SCHOOL OF POSTGRADUATE STUDIES

BUSINESS ADMINISTRATION PROGRAM

The Role of Customer Service Quality in Building Customer Loyalty In

Case of Cooperative Bank of Oromia Jamo Branches

Tomas Duba Dulke

Id. No GSR/MBA/0498/15

Addis Ababa, Ethiopia

October, 2024
 SCHOOL OF POSTGRADUATE STUDIES

BUSINESS ADMINISTRATION PROGRAM

The Role of Customer Service Quality in Building Customer Loyalty In

Case of Cooperative Bank of Oromia Jamo Branches

A Proposal Submitted to the School of Postgraduate Studies Presented in partial

Fulfillment of the Requirements for the Degree of Master of Business Administration
(MBA).

Tomas Duba Dulke

Id. No GSR/MBA/0498/15

Under the Guidance of

Hussien Jarso(PhD)

Addis Ababa, Ethiopia

October, 2024
 Table of Contents
Table of Contents.................................................................................................................................i
Abstract..............................................................................................................................................iii
CHAPTER ONE.................................................................................................................................1
1.1. Back ground of the study................................................................................................1
1.2. Statement of the problem...............................................................................................2
1.3. Research Questions.........................................................................................................4
1.4. Objectives of the study....................................................................................................4
1.4.1. General objective........................................................................................................4
1.4.2. Specific Objectives.....................................................................................................4
1.5. Significance of the Study................................................................................................5
1.6. Scope of the Study...........................................................................................................5
1.7. Limitation of the Study...................................................................................................5
1.8. Organization of the Study..............................................................................................5
CHAPTER TWO: LITERATURE REVIEW.................................................................................6
2.1. An Overview of Human Resource training and Development...................................6
2.1.1. Human Resource Development..................................................................................7
2.1.2. Training and Development Strategies........................................................................9
2.1.3. Benefits of Training and Development....................................................................15
2.1.4. Employee Performance............................................................................................16
2.1.5. Capacity Building.....................................................................................................19
2.1.6. Relationship between Training and Development and Organizational
Competitiveness........................................................................................................................19
2.2. Empirical reviews..........................................................................................................20
2.3. A framework for analyzing the effect of training and development strategies
on organizational competitiveness.........................................................................................21
2.4. Conceptual framework.................................................................................................22
CHAPTER 3: RESEARCH DESIGN AND METHODOLOGY.................................................23
3.1. The Research Design:...................................................................................................23
3.2. The Research Method:..................................................................................................23
3.3. Subjects and Sampling Techniques.............................................................................23
3.4. Sample Size Determination:.........................................................................................23

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 3.5. Techniques of Data Analysis........................................................................................24
3.6. Ethical Consideration...................................................................................................24
3.7. Work plan and budget..................................................................................................25
3.7.1. Plan of activities.......................................................................................................25
3.7.2. Budget Cost breakdown of the study.......................................................................26
Reference...........................................................................................................................................27
APPENDIX I.....................................................................................................................................29
Part II.......................................................................................................................................30

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 Abstract
Service quality is determinant factors that enable banks to get superior advantage over their
competitors by increasing customer satisfaction and loyalty.

The main objective of the study will be to investigate the role of service quality in building on
customer loyalty in CBO Jamo branches.

The current study measured customer services quality and its relation with customer satisfaction
and loyalty in the Jamo branches banks. Descriptive method will be used as the research method
of the study. The sample of respondents will be selected based on convenience sampling
procedure. The dimensions of the study will be tangibility, reliability, responsiveness, assurance,
and empathy. Study data collected using structured questionnaire and categorized under four
dimensions of the model. Correlation and multiple regressions will be used to investigate the
relationship between dependent and independent variables.

Keywords: Service quality, Loyalty, Customer satisfaction, Jamo branches; Cooperative Bank of
Oromia

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 CHAPTER ONE

1.1. Back ground of the study

In this time of competitive world, success of any organization depends on its service quality
provided. As a result, banks are now faced with very high and intense competition amongst
them. In order to win the intense competition and maintain their market share of the bank
industry; they must give attention to the existing and potential customers need, want and
preferences to maximize their satisfaction and loyalty plus to that they must make continues
customer service quality improvement program. Since the importance of making continuous
customer service quality improvement program is to make profit, build good images, lead the
market, and retain customers (Almossawi, 2001).

In this context, the subject of service quality in relation to customer needs a fresh understanding
in the current business scenario. Service quality is particularly essential in the banking services
context because it provides high level of customer satisfaction and wins customer loyalty, for
this reason it becomes a key to competitive advantage (Almossawi, 2001).

Customer satisfaction is also crucial in the banking sector because of the special nature of the
service which is characterized by intensive contact with customers who have different needs and
require customized solutions and it is known to be one of the most important and serious issues
towards success in today’s competitive business environment, as it affects company market
shares and customer loyalty (Clemes, 2008).

Similarly, service loyalty is one of the most important structures in service marketing, duettist
final effect on customers’ repeated purchases, and in fact ,those loyal customers who purchase
repeatedly are considered as the base of any business (Mohsan,2011).Although these concepts
have been used so many times in the marketing literature, but the relations between these three
concepts still remain ambiguous and this calls for investigation to find the relation of these three
concepts (Mohsan, 2011).

