Eyerus Berhanu

Impact of Service Quality on Customer Satisfaction: The case of
Commercial Bank of Ethiopia
By:
EYERUS BERHANU
A Thesis Submitted In Partial Fulfillment Of The Requirement For The Degree of

Award In Master Of Art In Marketing Management
Project Advisor: DR. Getie Andualem
August, 2016
Addis Ababa, Ethiopia

Addis Ababa University School of Commerce Marketing
Management Graduate Program
Impact of Service Quality on Customer Satisfaction: The case of CBE
By:
Eyerus Berhanu (GSR/01695/06)
Thesis Submitted to Addis Ababa University School of Commerce Marketing
Management Graduate Program in Partial Fulfillment of the Requirements for
The Degree of Master of Arts in Marketing Management
Thesis Advisor: Dr. Getie Andualem
August, 2016
Addis Ababa, Ethiopia

APPROVAL
Addis Ababa University School of Commerce Marketing Management Graduate program
Name: Eyerus Berhanu
Degree: Master of Arts (MA in Marketing Management)
Title of Thesis: Impact of Service Quality on Customer Satisfaction: The case of CBE
Approved by Board of Examiners
____________________ ________________
Advisor Signature
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Internal Examiner Signature
_____________________ _______________
External Examiner Signature
Statement of Certification
This is to certify that Eyerus Berhanu has carried out her research work on the topic titled as
“Impact of Service Quality on Customer Satisfaction: The case of CBE”. The work is
original in nature and is suitable for submission for award of Master Degree in Marketing
Management.
Advisor: Dr. Getie Andualem
Signature: ___________________
Date: _______________________
Declaration
I, Eyerus Berhaun, hereby declare that the thesis entitled Impact of Service Quality on Customer
Satisfaction The case of CBE, is the outcome of my own effort and study and that all sources of
materials used for the study have been duly acknowledged. It is offered for the partial fulfillment
of the degree of MA in Marketing Management.
By: Eyerus Berhanu
Signature: __________
Date: ______________
Table of Contents page No

