100%
42 31 73
57.5% 42.5% 100%
According to table 4.1.1 the majority of the respondents were male (almost 51%), while the remaining (49%) of the respondents were female respondents. However, this number shows slightly equality representation of both the male and female since the margin between the two genders were very small. Table 4.1.1 also indicated on the above, 55% of the respondents were at the age less than 30 years, 25% of the respondents were at the age of 31-34, and 18% of the respondents were at the age of 35-39. Respondents at the age 40-44 were 1%, while those who are over 45 years where 1%. According to the age of respondents, the majority of the respondent less than 30 years of age, and that shows that youth are the most users of banks. Table 4.1.1 showed that 64% of the participants were hold first degree, 29%, were Master degree, while the remaining 4% and 3% were secondary school and PhD respectively. Moreover, Table 4.1.1 showed that 45.2% of the respondents were the customers of salaam Somali Bank. 38.4% of the respondents were the customers of Premier Bank. While the remaining 16.4% of the respondents were using both banks.
21
Table 4.1.2: reliability analysis Variable
Cronbach's Alpha
Items
Service quality dimensions reliability assurance Responsiveness tangibility empathy Product innovation
0.777 .860 .775 .741 .780 .710
5 4 4 4 5 4
Customer satisfaction
0.704
3
The questionnaires used had likert scale items that were to be responded to. For reliability analysis, Cronbach’s alpha was calculated by application of Statistical Package for Social Sciences (SPSS) version 19. The value of the alpha coefficient ranges from zero to one and may be used to describe the reliability of factors extracted from dichotomous and/or multi-point formatted questionnaires or scales. A higher value shows a more reliable generated scale. Cooper & Schindler (2008) indicated 0.7 to be an acceptable reliability coefficient. As shown in table 4.1.2, the cronobach alpha of service quality dimensions such as reliability were 0.777, assurance 0.86, responsiveness 0.775, tangibility 0.741, while empathy 0.78. Moreover, product innovation cronobach’s alpha was 0.71 when removed one item. While customer satisfaction cronobach’s alpha was 0.704 after an improvement and removed two items. 4.2 DATA PRESENTATION AND ANALYSIS Table 4.2.1: Service quality dimension (reliability)
22
Std. Mean Deviation Agree 3.56 0.054
Descriptive analysis Bank meets their promised time-frames for Customer responses
Bank is sympathetic and reassuring, when a customer has Agree 3.53 problems
0.081
Bank is dependable
Agree 3.56
0.258
Bank services at the times promised
1.156
Bank has accurate records
Neutra 3.47 l Agree 4.21
Overall mean
Agree 3.66
0.4994
.942
Table 4.2.2: assurance Descriptive Statistics interpretatio n Mean Std. Deviation Bank Employees should be trustworthy agree 3.59 0.116 Bank customers should feel safe when Neutral 3.47 1.156 transacting with employees Bank employees should be polite agree 3.58 0.154 Employees should get adequate support from neutral 3.48 0.948 the bank to do their job well Mean index
agree
3.53
0.5935
Table 4.2.3: responsiveness Std. Interpretation Mean Deviation
Descriptive Statistics
Bank is expected to tell customers exactly when Agree the service will be performed
3.52
1.156
It is reasonable to expect prompt service from Bank employees
Agree
3.53
1.107
Employees are always willing to help customers Agree
3.59
1.116
it’s not oky to be too busy to respond promptly Neutral to customer requests
3.01
1.264
Overall mean
3.4125 1.16075
Neutral
Table 4.2.4: tangibility
23
Descriptive Statistics interpretation
Mean
Std. Deviation
Bank has Up-to-date equipment
neutral
3.48
1.291
The banks Physical facilities are visually appealing Employees well-dressed/neat
Agree
3.51
0.102
Appearance of the physical facilities of the bank are consistent with the type of service industry
neutral
3.45
0.156
Good banking halls and offices has enhanced my satisfaction with the bank
neutral
3.41
0.284
Mean index
neutral
3.4625
0.45825
interpretation Mean Neutral 3.45
Std. Deviation 1.131
Table 4.2.5: empathy Descriptive Statistics
Bank should be expected to give each customer individualized attention Bank employees should be expected to give each customer individualized attention
agree
3.58
0.066
It is realistic to expect employees to fully understand the needs of the customer
Neutral
3.47
1.074
It is reasonable to expect employees to have the best interests of the customer at heart
Neutral
3.49
0.144
Bank has to operate at hours convenient to all customers
agree
3.53
0.324
Mean index
agree 3.504
Table 4.2. 6: service quality Service quality dimension Reliability Assurance Responsiveness Tangibility Empathy Overall mean