(Avkiran N. K., 1994), develops utilitarian multi-dimensional model BANKSERV to measure

Australian retail banking customers’ service quality perceptions. It is a model, designed to allow
customers to reflect on their expectations and perceptions in single statements. This avoids the
potential psychometric problems related with SERVQUAL and the negatively worded
questionnaire items found in the model (Avkiran, 1999).In order to customize the instrument for

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banking, He used (Parasuraman, A.Zeithaml, & Berry, 1988) SERVQUAL scale as the starting
point, a refine the measurement by adding items extracted from a separately conducted
qualitative study about bank service quality (Avkiran N. K., 1994).

This study will investigate the role of customer service quality in building customer loyalty using
BANKSERV model in selected banks of CBO, Jamo branches.

1.2. Statement of the problem

Banks operating in Ethiopia are facing lots of challenges due to increase in competition among
them. As a result various strategies are formulated to retain the customer and increasing the
service quality level has been considered key success factor. Service quality is particularly
essential in the banking services context because it provides high level of customer satisfaction,
and hence it becomes a key to competitive advantage (Almossawi, 2001). At the present time,
service quality has received much attention because of its obvious relationship with costs,
financial performance, customer satisfaction, and customer loyalty. Since customer satisfaction
is also based upon the level of service quality provided by the service provider and service
quality acts as a determinant of customer satisfaction (Wilson et al., 2008).

On the relationship between customer satisfaction and service quality in Tehran banks conducted
by (Mosahab, Mohamad, & T.Ramayah, 2010) concluded that nearly 43 percent of customer’s
satisfaction change is explained by service quality. On the other hand, service quality has a direct
relation with loyalty, and nearly 45 percent of loyalty changes can be explained by service
quality changes. Another point is that if the satisfaction variable enters the model, the resulted
determination index will be higher in figure than other cases (0.803). This figure means that
nearly 80 percent of loyalty changes can be explained by satisfaction and service quality,
although satisfaction plays a more important role in this relation (Mosahab, Mohamad, &
T.Ramayah, 2010).

This study focused merely on service quality without considering above mentioned factors like
cost, financial performance and others. Service quality has been proven to be the best
determinant of customer satisfaction and indirectly customer loyalty when it comes to service
sectors Daniel et al (2012). Unsatisfactory service leads to a drop in customer satisfaction,
loyalty and willingness to recommend the service to a friend. This would in turn lead to an
increase the number of customers shifts to competitors.

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 1.3. Research Questions
This study tried to answer the following research questions:

1. What are the service quality dimensions in Cooperative Bank of Oromia, Jamo Branches?

2. What is the level of customer satisfaction in Cooperative Bank of Oromia, Jamo

Branches?

3. What is the extent of relationship between service quality dimensions and Customer Loyalty in
Cooperative Bank of Oromia, Jamo Branches?

4. What is the relationship between customer satisfaction and customer loyalty in Cooperative
Bank of Oromia, Jamo Branches?

1.4. Objectives of the Study

1.4.1. General Objective

The general objective of the study was to assess the role of Customer service quality in building
customer loyalty at Cooperative Bank of Oromia, Jamo Branches.

1.4.2. Specific Objectives

This study specifically tried to achieve the following specific objectives:-

1. To identify the service quality dimensions provided by Cooperative Bank of Oromia, Jamo
Branches;

2. To assess the level of customer satisfaction at Cooperative Bank of Oromia, Jamo

Branches;

3. To examine extent of relationship between service quality dimensions and customer

loyalty in Cooperative Bank of Oromia, Jamo Branches;

4. To spot the relationship between customer satisfaction and customer loyalty of

Cooperative Bank of Oromia, Jamo Branches

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 1.5. Significance of the Study
The ultimate success or failure of a company depends on its ability to make profitable sell, what
it produces and continuously offering quality services relatively for a longer period. This study is
therefore intended to help the company management to direct their attention to this highly
essential function of business.

The finding of this study may help banks to understand the role of good customer service on
customer satisfaction and loyalty. It provides literature for the bank industry under customer
service quality. It helps to other researchers who want to conduct further study on the subject in
the future. It provides solution for bank industry service quality problems and it may give them
an idea of where they are presently in terms of their service quality and what they should do in
the future.

1.6. Scope and Delimitation of the Study

The study will be limited to the assessment of service quality on customer’s satisfaction and
loyalty which was conduct in Cooperative Bank of Oromia, Jamo Branches.

This study will be conducted to examine the role of customer service quality in building
customer loyalty Cooperative Bank of Oromia, Jamo Branches; the sample will draw from the
Jamo branch, thus this study may be limited in its generalize ability of the findings to others
private banks found. The number of variable used in this study will be only five which may not
consider more factors, like corporate image, location, price, technology employed, security
issues and other variables which can influence customer satisfaction and loyalty

1.7. Organization of the Study

The study will be organized as follows. The first chapter introduces background of the study. In
the second chapter, different related literatures are presented to create depth understanding
towards the subject under study. Chapter three is concerned with the methodological part of the
study. The analysis and discussions of major findings are indicated in the fourth chapter. In the
fifth chapter conclusions, recommendations and implications of the study are made. Lastly, the
references and appendices sections are attached.

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 CHAPTER TWO: LITERATURE REVIEW
Introduction

This chapter gives an overview of literature that is related to the research problem presented in
previous chapter. The concept of service quality dimensions, customer satisfaction, customer
loyalty, relation between service quality and customer satisfaction, relation between customer
satisfaction and loyalty, service quality in commercial bank and service quality model will be
introduce in order to give a clear idea about the research area.