Acknowledgements ........................................................................................................................................
i
Acronyms ......................................................................................................................................................
ii
Abstract .......................................................................................................................................................
iii
CHAPTER ONE ...............................................................................................................................................
1
INTRODUCTION .............................................................................................................................................
1
1.1 Background of the study .....................................................................................................................
1
1.2 Statement of the problem ..................................................................................................................
2
1.3 Research Objectives ............................................................................................................................
3
1.3.1General objectives ........................................................................................................................
3
1.3.2Specific objectives .........................................................................................................................
3
1.4 Research
Hypothesis ...........................................................................................................................
4
1.5 Significance of the
study ..................................................................................................................... 4
1.6 Scope of the
study .............................................................................................................................. 4
1.7 Limitation of the
study ........................................................................................................................ 4
1.8 Organization of the
Paper ................................................................................................................... 5
CHAPTER TWO ..............................................................................................................................................
6
2 Related Literature Review ..........................................................................................................................
6
2.1. Concepts and
Definition ..................................................................................................................... 6
2.1.2 Distinctive Characteristics of Services ..........................................................................................
6
2.1.3 The ‘7 Ps’ of services ....................................................................................................................
8
2.1.4 Underlying Principles of Service Quality ......................................................................................
8
2.2. Theoretical and Empirical
Review .................................................................................................... 11
2.2.1. Theoretical
Review .................................................................................................................... 11
2.2.2. Empirical
review ......................................................................................................................... 18
2.3. Conceptual
framework .................................................................................................................... 21
CHAPTER THREE ..........................................................................................................................................
23
3 RESEARCH DESIGN & METHODOLOGY.....................................................................................................
23
3.1. Paradigm ..............................................................................................................................
............. 23
3.2. Research
Approach ........................................................................................................................... 23
3.3. Research
design ................................................................................................................................ 23
3.4. Research
Method ............................................................................................................................. 24
6
3.5. Research
Instrument ........................................................................................................................ 24
3.6. Sampling
Design ............................................................................................................................... 24
3.6.1. Method and
techniques ............................................................................................................ 24
3.6.2. Population ...........................................................................................................................
....... 25
3.6.3. Sample
size ................................................................................................................................. 25
3.7. Data Analysis
methods ...................................................................................................................... 26 CHAPTER
FOUR ........................................................................................................................................... 27
4. DATA ANALYSIS AND INTERPRETATION ..................................................................................................
27
4.1. Reliability Study ................................................................................................................................
27
4.2. Profile of Respondents ......................................................................................................................
28
4.3. Correlation Analysis ..........................................................................................................................
31
4.4. Descriptive Analysis of overall Customer Satisfaction ......................................................................
32
4.5. Hypothesis Test .................................................................................................................................
33
CHAPTER FIVE .............................................................................................................................................
35
5. SUMMARY OF FINDING, CONCLUSIONS AND RECOMMENDATION .......................................................
35
5.1. SUMMARY OF FINDING .....................................................................................................................
35
5.2. CONCLUSIONS ...................................................................................................................................
35
5.3. RECOMMENDATION .........................................................................................................................
36
REFERNCE ....................................................................................................................................................
39
Appendix
7
Acknowledgements
Undoubtedly, may all praise be to God, for blessing me with good health and for giving me the
strength, patience and guidance to endure and complete this thesis. Then I would like to thank
my advisor Dr. Getie Andualem for his unreserved attention to correct my report and giving me
constructive idea during the process of this Thesis. Finally I would like to thank my friends
Zelalem Addis and Selam Neguse.
Eyersu Berhanu
i
Acronyms
ASS --- Assurance
E --- Expectation
EMP --- Empathy
P --- Perception
REL --- Reliability
RES --- Responsiveness
SQ --- Service Quality
SERVPERF --- Service performance
SERVQUAL --- Service Quality
SPSS --- Statistical Package for Social Sciences
TAN --- Tangibles
CBE--- Commercial Bank of Ethiopia
ii
Abstract
Quality service has become a serious issue among scholars in service given
organization. Especially in the banking industry cannot be survive till satisfies
its customers. This arises due to the fact that operators of the industry still find it
difficult to understand what customer needs are at a particular time. The
purpose of this study is to know the impact of service quality on customer
satisfaction the case of CBE. The researcher used SERVQUAL instrument for the
study. The study was conducted in Addis Ababa with the participation of five
selected CBE branches’ because found abundantly and easily accessible. A total
of 384 questionnaires were administered to five CBE branches customers out of
whom 220 questionnaires were returned and used for a comprehensive empirical
analysis. Both descriptive and inferential statistics have been used to find mean
score and to test hypothesis and to investigate research problems and questions.
It was acknowledged that the five dimensions have impact on customer
satisfaction of banking customers. The result of correlation analysis revealed
that all service quality dimensions are correlated with overall customer
satisfaction. Thus, the bank should give strong emphasis to all service quality
dimensions in maintaining and improving the service quality of the bank.
Key words: Service Quality, CBE, SERVQUAL, Bank
iii
CHAPTER ONE
1 INTRODUCTION
1.1 Background of the study
Any bank cannot survive in this competitive environment, until it satisfies its customers with
good quality service (Narangajavana and Hu, 2008). The service quality is basically the service
corresponding to customer expectations and any bank can win by delivering prompt service.
When new and improved quality services are developed for customers, then it is crucial to meet
expectations of customers of different categories in this competitive advantage. Many
organizations are seeking quality improvement systems for competitive advantages (Hope &
Wild, 1994).
Every service company works only for the customer‟s demand and added value and provide
pleasant customer‟s service to get the competitive advantage (Edvardsson, 1997) and some
companies organized service department that gather information about customers and his/her
interaction with products and quality (Petkova, Sander & Brombacher, 2000). Besides this, with
new developments, the needs and expectations of customers are also changing rapidly. In the
other hand Customer satisfaction is defined as customers overall feeling of contentment with a
customer interaction. Customer satisfaction recognizes the difference between customer
expectation and customer perception. Satisfaction may develop quickly or may be cultivated
over a period. And also customer satisfaction is a result that emerges from the delivery of quality
service. That is if the company know how to keep its customers comfortably be serving them
quality service there is no reason for the customer not to be satisfied.
At present time numerous private banks have flourished in Ethiopia. There are 16 private Banks
and three owed by the government. Even if the government owned banks, especially CBE with
38.7percent of the total capital of the banking sector, share of bank network is largely dominant,
at 45.prcent past trends show that private banks are showing a steady growth (National Bank of
Ethiopia, 2014/15). Service is more difficult to imitate compared to the different offerings of the
bank. In Addition, as previously noted the quality of service is highly correlated in achieving
financial goals (such as reducing cost and increasing income).
1
Therefore, as long as service quality has critical to the service giving company especially in
banking industry, it should have to be deliver more eye-catching way if not it will have a huge
impact on customer satisfaction and also its undertake the question mark on the company
longterm survival of in the industry. As this study encompasses the impact of service quality on
customer satisfaction the case of Commercial Bank of Ethiopia; it is going to give brief solution
for both customer who need quality service and satisfaction, and also for the company in order to
make it a winner in terms of its competitors.
1.2 Statement of the problem
Business organizations are striving to realize greater profit by delivering quality services
according to customers‟ expectations. Satisfying customer is one of the main objectives of every
business. Businesses recognize that keeping the current customer is more profitable than having
to win new ones to replace those lost (Gantasala and prabnakar, 2010).
Research has shown that good service qualities leads to the retention of existing customers and
the attraction of new ones, reduce costs, an enhanced corporate image, positive word-of-mouth,
recommendation, and, ultimately, enhanced corporate (Berry et al., 1989; Reichheld and Sasser,
1990; Rustand and Zahorik, 1993; Cronin et al., 2000; Kang and James, 2004; Yoon and Suh,
2004). Moreover, understanding and meeting customers‟ expectations and subsequently being
different from competitors are important. Therefore, quality of service has become the priority
for service providers.
The banking industry plays a key role in the development of any country and Ethiopia is no
exception. Over ten national private banks have been established in the last decade alone and
each is keen in expanding; leaving to understand that there is even room for more. According to
the yearly reports of most banks they have been increasing their profits and market share year
after year. We can see this when observing the number of new branches opened, 63.8% increase
in 2014/15, and the increase in the number of employees. Such indicators, in addition to
increased profit margins, show that the sector will continue to grow in the future (National Bank
of Ethiopia, 2014/15).
2
 However, when the industry grow time to time also it is expected their service will increase
on continuous basis such as mobile banking, online services, ATM machines, despite any
challenges that may arise from this service also any banking operation like starting from
account opening, Loan processing, purchasing CPO and the like, all this service should
bound with quality service in order to make satisfied customer.
Providing a good service quality is a major issue for all businesses. Customer satisfaction may
determine the success or the failure of the business. In order to remain competitive in the
marketplace, banks need to satisfy their customers‟ need which in turn will help them ensure a
high market share and substantial return (Khalil, 2010).
Therefore, this study focused on the impact of service quality on customer satisfaction in case of
commercial bank of Ethiopia.
1.3 Research Objectives
1.3.1General objectives
The general objective of the study is to assess the impact of service quality on customer
satisfaction on selected bank by using the modified service quality dimensions.
1.3.2Specific objectives
The specific objectives of the study are:
 To determine the nature of relationship between service quality and customer satisfaction.
 To identify the most important service quality attribute from the view point of customers.
 To assess the level of customer satisfaction towards CBE's services.
1.4 Research Hypothesis
H1: Reliability of the service provider has effect on the satisfaction level of the customers.
3
H2: Responsiveness of the service provider has effect on the satisfaction level of the
customers.
H3: Assurance of the service provider has effect on the satisfaction level of the customers.
H4: Empathy of the service provider has effect on the satisfaction level of the customers. H5:
Tangibility aspects of the bank have effect on the satisfaction level of the customers.
1.5 Significance of the study
 The beneficiaries of this specific study are those who engage in service sector specially
branch managers, employees and customers. As well as the study will add up to the
existing knowledge on the level of service quality in Ethiopia banking industry.
 The study will create awareness and initiate the interest of other researchers to carry out
further study in a wider scale.
1.6 Scope of the study
Customer‟s satisfaction can be affected by many factors such as price, geographical location of
the service organization, environmental factors, consumer behavior and etc. However this study
only emphasizes on service quality since it is the main issue raise in service market. Even if CBE
has many branches, the study was conducted on those five branches which are found at the
capital city of Addis Ababa under West Addis district only. And this study only examines
perception customers who have Saving Accounts.
1.7 Limitation of the study
The research approach of this study is survey type; therefore the research has a limitation of
survey research. Those are non-response bias, sampling bias, social desirability bias, recall bias,
and common method bias (Anol, 2012). Besides, survey research has weak internal validity
specifically temporal precedence which says cause must precede effect in time.
4
This study is geographically limited to Addis Ababa City. The outcome of the study is solely
dependent on the individual responses of the respondents that participate in the study. Moreover,
as the sample is small and selected using non-probability sampling technique, the results might
not be generalized beyond the specific population from which the sample is drawn, considering
the many number of branches that has all over the country.
1.8Organization of the Paper
This research is organized into five chapters. Chapter one contains background of the study,
statement of the problem, research objectives, hypothesis of the study, significance of the study,
limitations and scope of the study. Chapter two covers the literature review relevant study.
Chapter three discusses the methodology employed in the study, including, research design,
sample size and sampling technique, data source and collection method, data and method of data
analysis. Chapter four is about data analysis. Finally, chapter five contains conclusions and
recommendations.
5
CHAPTER TWO
2 Related Literature Review
2.1. Concepts and Definition
 Service Quality
Service Quality is a customer perception that occurs when the need of service is met above
average, more than just adequate. In other words service quality is the ability of service that
meets a customer‟s expectations for that service. It represents of the service valued by the
customer.
Service quality has been defined in services marketing literature as an overall assessment of
service by the customers. Perceived service quality is believed to be resulting from comparison
between customers‟ prior expectations about the service and their perceptions after actual
experience of service performance (Parasuraman et al., 1985). Service quality has been defined
by the practitioners in terms of key dimensions that customers use while evaluating the services.
Conceptualization of service quality should include both the service delivery process
(Parasuraman et al., 1985) as well as the service outcomes (Gronroos, 1984) offered a service
quality measurement instruments with dimensions of technical quality (what consumer gets),
functional quality (how consumer gets the service) and corporate image (how consumers
perceive the firm and its services).
2.1.2 Distinctive Characteristics of Services
According to Mudie and Pirrie, (2006) Services are intangibles, perishable, inseparable from the
provider, and highly variable each time it is delivered. These characteristic of services have to be
thoroughly understood so that appropriate operations and marketing structures are created to be
able to produce and sell services profitably. Services have four distinctive characteristics that
greatly affect the design of marketing programs.
Intangibility This is the most basic and often quoted difference between goods and services.
6
Unlike tangible goods, services cannot generally be seen, tasted, felt, heard or smelled before
being consumed. The potential customer is often unable to perceive the service before (and
sometimes during and after) the service delivery.
Inseparability There is a marked distinction between physical goods and services in terms of the
sequence of production and consumption: Whereas goods are first produced, then stored and
finally sold and consumed, services are first sold, then produced and consumed simultaneously.
The involvement of the customer in the production and delivery of the service means that the
service provider must exercise care in what is being produced and how it is produced. The latter
task will be of particular significance. How teachers doctors, bank tellers, lawyers, car
mechanics, hairdressers conduct themselves in the presence of the customer may determine the
likelihood of repeat business. Therefore, proper selection and training of customer contact
personnel is necessary to ensure the delivery of quality.
Variability (or heterogeneity) An unavoidable consequence of simultaneous production and

