The Impact of Service Quality and Customer Satisfaction on Customer's Loyalty in Jordan Islamic Bank Introduction Despite its broadly acknowledged

Transcription

1 The Impact of Service Quality and Customer Satisfaction on Customer's Loyalty in Jordan Islamic Bank Introduction Despite its broadly acknowledged importance, customer loyalty remains an under-investigated subject in Jordanian industries (Akroush et al, 2011). There are few empirical studies focusing on the service quality, customer satisfaction and customer loyalty in the Islamic context of banking institutions in Jordan. This study contributes existing knowledge about customer loyalty for Islamic banking in Jordan. It will include methodology and discussion of data collection and findings. Conclusions are presented. Research Objective and Questions The aim of this paper is to explore how marketing can be improved by examining how in particular organization, service quality and customer satisfaction affects the Jordan Islamic Bank (JIB). The paper seeks to explore the following objectives: 1. what are the service quality attributes that would influence customer satisfaction in the Jordan Islamic Bank? ; 2. what factors influence customer loyalty in the Jordan Islamic Bank?; 3. how understanding of service quality with customer satisfaction could improve marketing effectiveness in the Jordan Islamic Bank (JIB)? Jordan Islamic Bank JIB was chosen for the purpose of the study for a number of reasons. For instance, the importance of religion comes from the reality that it has an impact on people s habits, perceptions and their consumption patterns (Mittelstaedt, 2002). The population of Jordan is estimated at 6.1 million. Muslims constitute 92% of the total population. Therefore, JIB as the first Islamic bank in Jordan has come in response to meet the needs of Muslims in Jordan for financial and banking services which is compatible with the Islamic law. In addition, JIB proved that it has ability to pass through the economic crisis in Jordan. Moreover, JIB has played a chief role in developing economic and social activities, as evidenced by the growing number of people who deposit their savings with the bank. The bank channels these deposits into investment and job-creation. The number of people who benefited from interest free loans reached about 144,000, and the total value of such loans amounted to JD 51.1million (Saleh and Zeitun, 2007).However, Islamic banks operating in Islamic countries are faced with a competition not only from Islamic banks but also from non-islamic rivals (Naser et al, 1999). Successful banks are working to meet customer's expectations and bridging the gap between the service provided and customer expectations to make satisfied, happy and loyal customers. In the service industry, a key element of bank success is the nature of the relationship between the customer and the service supplier in term of SERVQUAL elements, which will drive to customers loyalty. Thus such elements are greatly noted as a critical prerequisite for retaining and satisfying valued customers (Al-Zoubi, 2013). The consequence of this is that (JIB) is attempting to build a good and long-term relationship between the Islamic banking products and clients. Literature review In the traditional marketing mix model the emphasis of marketing activities is essentially directed towards attracting new clients rather than keeping present ones and the underlying assumption is that the market contains a large number of clients (Holmlund and Kock, 1996). The unique economics of business make customer loyalty more significant than ever (Reichheld and Schefter, 2000).However, the marketing literature suggests that customer loyalty can be defined in two distinct ways; the first defines loyalty as an attitude (different feelings create an individual s overall attachment to a product, service, or organization). The second definition of loyalty is behavioural. Examples of loyalty behaviour include on-going customer activities to purchase services from the same seller, increasing the scale and or scope of a relationship, or the act of recommendation (Hallowell, 1996). Such market conditions require Islamic banking institutions to shift their focus from increasing clients base to actually