2.1. Definition of Customer Service

In recent years, more and more organizations focus their attention on retaining existing
customers rather than attracting new ones since losing a customer means losing more than a
single sale. It means losing the entire stream of purchases that the customer would make over a
life time of patronage. In addition, the cost of attracting a new customer is five times greater than
the cost of keeping a current customer happy (Kotler, 2010).

Many writers define ‘customer service’ in different ways: for instance, Catherine McGuinn
(2009) defined customer service as a philosophy that directs all practices of an organization to
serve the needs of customers in a manner that is mutually beneficial to all stakeholders and
involves the facilitation of customer satisfaction, loyalty and goodwill(McGuinn,2009).

(Kotler, 2010) defined service as any activity or benefit that one party can offer to another that is
essentially intangible and does not result in the ownership of anything and its production may or
may not be tied to a physical product(Kottler,2010).

Any intangible actions that are performed by person or machines or both to create good
perception within users are called service. Although services are performed by service providers
and consumers together, its quality results in perception and value assessment by the customer
(A.N.Rao, D.E.Johnson, B, & K.Ladha, 2007).

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2.2. Characteristics of Services
According to Bitner et al. (1993) service has four characteristics: intangibility, inseparability,
heterogeneity and perishability.

Intangibility of Services

Regan (1963) introduced the idea of services being activities, benefits or satisfactions which are
offered for sale or provided in connection with the sale of goods. The degree of intangibility has
been suggested as a means of differentiating tangible products with services. Most of the time,
services are explained as being intangible since their outcome is considered to be an action rather
than a physical product highlight the fact that the degree of tangibility has implications for the
ease with which consumers can evaluate services and products (A.Zeithaml, Parasuman, &
Berry, 1985).

Inseparability of Services

Inseparability is taken to show the simultaneous delivery and consumption of services and it is
believed to enable consumers to affect or shape the performance and quality of the service
(A.Zeithaml, Parasuman, & Berry, 1985).

Heterogeneity of Services

Heterogeneity reveals the degree of high variability in service delivery. This is a particular
problem for services with high labor involvement, as the service performance is delivered by
different people and the performance of people can vary from day to day and also from person to
person. Besides, it offers the opportunity to provide high degree of flexibility and customization
of the service and this can be used as a benefit and point of differentiation (wolak, Kalafatis, &
Harris, 1998).

Perishability of Services

The notion of perishability reflects services cannot be stored and carried forward to a future time
period and suggest that services are time dependent and time important which make them very
perishable. The issue of perish ability is primarily the concern of the service producer and that
the consumer only becomes aware of the issue when there is insufficient supply and they have to
wait for the service (Bitner, W.Brown, & P.Fish, 1993).

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2.3. Service Quality
In today’s increasingly competitive business environment, service quality is essential for the
success of any organization. Service quality is important aspect that affects the competitiveness
of business. Banks should always increase the quality of service continuously since there is no
assurance that the current outstanding service will be suitable for future. Thus, banks should
develop new strategy to satisfy their customer and should provide quality service to gain
competitive advantage over competitors (Siddiqi, 2011).

Service quality is considered an important tool for a firm’s struggle to differentiate itself from its
competitors. The relevance of service quality to companies is emphasized especially the fact that
it offers a competitive advantage to companies that strive to improve it and hence bring customer
satisfaction (Ladhari, 2009).

The challenge in defining service quality is that it is a subjective concept, like beauty. Everyone
has a different definition based on their personal experiences. It has also received a great deal of
attention from academicians, practitioners and services marketing literature, service quality is
defined as the overall assessment of a service by the customer. Researcher points out that, by
defining service quality, companies will be able to deliver services with higher quality level
presumably resulting in increased customer satisfaction. Understanding service quality must
involve acknowledging the characteristics of service which are intangibility, heterogeneity and
inseparability. In that way, service quality would be easily measured (Negi et al., 2009).

Crosby (1984) defined quality as conformance to requirements. This definition implies that
organizations must establish requirements and specifications. Once these requirements and
specifications are established, the quality goal of the various functions of an organization is to
comply strictly with them. Quality also defined from different point of views, from customer
point of view quality means fitness for use and meeting customer satisfaction and from process
point of view it means conformance with the process design, standards and specifications.
Quality may also be defined as the degree of excellence at an acceptable price from product point
of view and from the cost point of view it means best combination between costs and features
(Crosby, 1984).

A solid foundation in defining and measuring service quality was emanated in the mid-eighties
by (Gronroos, 1984) and (A.Zeithaml, Parasuman, & Berry, 1985). They were amongst the
earliest scholars laid down the foundation for the definitions as well as development of service

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quality. Service quality defined as the degree and direction of discrepancy between consumer’s
perceptions and expectations in terms of different but relatively important dimensions of the
service quality, which can affect their future purchasing behavior. This definition clearly shows
that service quality is what customers’ assess through their expectations and perceptions of a
service experience. Customers’ perceptions of service quality result from a comparison of their
before-service expectations with their actual service experience. Service quality is based on a
comparison between what the customer feels should be offered and what is provided
(A.Zeithaml, Parasuman, & Berry, 1985).

If the customer’s expectations are meeting or exceeded, then the company is perceived to be
offering higher service quality. But if on the other hand, if the expectations of the customers are
not meet, the company is on its way not only to face displeased and hostile customers, which in
turn leads to defection to competitors. Customer’s expectation serves as a foundation for
evaluating service quality because, quality is high when performance exceeds expectation and
quality is low when performance does not meet their expectation. Expectation is viewed in
service quality literature as desires or wants of consumer that is, what they feel a service provider
should offer rather than would offer (Parasuraman, A.Zeithaml, & Berry, 1988).