Mean 3.66 3.53 3.4125 3.4625 3.504 3.514
24
Interpretation Agree Agree Neutral Neutral Agree Agree
0.684
According the table 4.2.6, it highlights the descriptive statistics about affect service quality dimensions such as reliability, assurance, responsiveness, tangibility, and empathy on customer satisfaction. To achieve this objective Respondents were subjected to a number of questions to provide answers to research question one. The questions administered to the respondents were aimed at investigating the respondent’s response towards the stated research objective. First, Respondents rated themselves the statements of reliability at mean 3.66 with standard deviation 0.4994. This indicates with overall mean of reliability and standard deviation has an influence on customer satisfaction. Second, respondents rated the statements of assurance at mean of (3.53) and standard deviation 0.5935. Therefore, respondents generally perceived that assurance had on some influence on customer satisfaction, at the mean index of 3.53 is agreed to be good. Third, respondents rated the statements of tangibility at mean of (3.4625) and standard deviation 0.45825. Therefore, respondents generally perceived that tangibility has no influence on customer satisfaction. Fourth, respondents rated the statements of empathy at mean of (3.504) and standard deviation 0.684. Therefore, respondents generally perceived that empathy had on some influence on customer satisfaction. Finally, respondents rated the statements of responsiveness at the lowest mean of (3.4125) and standard deviation 1.16075. Therefore, respondents generally perceived neutral agreement on this dimension. Table 4.2. 7: product differentiation Descriptive Statistics interpretation Mean Std. Deviation re-design product line up agree 3.53 0.186 customized services for high net worth agree 3.48 1.07 clients Introduction of product variety agree 3.52 0.245 0.5003 Mean index agree 3.51
25
According the table above, it highlights the descriptive statistics about influence of product differentiation on customer satisfaction. To achieve this objective Respondents were subjected to a number of questions to provide answers to research question one. The questions administered to the respondents were aimed at investigating the respondent’s response towards the stated research objective. Respondents rated themselves the statements of product differentiation at mean 3.51 with standard deviation 0.5003. This indicates that product differentiation have an influence on customer satisfaction. Table 4.2.8: correlation analysis Variables
Service quality
Product differentiation
Customer satisfaction
Service quality
1
0.884
0.568
Product differentiation
0.884
1
0.282
Customer satisfaction
0.568
0.282
1
According to the correlations in the table above, service quality and customer satisfaction have a correlation of 0.568. This shows that there is positive moderate correlation relationship between service quality and customer satisfaction. Which means that service quality has some influence on customer satisfaction. While product differentiation and customer satisfaction have a correlation of 0.282, which shows that there is positive weak correlation between product differentiation and customer satisfaction. 4.3 MAJOR FINDING This study intended to investigate factors influencing customer satisfaction in commercial banks: some selected banks in Mogadishu Somalia. Two objectives were
26
the reason carried out this study. First objective was to examine the influence of service quality on customer satisfaction, while the second objective was to the influence of product differentiation on customer satisfaction. According to the Table 4.2.6 and table 4.2.8, respondents were agreed that service quality have significant influence on customer satisfaction. The findings of the study support objectives of the study and have strong mean average. A significant impact was found in product differentiation with a mean index of 3.51. In addition, a significant influence was found between service quality and customer satisfaction with a mean index 3.5104, which is slightly equal the first mean index, which was 3.51. Therefore, the satisfactions of customers of commercial banks in Mogadishu are influenced by the products offered by these banks and quality of service of those banks. On the other hand, findings of correlation analysis showed a correlation about 0.568, which shows that there is positive moderate relationship between service quality and customer satisfaction. While product differentiation and customer satisfaction had a correlation at 0.282, which shows that there is positive weak correlation between these two variables.
