Service Quality and Its Effect on Customer Loyalty of Banking Industry in Jaffna District Sri Lanka: A Comparative Study Between State Banks and Private Banks

Abstract

Purpose: To examine how service quality effect on customer loyalty of banking industry in Jaffna district Sri Lanka.Design/methodology/approach: A questionnaire derived from previous studies and the relevant Literature was completed by 420 customers of both private and state banks in Jaffna district, Sri Lanka. Liner regression analysis assessed the effect on customer loyalty of three key constructs of service quality such as station quality, interaction quality and outcome quality. Correlation analysis was carried out to examine the interrelationship between service quality and customer loyalty. And also,independent sample T-test and independent sample one way ANOVA were utilized to find out the significant mean different in customer loyalty among personal demographic variables. Further regression analysis was used to find out impact between two variables.Findings: service quality contributes significantly to customer loyalty and predicts 79.6 percent of the variation found. Interaction quality and outcome quality in service quality contribute significantly to customer loyalty. But customer loyalty is not contributed significantly by station quality in the service quality. And also, there is a significant mean different in-service quality and customer loyalty among the private banks and state banks. State bank customers are more loyal to their bank rather than private banks due to the safety and security features and private banks are offering high service quality rather than state banks. Overall association between service quality and customer loyalty is positively correlated.Research limitations/implications: This research focuses on banking services in one particular district of the country. Therefore, further research in other sectors may be necessary before generalization can be made on.Practical implications: Based on the finding of the study, there are a few key points that can be used to conclude this research paper. It is very important that the service quality in the banking service industry in Jaffna peninsula contributed to the customer loyalty. Mainly interaction and outcome quality dimensions in the service quality contribute to the customer loyalty for becoming effective one.Originality/value: reinforces and refines the body of knowledge relating to customer loyalty in service industries.