Determinants of customer satisfaction in retail

banking
Terrence Levesque
Associate Professor, School of Business and Economics, Wilfrid Laurier
University, Waterloo, Ontario, Canada
Gordon H.G. McDougall
Professor, School of Business and Economics, Wilfrid Laurier University,
Waterloo, Ontario, Canada
Points out that customer
satisfaction and retention are
critical for retail banks, and
investigates the major determinants of customer satisfaction and future intentions in
the retail bank sector. Identifies the determinants which
include service quality dimensions (e.g. getting it right the
first time), service features
(e.g. competitive interest
rates), service problems,
service recovery and products
used. Finds, in particular, that
service problems and the
banks service recovery ability
have a major impact on customer satisfaction and intentions to switch.

Introduction
In an era of mature and intense competitive
pressures, many firms are focusing their
efforts on maintaining a loyal customer base.
This is particularly true in the financial services sector where deregulation has created
an environment that allows consumers considerable choice in satisfying their financial
needs. In response, many retail banks are
directing their strategies towards increasing
customer satisfaction and loyalty through
improved service quality.
Retail banks are pursuing this strategy, in
part, because of the difficulty in differentiating based on the service offering. Typically,
customers perceive very little difference in
the services offered by retail banks and any
new offering is quickly matched by competitors (Coskun and Frohlich, 1992; Devlin et al.,
1995). Also, retail banks, like many other
service providers, have discovered that
increasing customer retention rates can have
a substantial impact on profits.
The task facing these managers is to focus
on those activities that result in meeting or
exceeding customer expectations. The question is: what are the major determinants of
customer satisfaction? The main objective of
this paper is to identify these determinants in
the retail bank sector. To accomplish the
objective, information was collected from 325
respondents who rated their main financial
institution on aspects of service quality, service problem recovery, service features, product usage, satisfaction and future intentions.
The results provide insights for managers
concerned with improving customer satisfaction in retail banking.

Background

International Journal of
Bank Marketing
14/7 [1996] 1220
MCB University Press
[ISSN 0265-2323]

[ 12 ]

The rewards to firms that establish a loyal

customer base have been well documented
(Armstrong and Symonds, 1991; Heskett et al.,
1994; Reichheld and Sasser, 1990). In general,
increased loyalty leads to lower costs of servicing the firms customers, reduced marketing expenditures, increased business from
the existing customer base and greater profits. These rewards are particularly true in the

retail banking sector. By increasing loyalty, a

retail bank:
reduces its servicing costs (i.e. accounts do
not have to be opened or closed, and credit
ratings do not have to be established;
gains knowledge of the financial affairs and
needs of its customers (thereby allowing
effective and efficient targeting); and
has an opportunity to cross-sell existing
and new products and services.
In one case, a retail bank that increased its
customer retention rates by 5 per cent
increased its profits by 85 per cent (Reichheld
and Sasser, 1990).
Improving customer satisfaction, and
thereby retention rates, can come from a
variety of activities available to the firm. The
existing evidence suggests that major gains
in customer satisfaction are likely to come
from improvements in:
service quality;
service features; and
customer complaint handling.

Service quality
Not surprisingly, there are strong linkages
between service quality dimensions (e.g.
courteous service providers) and overall
customer satisfaction (Anderson and
Sullivan, 1993). However, there has been considerable debate as to the basic dimensions of
service quality (see Brown et al., 1993 and
Cronin and Taylor, 1992, for reviews), the
measurement of these dimensions (Brown et
al., 1993; Parasuraman et al., 1993; Smith,
1995; Teas, 1993), and the components of customer satisfaction (Hausknecht, 1990; Yi,
1990). Surprisingly, little empirical research
has examined the importance of service quality dimensions in determining customer
satisfaction (Fisk et al., 1993).
Extensive research has been conducted on
developing and measuring service quality
(Brown et al., 1993; Cronin and Taylor, 1992;
Parasuraman et al., 1985, 1988; Teas, 1993). A
review of this literature suggests the following:
The contention that service quality consists
of five basic dimensions (Parasuraman et
al., 1988) is very questionable (Brown et al.,
1993; Cronin and Taylor, 1992; Teas, 1993).
Instead, the number and composition of the