4.4 DISCUSSION The purpose of this study was to examine factors influencing customer satisfaction in commercial banks: some selected banks in Mogadishu. Factors that influencing customer satisfaction includes, service quality, product differentiation, customer relationship management, information technology, customer feedback, organizational culture, and service delivery. There objectives of the study was only two objectives. The first objective of this study is to investigate the influence of service quality on
27
customer satisfaction in commercial banks in Mogadishu Somalia. The second objective of this study is to examine the influence of product differentiation on customer satisfaction in commercial banks in Mogadishu. The findings of the study support objectives of the study and have strong mean average. A significant impact was found both service quality and product differentiation with a mean index of 3.5104 and 3.51 respectively. Therefore, the satisfactions of customers of commercial banks in Mogadishu are influenced by the products offered by these banks and quality of service of those banks. On the other hand, findings of correlation analysis showed a correlation about 0.568, which shows that there is positive moderate relationship between service quality and customer satisfaction. While product differentiation and customer satisfaction had a correlation at 0.282, which shows that there is positive weak correlation between these two variables. The findings of the study also supported by several researchers such as (Awuor, 2014) and (NgulI, 2016). For their study conducted in Kitui town in Kenya commercial banks, the results shows slight same mean index, but their study got that service quality has more influence than product differentiation on customer satisfaction, because their respondents was different in culture, environment, and relationship to the banks.
28
CHAPTER FIVE CONCLUSION AND RECOMMENDATION 5.0 INTRODUCTION In this chapter we will cover two sections that are Conclusion and Recommendations. 5.1 CONCLUSIONS This study examined factors influencing customer satisfaction in commercial banks: some selected banks in Mogadishu Somalia. The objective of this study was to investigate the influence of service quality on customer satisfaction in commercial banks in Mogadishu. Followed by the influence of product differentiation on customer satisfaction in commercial banks in Mogadishu Somalia. Therefore, the study presented the findings collected from the respondents, Based on data gathered, the results of the analysis indicate that customer satisfaction are influenced by service quality and product differentiation. The findings of the study support objectives of the study and have strong mean average. A significant impact was found both service quality and product differentiation with a mean index of 3.5104 and 3.51 respectively. Therefore, the satisfactions of customers of commercial banks in Mogadishu are influenced by the products offered by these banks and quality of service of those banks. On the other hand, findings of correlation analysis showed a correlation about 0.568, which shows that there is positive moderate relationship between service quality and customer satisfaction. While product differentiation and customer satisfaction had a correlation at 0.282, which shows that there is positive weak correlation between these two variables.
29
5.2 RECOMMENDATIONS In the light with the findings and conclusions of the study, the researchers made the following recommendations: First, the management of the banking industry would update and improve product qualities and product innovation of the banks. Second, the researchers recommend to the management of commercial banks to emphasize and develop service quality measurement tools, in order to satisfy their customers.
5.3 FURTHER STUDIES The researchers suggested father studies in the following area that need special emphasize. Areas of further research that were identified include: Crucially further research is should be done to determine how customer satisfaction can contribute to organizational performance and financial performance. Factors influencing banks innovation, factors influencing the relationship management, factors influencing turnaround time as well as external factors influencing customers’ satisfaction.
