Assignment on

Consumers’ Perception of Service Quality and its Impact on Customer Loyalty in the Service
Industry
Course Title: Service Marketing
Course Code: THM-313

Submitted To
Name: Md Rafiqul Islam Rakib
Lecturer, Department of Tourism and Hospitality Management, Islamic University, Bangladesh.

Submitted By
Md Momin Ali
ID No: 1733001
Department of Tourism and Hospitality Management, Islamic University, Bangladesh.
Introduction
The relationship between service quality and customer satisfaction is found to be stronger for
customers who have a positive experience of service recovery; and the correlation between
customer satisfaction and customer loyalty is stronger for customers who perceive high
service value.Service loyalty, with its final effect on repurchasing by customers, is perhaps
one of the most important constructs in services marketing. Indeed, loyal customers that
indulge in repeat purchases are the bedrock of any business. One of the more obvious
questions relates to the demographic characteristics of loyal customers, whether any such
variables are more salient than others and how these can be used for segmentation purposes.
However, work that integrates the role of service loyalty within the context of other service
marketing variables like service quality and customer satisfaction has received less attention.
Service quality has been the subject of considerable interest by both practitioners and
researchers in recent years. An important reason for the interest in service quality by
practitioners results from the belief that this has a beneficial effect on bottom-line
performance for the firm. However, practitioners often tend to use the terms service quality
and customer satisfaction interchangeably. Among academics the satisfaction construct is
recognized as being distinct and has developed along fairly independent lines from service
quality. The concepts of service quality, customer satisfaction and service loyalty are related
to each other. Theoretically, the expectancy/disconfirmation paradigm in process theory can
provide the grounding for this study, with service quality as an antecedent construct and
service loyalty as an outcome variable of customer satisfaction. A better understanding of the
effects of service quality and customer satisfaction on service loyalty can help academics. in
the development of a model of service marketing. It can also provide practitioners with
indications as to where best to devote marketing attention and scarce corporate resources.
This study seeks to contribute to the development of a conceptual framework that integrates
service loyalty, service quality and customer satisfaction. It reviews the literature on these
three constructs and outlines the expected relationships in a research model.
Service Quality
Service quality as a multi-dimensional construct commonly based on customer judgements
about service supplier and customer interactions and service itself. According to Parasuraman
et al, service quality is seen as the difference between customers’ expectations and
perceptions of service with the view of building a competitive advantage. This indicates that
delivering quality service means conforming to customer expectations on a consistent basis
and could be assessed by probing whether perceived service delivery meets, exceeds or fails
to meet customer expectations.

Service quality analysis makes an impact on the development of the customer loyalty concept
– service quality can be regarded as one of the most frequently analyzed customer loyalty
determinants. Tangible and intangible constituents of service quality were important in
evaluating either customer view of an organization or customer trust in an organization. It has
been defined that service quality is very important for customer satisfaction, and by it service
quality impacts customer loyalty. It can be stated, that the limitation of service quality studies
is the inconsistency in determining the link between service quality and customer loyalty.
Some studies have found that service quality determines customer satisfaction and affects
customer loyalty through satisfaction. Other studies, in contrast, have justified the influence
of customer satisfaction on the quality of service.

Customer Loyalty:
Customer loyalty can be defined in two distinct ways. First, loyalty is an attitude. Different
feelings create an individual’s overall attachment to a product, service, or organization. These
feelings define the individual’s degree of loyalty. The second definition of loyalty is
behavioural. Examples of loyalty behavior include continuing to purchase services from the
same supplier, increasing the scale and or scope of a relationship, or the act of
recommendation Customer loyalty is developed over a period of time from a consistent
record of meeting, and sometimes even exceeding customer expectations. Kotler asserted that
the cost of attracting a new customer may be five times the cost of keeping a current
customer happy.
Customer Satisfaction:
Perceived service quality is a global judgment or attitude relating to the superiority of the
service, whereas satisfaction is related to a specific transaction. On the other hand, customer
satisfaction has frequently been suggested to be the leading determinant of loyalty suggests
that there is a significant positive relationship between customer satisfaction and customer
loyalty/retention. As such, customer satisfaction in this research is acting as a mediator
between service quality and customer loyalty.

Service Quality and Customer Satisfaction

Many studies have established the relationship between service quality and customer
satisfaction. Companies and organizations strive hard to achieve high customer satisfaction,
especially those companies that consider a long-term relationship with customers as an asset.
However, understanding the service quality components remains to be a subject of
discussions and arguments. For instance, in the retail service sector, customer satisfaction has
become a key consideration for successful business operations although identification of
service quality characteristics may not be fully understood.