Terrence Levesque and

Gordon H.G. McDougall
Determinants of customer
satisfaction in retail banking
International Journal of
Bank Marketing
14/7 [1996] 1220

service quality dimensions are probably

dependent on the service setting (Brown et
al., 1993; Carman, 1990). Empirical evidence
and theoretical arguments suggest that
there may be two overriding dimensions to
service quality; the core or outcome aspects
(contractual) of the service, and the relational or process aspects (customeremployee relationship) of the service (Grnroos, 1985; McDougall and Levesque, 1994;
Morgan and Piercy, 1992; Parasuraman et
al., 1991b).
The contention that service quality should
be conceptualized and measured as a gap
between expectations and performance is
very questionable (Brown et al., 1993;
Cronin and Taylor, 1994; Smith, 1995; Teas,
1994). The evidence suggests that service
quality should be based on performance
measures alone (Brown et al., 1993; Cronin
and Taylor, 1994; Teas, 1994).
Items used to measure service quality
should reflect the specific service setting
under investigation (Carman, 1990).
To elaborate on the two major dimensions of
service quality, Parasuraman et al. (1991b)
summarized the nature of the core (outcome)
and relational (process) constructs:
[While] reliability is largely concerned with
the service outcome, tangibles, responsiveness, assurance, and empathy are more
concerned with the service process.
Whereas customers judge the accuracy and
dependability (i.e. reliability) of the delivered service, they judge the other dimensions as the service is being delivered (p. 41).

While the number of underlying dimensions

has been shown to vary with the service setting, it appears reasonable to suggest that the
service core and relational dimensions will
emerge in nearly all cases as they form the
basis for the service.

Service features
Customer satisfaction is also related to the
service offering. With retail banking, the
convenience and competitiveness of the
providers offerings can be expected to affect
a customers overall satisfaction and ongoing
patronage. Research has shown that location
is a major determinant of bank choice
(Anderson et al., 1976; Laroche and Taylor,
1988; Thwaites and Vere, 1995). Underlying
location are the customer benefits of convenience and accessibility which are enabling
factors that make it easy for the customer to
do business with the bank. The banks ability
to deliver these benefits on an ongoing basis
to its existing clientele will probably impact
on customer satisfaction.
Another determinant of bank choice is
competitive interest rates (Laroche and

Taylor, 1988). While differences in rates,

either savings or borrowings, are likely to be
minimal between competing banks,
customers are concerned that they are getting competitive rates on savings or loans
because of the impact on their financial situation. Again, customer satisfaction is likely to
be influenced by the perceived competitiveness of the banks interest rates.

Customer complaint handling

A major reason why customers switch service
providers is unsatisfactory problem resolution (Hart et al., 1990). When customers face a
problem, they may respond by exiting
(switching to a new supplier), voicing
(attempting to remedy the problem by complaining) or loyalty (staying with the supplier
anticipating that things will get better)
(Hirschman, 1970). Given that customers of
retail banks have relatively high switching
costs, it is likely that a dissatisfying experience will evoke a passive reaction (no complaint) or a complaint. Given that the customer complains, the banks response can
lead to customer states ranging from dissatisfaction to satisfaction. In fact, anecdotal evidence suggests that when the service
provider accepts responsibility and resolves
the problem, the customer becomes bonded
to the organization (Hart et al., 1990). When
customers complain, they give the firm a
chance to rectify the problem and, interestingly, if the firm recovers successfully, to
increase loyalty and profits (Fornell and
Wernerfelt, 1987). Thus, customer complaint
handling can have an influence on customer
satisfaction and retention.

Situational factors
To date, little empirical evidence exists as to
how customer product usage patterns impact
on customer satisfaction. Customers or segments with different needs or usage patterns
may have different determinants of customer
satisfaction. In the retail banking sector,
customers who use particular products (e.g.
loans or mortgages) may focus on service
features, such as competitive interest rates,
more than customers who do not hold these
products. Thus, the determinants of customer
satisfaction towards the service provider may
vary depending on customer or segment
characteristics.

Customer satisfaction
While customer retention is the goal of the
service provider, surrogate measures are
typically used owing to the constraints
involved in longitudinal studies. These measures relate to attitudes or future intentions
towards the service provider. There is sufficient evidence to suggest that customer

[ 13 ]

Terrence Levesque and

Gordon H.G. McDougall
Determinants of customer
satisfaction in retail banking
International Journal of
Bank Marketing
14/7 [1996] 1220

satisfaction can and should be viewed as an

attitude (Yi, 1990). For example, in retail
banking there is an ongoing relationship
between the service provider and the customer. Here, customer satisfaction is based on
an evaluation of multiple interactions. For
this investigation, satisfaction is considered
as a composite of overall customer attitudes
towards the service provider that incorporates a number of measures.
Three frequently used measures are overall
service quality, meeting expectations and
customer satisfaction (Hausknecht, 1990;
Heskett et al., 1994; Jones and Sasser, 1995).
Also, typical measures of future intentions
are recommending the service to a friend and
propensity to switch (Heskett et al., 1994).
While there are some problems with using
either customer satisfaction or future intention measures to capture future behaviour,
the inclusion of multiple measures reduces
the problems.