2 building a strong base of loyal customers (Akroush, 2009). Customer loyalty is seen to be crucial to the success of business organizations, since attracting new customers is far more expensive than retaining existing ones (Massari and Passiante, 2006). Therefore, developing customer loyalty is a strategic objective for most banks (Duffy, 2003) and the customer loyalty is considered an important key to organizational process and profit (Divett et al, 2003). The consequence of this is that Islamic banks operating in Islamic countries are faced with competition not only from Islamic banks but also from non-islamic rivals (Naser et al, 1999). Therefore, Islamic banks are trying its best to capture the greater number of customers for long term benefits. Factors influencing Customer Loyalty Some authors (e.g. Akhter et al 2011) have found customer loyalty is affected by customer satisfaction, both positively and significantly (e.g. Akhter et al 2011). The strong positive correlation of customer satisfaction and customer loyalty imply that customers will recommend where bank at, to other persons (Siddiqi, 2011). Customer satisfaction is crucial, but not an essential condition of loyalty as one can have customer satisfaction without professing loyalty (Mohsan et al, 2011).However, Islamic banks have to recognize that customers tend to terminate their relationships because of dissatisfaction or attractive products offered by their/other conventional banks competitor. Therefore, Islamic banks need to examine better what drives their corporate appears to consumers. Then they could incorporate the relevant promotional appeals into their customer communications in order to create a deep bond with their customers (Amin et al, 2013).Delivery of high quality of service band further with customer resulting in higher customer satisfaction and enhanced customer loyalty (Kumar et al, 2009). Service Quality attributes Kasper et al. (1999, p.13)defined service marketing as originally intangible and relatively quickly perishable activities whose buying takes place in an interaction process aimed at creating consumer satisfaction but during this interactive consumption this does not always lead to material possession. Hernon & Nitecki (2001, p, 690) define service quality as Meeting and or exceeding expectations. In the banking industry, as in other service industries, providing superior service quality enhances customer satisfaction and contributes to profitability. Superior service quality lowers customer defection, enhances customer loyalty, provides opportunities for cross-selling, increases word-of-mouth recommendation, and enhances corporate image. However, Parasuraman et al, (1988) improvement an instrument for measuring consumers perception of Service Quality, after that it became known as SERVQUAL. Regardless of service industry, the five dimensions of service are: Reliability (the ability to perform the promised service dependably and accurately),tangibles (appearance of physical facilities, equipment, personnel and communication materials), Responsiveness (willingness to help customers and provide rapid service), Assurance ( knowledge and courtesy of employees and their ability to convey trust and confidence) and Empathy ( this dimension refers to the level of caring and personalised attention the bank provides for its clients. Reliability mainly concerns whether the outcome of service delivery was as promised. The other four dimensions concern the process of service delivery, or how the service was delivered (Berry and Parasuraman, 2004). According to the SERVQUAL model, customer assessment of service quality result from a contrast of service expectations with actual performance (Bebko, 2000). SERVQUAL is found to be a reliable and valid measure of service quality with relatively stable dimensions across service industries (Carman, 1990; Parasuraman et al., 1988). The full battery of revised items SERVQUAL items (SQB) are listed in table 1. Customer Satisfaction Concept Satisfaction is a person s feelings of pleasure or disappointment resulting from comparing a product s perceived performance (or outcome) in relation to his or her expectations. If the performance falls short of expectations, the customer is dissatisfied. If the performance matches

3 the expectations, the customer is satisfied. If the performance exceeds expectations, the customer is highly satisfied or delighted (Kotler & Keller, 2006). Customer satisfaction: an individual s perception of the performance of the product or service in relation to his or her expectations (schiffman & Kanuk, 2010). Benefits of high consumer satisfaction in organization include increasing consumer loyalty, enhancing firm reputation, reducing price elasticity, lower costs of future transactions, and higher employee efficiency (Awwad, 2012). Therefore, enhancing customer satisfaction should be a strategic driver for Islamic banks in keeping a long term relationship with their customers (Hoq and Amin, 2010). Service Quality and Customer Satisfaction The relationship between customer satisfaction and service quality is arguable. Several scholars argued that service quality is the antecedent of customer satisfaction, whereas others said the opposite relationship (Siddiqi, 2011) or service quality as either interconnected to service or discrete concepts (Hernon & Nitecki, 2001). Most of the scholars (Misbach et al, 2013, Balaji, 2009) found that service quality is the antecedent of customer satisfaction. Nuseir et al, (2010) found that service quality dimensions such as reliability, responsiveness and customisation have a positive and significant effect on the banks overall customers satisfaction and its elements individually customer satisfaction. On the other hand, Beerli et al., (2004), Bolton and Drew (1991) mentioned that customer satisfaction is the antecedent of service quality. This finding is contrasted with most of the researchers. Research Model and Hypotheses Development: Building on their review of previous empirical research the paper introduces a model to find out the interrelationships between service quality, customer satisfaction and customer loyalty in Jordan Islamic bank. As shown in figure 1. The model further suggests a number of hypotheses linking those proposed antecedents to each other. SERVQUAL Dimensions Tangibles H1 Reliability H2 Responsiveness H3 Customer Satisfaction H6 Customer Loyalty H4 Assurance H5 Empathy Methodology Sampling and Data Collection To answer the above research questions, a quantitative approach using questionnaires was adopted as the method by which the survey was completed and it designed with a set of questions that are mainly created from the literature. Questionnaires are a useful tool for investigating patterns and trends in data and are frequently used with success in management, marketing and consumer research (Easterby-Smith et al, 1991). In this paper, a total of 100 questionnaires are randomly distributed to those visiting the Jordan Islamic Bank and only 78 were returned to the researcher. The first part of the questionnaire contains of the general