Perceived service is the outcome of the consumer’s view of the service dimensions, which are
both technical and functional in nature (Gronroos, 1984). (Parasuraman, A.Zeithaml, & Berry,
1988), define perceived quality as a form of attitude, related but not equal to satisfaction, and
results from a consumption of expectations with perceptions of performance. Therefore, having a
better understanding of consumers attitudes will help to know how they perceive service quality
in banks and respond accordingly (Parasuraman, A.Zeithaml, & Berry, 1988).

The service process as well as the service outcome will contribute quality evaluations. As stated
by (Gronroos, 1984) there are two types of service quality these are technical quality and
functional quality. Technical quality is what the customer is actually receiving from the service
(outcome) while functional quality is the manner in which the service is delivered (process). It is
likely to be much more effective to tell a service contact employee what specific attributes
service quality includes, such as responsiveness. Management can say, if we can improve our
responsiveness, quality will increase (Asubonteng et al; 1996).

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2.4. Customer Service Quality Dimensions
Service’s exclusive characteristics of intangibility, heterogeneity, and inseparability lead them to
possess high levels of experience and credence properties, as a result, they became difficult to
evaluate as we did in tangible goods. Hence, recognition of the determinants of service quality is
necessary in order to specify measure, control and improve customer perceived service quality
(Johnston, 1995).

The BANKSERV instrument, developed by Avkiran (1994), was adapted from SERVQUAL to
specifically suit the Australian banking industry. It is an instrument, designed to allow customers
to reflect on their expectations and perceptions in single statements. It avoids the potential
psychometric problems associated with SERVQUAL and the negatively worded questionnaire
items found in its (Avkiran, 1999) .Moreover, the SERVQUAL model has been proven to be the
best model to measure service quality in service sectors especially with the customer perspective.
This idea generates an assumption that the five dimensions of SERVQUAL model could have a
direct relationship with customer satisfaction and loyalty. For the purpose of measuring customer
satisfaction with respect to different aspects of service quality and to overcome problems which
is created as a result of the gap between management and customers, a survey instrument was
developed by (Parasuraman, A.Zeithaml, & Berry, 1988). The instrument is called SERVQUAL.
The basic assumption of the measurement was that customers can evaluate a firm’s service
quality by comparing their perception with their provided by service businesses. (Parasuraman,
A.Zeithaml, & Berry, 1988), measured the quality of services provided by retail banks, a long-
distance telephone company, a securities broker, an appliance repair and maintenance firm, and
credit card companies. Based on this study, ten key determinants of service quality identified
(Parasuraman, A.Zeithaml, & Berry, 1988).

These ten components were collapsed into five (RATER) dimensions:-

Reliability: is ability to perform the promised service dependably and accurately.

Responsiveness: willingness or readiness of employee or professionals to provide service.

Assurance: knowledge and competence of service providers and the ability to convey trust and
confidence.

Empathy: Caring, individualized attention the firm provides to its customers.

Tangibles: Physical facilities, equipment’s and appearance of personnel.

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Though, the SERVQUAL model has been the major generic model used to measure and manage
service quality across different service settings and various cultural backgrounds, it has been
subjected to a number of theoretical and operational criticisms (Buttle, 1996).

2.5. Customer Satisfaction

Customer satisfaction is a post-purchase evaluation of a service offering. A traditional definition
of customer satisfaction followed the disconfirmation paradigm of consumer
satisfaction/dissatisfaction (CS/D), suggesting that CS/D is the result of interaction between the
consumer’s pre-purchase expectations and post purchase evaluation.

Customer satisfaction is the state of mind that customers have about a company when their
expectations have been met or exceeded over the lifetime of the product or service. Service
companies have since recently focused on customers in order to improve competitiveness.
Customer satisfaction is one of the important outcomes of marketing activity (Rigopoulou, et al.
2008).

In the competitive banking industry, customer satisfaction is considered as the fundamental of

success. Satisfying customers is one of the main objectives of every business. Businesses
recognize that keeping current customers is more profitable than having to win new ones to
replace those lost since it cost the company a lot of money. Management and marketing theorists
emphasize the importance of customer satisfaction for a business’s success (Kennedy and
Schneider, 2000).

Good customer satisfaction has an effect on the profitability of nearly every business. For
example, when customers receive good service, each will typically tell nine to ten people.
However, customers who receive poor service will typically relate their dissatisfaction to
between fifteen and twenty others. Therefore, customer satisfaction is an asset that should be
monitored and managed just like any physical asset (Naik et al. 2010). The satisfaction judgment
is related to all the experiences made with a certain business concerning its given products, the
sales process, and the after- sale service. Whether the customer is satisfied after purchase also
depends on the offer’s performance in relation to the customer’s expectation. Customers form
their expectation from past buying experience, friends and associates advice, and marketers and
competitors information and promises (Kotler, 2010).

Higher customer satisfaction leads to greater customer loyalty which in turn leads to higher
future revenue. As a result, many market leaders are found to be highly superior customer-

10
service orientated. They have been rewarded with high revenue and customer retention as well.
For that reason, organizations in the same market sector are forced to assess the quality of the
services that they provide in order to attract and retain their customers. Because satisfied
customers are a key to long-term business success (Zeithaml et al., 1996). Customer satisfaction
is consumer's fulfillment response. It is a judgment that a product or service feature, or the
product or service itself, provided (or is providing) a pleasurable level of consumption-related
fulfillment, including levels of under- or over fulfillment (Oliver, 1997)

Customer Satisfaction Measures

Henley center headlight vision (Anon., 2007) states the research carried out in the UK with
public sector organizations suggests that there are five themes that are likely to be relevant to all
organizations in measuring customer satisfaction:

 Delivery of the service (how problems were handled, reliability, outcome.)