consumption is variability in performance of a service. The quality of the service may vary
depending on who provides it, as well as when and how it is provided. One hotel provides a fast
efficient service and another, a short distance away, delivers a slow, inefficient service. Within
a particular hotel, one employee is courteous and helpful while another is arrogant and
obstructive. Even within one employee there can be variations in performance over the course of
a day.
Perishability Services cannot be stored for later sales or use. Hotel rooms not occupied, airline
seats not purchased and college places not filled cannot be reclaimed. As services are
performances they cannot be stored. If demand far exceeds supply it cannot be met, as in
manufacturing, by taking goods from a warehouse. Equally, if capacity far exceeds demand, the
revenue and/or value of that service is lost. Fluctuations in demand characterize service
organizations and may pose problems where these fluctuations are unpredictable. Strategies need
to be developed for producing a better match between supply and demand. (Mudie and Pirrie,
2006)
7
2.1.3 The „7 Ps‟ of services
As cited by Mudie and Pirrie, (2006), marketing activity is normally structured around the „4 Ps‟
– product, price, promotion and place. However, the distinctive characteristic of services
requires the addition of three more Ps – people, physical evidence and process. As the additional
three Ps.
• People – the appearance and behavior of service personnel
• Physical evidence – everything from the appearance, design, layout of the service
setting, to brochures, signage, equipment.
• Process – how the service is delivered, the actual procedures and flow of
activities. Each of the three extra Ps is of central importance in services as each
represents cues that customers rely on in judging quality and overall image.
2.1.4 Underlying Principles of Service Quality
According to Clow and Kurtz (2003), receiving a high level of service is important to consumers
but understanding how to evaluate the service quality received is more difficult. Two consumers
receiving what appears to be the exact same service form a company may evaluate the quality of
the service differently. One consumer may feel the service was good while the other may feel the
service was performed poorly. When discussing service quality the three underlying principles
that should be kept in mind are:
1. Service quality is more difficult for the consumer to evaluate that quality of a good.
2. Service quality is based on consumer‟s perception of the outcome of the service and their
evaluation of the process by which the service was performed.
3. Service quality perceptions result from a comparison of what the consumer expected prior to
the service and the perceive level of service received. The process used by consumers in
evaluating service differs from the process used for goods. Services tend to be high in
experience and credence qualities while goods tend to be high in search qualities. Search
8
qualities are attributes that contributes that consumers can evaluate only during or after the
consumption process.
Credence qualities are attributes that consumers have difficulty evaluating even after
consumption is complete. Experience qualities are qualities of a good or service that will be
evaluated only after the service has been consumed or during the process of consumption (Clow
and Kurtz, 2003)
Customer Satisfaction
Customer Satisfaction is a measure of how a product and services supplied by a company meet
or surpass customer expectation. It is seen as a key performance indicator with business and is an
indicator of how successful the company is at providing products and services to the market.
Customer satisfaction is an abstract concept and is actually happening of the state of satisfaction
will vary from person to person and product /service to product/ service in a competitive market
where business compete for customer; customer satisfaction is considered a key element of
business strategy (Gitman & Carl, 2005).
Operational Definition
Reliability – the ability to perform the promised service dependably and accurately. It is
regarded as the most important determinant of perceptions of service quality.
Responsiveness – the willingness to help customers and to provide prompt service. This
dimension is particularly prevalent where customers have requests, questions, Complaints and
problems.
Assurance – the employees‟ knowledge and courtesy, and the ability of the service to inspire
trust and confidence.
Empathy – the caring, individualized attention the service provides its customers.
Tangibles – the appearance of physical facilities, equipment, personnel image that will find
favor with consumers (Peter & Angela, 2006).
9
Customer Expectation and Perception – Before and after consumption of a service two
feelings are prominent, namely expectations and perceptions. Expectations are usually formed
prior to usage of a service but may also occur where a customer is actively involved in the
delivery of a service. They reflect inclinations or beliefs as to what will or should happen
Perceptions can also develop during a service, but invariably materialize after usage. They
represent the customer‟s evaluation of the service, particularly in relation to expectations. Where
perceptions match or exceed expectations the customer is said to be satisfied in accordance with
the first law of service (Peter and Angela, 2006).
Perception – Expectation = Satisfaction
Customer expectations are beliefs about service delivery that function as standards or reference
point against which performance is judged. Because, customers compare their perception of
performance with their expectation when evaluating service quality. Though, knowledge about
customer expectations is critical to marketers. Knowing what the customer expects is the first
and possibly the most critical step in delivering quality service. According to Kenneth and David
(2003), Customer expectations are used as the standard or reference against which service
performance is judged. It consists of five levels.
Idealist level – consumer wished for level of service.
Desired service level – level of performance customers want or hope to receive from a
service
Adequate service level - minimum level of service a consumer will tolerate and accept
without being dissatisfied.
Zone of tolerance – is an area between the adequate level of service and the desired level
of service.
Predicted service level – level of service consumers actually expect from the service
firm.
10
2.2. Theoretical and Empirical Review
2.2.1. Theoretical Review
 Different Service Quality measurement Instruments SERVQUAL
Since the development of SERVQUAL by Parasuraman, Zeithaml, and Berry (1985), service
quality has been widely researched and applied in different types of industries. SERVQUAL is a
diagnostic tool that uncovers a firm‟s broad weaknesses and strengths‟ in service quality. It
focuses on the five „gaps‟ affecting the delivery of excellent service quality.
It concentrates on five gaps impairing the delivery of excellent service quality. Before intensive
efforts can be successfully undertaken to level out service management problems that impede the
delivery of truly excellent service quality, it is essential to know to what degree customer
perceptions of existing service fail to meet expectations; this study will focus on that primary
issue. There after it becomes important to know whether differences exist in management
perceptions of customer expectations (Gap 1), a discrepancy in management perceptions and the
service specifications that are enacted (Gap 2), a difference on service specifications versus
service delivery (Gap 3), Gap 4 deals with service delivery versus external communication and
gap 5 deals with the differences between consumer expectations and perceptions.
11
Figure 2.1 Service Quality Model
12
Source: Zeithaml and Bitner, 2000
The SERVQUAL scale contains desirable characteristics of services with ten dimensions
(responsiveness, competence, courtesy, credibility, security, access, communication,
understanding, reliability and tangibles) and then it is summed up into five in Parasuraman,
Zeithaml, and Berry (1988) tangibles, reliability, responsiveness, assurance and empathy.
However, researchers found that when applying SERVQUAL to different industries, items must
be removed or added in order to customize the scale to accommodate differences in service
settings.
Although the SERVQUAL instrument has been widely used, it has also been criticized. The first
critics are raised in the validity and reliability of the difference between expectations and
performance has been questioned and several authors have suggested that perception scores
alone offer a better indication of service quality (Cronin and Taylor, 1992). Gronroos (2003) has
emphasized the importance of developing an adaptation of the instrument that takes into account
the role of expectations from a dynamic perspective. The dimensions of service quality have also
been debated in the literature. For example, Gronroos (1982) proposed technical (the tangible
aspects of service delivery) and functional (the expressive performance of the service) qualities
as two critical dimensions of service quality. Though a number of questions have been raised
concerning the gap model of SERVQUAL scale, there are still some authors of current research
suggest that data captured using the SERVQUAL scale may still prove useful.
Nevertheless, despite the apparent shortcomings of the SERVQUAL scale, many researchers and
Practitioners continue to find that the instrument is useful for measuring service quality.
Moreover, Pitt et al. (1997) noted that practitioners need a generic measurement instrument that
provides the potential for cross-industry and cross-functional comparisons. Despite the numerous
critics, the SERVQUAL instrument still continues to appeal to both academics and practitioners.
After reviewing the numerous applications and critiques of SERVQUAL, the present study
concludes that, despite legitimate concerns about the validity of the scale, it remains a useful tool
for measuring and managing service quality. Nevertheless, it is important to note that the
SERVQUAL scale should not be used as it is in all circumstances. Researchers should either:
adapt the SERVQUAL methodology to develop their own instrument for a specific industry or
13
specific study context; or validate the instrument after data collection through reliability and
validity analysis.
The findings from replication of the SERVQUAL instrument suggest that practitioners and
researchers working in particular service settings should confirm the factor structure of the
service quality to determine how many dimensions are implicit in their own particular sample
relative to their specific industry (Cronin and Taylor, 1992). The various factor structures that
have been identified in the literature should be examined and compared to ensure that an
appropriate structure is chosen for a given experimental setting for example, a one-dimensional
structure, a two-factor structure, or the standard five-dimensional structure. Using exploratory
factor analysis and confirmatory factor analysis, researchers should ascertain whether their scales
have a factor structure that reflects the theoretical dimensionality of their setting. In addition, it
might be necessary to adapt, delete, or add items as required to capture the servicequality
construct in a specific industry. Researchers are therefore encouraged to assess the commonly
used approach of adaptation of the SERVQUAL scale (Riadh, 2009).
SERVPERF
Cronin and Taylor (1992) introduced the performance-based measure of service quality,
SERVPERF. SERVPERF is composed of the 22 perception items defined in SERVQUAL scale,
and excludes any consideration of expectations. In other word, SERVPERF differs from
SERVQUAL in that SERVPERF does not assess gap scores because the expectations portion of
the pairings is not included. The research of Cronin and Taylor (1992) suggested that although
expectations can have unique effect on consumers' perception of service quality, the
performance-minus expectations is an inappropriate basis for use in the measurement of service
quality.
Other empirical researchers (Pitt, Watson, and Kavan, 1997; Babakus and Boller, 1992) also
provide evidence that the performance- based measure is superior. Moreover, Zeithaml, Berry,
and Parasuraman (1993) also conceded that the performance-based measurement was more
appropriate if the primary purpose of research was an attempt to explain the variance in a
dependent construct. And Parasuraman, Zeithaml and Berry (1994) criticized the SERVPERF
instrument that the marketing literature appears to offer considerable support for the superiority
14
of simple performance-based measures of service quality was surprising and questionable and
they also revealed that though the practice of measuring only perceptions was widespread, such a
practice did not necessarily mean performance based measures were superior to
discontinuationbased measures. In fact, service quality measurements that incorporate customer
expectations provided richer information than those that focus on perceptions only.
Gronroos
This measurement instrument suggests that the quality of a service as it is perceived by