Summary
In summary, the plan is to investigate the role
of service quality, service features, service
problems and situational factors on customer
satisfaction and future intentions with their
main financial institution. The results should
provide retail bank managers with a better
understanding of the drivers of customer
satisfaction in this service setting.
The next section details the methodology of
the study, followed by the results.

Methodology
Measures used
The major goal of this study was to identify
the drivers of customer satisfaction in retail
banking. To begin, an inventory of service
quality items was identified. Prior research
on SERVQUAL (Carman, 1990; Cronin and
Taylor, 1992; Parasuraman et al., 1988, 1991a)
provided items to measure the core and relational dimensions of service quality (Table I).
In addition, two items were selected to measure the tangible dimension, another potential driver of customer satisfaction (Parasuraman et al., 1988).
Also, the bank marketing literature provided items on service features ( LeBlanc and
Nguygen, 1988; Lewis, 1991; Teas and Wong,
1991). These items might be considered as
enabling features, related to convenience and
accessibility, that contribute to service quality by making the service easier or more
comfortable for the customer. Enabling features include convenience, as measured by
branch locations and automatic teller
machines, the clarity of bank statements
and communications, range of services and

[ 14 ]

accessibility as defined by the banks internal

and external physical layout. The common
aspect of these items is that they enable customers to conduct their business with the
service provider more readily and easily.
Consequently, these items may contribute to
the overall value of a customers experience
with the service provider.
An item was also added on the perceived
competitiveness of the banks interest rates.
The service marketing literature has concentrated on items measuring service quality to
determine customer satisfaction (Parasuraman et al., 1991b). Missing in this discussion
is the role that the firms pricing policies play
in the customers evaluation of the financial
institution. Because customers switch brands
or banks in reaction to pricing policies (part
of the service offering), they may perceive
this feature as part of customer satisfaction.
For this reason, the item was included in the
questionnaire.
In total, 17 items were selected to measure
service quality and service features. Respondents were asked to identify their main financial institution and then to evaluate this institution on the 17 items (Table I). All items were
measured on seven-point Likert scales from 1
(Strongly disagree) to 7 (Strongly agree).
Three items were used to measure
customer satisfaction and two items to measure future intentions towards the service
provider (Table I). These measures have frequently been used in both academic and practitioner studies of customer satisfaction
(Brown et al., 1993; Hausknecht, 1990; Heskett
et al., 1994; Jones and Sasser, 1995; Yi, 1990).
Information on significant service problems was obtained by asking respondents:
if they had encountered a problem with
their main financial institution in the past
six months;
if they had, had they complained; and
if they had complained, how satisfied were
they with the banks response (five-point
satisfaction scale).
Information on financial services used (e.g.
loans, savings accounts) was obtained (17
services) as well as the number of banks
respondents dealt with. This information
formed the basis for the situational measures.
The questionnaire was pre-tested and,
based on the debriefing of the pre-test respondents (n = 12), minor changes were made to
improve the clarity and visual layout of the
questionnaire.

Data collection
The data were gathered from members of a
church congregation. An announcement was
made at the church services that researchers
from a university were conducting a study on

Terrence Levesque and

Gordon H.G. McDougall
Determinants of customer
satisfaction in retail banking

Table I
The measures used

International Journal of
Bank Marketing
14/7 [1996] 1220

Service quality

Service features

Core
When my bank promises to do
something by a certain time,
it does so
My bank performs the service
right the first time
My bank provides its services
at the time it promises to do so
My bank performs the service
accurately
My bank tells you exactly when
services will be performed

Enabling
My bank offers a complete range
of services
My bank has convenient branch
locations
My bank provides easily
understood statements
It is very easy to get in and out
of my bank quickly

Customer satisfaction and

future intentions

Competitive
My bank offers competitive
interest rates

Relational
Employees in my bank have the
required skills and knowledge to
perform the service
Employees in my bank are always
willing to help
Employees in my bank are
consistently courteous
My bank gives me individual
attention
Employees of my bank understand
my specific needs

Customer satisfaction
Considering everything, I am
extremely satisfied with my bank
My bank always meets my
expectations
The overall quality of the services
provided by my bank is excellent
Future intentions
If people asked me, I would
strongly recommend that they
deal with my bank
Things happen at my bank that
make me want to switch my
accounts elsewhere