However, there are still arguments and disagreements on the causal relationship between the
two variables as applied in different settings. Three major possibilities had been
explored regarding the relationship: First, service quality is the antecedent of customer
satisfaction; second, customer satisfaction is the cause of service quality and third, there is no
significant relationship between service quality and customer satisfaction .These three
positions may have a varied impact on the results of the study and other studies, although in
general consensus, many researchers have found the relationship between the two variables
where the service quality served as an antecedent to customer loyalty in a dominant position
as applied to the service industry.

Customer Satisfaction and Customer Loyalty

Evidence showed that there is a significant relationship between customer satisfaction and
customer loyalty. Customer loyalty is considered a result of customer satisfaction, when
customers who have good experiences with the service of the company will continue to
deal with the company viewing it as less risky, thereby making them loyal and rational in
 decision-making. In fact, many authors have advocated that customer satisfaction is one of
the determinates of customer loyalty, especially in the service industry. Satisfaction and
loyalty are the components of ultimate loyalty, and satisfaction is the starting point of
loyalty.

Furthermore, it can be assumed that the relationship between customer satisfaction and
customer loyalty is nonlinear. The importance of firms to increase the level of customer
satisfaction if they want to sustain the level of customer loyalty. As evident, previous
studies have already confirmed the significant positive relationship between service
quality and customer loyalty by utilizing customer satisfaction as the mediating variable.
Moreover, in the service industry, the same results have been identified: that customer
satisfaction mediates the relationship between service quality and customer loyalty.

Framework of Analysis

This section presents a diagrammatic illustration of the theoretical framework. The

conceptual framework was developed following various empirical and theoretical studies. In
a diagrammatic format, it shows the predictor variable, the five service quality dimensions,
namely, tangibles, reliability, responsiveness, assurance, and empathy, whereas the customer
satisfaction will serve as the mediating variable. Customer loyalty will be the dependent
variable. The relationships among customer satisfaction, customer loyalty, and service quality
dimensions will be examined by the correlation analysis, and the impact of service quality on
customer satisfaction will be analyzed by the regression analysis.

Figure: Conceptual framework of the impact of service quality on customer loyalty and

customer satisfaction.
It is the ability to perform the promised service dependably and accurately. Reliability means
that the company delivers on its promises-promises about delivery, service provision, problem
resolutions and pricing. Customers want to do business with companies that keep their
promises, particularly their promises about the service outcomes and core service attributes.
All companies need to be aware of customer expectation of reliability. Firms that do not
provide the core service that customers think they are buying fail their customers in the most
direct.

It is the willingness to help customers and provide prompt service. This dimension emphasizes
attentiveness and promptness in dealing with customer’s requests, questions, complaints and
problems. Responsiveness is communicated to customers by length of time they have to wait
for assistance, answers to questions or attention to problems. Responsiveness also captures the
notion of flexibility and ability to customize the service to customer needs.

It means to inspire trust and confidence. Assurance is defined as employee’s knowledge of

courtesy and the ability of the firm and its employees to inspire trust and confidence. This
dimension is likely to be particularly important for the services that the customers perceives as
involving high rising and/or about which they feel uncertain about the ability to evaluate.
Trust and confidence may be embodied in the person who links the customer to the company,
for example, the marketing department. Thus, employees are aware of the importance to create
trust and confidence from the customers to gain competitive advantage and for customer’s
loyalty.

Empathy: Treating customers as individuals

It means to provide caring individualized attention the firm provide its customers. In some
countries, it is essential to provide individual attention to show to the customer that the
company does best to satisfy his needs. Empathy is an additional plus that the trust and
confidence of the customers and at the same time increase the loyalty. In this competitive
world, the customer’s requirements are rising day after day and it is the companies duties to
their maximum to meet the demands of customers, else customers who do not receive
individual attention will search elsewhere.
Tangibility: Representing the service Physically

Since services are tangible, customers derive their perception of service quality by comparing
the tangible associated with these services provided. It is the appearance of the physical
facilities, equipment, personnel and communication materials. In this survey, on the
questionnaire designed, the customers respond to the questions about the physical layout and
the facilities that FFR offers to its customers.There is a significant positive relationship
between customer satisfaction and service quality. Similarly, service quality enhances
customer loyalty in a direct way where customer satisfaction variable plays a mediating role.
Customer perception doesn’t change overnight. There are many reasons why our customers
choose us over our competitors. Be prepared to research, take the necessary steps and
improve how customers perceive us.