customers has two dimensions namely, a technical or outcome dimension i.e. what the customers
get and a functional or process related dimension i.e. how the process and service encounter are
perceived. These two have been termed as „technical quality‟ and „functional quality‟.
Technical quality refers to what the service provider delivers during the service provision while
functional quality is how the service employee provides the service.
Gronroos postulated that as long as the outcome or the technical quality is acceptable the process
dimension or functional quality, frequently may be more critical to consumer‟s overall quality
perception. The quality perception process includes much more than just the two dimensions of
service quality. Good perceived quality is obtained when the experienced quality meets or
exceeds the expectations of the customer that is the expected quality. This means that even if the
experienced quality is good, the total perceived quality may still be low, if the expectations of
the customers are very high or unrealistic. Conversely, the total perceived quality may be high
even if experienced quality is not very good, if the customer has very low expectation.
15
Figure 2.3 Gronroos service quality
Experienced
Expected Quality Total Perceived Quality
Quality
Image
Market Communication
Image
Technical
Word-of-Mouth
Quality: Functional
Customer Needs
Quality:
What
How
Source: Gronroos, (1988)
In addition the image of the company doesn‟t only have an impact on the expected quality but
also on perception of the quality experienced. It suggests that the total perceived quality is not
determined by the level of the technical and functional quality dimensions only, but rather by
the gap between the expected and experienced quality. The expected quality depends on a
number of factors like market communication, image, word of mouth communication,
corporate image and customer needs, few of which are directly under firm‟s control and others
only indirectly controlled.
In other word customer satisfaction is an emotional response to the experiences provided by,
associated with particular products and services purchased, retail outlets, or even molar patterns
of behavior such as shopping and buyer behavior, as well as the overall market place” (Yi, 1990,
p. 69). Research shows that expectation-disconfirmation paradigm has received much empirical
attention (Parasuraman et al., 1988). However, other empirical findings demonstrate that
customer satisfaction can also be measured through product or service performance (Churchill
and Surprenant, 1982) or an outcome of service quality (Anderson, Fornell and Lehmann, 1994).
16
Customer satisfaction has become a key intermediary objective in service operations due to the
benefits it brings to organizations. The importance of customer satisfaction is derived from the
generally accepted philosophy that for a business to be successful and profitable, it must satisfy
customers (Bitner and Hubbert, 1994). Customer satisfaction also serves as an exit barrier,
helping a firm to retain its customers. Several studies have concluded that it costs more to gain a
new customer than it does to retain an existing one. In addition, customer satisfaction also leads
to favourable word-of-mouth publicity that provides valuable indirect advertising for an
organization (Fornell, 1992). Bitner and Hubbert (1994) concluded that, through satisfying
customers, organizations could improve profitability by expanding their business and gaining a
higher market share as well as repeat and referral business.
The Relationship between Customer Satisfaction and Service Quality