Tangibles
My banks physical facilities are
visually appealing
My banks employees are
neat in appearance

service quality. Members were asked to take a

questionnaire, complete it at home and
return it by mail in a stamped, addressed
envelope, to the university. For each questionnaire completed, the researchers donated
$5.00 to a charity sponsored by the church.
Four hundred questionnaires were distributed and 325 were returned for a response
rate of 81 per cent. By way of summary, the
sample was 60 per cent female, had a mean
age in the 40-49 range, with average income in
the $40,000-$49,000 range. Eighty-two per cent
owned their own home, and 57 per cent had
completed some post-secondary education.
The demographic profile of the sample was
compared with the population characteristics
of the city where the study was undertaken.
Comparisons were made on gender, age, education, home ownership, family size and
household income. No significant differences
were found on family size and household
income. Significant differences were found on
gender (sample was 60 per cent female; community was 50 per cent), home ownership

(sample had 82 per cent home ownership;

community had 62 per cent), age (sample
under-represented in 20-39 age groups, overrepresented in 40-49 age group), and education (sample under-represented in less than
high school, over-represented in post-high
school education).
An examination of banking experience
revealed that all respondents had a main
financial institution. On average, respondents dealt with 2.2 banks and used a variety
of bank services in the past 12 months (e.g. 71
per cent used a chequing account, 75 per cent
used a savings account, 39 per cent had a term
deposit and 50 per cent had a retirement savings plan).

Results
Preliminary analysis
The responses to the 17 items concerning
service quality and service features were
factor analysed to determine whether a

[ 15 ]

Terrence Levesque and

Gordon H.G. McDougall
Determinants of customer
satisfaction in retail banking
International Journal of
Bank Marketing
14/7 [1996] 1220

solution involving the core, relational,

tangible and enabling dimensions could be
detected. The factor analysis yielded three
factors with eigenvalues exceeding 1.0, providing reasonable support for the two service
quality (relational and core) dimensions and
one service feature dimension (Table II). A
three-factor oblique solution was the most
interpretable of all the solutions examined.
The item loadings in the factor pattern provided a convincing interpretation of the core
and relational constructs.
The third factor associated items that
described the bank as opposed to its employees behaviour or the banks fulfilment of its
core performance obligations. These aspects
included the appearance of employees and
facilities (the tangibles), the clarity of statements and the convenience of its location.
These features surround the customer
transactions, which were captured by the
core and relational factors. The a priori
assumption that two separate factors, tangibles and enabling, would be present was not
supported by these results.

Table II
Factor analysis service quality items
Fac1

Pattern
Fac2

Fac3

0.89
0.88
0.86
0.72

0.03
0.02
0.04
0.06

0.02
0.10
0.03
0.14

Core
Provides services when promised
Do it right the first time
Performs service accurately
Do something by a certain time
Tells when services performed

0.00
0.06
0.07
0.01
0.20

0.93
0.92
0.89
0.83
0.56

0.08
0.03
0.01
0.01
0.15

Features
Visually appealing facilities
Convenient branch locations
Easily understood statements
Easy to get in/out quickly
Employees neat appearance

0.09
0.12
0.02
0.22
0.15

0.10
0.02
0.05
0.01
0.09

0.83
0.79
0.61
0.55
0.46

Relational
Gives individual attention
Consistently courteous
Always wiling to help
Understands specific needs

Non-loading items
Employees have the skill/knowledge
0.35
0.39
0.14
Complete range of services
0.26
0.16
0.38
Offers competitive rates
0.36
0.11
0.26
Notes:
All numbers are item loadings. The initial solution yields three factors with eigenvalues of
7.1, 1.7, and 1.3 that account for 42, 10, and 8 per cent of the total response variance
respectively. The items have been reordered for the table presentation.
n = 293
[ 16 ]

The moderate correlation between the core

and relational factors (0.545) showed that
there was some overlap in respondents
judgements about core quality and relational
quality. The connection was not so strong,
however, to impede estimation of the contributions of service core quality and service
relational quality to overall satisfaction using
regression analysis.
Reliability analysis was conducted for the
items comprising each of the three factors
and the Cronbach alphas were: relational
(0.87), core (0.90) and features (0.72). In the
subsequent analysis, the constructs were
defined as the linear combination of the items
measuring the dimension.
The three items not associated with any
factor (Table II) were examined and it was
found that two items complete range of
services and offers competitive rates
were related and consequently only one of the
two items, offers competitive rates, was
kept for the subsequent analysis. In summary,
the service quality determinants included for
the following analysis were three constructs
core, relational, features and two single
items, employees have the skill/knowledge
and offers competitive rates.
The service problem/recovery measure was
structured as two variables:
1 whether the respondent experienced a
problem in the last six months and complained to the bank about it (1) or not (0);
and
2 for those respondents who complained,
their level of satisfaction with the complaint handling of the bank (1 is very
unsatisfied to 5 is very satisfied).
This structure permitted testing the effects of
experience with problems and satisfaction
with complaint handling by the service
provider.
The preliminary analysis also included an
examination of the correlation coefficients
between the situational variables products
used and number of banks used and the
customer satisfaction and future intentions
measures. The purpose was to identify those
variables that offered potential for explaining
the dependent measures. Based on this analysis, two variables were identified and
included in the subsequent analysis:
1 holding both a mortgage and loan with the
main financial institution or not; and
2 dealing with a single bank or more than
one bank.
The final stage of the preliminary analysis
examined the relationship among, first, the
three customer satisfaction measures and,
second, the two future intentions measures.
A reliability analysis of the three satisfaction