4 information of the respondent. Service quality attributes were used in the second part, which is the independent variable of this research. The third part of the questionnaire clarifies the customer satisfaction and this is the moderate variable of this research. The final part consists of customer loyalty and this is the dependent variable of this research. For all items, five point likert style scales were used. However, JIB was particularly unwilling to provide their customers' databases since it was highly classified and confidential due to competitive reasons. Therefore, to draw a representative sample, a convenience sample was chosen from one major cities of Jordan which represent the heaviest customers. This city is Amman (Capital of Jordan). Findings Data were analysed using descriptive statistics such as percentages and frequencies to present the main characteristics of the sample (Table1). Descriptive Statistics for each study constructs (Table 2).Correlations were calculated to measure the association between independent variables and dependent variable (Table 3). Sample Characteristics Table 2 exhibits the research sample characteristics. As shown 64.1 of the research sample are males and 35.9 are females.table 2 also shows that 75.6 of the Jordan Islamic Bank (JIB) are young customers within the age category of years. This is consistent with the Jordanian society which is young. This would help JIB to have doing well with the Jordanian customers who are willing to build long-term relationships with them. As can be seen from table 2, 79.5% of the sample customers' income ranges from Jordanian Dinars ( pound). This implies that the JIB customers may be sensitive to any fluctuations in the perceived service quality and customer satisfaction that may affect their loyalty on the long term. Table 2 shows that almost two-third and fourth of the sample are well educated, 87.8%, have obtained either a diploma 14.1%, university degree 59% or graduate degree This indicates that they are in the best position to judge service quality, customer satisfaction and customer loyalty. Descriptive Statistics Table 3 shows the mean, standard deviation, maximum and minimum for service quality dimensions, customer satisfaction and customer loyalty variables. Table 3 shows that all variables had means range from 3.1 to 3.7 approximately. This indicates that customers were satisfied with overall service quality. As the standard deviations that represent the values of dispersion answers to the arithmetic mean it is less than 1, which refers to the level of convergence between the samples answers. High Standard Deviation means that the data are wide spread, which means that customers give variety of opinion and the low standard deviation means that customers express close opinion. Correlations Results of correlation analyses of hypotheses of this study are given in Table 4. Finding of this study suggests that there is positive relationship between: H1: Tangible and customer satisfaction (see chart 1). This result is consistent with previous studies e.g. Osman et al. (2009). The possible explanation of this finding is that the bank customers often look to any tangible indications which may be used as indicators of the service quality(like, equipment, ATM machine, materials associated with the service(pamphlets or statements), Islamic appearance such as prayer room and, Female staff wears Hijab (cover head). H2: Reliability and customer satisfaction (see chart 2).This result is consistent with previous studies e.g. Al-Tamimi & Al-Amiri (2003). Study shows that customers are satisfied with the services provided by the Jordan Islamic bank as promised service dependably and accurately and solving the problem quickly.