To achieve a high level of customer satisfaction, most researchers 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 (Cronin, Brady, and Hult, 2000; Anderson
Fornell and Lehmann, 1994; Cronin and Taylor, 1992). However, the exact relationship between
satisfaction and service quality has been described as a complex issue, characterized by debate
regarding the distinction between the two constructs and the casual direction of their relationship
(Brady, Cronin and Brand, 2002). Parasuraman, Zeithaml, and Berry (1994) concluded that the
confusion surrounding the distinction between the two constructs was partly attributed to
practitioners and the popular press using the terms interchangeable, which make theoretical
distinctions difficult.
Interpretations of the role of service quality and satisfaction have varied considerably (Cronin
and Taylor, 1992; Parasuraman, Zeithaml, and Berry, 1988). Parasuraman et al. confined
satisfaction to relate to a specific transaction as service quality was defined as an attitude. This
meant that perceived service quality was a global judgment, or attitude, relating to the superiority
of the service. Cronin and Taylor (1992) found empirical support for the idea that perceived
service quality led to satisfaction and argued that service quality was actually an antecedent of
consumer satisfaction. Asserted that consumer satisfaction appeared to exert a stronger influence
on purchase intention than service quality, and concluded that the strategic emphasis of service
organizations should focus on total customer satisfaction programs.
17
The authors reasoned that consumers may not buy the highest quality service because of factors
such as convenience, price, or availability and that these constructs may enhance satisfaction
while not actually affecting consumers‟ perceptions of service quality Cronin and Taylor (1992)
later conceded that the directionality of the service quality/satisfaction relationship was still in
question and that future research on the subject should incorporate multi item measures. The
authors suggested restricting the domain of service quality to long-term attitudes and consumer
satisfaction to transaction-specific judgments.
However, Bitner and Hubbert (1994) determined that service encounter satisfaction was quite
distinct from overall satisfaction and perceived quality. The authors concluded that the constructs
exhibited independence. Adding to the debate about the distinction between service quality and
satisfaction, customer satisfaction has also been operationalzed as a multidimensional construct
along the same dimensions that constitute service quality (Sureshchandar, Rajendran, and
Anantharaman, 2002). Despite strong correlations between service quality and customer
satisfaction in their study, the authors determined that the two constructs exhibited independence
and concluded that they were in fact different constructs, at least from the customer‟s point of
view. Brady and Cronin (1992) had endeavored to clarify the specification and nature of the
service quality and satisfaction constructs and found empirical support for the conceptualization
that service quality was an antecedent of the super ordinate satisfaction construct. In addition, the
authors found that explained a greater portion of the variance in consumers‟ purchase intentions
than service quality.
2.2.2 Empirical review
Service quality dimensions are studies in different industries by different author mostly adopted
the five dimensional SERVQUAL measurement instruments (Parasuraman et al. 1985,
1988)/SERVPERF (Cronin and Taylor, 1992) approach or some customized version of it. As this
thesis paper concentrates in the banking industries the researcher review some empirical studies
in the area and described below:
In 2011 Sajeeb Kumar Shrestha reviews on service quality dimension. In this review the central
idea is the modified SERVQUAL that had been researched at the early stage, the study conclude
that the dimension are important for service industry however the study doesn‟t incorporate
18
which service quality dimension are important to which service sector as well the dimensions
focus only the functional aspect of the process rather than the procedural aspect besides it is
difficult to generalize.
Dr. Arashshahin 2012, SERVQUAL and model of service quality Gaps: a framework for
determine and prioritizing a critical factor in delivering quality service. The researcher were
reviewed service quality and its models of gaps by using SERVQUAL methodology as an
analytical approach using 22 statement measure, the study carried out there are a number of
things that should be done to confirm the demonstrated methodologies as well as to expand the
use of SERVEQUAL in design and improvement of quality service although SERVQUAL
instrument found that helpful to assess external service quality however the researcher doesn‟t
emphasize about the internal service that need to be modified because it is very critical to contact
employees regularly and assess their service experience for the reason that it‟s directly related
specially with four service quality dimensions
Tigineh et.al (2012) and Messay (2012) have both conducted researches on service quality in
Ethiopian banks recently. Tigineh et.al conducted their research in the capital city Addis Ababa
on the perceived service quality in four banks (including CBE, the largest bank in the country
and three other private banks). They customized the SERVQUAL model to the Ethiopian bank
customer by adding one dimension namely “convenience of branch location” in the tangible
dimension. Thereby having 23 statements for expectation and perception respectively. They
conducted the research in 17 bank branches (11 private and 6 public) selected based on the
convenience and access to the researchers. In total 256 survey questionnaires were completed by
intercepted bank customers that accepted to take the survey. Overall, the research found that
there was a considerable gap between customer expectation and perception in all the five
dimensions with the biggest gap in the Empathy dimension (mean gap -1.25) followed by
assurance , tangibles, reliability, responsiveness, and with mean gaps of -0.87, -0.71,-0.57, -0.52,
respectively. (Fititneh et al 2012)
Messay (2012), on the other hand, conducted a research on banks service quality, customer
satisfaction and loyalty in Awassa using the 22 service items of SERPREF model, which he
argued to be most relevant. He used a purposive probability sampling method to identify 260
19
respondents in private banks in the city. Out of 260 distributed questionnaires 250 were
competed and five were rejected resulting at an effective response rate of 245. Furthermore he
added on the survey questions that helped to profile the respondents based on gender, age,
Education Background and frequency of use. He concluded that the customers fairly satisfied in
some dimensions such as Tangibility, Assurance and Reliability with a mean score of 3.4, 3.17
and 3.0 respectively. On the other hand they were dissatisfied in others namely Responsiveness
and Empathy with a mean score of 2.62 and 2.6 respectively. (Mesay, 2012)
In spite of the fact that empirical review shows that researches are done on service quality
dimensions however the result are different one to the other thought, therefore in order to assess
the impact of service quality on customer satisfaction the researcher tacked SERVQUAL service
quality measurement.
SERVEQUAL VS SERVPERF
SERVPERF differs from SERVQUAL in that SERVPERF does not assess gap scores because
the expectations portion of the pairings is not included. The research of Cronin and Taylor
(1992) suggested that although expectations can have unique effect on consumers' perception of
service quality, the performance minus expectations is an inappropriate basis for use in the
measurement of service quality. Moreover, there were many emerging literature supported the
performance-based paradigm over the disconfirmation-based SERVQUAL paradigm. Babakus
and Boller (1992); Churchill and Surprenant (1994), 16
All supported for the superiority of simple performance-based measures of service quality over
gap measures of SERVQUAL. Cronin and Taylor (1992) indicated that SERVPERF was the
superior measure of service quality over SERVQUAL. They also claimed that SERVPERF scale
consistently outperformed any of the other competing models in service environments, and it
also provided a useful tool for measuring overall service quality attitudes by service managers.
However, Parasuraman, Zeithaml and Berry (1994) criticized the SERVPERF instrument that the
marketing literature appears to offer considerable support for the superiority of simple
performance-based measures of service quality was surprising and questionable. Parasuraman et
al. (1994) also revealed that though the practice of measuring only perceptions was widespread,
20
such a practice did not necessarily mean performance based measures were superior to
discontinuation-based measures. In fact, service quality measurements that incorporate customer
expectations provided richer information than those that focus on perceptions only. In spite of
the criticism of SERVPERF by Parasuraman et a1. (1994), Cronin and Taylor (1992) still
revealed that SERVPERF was the superior measure of service quality over SERVQUAL. They
also claimed that SERVPERF scale consistently outperformed any of the other competing
models in service environments, and it also provided a useful tool for measuring overall service
quality attitudes by service managers.
2.3. Conceptual framework
As cited in Zeithamal and Bitner ,(2004),(Parasuraman et al,1988) is the one who came up with
the SERVQUAL model also known as the Gaps model, defines quality as the difference between
customer‟s expectation and their perception of the service delivered. The SERVQUAL
instrument provides a method of measuring service quality. SERVQUAL is the most frequently
used measure of service quality and is based on five service quality dimensions (tangibles,
reliability, responsiveness, assurance and empathy). The relationship between service quality and
customer satisfaction has received considerable academic attention in the past few years. Service
quality and customer satisfaction has been investigated by many researchers.
According to Zeithaml and Bitner (2003), satisfaction and service quality are fundamentally
different in terms of their underlying causes and outcomes. Although they have certain things in
common, satisfaction is generally viewed as a broader concept, whereas service quality
assessment focuses specifically on dimensions of service. Service quality is a component of
customer satisfaction.
Service quality is a focused evaluation that reflects the customer‟s perception of elements of
service such as interaction quality, physical environment quality, and outcome quality. These
elements are in turn evaluated based on specific quality dimensions: reliability, responsiveness,
assurance, empathy and tangibles. Satisfaction, on the other hand, is more inclusive: it is
influenced by perceptions of service quality, product quality, and price so well so situational
factors and personal factors.
21
Figure 2.4 Conceptual framework of the study
Service Quality Dimension
Responsiveness
Empathy Customer Satisfaction
Assurance
Reliability
Tangibility
22
CHAPTER THREE
3 RESEARCH DESIGN & METHODOLOGY
This chapter introduces the research method and its elements which include paradigm,
research approach, research design, Research method, Research Instrument, Sampling
Design And Data Analysis methods are also part of this chapter.
3.1 Paradigm
The researcher follows the positivist philosophy in order to assess the impact of service quality
on customer satisfaction in the context of commercial bank of Ethiopia. In the positivist
paradigm, the object of study is independent of researchers; knowledge is discovered and
verified through direct observations or measurements of phenomena; facts are established by
taking apart a phenomenon to examine its component parts (Anol, 2012).
3.2 Research Approach
The researcher used research qualitative method in the study in order to identify how customer
satisfaction affected by service quality according to C.R. Kothari, (2004).
3.3 Research design
In order to answer the problem statement and meet the research objectives, the design of the
study were descriptive and explanatory type. Descriptive research studies are those studies which
are concerned with describing the characteristics of a particular individual, or of a group. The
main characteristic of this method is that the researcher has no control over the variables; he/she
can only report what has happened or what is happening (Kothari, 2004).
Explanatory designs seek to establish cause-and-effect relationships. The primary purpose of

this research design is to determine how events occur and which ones may influence particular
outcomes (Dawson & Bob 2006). Explanatory studies are characterized by research hypotheses
that specify the nature and direction of the relationships between or among variables being
23
studied. The reason of using this method is to study the relationship between dependent and
independent variables.
3.4. Research Method
This study is a survey based one because it seeks to obtain the opinion of a population customer
satisfaction and service quality using structured questionnaire. Plus survey method has Inherent
strengths compared to other research methods. Surveys are an excellent vehicle for measuring a
wide variety of unobservable data, such as people„s preferences traits, attitudes, beliefs,
behaviors, or factual information.
There are still only two basic types of research surveys: cross sectional and longitudinal. Each
type serves a different purpose. Survey researchers use cross-sectional designs to collect data
about current attitudes, opinions, or beliefs. Longitudinal designs are used to study individuals
over time Creswell J. (2012). This study is a cross-sectional study because data were collected
from a cross section of customers of the commercial bank of Ethiopia at point in time.
3.5. Research Instrument
A self-structured questionnaire was developed based on service quality dimensions, which is