Terrence Levesque and

Gordon H.G. McDougall
Determinants of customer
satisfaction in retail banking
International Journal of
Bank Marketing
14/7 [1996] 1220

measures provided a Cronbach alpha of 0.92

indicating that the three items were measuring a single construct. The correlation coefficient between the two future intentions measures was 0.54, which provides only moderate
support for a single underlying construct.
The decision was made to analyse these two
items separately. For the subsequent analysis,
three dependent measures were used: a customer satisfaction measure based on summing the three items and two single items,
propensity to switch and recommend to
friend measuring aspects of future intentions.

Determinants of customer satisfaction and

future intentions
The primary objective of this research was to
identify the major determinants of customer
satisfaction and future intentions with
respect to retail banking. Table III provides
the results of the three empirical models and
their determinants.
The customer satisfaction model fits the
data very well (adjusted R2 = 0.71). With one
exception, all the explanatory variables were
significant which suggests that, in retail
banking, customer satisfaction is driven by a
number of factors, including but not limited
to, service quality dimensions. The key
explanatory variables were in the service
quality domain; core and relational performance, problem encountered and satisfaction
with problem recovery. However, the banks
features (e.g. location), the competitiveness of

Table III
Regression coefficients for the customer satisfaction and future intentions
measures
Customer
satisfaction

Recommend
to friend

Consider
switching

Relational performance
0.31*
0.43*
0.21
Core performance
0.31*
0.24*
0.52*
Features performance
0.14*
0.20*
0.07
Competitive rates
0.11*
0.18*
0.08
Skilled employees
0.15*
0.14*
0.02
Problem encountereda
1.03*
1.38*
1.80*
Satisfaction with problem recoveryb
0.23*
0.30*
0.23
Hold mortgage and loanc
0.15*
0.17
0.24
Single or multiple bank userd
0.05
0.06
0.28
Constant
0.02
1.06*
0.77
Adjusted R2
0.71
0.57
0.29
Notes:
* p < 0.05
a Within last six months, respondent experienced a problem and complained (no = 0,
yes = 1)
b Respondent satisfaction with banks response to problem (very satisfied = 5;
very unsatisfied = 1)
c Respondent holds mortgage and loan at the bank (no = 0, yes = 1)
d Respondent deals with one bank (0) or more than one bank (1)

the banks interest rates, the customers

judgements about the bank employees skills
and whether the customer was a borrower
were all factors that drove customer satisfaction. Whether the customer was a single or
multiple bank user was not significant in the
model.
All of the coefficients were in the expected
direction. Customer satisfaction improved as
the customers judgement about core and
relational quality and features performance
became more favourable and with the customers satisfaction with the banks problem
recovery efforts. Customers who had encountered a problem or who were borrowers rated
banks less favourably than others.
It was interesting to note that the banks
features and competitive interest rates were
significant contributors to customer satisfaction. The inclusion of features and benefits
beyond the traditional service quality
determinants provided a more complete and
comprehensive picture of the factors that
contributed to a customers overall attitude
towards the service.
The recommend to friend model was very
similar to the customer satisfaction model.
The two main differences were that relational
performance was a stronger driver in the
recommend to friend model and, if a problem
was encountered, it had a greater negative
impact on willingness to recommend. This
suggests that, while there are similarities
between the determinants of customer satisfaction and recommend to friend, the differences indicate that behavioural intentions
(i.e. recommend to friend) are driven more by
specific determinants.
The intentions to switch model was substantially different from the two previous
models. First, the explanatory power of the
model was lower, with an adjusted R2 of 0.29.
Second, the two significant determinants
were core performance (e.g. getting it right
the first time) and problem encountered.
Improvements in the customers judgement
concerning core performance reduced the
intention to switch. If a customer encountered a problem, regardless of the banks
ability to handle that problem, intentions to
switch increased. In this study, core performance and problems encountered were the
primary drivers of intentions to switch; other
factors such as relational performance, competitive rates, features performance or problem recovery did not play a role.
It is useful to discuss the results concerning
problem encounter and service problem
recovery. As noted previously, the literature
suggests that satisfactory problem recovery
can increase customer loyalty towards the
service provider (Figure 1). That is, through

[ 17 ]