5 H3: Responsiveness and customer satisfaction (see chart 3). According to the table 3, the strongest predictor of customer satisfaction is responsiveness. The result indicates that the correlation (r) of responsiveness is (γ = 0.531** at p < 0.05).This result complements the view Misbach and Hadiwidjojo (2013), that the responsiveness of Islamic bank in Makassar Indonesia service was as the strongest attraction for customer satisfaction. Study shows that customers are satisfied by willingness and ability of the employee to help them and provide the prompt service. H4: Assurance and customer satisfaction(see chart 4).This result is consistent with previous Amin et al, (2008), Lai (2004).Study shows that customers are satisfied by JIB can instil feelings of confidence in its customers by dealing transactions depending on Sharia (Islamic Law) and handle with them courteously. H5: Empathy and customer satisfaction (see chart 5). This result is consistent with previous studies e.g. Osman et al. (2009). This result is consistent with previous studies (e.g. Al-Tamimi & Al-Amiri, 2003). Study shows that customers are satisfied by giving them individual attention. H6: Customer satisfaction and customer loyalty in Jordan Islamic Bank (see chart 6). This result matches the view of Akhter et al. (2011). The strong positive correlation of customer satisfaction and customer loyalty means that the JIB customers will say positive things about this bank to other people (such as all transaction depending on Islamic Law), Encourage friends and relatives to do business with this bank and recommend the bank to other people. Conclusion and Recommendations The results show that service quality dimensions (tangibles, reliability; responsiveness, assurance and empathy) impact significantly and positively upon customer satisfaction and customer satisfaction is positively related to customer loyalty in the Jordan Islamic Bank in Jordan. Responsiveness demonstrates the highest positive correlation with customer satisfaction and reliability shows the least positive correlation with customer satisfaction. These dimensions have increasingly played a key role in services marketing generally and are believed to have a positive and significant effect on customer satisfaction and ultimately loyalty, and also they will assist JIB in assessing their individual performance in relation to service quality, and provide a basis for researchers to further investigate alternative methods of customer interaction that will assist in improving customer satisfaction, loyalty and retention. Based on the findings of the study, the following recommendations are provided for developing the marketing of Jordan Islamic Bank in Jordan: First, the managers must be utilized effectively in improving customer loyalty through enhancing service quality and customer satisfaction. For instance, JIB can study market, analyse customer data and take regularly the feedback of the customers and incorporate the changes desired by the customers in their feedbacks. Such efforts could enable JIB to provide better, more innovative and competitive services tailored specifically to targeted segments needs and wants. Furthermore, understanding customers expectations can improve Jordan Islamic Bank s efforts in building long-term relationships with their customers. Second, employees play a significant role in bank customer interaction. The managers should pay attention to the quality of their services provided by their employees and develop them to provide a good service quality and so increase customer satisfaction and ultimately loyalty. This might be achieved through training and education programmes in Islamic knowledge for their employees in order to make them more effective while dealing with the customers. Future research should consider other geographical locations in the Jordan to provide diversity in terms of respondents. In addition, future research should concentrate on a bigger sample size and all Islamic banks in Jordan.

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8 Parasuraman, A., Berry, L. L., & Zeithaml, V. A. (1988). SERVQUAL: A multiple-item scale for measuring consumer perceptions of service quality. Journal of Retailing, 64(1), Reichheld, F. F., & Schefter, P. (2000). E-loyalty. Harvard business review, 78(4), Saleh, A. S., & Zeitun, R. (2007). Islamic Banks in Jordan: Performance and Efficiency Analysis. In The Second International Business Research Conference, December (pp. 5-8). Siddiqi, K. (2011). Interrelations between Service Quality Attributes, Customer Satisfaction and Customer Loyalty in the Retail Banking Sector in Bangladesh. International Journal of Business & Management, 6(3), Schiffman, L. G., Kanuk, L. L., & Wisenblit, J. (2010). Consumer behavior.pearson Prentice Hall. Appendix 1: Sample Characteristics Table 1: Gender Frequenc y Percent Valid Percent Cumulative Percent Male Female Total Education Secondary and less Diploma (college) Bachelor Higher studies Total Age 25 years and less years and above Total Income above Total

9 Appendix 2: (Descriptive Statistics Table 3) N Minimum Maximum Mean Std. Deviation Tangibles Reliability Responsiveness Assurance Empathy Customer Satisfaction Customer Loyalty Valid N (listwise) 78 Appendix 3: Correlations Table 3 Correlations Customer customer Tangibles Reliability Responsiveness Assurance Empathy Satisfaction. Loyalty Tangibles Reliability Responsiveness Assurance Empathy Customer Satisfaction. Customer Loyalty Appendix 4: Correlation Charts Chart 1 Mean Customer Satisfaction Chart 2 Tangibles

10 5.0 Mean Customer Satisfaction Reliability. Chart Mean Customer Satisfaction Responsiveness. Chart 4 Mean Customer Satisfaction Assurance. Chart Mean Customer Satisfaction Empathy.

11 Chart Mean customer Loyality Customer Satisfaction.