adapted from Parasuraman et al. (1985, 1988). The questionnaires consisted of 23- items which
were administered to respondents personally to be evaluated on a five point likert scale ranging
from “1”being strongly disagree to “5” being strongly agree for the 22 items .And for the 23th
question likert scale is ranging from “1”being very dissatisfied to “5” very satisfied. The
questionnaire was divided into to two parts the first part was relating to demographic profile of
respondents, the second part was about the perception towards service quality dimensions of
Commercial bank of Ethiopia.
3.6. Sampling Design
3.6.1. Method and techniques
Sampling provide a range of methods that enable one to reduce the amount of data needed for a
study by considering only data from a sub-group rather than all possible elements. there exist
24
two types of sampling: probability, where the chances of each case being selected from the
population is known and is usually equal for all cases, and non-probability - sampling where the
chances of each case selected from the total population is not known, making it impossible to
answer research questions (Saunders et al., 2009 ).
Non probability sampling would be appropriate for researcher because customer number of
Commercial Bank of Ethiopia is large, so the possibility of dawning sample with equal chance
from the population not possible.
Non probability random sampling, which is convenience sampling technique, was used. Data
were collected by visiting conveniently selected five Commercial Bank of Ethiopia branches and
who are willing to participate in this study, during business hours and approach customers
conveniently and pleading complete the questionnaires. One of the most interesting
characteristics of in Commercial Bank of Ethiopia is long queues of customers waiting for
services. Researcher was taken an advantage in collecting data from the customers.
3.6.2 Population
The population in case of this study is customers who have normal saving account and literate
customers of commercial bank of Ethiopia since the structured questioners were designed to
grasp their perception they have toward service quality of the commercial bank of Ethiopia, and
their satisfaction level.
The samplings frame of these study only literate and saving account customers of the
commercial bank of Ethiopia from the selected branches located in Addis Ababa because of
financial and time constraints researcher find it difficult to access customers outside the capital
city.
3.6.3 Sample size
Yeamdao Narangajavana (2007) summarized that there were four strategies to decide sample
size including (1) census for small populations, (2) imitating a sample size of similar studies, (3)
applying formulas to calculate a sample size, and (4) using published tables. The first strategy
census‟ was appropriate for the population of 200 or less. It allowed collecting data from all
25
subjects, thus eliminating sampling error that occurred because only a part of the population was
directly contacted. This strategy, however, was impossible when conducting research on a larger
population and when cost was a factor. Secondly, imitating a sample size of similar studies saved
time for the current research. Nonetheless the major drawback was the risk of repeating errors
that were made in determining the sample size for another study; however, if the procedure were
convincing, they were included. Thirdly, applying the calculation methods for determining a
sample size allowed the researcher to achieve the necessary sample size for a different
combination of levels of precision, confidence, and variability of a particular study. Fourthly,
using published tables saved time for the researcher because calculating a number of sample
sizes for different given set of criteria was made available.
Considering some constraint; the researcher has followed the fourth strategies of using published
tables. According to sample size table taken from the website, http://research-advisors.com, at
95% confidence interval with 5 percent error margin, the sample size for the total population of
between 100,001 and 300,000,000 is 384.
Currently Commercial Bank of Ethiopia has more than 11,000,000 customers which is fall
between 100,001 -300,000,000 category, therefore self-administer questioners handed to 384
respondents from bank branches located in Addis Ababa.
3.7 Data Analysis methods
The data that was obtained from the questionnaires were analyzed and interpreted using
statistical package for social science (SPSS) version 20. The study applied Correlation analysis
in order to identify the relationship between dependent and independent variables also used
Mean distribution for overall customer satisfaction rate.
26
CHAPTER FOUR
4. DATA ANALYSIS AND INTERPRETATION
This chapter contains the reliability analysis, respondent, profile, service quality dimension
analysis, overall customer’s satisfaction analysis, correlation analysis between customer’s
satisfaction and service quality dimensions and multiple regression analysis. And the analysis,
interpretation is from the information collected through self-administered questionnaires. A
total of 384 questionnaires were administered and 242 usable questionnaires were collected out
of which 220 were found convenient, from five branches (Somale tera, kolfe, Geja sefer, Gojam
berda, and Sebategna). The data collected was analyzed with the Statistical Package for Social
Science (SPSS) version 20 based on the information obtained from 220 customers.
4.1. Reliability Study
A reliability test is used to assess consistency in measurement items (Cerri, 2012). Cronbach‟s
alpha is used to measure the internal consistency of the measurement items. Higher Alpha
coefficients indicate higher scale reliability. Specifically, Nunnally as cited in Eze et al., 2008
suggests that scales with 0.60 Alpha coefficients and above are considered acceptable.
As shown in table 4.1 Scale Reliability Cronbach Alphas coefficients for service quality items
range 0.786 to 0.857. The overall Cronbach alpha coefficient for expected-scale items is 0.814
Therefore; the expected scales used in this study demonstrate high reliability.
Table 4.1 Reliability study

Service Quality dimension Cronbach‟s Alpha
Tangibility 0.786
Reliability 0.815
Responsiveness 0.857
Assurance 0.794
Empathy 0.822
Reliability of total scale 0.814
Source: survey result, 2016
27
4.2 Profile of Respondents
This section summarizes the demographic characteristics of respondents, which includes gender,
age, educational level, type of account, occupation of respondents and number of years as a
customer .The purpose of the demographic analysis in this research is to describe the
characteristics of the sample such as the number of respondents, proportion of males and females
in the sample, range of age, education level, and to know customers duration time. Accordingly
the following tables provide the demographic profile of the respondents.
Measures Characteristics Frequency Percentage
Gender Male 130 59.09

Female 90 40.91
Total 220 100
18-30 67 30.45
Age 31-45 94 42.73
Above 45 59 26.82
Total 220 100
Table: 4.2.1 Age and Gender characteristics of the respondents
Source: survey, 2016
As indicated in table no 4.2.1 among the total distributed questionnaire (130 respondents) 59.09
percent of the respondents were Male, while the female respondents were (90 respondents) 40.91
percent. The result of the survey, with regard to age category 30.45 percent found to be in the
age category of 18-30, The rest of the respondents composes of 42.73 percent and 26.82 percent
are clustered in age the categories of 31-45, and 45 and above respectively. This data indicated
that most of the respondents categorized under age group of 31-45 years. From the respondents‟
demographic profiles the numbers of male respondents were slightly more than the female
respondents.
TABLE 4.2.2: Educational Level of Respondents

28
Primary Education 45 20.45
Educational Secondary Education 56 25.45

Level
Diploma 25 11.36
First Degree 81 36.82
Masters and above 13 5.91

Total 220 100
As table no 4.2.2 shows the majority of the respondents were grouped under the educational
level of first degree covering 36.82% of the total respondents, followed by secondary Education
25.45%. The rest of the respondents were categorized under the educational level of primary
education, Diploma and masters and above which covers 20.45%, 11.36% and 5.91% of
respondents respectively.
Table 4.2.3: Occupation of Respondents

Government 46 20.91
Occupation of Employee
Respondent
29
Non-government Employee
64 29.01
Business Man 110 50
Total 220 100
As table 4.2.3 indicates more of the respondents occupation were grouped under Businessman,
which covering 50 percent from the total respondents. The rest of the respondents were
categorized under Non-Government employee and Government employee, which covers 64
percent and 46 percent of respondents respectively. Thus the majority of respondents‟
occupation was grouped under the Businessman.
Table 4.2.4: Number of Years

Measure Characteristics Frequency Percentage
Number of years as a < 1 year 36 16.36

customer 1-3 years 53 24.09
3-5 years 88 40
Above 5 years 43 19.55
220 100
Total
According to table 4.2.4 the majority of the respondents‟ duration with the bank is between 3-5
year which covers 40 percent of the total respondents. The rest of the respondents 1-3 years
covering 24.09 percent respondents and 19.55 percent of respondents have duration with the
bank above 5 years at last 16.36 percent of respondents cover below 1 year. This implies that the
majority of the respondents duration with the bank 3 up 5 years.
30
4.3 Correlation Analysis
The correlation analysis result was performed to see the association between modified
SERVQUAL dimensions and overall customer satisfaction. Therefore, the correlation analysis
revealed the relationship between Reliability, Responsiveness, Assurance, Empathy, Tangibility,
with overall customer satisfaction.
If the correlation result lies between -1 and 0, the two variables are negatively related. But if the
correlation result of the two variables lies between 0 and 1, the two variables are positively
related. Furthermore, according to Field (2005) general guidelines correlations of 0.1 – 0.29 are
considered small, correlations of 0.30 – 0.49 are considered moderate and correlations above = >
0.5 are considered large.
Table 4.3.1: Correlation between service quality dimensions with satisfaction
TAN REL RES ASS EMP CS
TAN 1
REL .489** 1
RES .164** .574** 1
ASS .332* .445 .399* 1
EMP .485 .514** .391* .441** 1