Terrence Levesque and

Gordon H.G. McDougall
Determinants of customer
satisfaction in retail banking
International Journal of
Bank Marketing
14/7 [1996] 1220

the recovery process, the service provider can

actually increase customer satisfaction and
bond the customer to the organization
(Hart et al., 1990). Conversely, unsatisfactory
problem recovery reduces customer satisfaction and loyalty.
The results showed that respondents who
experienced a problem had a significant and
dramatic drop in customer satisfaction, willingness to recommend to friend, and, conversely, an increase in consider switching.
This confirms and reinforces the serious
consequences of unsatisfactory customer
service (Reichheld and Sasser, 1990). The
results also showed that satisfaction with
problem recovery restored, but did not
enhance, customer satisfaction (Figure 2).
Further, satisfaction with problem recovery

Figure 1
Customer satisfaction and problem recovery: theoretical model
Customer satisfaction

Very satisfied

Recovery more than

offsets problem

Average
customer
satisfaction (no
problem
experienced)
Recovery does not
offset problem
Very dissatisfied
Satisfaction with problem recovery
Very
Very
dissatisfied
satisfied
Figure 2
Customer satisfaction and problem recovery: study findings
Customer satisfaction

Very satisfied
Average
customer
satisfaction (no
problem
experienced)
Recovery does not
offset problem
Very dissatisfied
Satisfaction with problem recovery
Very
Very
dissatisfied
satisfied
[ 18 ]

does not ameliorate the respondents intention to switch. This calls into question the
proposition that satisfactory problem recovery can actually increase overall customer
satisfaction.

Discussion
The analysis of the 17 items comprising various aspects of service quality and service
features suggests that in retail banking, two
dimensions core and relational are present, as is a third dimension labelled features. Two prior investigations in retail banking which focused only on service quality
items identified five dimensions (Parasuraman et al., 1988) or possibly one or three
dimensions (Brown et al., 1993). Recognizing
that this research broadened the measures
used, considering all three studies it appears
reasonable to conclude that service quality
in retail banking may comprise two basic
dimensions core and relational. In addition,
items that reflect various features of the service offering are appropriate in the retail
banking sector.
Of particular interest was the finding that
three items did not load on any factor. This
suggests that some aspects of service quality
or the service offering that contribute to
customer satisfaction are unidimensional.
Further research on an even broader range of
items which incorporate other aspects of the
service offering would be useful to gain a
more comprehensive picture of the determinants of customer satisfaction.
The primary objective of this study was to
identify the drivers of customer satisfaction
in retail banking. Overall, both core and
relational performance were important drivers. Features such as convenience also contributed to customer satisfaction, as did competitive interest rates and skilled employees.
The importance of these findings is that positive attitudes towards a retail bank are driven
by service quality components, such as the
employee-customer relationship, as well as
other features/benefits of the service.
The results also show that a service problem which is not resolved has a substantial
impact on the customers attitude towards the
service provider. These results confirm the
importance of problem recovery in maintaining customer satisfaction (Hart et al., 1990).
However, the results do not support the contention that satisfactory problem recovery
leads to heightened customer satisfaction or
closer bonding of the customer to the
provider. At best, satisfactory problem recovery leads to the same level of customer satisfaction as if a problem had not occurred.
Further research is required to determine if,

Terrence Levesque and

Gordon H.G. McDougall
Determinants of customer
satisfaction in retail banking
International Journal of
Bank Marketing
14/7 [1996] 1220

and when, satisfactory problem recovery

leads to delighted customers.
A situational characteristic, holding both a
mortgage and a loan, leads to lower levels of
satisfaction. It would appear that borrowers versus non-borrowers (who are likely
to be lenders) experience situations that create some level of dissatisfaction. While many
of them may not complain, the borrowers
hold less positive attitudes towards the service provider than do non-borrowers. Based
on personal observation, it is possible that
borrowers resent, to some degree, the
demands and conditions retail banks place on
them. For example, borrowers may be more
critical than non-borrowers because it is
costing them more.
Propensity to switch was driven by core
performance and problems encountered
within the past six months. In particular, it is
important to note that, even if the problem
was resolved to the customers satisfaction,
the propensity to switch was significantly
higher. It appears that if customers experienced a problem which was serious enough to
complain about, regardless of the service
providers response, the customers switching
intentions increased. Again, these results did
not support the proposition that satisfactory
problem recovery maintains or improves
customer loyalty.
Considering managerial implications, the
results point to one general recommendation
for managing service offerings and several
specific conclusions for managing customer
satisfaction in retail banks. Overall, the organizing framework for managing customer
evaluations of a service offering should focus
first on the core and relational dimensions.
These two dimensions yield clean and convincing directions for designing service offerings, staff development programmes and
customer complaint management systems.
The items (Table I) that comprise the core
dimensions concern accuracy, expectancy,
meeting promises and informing customers
about when services will be performed. They
are clear signposts concerning quality standards for employees for every transaction.
Also, the items outline the range of issues
that are the primary causes of customer complaint behaviour.
The items which comprise the relational
dimension set the tone of the relationship
between the customer and the service representative. They are straightforward features
and traits of employees; in a sense, the results
confirm common understanding and practice.
Managers also need to be aware that customer satisfaction is based on service quality
and other aspects of the service offering such
as convenience and service specific factors