 Timeliness (waiting times, number of times contacted)

 Information (accuracy, enough information, kept informed)

 Professionalism (competent staff, fair treatment)

 Staff attitude (friendly, polite, sympathetic)

2.6. Customer Loyalty

Customer loyalties is a deeply held commitment to rebuy or patronize a preferred product or
service consistently in the future, thereby causing repetitive purchasing of the same brand,
despite situational influences and marketing efforts. It can also be defined as the degree to which
a customer exhibits repeat purchasing behavior from a service provider, possesses a positive
attitudinal disposition toward the provider ,and considers using this provider when a need for this
service arises. Loyalty is therefore an attitude or behavior that customers explicitly repeat or
exhibit (Seyed, 2007).

Loyalty has both behavioral and attitudinal dimensions. The behavioral dimension consists of
repeated purchase of product while attitudinal loyalty refers to attitudinal commitment or
favorable attitude toward a product resulting in repeat purchasing behavior. It is an influenced
purchase response resulting from an evaluative attitude favoring the purchase. Loyalty is thus,
viewed as the customer’s demonstration of faithful obedience to an organization despite the

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occasional error or indifferent services (Daniel, 2012). In addition, Loyalty in service businesses
refers to the customer’s commitment to do business with a particular organization, purchasing
their products repeatedly and recommending others to the organization’s products. Christopher
L. and, Johan W. (2006) as certain that customer loyalty is actually the result of an organization
creating a benefit for customers that they will maintain or increase their purchases from the
organization. They indicate that true loyalty is created when the customer becomes an advocate for
the organization without incentives (Christopher L. and, JochenW. 2006).

2.7. Relationship between Service Quality and Customer Satisfaction

Kotler and Armstrong (2012) preach that satisfaction is the post-purchase evaluation of products
or services taking into consideration the expectations. Researchers are divided over the
antecedents of service quality and satisfaction. Whilst some believe service quality leads to
satisfaction, others think otherwise. The studies of many researchers suggest service quality leads
to customer satisfaction. To achieve a high level of customer satisfaction, they suggest that a
high level of service quality should be delivered by the service provider as service quality is
normally considered an antecedent of customer satisfaction (Mesay, 2012).

As service quality improves, the probability of customer satisfaction increases. Quality was only
one of many dimensions on which satisfaction was based; satisfaction was also one potential
influence on future quality perceptions (Clemes, 2008).

(Parasuraman, A.Zeithaml, & Berry, 1988) , defined service quality and customer satisfaction as
follows: Service quality is a global judgment, or attitude, relating to the superiority of the
service, whereas satisfaction is related to a specific transaction. Satisfaction is a post
consumption experience which compares perceived quality with expected quality, whereas,
service quality refers to a global evaluation of a firm's service delivery system (Parasuraman et
al., 1985).

(Siddiqi, 2011), described that all the service quality attributes are positively related to customer
satisfaction and customer satisfaction is positively related to customer loyalty in the retail
banking settings. Furthermore, Daniel O. Auka (2012) also stated that high quality of service will
result in high customer satisfaction and increase loyalty (Siddiqi, 2011), Daniel O., 2012).

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2.8. Relationship between Customer Satisfaction and Loyalty
Both the service management and the marketing literatures suggest that there is a strong
theoretical foundation for an empirical exploration of the linkages between customer satisfaction
and customer loyalty. These literatures state that there is a strong and positive relationship
between customer satisfaction and loyalty. A satisfied customer is six times more likely to
repurchase a product and share his experience with five or six other people whereas, one
unsatisfied customer can drive out more business from the organization than ten highly satisfied
customers do. With higher customer satisfaction the level of loyalty also increases
(Mohsanet.al.2011).

Lin (2009) stated that customer satisfaction has measurable impact on customer loyalty in that
when satisfaction reaches a certain level; on the high side, loyalty increases considerably; at the
same time, when satisfaction falls to a certain point, loyalty reduces too. He proposed that a link
between satisfaction and loyalty can be classified into four different groups:-

 Loyalist/apostle (high satisfaction, high loyalty)

 Defector/terrorist (low satisfaction, low loyalty)

 Mercenary (high satisfaction, low loyalty), and

 Hostage (low satisfaction, high loyalty).

There is a positive relationship between customer satisfaction and customer loyalty but this
connection is not always a linear relation. It depends on factors such as market regulation,
switching costs, and brand equity, existence of loyalty programs, proprietary technology, and
product differentiation at the industry level (Sudharshan, 1995).

2.9. Service Quality on Banking Industry: Cooperative Bank of Oromia

2.9.1. Cooperative Bank of Oromia

Cooperative Bank of Oromia is an institution which accepts deposits money, makes business
loans, and offers related services. It also allow for a variety of deposit accounts, such as
checking, saving, and time deposit. This institution is run to make a profit and owned by a group
of individuals, and cooperative institution and unions. While this banks offer service to
individuals, they are primarily concerned with receiving deposits (CBO portal).