CS
.117*** .432* .582** .516** .551** 1
** Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
The above correlation matrix shows that responsiveness has positive and highest associations
with overall customer satisfaction other than the other dimensions with a value of (r=0.582,
p<0.01). It is followed by empathy and assurance which have equal value (r = 0.551, p<0.01),
assurance (r = 0.516, p<0.01), reliability (r=0.432, p<0.01) and tangibility with value (r = 0.117,
p<0.01).
31
4.4 Descriptive Analysis of overall Customer Satisfaction
TABLE 4.4.1: overall level of CBE Customers‟ satisfaction

Measure Frequency Percentage Mean
Very dissatisfied 34 15.45 6.8
Dissatisfied 43 19.55 8.6
Neutral 32 14.55 6.4
Satisfied 51 23.18 10.2
Very satisfied 60 27.27 12
Total 220 100 44
Table no 4.4.1 represents the outcome of the analysis of customer‟s satisfaction with the service
quality of the commercial bank of Ethiopia on their perception. Respondents were asked to rate
their overall level of satisfaction with the services provided by CBE ,with 5-point likert scale (1
means very dissatisfied, 2 means dissatisfied, 3 means neutral, 4 means satisfied and 5 means
very satisfied).
As the result of the descriptive data analysis in table no 4.5.1 indicates that, 15.45% of
respondents reported that: they are very dissatisfied with the services quality of CBE, while
19.55% found to be dissatisfied and 14.55% of them responded as neutral. And the rest 23.18%
and 27.27% rated as satisfied and very satisfied respectively. Thus it indicates as the percentage
of customers who are very satisfied with the service is more than those who are dissatisfied with
the service.
32
4.5 Hypothesis Test
The dependent variable is customer satisfaction and independent variables are those five service
quality dimensions. The “**”sign shows the correlation result between the variables. Thus up on
the Pearson correlation analysis obtained from the variables in the above correlation tables, with
the significant level is 0.01(P, 0.01) and sample size (N) 220 ,the hypothesis are examined below
one by one, to assure weather there is correlation(relationship) between service quality
dimensions and customers‟ satisfaction in CBE. The hypotheses are as follows Hypothesis #1:
There is a correlation between reliability and customers‟ satisfaction of CBE. In the above table
4.3.1 analysis, it can be seen that the correlation of reliability is 0.432** and the significant level
is 0.01(p.01). The analysis shows that the p-value is 0.000, which is less than 0.01. Therefore,
the hypothesis is supported, and concluded that there is a positive (r=.432) relationships between
reliabilities and customers satisfaction of CBE.
Hypothesis #2
There is a positive correlation between responsiveness and customers‟ satisfaction of CBE. In

the above analysis, it can be seen that the correlation of responsiveness is 0.582** and the
significant level is 0.01(p.01). The analysis shows that the p-value is 0.000, which is less than
0.01. Therefore, the hypothesis is supported, and concluded that there is a positive (r=.582)
relationships between responsiveness and customers‟ satisfaction of CBE.
Hypothesis #3
There is a relationship (correlation) between assurance and customers‟ satisfaction of CBE. As

in the table 4.3.1 analysis, the correlation of assurance is 0.516** and the significant level is
0.01(p.01). The analysis shows that the p-value is 0.000, which is less than 0.01. Therefore, the
hypothesis is supported, and concluded that there is positive (r=.516) relationships between
assurance and customers‟ satisfaction of CBE.
33
Hypothesis #4,
There is a correlation between empathy and customers‟ satisfaction of CBE. In the above
analysis, it can be seen that the correlation of empathy is 0.551** and the significant level is
empathy and customers‟ satisfaction of CBE.
Hypothesis #5
There is a correlation between tangibility and customers‟ satisfaction of CBE. In the above
analysis, it can be seen that the correlation of tangibility is 0.117** and the significant level is
tangibility and customers‟ satisfaction of CBE.
In summery from all these tests, the study confirmed that the five dimensions are positive
relationship with corporate customer satisfaction, therefore, the result reflects that corporate
customer satisfaction is affected by five dimensions variables. From which satisfaction has
higher correlation with responsiveness (.582**) and empathy (0.551**).Followed by assurance
and reliability (.516**,.432**). And lower correlation value is with tangibility (0.117)
dimensions of service quality which has quite small correlation with customer satisfaction
(.117**).
CHAPTER FIVE
5. SUMMARY OF FINDING, CONCLUSIONS AND

RECOMMENDATION
This chapter includes summary, conclusions and recommendations of the study.
34
5.1 SUMMARY OF FINDING
Based on the data analysis the major findings are summarized as follows
 From data analysis the Cronbach‟s Alpha for this study is 0.814 which shows that there is
internal consistency between the items and that measure dimensions of the variables.
 Correlation analysis result was performed to see the association between modified
SERVQUAL dimensions and overall customer satisfaction.
 Responsiveness dimensions has scored positive and highest association with customer
satisfaction also followed by empathy
 According to guidelines suggested by Field (2005) , correlation coefficient (r) between

0.1– 0.29 is weak; 0.3 – 0.49 is moderate; and = > 0.5 is strong. The correlation result
shows that the responsiveness and empathy dimension of the service quality are
significant and the most important dimensions, statistically significant at (p < 0.05).
 Even though the rest of the dimensions that are tangibles, reliability and, assurance are
not statistically significant in the overall customers satisfaction they still have positive
correlation with overall customer‟s satisfaction on the service quality of CBE.
5.2 CONCLUSIONS
The main aim of this study was to assess the impact of service quality on customer satisfaction of
Commercial Bank of Ethiopia. For this, the first three specific objective of the study was to
identify the most important dimension of service quality that contributes much towards overall
customer satisfaction in Commercial Bank of Ethiopia, to identify the relationship between
service quality and customer satisfaction in CBE and to asses‟ level of customers' satisfaction.
To achieve the first specific objective the researcher identified the relationship between service
quality and customer satisfaction in CBE Pearson correlation analysis was used. It was found
that all five dimensions of service quality are important for customer‟s satisfaction in CBE. The
study reviled that the responsiveness and assurance dimensions of service quality has highest
positive and moderate relationship with overall customer satisfaction.
35
This requires the company effort to work on these variables too, to satisfy its customers to the
acceptable level. Because as it can be seen from the correlation analysis done, it is evident that
all the five service quality dimensions have positive and significant correlation with customers‟
satisfaction. This result indicates that the bank customer place emphasis on all service quality
dimensions. Thus it can be concluded that as these attributes increases from the bank, customer
satisfaction also increases. Finally the finding have shown that mean score of overall satisfaction
with the Service Quality is above average or satisfactory. In addition to this the mean scores with
regarding to overall customers satisfaction on all dimensions are almost above average, which
implies as more of CBE customers are satisfied with service quality of the bank. And, all the
hypotheses were strongly supported.
5.3 RECOMMENDATION
This study has shown the relationship among the service quality dimensions and customer
satisfaction of CBE by using SERVQUAL measurement. Since the study confirm the five
dimensions of service quality are positively correlated with the bank customer satisfaction, hence
the bank should give strong emphasis to all service quality dimension in maintaining and
improving the service quality of the bank. Up on this, the following recommendations are
forwarded for Commercial bank of Ethiopia by the researcher:
In the current study among these service quality dimensions, responsiveness shows the highest
significance positives correlation and with customer satisfaction followed by empathy. The core
concept of responsiveness is willingness to help customers to provide prompt service, So CBE
should try to give individual attention, and willingness to help customer at convenient operating
hours. And its personnel particularly those working in customer service counters need to
understand the specific requirements of the customers, since these quality features are highest
determinants of satisfaction. Hence focus should be directed to enhancing the performance of
front line staff, and emphasis should be placed on selection and training of frontline personnel.
Thus CBE need to be more marketing oriented, to choose the personnel who interact with the
customer, to regularly collect information about customer needs, to ensure customers
satisfaction, generally the banks should maintain and improve the responsiveness skill since it is
still very important along other dimension.
36
As it is also cited in Parasuraman, Zeithaml and Berry (1988), keeping customers waiting
particularly for no apparent reason creates unnecessary negative perceptions of quality. If a
service failure occurs, the ability to recover quickly and with professionalism can create very
positive perceptions of quality. So, the bank is advised to pay special attention to responsiveness
by developing appropriate programs and providing on-going training on the various attributes of
responsiveness to increase employees‟ responsiveness as well as customer‟s satisfaction.
 Empathy also determines customer‟s satisfaction in commercial bank of Ethiopia. CBE

