Exploring the Degree of Customer Satisfaction and Customer Loyalty in Banking Sector of UK:

A Comparative Analysis of Barclay's and Royal Bank of Scotland (RBS)

Literature Review
Customers can be defined as those who use the output of the effort. They can be simply termed
as the end users of the product or service. Customer can be an internal within the organization
like employees or external like the persons buying in the market, various businesses or even
government (Dei-Tum, 2005).
Customer Satisfaction
The study of customer satisfaction has been the main focus of research and practices from the
last few years. The main reason behind the attention is that the customers have been identified as
the main source of profit by most of the companies in the market (Tam, 2004).
There have been numerous studies on defining the concept of customer satisfaction. It can be
perceived as the outcome of the purchase and usage of a particular product or service in relation
to the anticipation of it. Customer satisfaction is also defined as an emotional state and is
determined with the help of a cognitive process which compares what the customers give up and
what they receive in response (Tam, 2004).
A relationship between the performance of the organization and the level of satisfaction
experienced by the customers has been evaluated in (Morgan, et al., 2005). Moreover, it also
argued that the ultimate goal of any organization should be customer satisfaction.
Empirical evidences have been presented that show reduction in the probability of defection
when the appropriate level of customer satisfaction is observed. This satisfaction later turns into
customer loyalty (Oliver, 2009). The customer satisfaction level is not inherent and is bound to
vary from customer to customer even for the same services. Thus, customer satisfaction is the
perception of an individual customer of the service or product (Ueltschy, et al., 2007).
The customer satisfaction and loyalty has been linked with service quality in the banking sector.
Service quality in the banking system is of the utmost importance with analyzing the
performance of the bank branches. The customer satisfaction depends on the service quality the
branches provide (Portela & Thanassoulis, 2005). The excellence in the profits of the banks is
key to achieving the customer satisfaction which is the mail aim of the business organization
especially banks (Ehigie, 2006). The author suggested a positive relationship between the
organizational profits and customer satisfaction (Lam & Burton, 2006).
According to the literature in marketing, the expectation of the customers can still be met without
the customer judging the services or product of the highest quality. On the other hand, customer
loyalty can only be experienced if customer rates the services at the highest for a considerable
length of time.
The expectations of the customer are not ascribed to just the product, but also the characteristics
and the context of the customer. Moreover, the communication between customers and company
also need to be of the highest quality. A group of antecedents can be listed for continuous
customer expectations. These are the context of the consumer, factors that are accessed prior to

the service or product, communicate with the customers, explicit promises about the product,
implicit claims about the product and previous experience. Moreover, the personal needs and
philosophy of the customers can also affect the satisfaction level. For example, each individual
wants different types of services and relation with the service provider. Customers with more
interactions in social circle and needs have high expectations about the product.
In (Manrai, et al., 2007), four dimensions for the customer satisfaction in relation to the banking
services have been identified. These dimensions were related to personal considerations,
atmosphere surrounding the facilities, financial considerations and the convenience of the
customers. The significance of customer satisfaction has been showed with the rates of customer
satisfaction into customer loyalty. The study revealed that the retention of customers is lowered
by approximately sixty percent when the customers are not satisfied with the banking services.
Another study investigated that the responsiveness is the most essential dimension of customer
satisfaction in commercial bank (Tahir & Abubakar, 2007). The study found that proper
communication and conflict handling is also important for customer satisfaction.
Various studies have mentioned that high levels of customer satisfaction is essential for
maintaining a sound customer base in the banking sector (Leverin & Lilijander, 2006). A link
between the quality of services and customer satisfaction has also been argued in this work. The
relation between the high customer loyalty and high service quality is also part of the study.
Moreover, the study revealed that the customer satisfaction is directly proportional to customer
loyalty.
With the drastic increase in the global competition, companies are facing a major challenge to
improve the satisfaction levels of the customers and continuously keep them satisfied as to make
them loyal. Satisfaction or dissatisfaction can be qualitatively defined as a measure of a product
or service against the expectations or needs. Thus, it is the result of comparison of the quality of
service with the perceived quality.
Various companies have focused rightly on the customer satisfaction with differentiating
themselves from the competitors Zeithaml et al, (2006). Companies have lead great emphasis on
customer satisfaction and loyalty over the years.

Customer Loyalty
Customer loyalty can be considered as a direct consequence of customer satisfaction. The
concept of customer loyalty has been focused numerous times over the past few years. A number
of dimensions of customer loyalty have also been identified in the studies. Among a number of
these dimensions, behavioral and attitudinal are the most important. (Nguyen, et al., 2011)
pointed out the three fields in the research of customer loyalty: attitudinal loyalty, composite
loyalty and behavioral loyalty. Attitudinal loyalty focuses on the willingness of the customer for
the recommended product or service. The attitude can be expressed through a positive word of
mouth to other people. On the other hand, behavioral loyalty focuses on the repeating patterns in