30
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APPENDIX (A): BUDGET No
Items
Amount in Dollar
1
Transportation
$15
2
Printing
$25
3
Communication
4
Internet Bill
5
Supervision Fee
6
Questionnaire
$12.5 $25 $ 120 $3
Total
$200.5
36
APPENDIX (B): ACTION AND TIMEFRAME Research Activities
Start
Timeframe
Finish February 2018
10 January 2018
Duration 21 days
1. Chapter one writing. 1st march 2017
15 February 2018
13 days
28 March 2018
3 March2018
25 days
April 20, 2018
4 April 2018
16 days
22 April 2018
21 April 2016
2 days
6. questionnaire
15 May 2018
1 May 2018
15 days
7. chapter four
20 May 2018
15 May 2018
5 days
8. chapter five
24 May 2018
20 May 2018
4 days
9. project submission
26 May 2018
25 May 2018
2 days
1. Chapter two 2. Chapter three
4. improvement
5. Proposal Submission
37
APPENDIX (C): QUESTIONNAIRE We are a Bachelor of Banking and finance students of SIMAD University currently carrying out a research on factors influence of customer satisfaction in commercial banks’ in Mogadishu. You have been selected to be part of the study. I would like to request for your permission and support to fill the study questionnaire on your view. The information collected will be treated with utmost confidentiality and will strictly for the purpose of the study. Thank you.
Yours faithfully,
Abdikafi Mohamud Ali Adam Dahir Farah Abdinasir Abdullahi Mohamed
38
Section (1): Demographic information 1. Gender a) Male
b). Female
2. Age a) Less than 30 years b) Between 30-34 c) Between 35-39 years d) Between 40-44 years e) Over 45 years 3. Educational Level a) Primary school level b) Secondary school c) PhD d) Masters e) First degree f) Diploma g) Others 4. Which bank are you a member of? a) Salam Somali Bank b) Premier Bank c) both 5. Please indicate the name of your main bank. Bank
Section (2): influence of service quality on customer satisfaction as (Strongly Agree [5], Agree [4], Neutral [3], Disagree [2], Strongly Disagree [1]) 1
NO Reliability 6
Bank meets their promised time-frames for Customer responses
7
Bank is sympathetic and reassuring, when a customer has problems
8
Bank is dependable
9
Bank services at the times promised
39
2
3
4
5
10
Bank has accurate records
NO
Assurance
11 12
Bank Employees should be trustworthy Bank customers should feel safe when transacting with employees Bank employees should be polite Employees should get adequate support from the bank to do their job well
13 14
1
1
NO Responsiveness 15 16 17 18
20
The banks Physical facilities are visually appealing Employees well-dressed/neat
21
Appearance of the physical facilities of the bank are consistent with the type of service industry Good banking halls and offices has enhanced my satisfaction with the bank
NO Empathy 23 Bank should be expected to give each customer individualized attention 24 Bank employees should be expected to give each customer individualized attention 25 26 27
3
2
4
3
5
4
5
Bank is expected to tell customers exactly when the service will be performed It is reasonable to expect prompt service from Bank employees Employees are always willing to help customers It’s not ok to be too busy to respond promptly to customer requests
NO Tangibility 19 Bank has Up-to-date equipment
22
2
1
2
3
4
5
1
2
3
4
5
It is realistic to expect employees to fully understand the needs of the customer It is reasonable to expect employees to have the best interests of the customer at heart Bank has to operate at hours convenient to all customers
Section (3): influence of product differentiation on customer satisfaction.
40
as Strongly Agree [5], Agree [4], Neutral [3], Disagree [2], Strongly Disagree [1] NO product differentiation 28 launching new products which represent a superior 29 30 31 32
1
2
3
4
5
customer offer Re-design product line up Customized services for high net worth Introduction of product variety product innovation and general improvements in the products offered
SECTION (4): CUSTOMER SATISFACTION (DEPENDENT VARIABLE) Kindly tick () the answer that best represents your views as Strongly Agree [5], Agree [4], Neutral [3], Disagree [2], Strongly Disagree [1]
NO
Customer satisfaction
1
33
My personal information is secure with the Bank
34
You believe employees’ are trained on customer satisfaction
35
Customer satisfaction is essential for growth of the Bank
36
Customer satisfaction is essential for performance of the Bank
38
The bank provides timely and prompt solutions
41
2
3
4
5