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2.9.2. Cooperative of Oromia
Cooperative Bank of Oromia was commercially licensed October 2004 and commenced
operations in March 2005. As there is no legal provisions that allow establishment of a
cooperative bank in the country, the bank was registered in accordance with article 304 of the
commercial code of Ethiopia.

2.9.3. Services Rendered by Cooperative Bank of Oromia

Cooperative Bank of Oromia provides three major services which comprises of Domestic
banking service, International banking service and recently E-payment services. Domestic
banking services consist of Deposit, Credit and Local transfer service, International banking
services consists of Trade service, Forex service and International money transfer using different
money transfer agencies and E-payment service also includes Internet Banking Service, ATM,
POS, Card Banking and Mobile Banking Service (www.cbo.com).

2.10. Service Quality Models

If we want to manage something, it should be measured first. Without measurement, managers
cannot be sure of whether service quality gaps exist or not and of course, measurement is needed
to determine whether goals for improvement are being met after changes have been implemented
(Christopher et al., 2006).

Measuring service quality has been one of the most persistent topics in management literature.
This is because the need to develop valid instruments for the systematic evaluation of firms
„performance from the customer point of view; and the association between perceived service
quality and other key organizational outcomes, which has led to the development of models for
measuring service quality( Cronin et al.,2010).

Parasuraman et al., 1985 developed a conceptual model of service quality where they identified
five gaps that could impact the consumer’s evaluation of service quality in four different
industries (retail banking, credit card, securities brokerage and product repair and maintenance
(Parasuraman et al., 1985).

These gaps were:-

 Gap between Customer Expectation and Management Perception;

 Gap between Management Perception and Service Quality Specification;

14
  Gap between Service Quality Specification and Service Delivery;

 Gap between Service Delivery and External Communication and

 Gap between Perceived Service and Expected Service.

2.11. SERVQUAL
Cronin and Taylor (1992) were amongst the researchers who leveled maximum attack on the
SERVQUAL scale. They questioned the conceptual basis of the SERVQUAL scale and found it
confusing with service satisfaction. They, therefore, opined that expectation (E) component of
SERVQUAL be discarded and instead performance (P) component alone be used. They
proposed what is referred to as the ERVPERF scale. Besides theoretical arguments, Cronin and
Taylor (1992) provided empirical evidence across four industries (namely banks, pest control,
dry cleaning, and fast food) to corroborate the superiority of their performance-only instrument
over disconfirmation-based SERVQUAL scale (Cronin and Taylor, 1992).

Being a variant of the SERVQUAL scale and containing perceived performance component
alone, performance only scale is comprised of only 22 items. A higher perceived performance
implies higher service quality. Methodologically, the SERVPERF scale represents marked
improvement over the SERVQUAL scale. Not only is the scale more efficient in reducing the
number of items to be measured by 50 per cent, it has also been empirically found superior to the
SERVQUAL scale for being able to explain greater variance in the overall service quality
measured through the use of single-item scale (Sanjay and Garima,2004).

2.12. BANKSERV
The SERVQUAL model has come in for criticism from many authors, for example, (Avkiran,
1999), criticizes the SERVQUAL as gigantic data user, cost and time inefficient, cause it
compare perceived performance with expectations in separate items (22-expectations items and
22-perceptions items) Whereas, the BANKSERV instrument captures the similar comparison of
perceived performance with expectations in a battery of single statements (Avkiran, 1999).
Asubonteng et al. (1996) did eighteen critical reviews on empirical studies of service quality and
conclude that SERVQUAL instrument is industry specific. When SERVQUAL applied for retail
banking, problems were identified with regard to its dimensionality and the value of expectation
scores (Asubonteng et al. 1996).

15
2.13. Conceptual Framework
The following conceptual framework drawn by researcher to indicates the crucial process, which
is useful to show the direction of the study. The study shows the relationship between the five
service quality dimensions (reliability, responsiveness, assurance, empathy and tangible) and
customer satisfaction and loyalty.

Reliability

Tangibility

Empathy Customer Loyalty

Responsiveness

Asssurance

Figure 1: A conceptual customer Service quality and customer loyalty

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 CHAPTER 3: RESEARCH DESIGN AND METHODOLOGY

3.1. The Research Design:

Research design deals with planning the strategy or overall design of the study. This study will
use survey research design. (Oguntu, 2012) ,posits that a survey research method is probably the
best method available to social scientists who are interested in collecting original data for
purposes of describing a population which is too large to observe directly. In this survey,
independent variables will be selected rather than observations and analyses of relationships
among the variables carried out in their natural settings. The approach allowed ascertaining of
widespread opinions under natural conditions (Auka, Bosire, & V.Matern, 2013) (Auka, Bosire,
& V.Matern, 2013). Descriptive and explanatory research design was used as a main research
design of this study and use to describe the service quality and its effect on customer satisfaction
and loyalty.

3.2. The Research Approach:

The research approach used in this research is quantitative. Quantitative research is use with
either descriptive study or explanatory study. The reason for choosing quantitative research
approach is to meet the purpose of examining how an independent variable affects a dependent
variable. In this case, an independent variable is services quality and a dependent variable is
customer loyalty.

3.3. Subjects and Sampling Techniques

The Cooperative bank of Oromia Jamo branches total, the researcher will use the following
sample size determination formula to determine the sample size of the banks clients. The formula
was developed by Taro Yamane (1973). It is calculated as follows:

Where,

Where; n is the sample size; N is the population size e is the level of precision or sampling error=
(0.05)

After sample size of bank was determined, the researcher used convenience sampling methods to
select the sample from the available population. The rationale behind employing convenience

17
sampling method was because there is no point in time during which all clients are available due
to different reasons and it is not possible to contact everyone who may be sample.