(e.g. competitive interest rates). Managers

should probably consider the value or contribution to customer satisfaction of each
dimension of the total service offering and
allocate resources accordingly. Regarding
customer complaints, managers should
attempt to get things right the first time.
When customers complain, satisfactory problem recovery maintains satisfaction, but
switching intentions increase. Unsatisfactory
problem recovery leads to dramatic declines
in customer satisfaction and increases in
switching intentions.
Concerning specific implications for retail
banking, the results suggest that service
quality judgements form the basis of customer satisfaction. The relative sensitivity of
customer satisfaction to the core and relational aspects of service quality points to the
role of the various service features in the
overall design of the offering, staff training
and complaint management. In retail banking, it appears that core and relational features ought to be equally weighted when
managers are interested in improving customer satisfaction. In contrast, when the
focus is on reducing switching intentions (i.e.
increase customer retention) considerable
emphasis should fall on core items (i.e. getting it right the first time) and ensuring successful problem recovery. In this case, the
influence of relational features is far less
important.
Concerning future investigations,
researchers should consider taking a broader
view towards identifying the components of
service quality and the overall service offering. The components should encompass not
only the recently identified constructs (e.g.
core, relational) but also constructs/items
that reflect the service offering (e.g. competitive rates). Future investigations in this area
might focus on the complete service package
and seek to develop a framework which is
based on the major customer benefits derived
from the service. This approach might yield
useful insights into the composition of the
service from the customers viewpoint. Also,
including more measures of customer satisfaction and future intentions might offer
further insights into the drivers of these customer outcomes. In particular, the inclusion
of measures of perceived value may be a fruitful direction to pursue.
To summarize, a major contribution of this
study is the provision of an approach for
managers to identify the determinants of
customer satisfaction and future intentions
towards the service provider. The approach
should incorporate constructs or items
beyond service quality to capture the domain
of factors that drive customer satisfaction.
Also, the study provided insights and

[ 19 ]

Terrence Levesque and

Gordon H.G. McDougall
Determinants of customer
satisfaction in retail banking

implications for managers in retail banks

who want to improve customer satisfaction
and retention rates.

International Journal of
Bank Marketing
14/7 [1996] 1220

References

[ 20 ]

Anderson, E.A. and Sullivan, M.W. (1993), The

antecedents and consequences of customer
satisfaction for firms, Marketing Science, Vol.
12, Spring, pp. 125-43.
Anderson, W.T. Jr, Cox, E.P. III and Fulcher, D.H.
(1976), Bank selection decisions and market
segmentation, Journal of Marketing, Vol. 40.
No. 1, pp. 40-5.
Armstrong, L. and Symonds, W.C. (1991), Beyond
May I Help You?, Business Week, Special
Issue, pp. 100-2.
Brown, T.J., Churchill, G.A. Jr and Peter, J.P.
(1993), Improving the measurement of service quality, Journal of Retailing, Vol. 69,
Spring, pp. 127-38.
Carman, J.M. (1990), Consumer perceptions of
service quality: an assessment of the
SERVQUAL dimensions, Journal of
Retailing, Vol. 66, Spring, pp. 35-55.
Coskun, A. and Frohlich, C.J. (1992), Service: the
competitive edge in banking Journal of
Services Marketing, Vol. 6 No. 1, pp. 15-22.
Cronin, J.J. and Taylor, S.A. (1992), Measuring
service quality: a re-examination and extension, Journal of Marketing, Vol. 56 No. 3,
pp. 55-68.
Cronin, J.J. and Taylor, S.A. (1994), SERVPERF
versus SERVQUAL: reconciling performancebased and perceptions-minus-expectations
measurement of service quality, Journal of
Marketing, Vol. 58 No. 1, pp. 125-31.
Devlin, J.F., Ennew, C.T. and Mirza, M. (1995),
Organizational positioning in retail financial services, Journal of Marketing Management, Vol. 11, pp. 119-32.
Fisk, R.P., Brown, S.W. and Bitner, M.J. (1993),
Tracking the evolution of the services marketing literature, Journal of Retailing, Vol.
69, Spring, pp. 61-103.
Fornell, C. and Wernerfelt, B. (1987), Defensive
marketing strategy by customer complaint
management: a theoretical analysis, Journal
of Marketing Research, Vol. 24 No. 4, pp. 337-46.
Grnroos, C. (1985), Internal marketing theory
and practice, in Block, T.M., Upah, G.D. and
Zeithaml, V.A. (Eds), Services Marketing in a
Changing Environment, American Marketing
Association, Chicago, IL, pp. 41-7.
Hart, C.W.L., Heskett, J.L. and Sasser, E.W. Jr
(1990), The profitable art of service recovery, Harvard Business Review, Vol. 68 No. 4,
pp. 148-56.
Hausknecht, D.C. (1990), Measurement scales in
customer satisfaction/dissatisfaction, Journal of Consumer Satisfaction, Dissatisfaction
and Complaining Behaviour, Vol. 3, pp. 1-11.
Heskett, J.L., Jones, T.O., Loveman, G.W., Sasser,
W.E. Jr and Schlesinger, L.A. (1994), Putting
the service-profit chain to work, Harvard
Business Review, Vol. 72 No. 4, pp. 164-74.
Hirschman, A.O. (1970), Exit, Voice and Loyalty,
Harvard University Press, Cambridge, MA.
Jones, T.O. and Sasser, W.E. Jr (1995), Why satisfied customers defect, Harvard Business
Review, Vol. 73 No. 6, pp. 88-99.

