Impact of service quality on customer satisfaction and customer loyalty : a study of Islamic banks in Bahrain

Abstract

In today’s intensive competitive world, capability of high-quality service is maintained by firms as a source of competitive advantage which is sustainable. Well satisfied customers are attained by firms which could provide higher quality services, which in turn results in loyal customers. For that matter, the satisfaction of customers has become the pivotal study of service marketing and operations management. Service firms such as banking services, including Islamic banking service, are vital to the economy of any country, as this sector contributes increased portion to its Gross Domestic Product (GDP) and higher employment rate. The survival, profitability and competitive advantage of the bank in today’s environment, lie on the bank’s ability to offer excellent service quality. Therefore ways to provide high quality products and services to satisfy existing and potential customers to make them remain loyal is utmost important. In spite of the increasing numbers of Islamic Banks in the Bahraini banking industry, very little empirical investigation has been carried out in understanding the impact of service quality that lead to customer satisfaction and customer loyalty. The current study thus endeavours to close the gap in the literature by focusing on the impact of service quality on customer satisfaction and customer loyalty in the Islamic banking sector of Bahrain. The present study has used SERVPERF model of service quality proposed by Cronin and Taylor (1992). Quantitative method was used for the current research. A well-structured questionnaire was personally administered by the researcher to obtain what will be the primary data for this research. A 7 point Likert scale has been used with “1” being strongly disagreed and “7” being strongly agreed. The study has used statistical software SPSS 20 to organize, classify and analyse all the data collected. The results indicated that the effect of Service Quality (SQ) on Customer Satisfaction (CS) and also the effect of Customer Satisfaction (CS) to Customer Loyalty (CL) were statistically significant supporting Hypothesis (H1) and Hypothesis (H3). Meanwhile, Service Quality (SQ) had not any significant effect on Customer Loyalty (CL) rejecting Hypothesis (H2). Furthermore, the results showed that Customer Satisfaction (CS) fully mediates the relationship between Service Quality (SQ) and Customer Loyalty (CL) which supported the hypothesis (H4). From the moderation analysis, it was found that neither Gender nor Educational level of respondents could moderate the relationship between Service Quality (SQ) and Customer Satisfaction (CS). Therefore the hypotheses (H5) and (H6) were rejected. This empirical study adds value to the current knowledge of Islamic banking service providers’ practices. To apply these findings to craft a strategy for better future and concentrate on their positioning in the market and also to offer enhanced service quality to their customers, would lead the Islamic banks in general and Bahrain in particular to new heights of competitiveness and sustainability.