the purchase of a particular brand of products. The last dimension is composite loyalty which is
basically a mix of both the fields.
Customer loyalty has been endorsed by a number of researchers and organizations. For example,
works in (Gupta & Zeithaml, 2006), (Ehigie, 2006) have all identified the importance and
conclude their research on the statement that customer loyalty minimizes the cost of serving the
new customers. Another work mentioned various advantages associated with the customer
loyalty of any brand or organization. The advantages are that the loyal customers will be willing
to pay even higher costs for the product or service, loyalty of a customer can act as a marketing
tool by word of mouth and loyal customers have significantly lower costs of services.
Customer loyalty has been given importance in the marketing as it has a significant impact on the
profit margins. (Gupta & Zeithaml, 2006) pointed out that customer loyalty can transform into
profitability and can affect the overall performance of any organization. They also added that
customer loyalty can positively influence the financial performance of the firm. According to
(Pfeifer, et al., 2005), loyalty of the customers can link to higher profit margins due to several
reasons. Among them, the most important is the reduction in the acquisition costs for new
customers.
Early practices considered the performance through the metric of customer satisfaction.
Presently, the focus of the marketing strategies has changed from customer satisfaction to
customer loyalty. The main reason for the shift is the impact on profit margin.
It is a common misperception that there is a direct proportionality between customer satisfaction
and customer loyalty. Several studies have indicated that the relation cant be generalized in a
straightforward manner. Customer satisfaction doesnt always transforms into customer loyalty.
On the contrary, several studies indicate that this positive association fails to be generalized.
Customer satisfaction does not always translate into customer loyalty. (Chandrashekaran, et al.,
2007) indicated that customer satisfaction doesnt always translate into high levels of customer
loyalty as merely keeping the existing customers satisfied is not enough to guarantee the loyalty
of the customers as they may be able to defect. Thus, managers are advised to not only achieve
customer satisfaction, but also convert the feeling into a behavior of repurchase.
The impact of relationship marketing on customer loyalty has been investigated in (Ndubisi, et
al., 2007). The results showed the marketing ingredients like commitment, communication,
competence and conflict handling are related to the customer loyalty. The relation can be either
direct or indirect with qualities like trust and relationship acting in the middle. In addition, the
quality of relationship and trust between the customer and organization are associated with the
loyalty.
Similar study as provided evidence that customer loyalty can be created by a certain set of
actions. Organizations can retain the customers through a marketing plan that is aimed at
demonstrating the commitment of services and building long term relationship through trust.
Moreover, the communication with the customers should be in a proactive and timely fashion
with the ability to efficiently handle the conflicts (Ndubisi, 2007).

Banking sector
The success of any sector can be demonstrated by the relationship with the customers. A lot of
research focused on evaluating the factors that influence the customer relations with the banking
sector. The customer satisfaction transforms into improving the image of the banks, profitability
and helps in customer loyalty (Chandrashekaran, et al., 2007). Among various factors related to
customer satisfaction, service quality is the most important. In the present world, keeping the
same levels of service quality is not enough. Now, it is essential to update and improve the
services according to the customer needs. Moreover, customer satisfaction invariably transforms
in customer loyalty (Gupta & Zeithaml, 2006). In (Pfeifer, et al., 2005), it is explained that a
strong relationship exists between the level of customer satisfaction and customer loyalty. The
importance for the determination of the needs of customers was the focus of (Nguyen, et al.,
2011). It evaluated that the process is crucial to establish long term relationships with the
customers and increase profitability.
All the range of activities and the generation of profits in the service sector like banking surround
around the customer. Thus, it is important to study the factors that are essential for success in
banking industry. Customer satisfaction and loyalty are the key factors when viewing the
banking sector. Customer loyalty can increase the market share of one bank but it is also the
reason behind intense competition in the banking sector. The impact of service dimensions on the
level of customer satisfaction for banks was the focus of (Mengi, 2009). The study examined the
dimensions of reliability, assurance, empathy and tangibility on satisfaction of the customers in
relation to the banking industry.
The use of information technology has been proposed to be the best tool for the collection of
information of the customers. The advantages it offers and whole process for customer
satisfaction has been proposed with context to banks in UK (Tahir & Abubakar, 2007).
The advantages offered due to an effective customer satisfaction process have for various firms
has been studies in (Leverin & Lilijander, 2006). The benefits for the customer loyalty after the
customer satisfaction phase has also been the focus of many researches including (Farquhar,
2005). The benefits include increased profitability and some other benefits like image
development.
Various studies have focused on the banking sector in the United Kingdom. The latest concepts
like internet banking have been the main focus of these studies. The role of employee satisfaction
and other key drivers needed for customer satisfaction (Maddern, et al., 2007). The study
evaluated these factors that derive the customer satisfaction with impact of the process
management of business organizations on service quality and customer satisfaction. The paper
also evaluated the exploratory research with a comparison between the banks. It found that the
banks in the UK offer a favorable environment for the satisfaction of the customers. Banks in the
United Kingdom make use of sophisticated technological infrastructure to provide sense of
security for the users.

The main focus of studying the degree of satisfaction and customer retention can be determined
by firstly understanding the needs of the existing customers to help them accordingly. The needs
should involve the information from the past and the future plans of the customers. The process
helps the banks to design the respective strategies to ensure customer satisfaction. The
importance of information of customers has also been studied in (Farquhar, 2005). The study
focused on the structure of banks and the use of the gathered information to develop relations in
both ways. These relationships offer added advantages like low resources, increase in sales.
(Leverin & Lilijander, 2006) studied the relationship between the customers images about the
percentage of loyalty in a specific bank of UK. Moreover, retail banking has also been studied
extensively in case of many financial services.
The main difference between previous studies is identifying the factors that influence customer
satisfaction. The study explores in-depth analysis with perspective of both the customers and
bank managers. Moreover, the study also involves the customer loyalty behavior from
perspective of customers and managers of the banks. The study compares the factors with respect
to two banks namely Barclays and Royal Bank of Scotland (RBS). The study learns the
strategies and the guidelines to be followed by local banks to improve their customer base.

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