3.4. Data Type and Data Collection Tools

In order to achieve the objective of the study, both primary and secondary data were collect. The
approach for primary data collection was survey research because this approach best suited for
gathering descriptive information about people’s knowledge, attitudes, preferences, or buying
behavior can often be found out by asking them directly. The source of secondary data was from
existing research papers, annual report, journals and publication, books and websites

Structured questionnaire were used to collect data. Structured questionnaires containing closed
end and can easily understood by respondents. The questionnaires have four parts: The first part
of the questionnaire is about the personal information of respondents. The second section was
design to measure the customers’ perception about the bank service delivery system. The third
parts of the questioner were about the overall judgment of service quality and satisfaction and the
last part was about customer’s loyalty.

3.5. Study Variables

Independent Variables: Tangibility, reliability, responsiveness, assurance, and empathy -
Services quality dimensions.

Dependent variable: Customer Loyalty

The questionnaires were divided into four sections: Section A: Personal Information, Section B:
Customers Perceptions and in Section C: Customers was asking the overall judgment of service
quality and satisfaction based on a five- scale interval and section D: Customer loyalty.

Section A of the questionnaire was used for statistical purpose only. The first section consisted of
questions to find out the demographic features of the respondents such as gender, age, marital
status, jobs, academic qualification, and types of account. Section B was used to evaluate service
quality in bank. The SERVQUAL instrument is select to measure service quality. SERVQUAL
developed by (Parasuraman, Zeithaml, & Berry, 1998) focuses on the service attributes. Section
C was used to measure the overall satisfaction level of customer. The last part of the
questionnaire was measures customer loyalty level. These consist of three customer loyalty items
which was develop by researcher and except the first part of questionnaire all are measures by
using a five- point Likert response scale.

18
 3.6. Validity and Reliability of Instruments
The researcher attempt to insure that the finding will be valid and reliable; the instrument content
was asses using expert judgment and Likert-type’s scales in research; which is necessary to
calculate the Cronbach’s alpha coefficient for reliability and consistency (Renganathanet .al,
2012).

3.7. Data Analysis Techniques

Statistical Package for Social Science (SPSS) software version was employed by the researcher
to analyze and present the data. The statistical tools which were used for this study are namely
descriptive analysis, correlation and multiple regression analysis.

Descriptive analysis

The descriptive statistical results was present by tables, frequency distributions and percentages
to give a condense picture of the data. This will achieve through summary of statistics, which
includes the means and standard deviations values which are computed for each variable in this
study.

Pearson Correlation analysis

In this study Pearson’s correlation coefficient was used to determine the relationships between
service quality dimensions (Tangibility, reliability, responsiveness, assurance and empathy),
customer satisfaction and loyalty.

Multiple Regression Analysis

Multiple regression analysis was used to investigate the effect of service quality dimensions
(Tangibility, reliability, responsiveness, assurance and empathy) on customer satisfaction and
loyalty.

Regression functions

The equation of multiple regressions on this study is generally built around two sets of variable,
namely dependent and independent variables. The basic objective of using regression equation
was making the researcher more effective at describing, understanding, predicting, and
controlling the stated variables.

19
 3.8. Ethical Considerations
The consideration of ethics in research and business is of growing importance. Therefore, it is
critical to understand the basics of ethical research. This is especially important if your research
involves interaction with businesses or members of the general community who serve as
participants (i.e., respondents) in your research. As a researcher, you were needed to ensure that
no psychological, financial and social harm occurs to those who involves in the study.

20
 3.9. Work plan and budget

3.9.1. Plan of activities

This research work is to be carried out according to the following tentative action or schedule is,
however subject to change in any case problems beyond the scope of the researcher are
encountered.

Table 1Plan of activity

S/ Activities Duration
N

1 Problem defining & literature finding, Title September 15,2024- September

selection 20,2024

2 Preparation of draft research proposal September 20, 2024-September 25,

2024

3 Review of draft research proposal by research September 26,2024 – October

advisor 16,2024

4 Submission of final research proposal October 17,2024-October 20,2024

5 Collecting feedback from advisor October 21,2024 – October 28,2024

6 Questionnaire preparation & translation October 29,2024- November 2,2024

7 Data Collection November 2,2024-November

12,2024

8 Data Analysis and interpretation November 13,2024-November

25,2024

9 Draft report preparation November 26,2024 – December

05,2024

10 Draft report submission December 06,2024 – December 12,

2024

11 Final report submission December 13,2024-December

18,2024

21
 3.9.2. Budget Cost breakdown of the study
An indicative plan for the budget/ or logistics requirement for the execution of these research
work is summarized and presented below in the form of categorical cost breakdown

Table 2 Budget breakdown of the study

Major Activities Item Quantity Unit cost Total cost

Equipment and Paper 2 Packs/Desta 500.00 1000.00

stationary
Pens 5 35.00 175.00

Pencil 2.00 10.00 20.00

Print 150pages 5 birr 750.00

Copy 450pages 2 birr 900.00

Binder 2 200.00 400.00

Bag 1 1000.00 1000.00

Subtotal 4245.00

Personal cost Transportation 15 trips in town 40.00 600.00

Internet 35hrs 20birr 700.00

Subtotal 1300.00

Overall total cost 5545.00

22
 Reference
A.N.Rao, D.E.Johnson, B, S., & K.Ladha, J. (2007). Weed Management in Direct seeded Rice.

A.Zeithaml, V., Parasuman, A. P., & Berry, L. L. (1985). A Conceptual Model of Service
Quality and its Implications for future research . Journal of Marketing 49, 41-50.