should Carrying and give individualized attention to each customer.
 Reliability also determines customers‟ satisfaction in Commercial Bank of Ethiopia. So,

in order to satisfy its customers and to make their service distinguishable from other
banks, CBE should try to perform the promised services both dependably and accurately
on time and without error.
 Assurance is again other feature of customers‟ satisfaction in Commercial Bank of

Ethiopia. So CBE should try to increase the degree of trust and confidence in order to fell
customers assured with the overall competence of the service provider. As well as to fell
customers as there is no safety problem in dealing with the banks. Try‟s to persuade that
the bank they always relays on.
 Tangibility is also being emerged to be as another important factor that determines CBE
customer‟s satisfaction. CBE should provide customer information material such as
brochures provided should be well composed, and attractive, frontline personnel
providing services should be neat, clean, and well dressed and give pleasing look and
professionally appearing, its facilities and other equipment at sales outlets should be
modern and up-to-date.
 Even if more than half of the respondents expressed their level of satisfaction as they are
satisfied. The rest percentage of customers are dissatisfied, So in an era where service
providers are working for customer delight CBE has to do a lot to bring improvement in
quality of its service and better satisfy all its existing customers as well as to attract the
new ones.
37
 Furthermore in the current scenario of competitive banking industry, to survive with in
this industry as well as to maintain sustainable competitive advantage the bank should
focus on customer satisfaction by offering different services. And the Banks should
continually assess how customers perceive bank services so as to know whether the bank
meets or exceeds or is below the expectations of their customers. And, it is pertinent that
all the components of service quality dimensions should be strictly followed and
implemented effectively
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42
•
43
Appendix
A study on, impact of service quality on customer satisfaction the case commercial bank of
Ethiopia
Dear respondents; I am post graduate student at Addis Ababa University School of Commerce.
Currently I am conducting a research entitled “A study on impact of quality service on customer
satisfaction of commercial bank of Ethiopia”. The purpose of the study is to fulfil a thesis
requirement for the Master of Arts in Marketing Management. Your highly esteemed responses
for the questions are extremely important for successful completion of my thesis. The
information that you provide will be used only for the purpose of the study and will be kept
strictly confidential. Finally, I would like to thank you very much for your cooperation and
spending your valuable time for my request.
• Note: Please put a “√” mark with the option that reflects your response with the given
statement.
PART ONE: Personal profile of the respondent
2. Age: 18- 31- above
3. Highest educational level achieved:

Primary education First
4. Occupation:
Government employee -
other (please specify)
_______________
5. Number of years of service usage:

- - above
PART II: SERVICE QUALITY ATTRIBUTES The following statements relate to your
perception about commercial bank of Ethiopia service quality & customer satisfaction. For each
statement, please show the extent to which you believe commercial bank of Ethiopia has the
feature described by the statement. Circling a “1” means that you strongly disagree, “2” disagree,
“3” neutral, “4” agree, and “5” strongly agree.
it
Commercial bank
performs the service right
the first time
7 1 2 3 4 5
Commercial bank
provides its services at
the time it promises to do
so
8 1 2 3 4 5
commercial Bank of
Ethiopia insists an
errorfree records or the
service provider keep its
records accurately
9 1 2 3 4 5
Responsiveness
Employees of
commercial bank tell
you exactly when
services will be
10 performed 1 2 3 4 5
Employees of
commercial bank of
Ethiopia give you
11 prompts service 1 2 3 4 5
Employees of
commercial bank of
Ethiopia are always
12 willing to help 1 2 3 4 5
Employees of 1
commercial bank are
never too busy to respond
to your requests
13 2 3 4 5
Assurance
The behavior of
employees of commercial
bank instills confidence in
customers
14 1 2 3 4 5
You feel safe in your
transactions with
commercial bank of
15 Ethiopia 1 2 3 4 5
Employees of commercial
bank of
Ethiopia are consistently
courteous with you
16 1 2 3 4 5
Employees of commercial
bank of Ethiopia have the
knowledge to answer
your questions
17 1 2 3 4 5
Empathy
Commercial bank of
Ethiopia has convenient
operating hours
18 1 2 3 4 5
Commercial bank of
Ethiopia gives you
19 individual attention 1 2 3 4 5
Dose CBE employee give
you individual attention
20 1 2 3 4 5
4
Commercial bank of
Ethiopia understands
your best interests at
heart.
21 1 2 3 4 5
Employees of
commercial bank
understand your specific
needs.
22 1 2 3 4 5
Customers overall Very

satisfaction Very satisfied satisfied neutral Dissatisfied dissatisfied
Your overall satisfaction

with the bank
5 4 3 2 1
Thank you for your corporation!!!

5

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Impact of Service Quality on Customer Satisfaction: The case of

Commercial Bank of Ethiopia

A Thesis Submitted In Partial Fulfillment Of The Requirement For The Degree of

Project Advisor: DR. Getie Andualem

Addis Ababa, Ethiopia

Management Graduate Program

Impact of Service Quality on Customer Satisfaction: The case of CBE

Eyerus Berhanu (GSR/01695/06)

Thesis Submitted to Addis Ababa University School of Commerce Marketing

Management Graduate Program in Partial Fulfillment of the Requirements for

The Degree of Master of Arts in Marketing Management

Thesis Advisor: Dr. Getie Andualem

Addis Ababa, Ethiopia

Addis Ababa University School of Commerce Marketing Management Graduate program

Name: Eyerus Berhanu

Degree: Master of Arts (MA in Marketing Management)

Approved by Board of Examiners

Advisor: Dr. Getie Andualem

By: Eyerus Berhanu

Table of Contents page No

Key words: Service Quality, CBE, SERVQUAL, Bank

1.1 Background of the study

1.2 Statement of the problem

1.3 Research Objectives

The specific objectives of the study are:

 To assess the level of customer satisfaction towards CBE's services.

1.4 Research Hypothesis

1.5 Significance of the study

1.6 Scope of the study

1.7 Limitation of the study

1.8Organization of the Paper

2 Related Literature Review

2.1. Concepts and Definition

2.1.2 Distinctive Characteristics of Services

Variability (or heterogeneity) An unavoidable consequence of simultaneous production and

• People – the appearance and behavior of service personnel

2.1.4 Underlying Principles of Service Quality

Perception – Expectation = Satisfaction

Idealist level – consumer wished for level of service.

2.2.1. Theoretical Review

 Different Service Quality measurement Instruments SERVQUAL

This measurement instrument suggests that the quality of a service as it is perceived by

Source: Gronroos, (1988)

The Relationship between Customer Satisfaction and Service Quality

2.2.2 Empirical review

2.3. Conceptual framework

Service Quality Dimension

3 RESEARCH DESIGN & METHODOLOGY

3.2 Research Approach

3.3 Research design

Explanatory designs seek to establish cause-and-effect relationships. The primary purpose of

3.4. Research Method

3.5. Research Instrument

A self-structured questionnaire was developed based on service quality dimensions, which is

3.6. Sampling Design

3.6.1. Method and techniques

3.6.3 Sample size

3.7 Data Analysis methods

RES .164 .574 1