Relationships among Customers' Perceived Service Quality, Satisfaction and Loyalty in the Retail Banking Sector of Pakistan

The main purpose of this study is to determine the level of satisfaction from the existing service quality in the retail banking sector of Pakistan and to investigate mediating role of customer satisfaction in determining the customer loyalty from prevailing service quality. So far, a limited study has been conducted in retail banking sector of Pakistan to understand the impact of customers' perceived service quality on customer loyalty via customer satisfaction. Literature was reviewed in order to comprehend what makes service quality, customer satisfaction and customer loyalty and to identify nature of relationship between them. Total of 180 responses were received from banking customers having active accounts in different banks in six cities in the area of Northern Punjab of Pakistan. Correlation matrix revealed significant positive relationship between all attributes of service quality, customer satisfaction and customer loyalty in retail banking sector in Pakistan. Regression analysis demonstrated customer satisfaction fully mediates the relationship between reliability and customer loyalty as well as assurance and customer loyalty, partially mediates empathy and customer loyalty, while no mediation found between tangibility and customer loyalty as well as between responsiveness and customer loyalty. Tangibility, however, showed a direct impact on customer loyalty. The bank managers in Pakistan must be vigilant about providing service quality with a special emphasis on reliability, assurance and empathy which are antecedents of customer satisfaction that in turn mediates the impact of these antecedents towards customer loyalty. Furthermore, bank managers must be watchful about provision of service quality in terms of tangibility which has a direct influence on customer loyalty.