Almossawi. (2001). Bank selection criteria employed by college students in Bahrain,an

Emperical analysis. International j.Bank .Mark 19(3), 115-125.

Auka, D. O., Bosire, J., & V.Matern. (2013). Percieved Service Quality and Customer Loyalty in
Retail Banking.

Avkiran. (1999). The Evidence of Efficiency Gains: The role of Mergers and the benefits to the
public . Journal of Banking and Finance,23, 991-1013.

Avkiran, N. K. (1994). Developing an Instrument to Measure Customer Service Quality in

Branch Banking. International Journal of Bank Marketing.

Bitner, M. J., W.Brown, S., & P.Fish, R. (1993). Tracking the Evolution of service Marketing
Literature. Journal of Retailing69(1), 61-103.

Gronroos, C. (1984). A Service Quality Model and its Marketing implications. European Journal
of Marketing .

Kotler, P. (2010). Principles of Marketing .

Ladhari, R. (2009). Service quality,Emotional Satisfaction and Behavioural Intensions: A Study

in the Hotel Industry.Managing Service Quality. International Journal ,19, 308-331.

Mohsan, F. (2011). Impact of customer satisfaction on customer Loyalty and Intensions to

switch: Evidence from Banking sector of Pakistan.

23
Mosahab, R., Mohamad, O., & T.Ramayah. (2010). Service quality,Customer satisfaction and
loyalty: a test of mediation. International Business research 3(4).

Oguntu. (2012). Effects of training on employee performance: A case of United Nations Support
office for the African Union Mission in Somalia .

Parasuraman, A. P., A.Zeithaml, V., & Berry, L. L. (1988). SERVQUAL A Multiple-item Scale
for Measuring Consumer Perceptions of Service Quality. Journal of Retailing 64(1), 12-40.

Siddiqi, K. O. (2011). Interrelations between Service quality attributes,customer satisfaction and

customer loyalty in the retail banking sector in bangladesh. International Journal of Business
and Management6(3).

wolak, R., Kalafatis, S., & Harris, P. (1998). An investigation into four characteristics of
services. Journal of Emperical Generalisations in Marketing Science3(2).

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 APPENDIX I
QUEEN’S COLLEGE

This questionnaire is prepared to gather information on the Role of Customer service quality in
building Customer Loyalty. The purpose of this study is to collect data for the evidence which
would support to write a research paper for academic purpose .Your input is very important to
the researcher. Hence, you are kindly requested to fill this questionnaire to achieve the grand
objective of the study. Your response will be kept highly confidential and used only for this
research.

I thank you very much in advance for participating in this survey and providing your thoughtful
feedback. If you have any questions or comments please contact by the following address Tel-
+251913424568

Part I
Personal information

Please read each question carefully and tick in the box corresponding to the response that
most accurately represents your view.

1. Sex: - Male Female

2. Age group: - 18-29 30-45 46-59 42-49 above 50
3. Academic qualification - Level 3-5 College diploma
BA Degree
Master Degree and above
4. Work Experience at the organization :- 1 - 5 years 6- 10 years 11 –15years
Above 16 years
5. Position:-Managerial expert

25
 Part II
Keys: Strongly Agree (SA=5), Agree (A=4), Neutral (N= 3), Disagree (DA=2), Strongly
Disagree (SDA=1) Please insert a tick mark where you think is appropriate in the space provided
in front of the statement

No Descriptions SDA=1 DA=2 N=3 A=4 SA=5

1 Training and development program design

1.1 Training programs are designed based on need
assessments.
1.2 The objectives of trainings were coherent with employees
trainings need.
1.3 Training programs are designed at level of abilities and
educational background of employees.
1.4 There is an opportunity for training and development.

2 Effectiveness of the training and development

program

2.1 The training I have taken is relevant to my job.

2.2 The method of training used by the organization is relevant

to the training objectives.

2.3 There are defined criteria for training and development at

organization.
2.4 Trainings organized by the Gullele sub-city administration
are improving Employees’ performance.

3 Effects of training and development

3.1 Effects of Training tangible improvement of skill,

knowledge, attitude

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 3.2
Effects of Training Improve quality service for customer

3.3 Improvement of tangible performance

.
4 The factors that affect the implementation of training
and development program
4.1 There are clear directions provided during training.
4.2 The training and development provided aligns with
Organization objectives.
4.3 There is opportunity for career development after receiving
trainings
5 Challenges associated the implementation of training
and development program
5.1 Top management is committed to facilitate trainings for
The employees’ at the organization.
5.2 The organization put enough budgets for the training and
Development.
5.3 The organization has available resources for training and
Development.

1. Availability of trainers
2. Availability of time.
3. Availability of materials.
6 Organizational Competitiveness
6.1 Trainings are important in improving the organizational
Performance to give quality service.
6.2 Employees become more committed toward their jobs
After receiving trainings.
6.3 Employees’ job satisfaction is increased through trainings.
6.4 Job performance helps to in enhancing the Organizational
Efficiency and effectiveness.
6.5 Trainings increase employee confidence when performing
Work related task after receiving trainings.
6.6 Trainings and development motivate employees to enhance
their job performance

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