Laroche, M. and Taylor, T. (1988), An empirical

study of major segmentation issues in retail
banking, International Journal of Bank
Marketing, Vol. 6 No. 1, pp. 31-48.
LeBlanc, G. and Nguygen, N. (1988), Customers
perceptions of service quality in financial
institutions, International Journal of Bank
Marketing, Vol. 6 No. 4, pp. 7-18.
Lewis, B.R. (1991), Service quality: an international comparison of bank customers expectations and perceptions, Journal of Marketing Management, Vol. 7 No. 1, pp. 47-62.
McDougall, G. and Levesque, T. (1994), A revised
view of service quality dimensions: an empirical investigation, Journal of Professional
Services Marketing, Vol. 11 No. 1, pp. 189-210.
Morgan, N.A. and Piercy, N.F. (1992), Market-led
quality, Industrial Marketing Management,
Vol. 21 No. 2, pp. 111-18.
Parasuraman, A., Berry, L.L. and Zeithaml, V.A.
(1991a), Refinement and reassessment of the
SERVQUAL scale, Journal of Retailing, Vol.
67, Winter, pp. 420-50.
Parasuraman, A., Berry, L.L. and Zeithaml, V.A.
(1991b), Understanding customer expectations of service, Sloan Management Review,
Vol. 39, Spring, pp. 39-48.
Parasuraman, A., Berry, L.L. and Zeithaml, V.A.
(1993), More on improving service quality
measurement, Journal of Retailing, Vol. 69,
Spring, pp. 140-7.
Parasuraman, A., Zeithaml, V.A. and Berry, L.L.
(1985), Conceptual model of service quality
and its implications for future research,
Journal of Marketing, Vol. 49, Autumn, pp. 4150.
Parasuraman, A., Zeithaml, V.A. and Berry, L.L.
(1988), SERVQUAL: a multiple-item scale for
measuring consumer perceptions of service
quality, Journal of Retailing, Vol. 64, Spring,
pp. 12-40.
Reichheld, F.F. and Sasser, W.E. Jr (1990), Zero
defections: quality comes to service, Harvard Business Review, Vol. 68 No. 5, pp. 105-11.
Smith, A.M. (1995), Measuring service quality: is
SERVQUAL now redundant?, Journal of
Marketing Management, Vol. 11 Nos. 1-3, pp.
257-76.
Teas, R.K. (1993), Expectations, performance
evaluation, and consumers perceptions of
quality, Journal of Marketing, Vol. 57 No. 4,
pp. 18-34.
Teas, R.K. (1994), Expectations as a comparison
standard in measuring service quality: an
assessment of a reassessment, Journal of
Marketing, Vol. 58 No. 1, pp. 132-9.
Teas, R.K. and Wong, J. (1991), Measurement of
customer perceptions of the retail bank service delivery system, Journal of Marketing
Management, Vol. 7 No.1, pp. 147-67.
Thwaites, D. and Vere, L. (1995), Bank selection
criteria a student perspective, Journal of
Marketing Management, Vol. 11 Nos 1-3, pp.
133-49.
Yi, Y. (1990), A critical review of consumer satisfaction, in Zeithaml, V.A. (Ed.), Review of
Marketing, American Marketing Association,
Chicago, IL, pp. 68-123.