THE MEDIATING EFFECT OF CUSTOMER SATISFACTION ON THE RELATIONSHIP BETWEEN SERVICE QUALITY AND CUSTOMER LOYALTY IN THE CASE OF SELECTED CBE BRANCHES

Abstract

The purpose of this study was to examine the mediating effect of customer satisfaction on the relationship of service quality and customer loyalty in the case of commercial bank of Tefera Degfe branch. Explanatory design was employed in this study. Total samples of 118 respondents were drawn out of 135 total populations for the study. SERVEQUAL model was adapted as the conceptual framework for analysis. Data were collected through structured questionnaire. Data were analyzed through descriptive statistics, narrative and regression analyses. The results indicated that customer satisfaction mediates the relationship between service quality and customer loyalty. All the five dimensions of service quality had significant, positive effect on the customer loyalty. It is observed that customers were most satisfied with tangibility dimension of service quality followed by assurance. The finding from the correlation result reveals that there is a positive and significant relationship between the service quality dimensions, customer satisfaction and customer loyalty. Overall service quality dimensions regressed with dependent variable customer satisfaction and customer loyalty results revealed in the model summery R² = .330 and .314 respectively. It implies that 33 % of variation in customer satisfaction and 31.4 % of the variation in customer loyalty is explained by independent variable service quality dimensions. Finally, the researcher recommend to the bank that in our current environment services preference of customers and their demands keeps on changing at a rapid speed and the bank should operate proactively in meeting its customers’ needs and preferences. So that bank managers develop and implement customer-oriented service strategies to identify customers’ needs and expectations in order to serve them better.