Abstract

This work sought to assess the effect of service quality on Mutengene Savings and Loans Cooperative Society customer retention. In order to satisfy the specific objectives of the study, a structured questionnaire was developed, pre-tested and administered to targeted subscribers using a simple random sampling method.

A total of 105 respondents were contacted; 100 subscribers and 5 staff were interviewed. Descriptive method of data analysis was used to analyze the data collected from the field.

The findings revealed that even though the five service quality dimensions can lead to customer satisfaction, some of them were regarded to be of higher priority. Reliability, responsiveness and assurance dimension was considered to be having the highest impact on service quality.

Moreover the study established that all service quality dimensions should be improved and allocated more resources since they positively affect customer retention.

The study, therefore, recommends that the management of Mutengene Savings and Loans Cooperative Society should put more effort on those Service quality dimensions that were found to be higher importance on Customer retention.

They include reliability factors, assurance factors and responsive factors. Moreover service quality dimensions were found to have a positive relationship with customer retention hence should be improved to achieve more customer retention.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The retention of customers is one of the most vital element in the global competitive markets. With the fast paste in technological and economic conditions has made it cumbersome for organizations to deal with.

The contemporary age has brought the advancement in global commerce and emerging competitive markets which has led to fluctuations and intense competition. Thus, consumers has series of alternatives to exceed expectations when making a buying decision.

As a result, with the assumption that customer loyalty plays a vital role in the long-run sustainability of a business operation, hence, the retention of customers is no doubt an imperative aspect that will enhance the long-term success of an organization in the service-driven economy. In this light, customer retention is seen as a tool that all organizations must put in place in order to diminish the risk of substitutes.

In the Microfinance sector there are lots of challenges, that is why customers are not that loyal to one particular service provider, especially when there are not receiving value for money kind of service.

Hence, contemporary companies are forced to consider how to create a loyal customer base that will not be eroded even in the face of fierce competition. This is in bid to gain market share and to extend their profit margin.

Therefore, microfinance institutions must realize the necessity of studying and understanding various antecedents (viz service quality, switching cost, trust, corporate image, and customer satisfaction and retention) which might help them to develop a loyal customer base (Sharp & Sharp, 1997) as well as strategizing ways to satisfy these customers.

Mixed findings exist regarding the casual direction between service quality and retention (Lee, et al., 2000) does customer retention lead to service quality or vice versa. Yavas et al. (1997) explained that although some studies interpreted service quality perceptions as an outcome of satisfaction, recent studies have characterized service quality as an antecedent of customer retention.

The goal of every successful business is to maintain a high level of customer satisfaction and retaining customers by providing their clientele with value added transactions through positive customer service interactions.

In turn the customer’s expectation is to feel important and assisted during the interactions that ultimately lead to their desired end result. Customers are constantly aiming to get the highest satisfaction from products or services that they buy from various organizations across the globe.

Thus, it must be noted that winning in today’s competitive marketplace demands that organizations need to build profitable and lasting customer relationship. (Kotler, et al, .2002). As Organizations are increasingly becoming customer focused and are driven by customer demands, it is becoming equally challenging to satisfy and retain customer loyalty.

Research by Oliver (2009) suggests that both service quality and customer retention are two distinct but related variables. It is particularly true for the services firms where increased level of customer retention results in profit maximization. Therefore experts say that customer retention should be the fundamental principle of all the service firms as it is the key indicator of firm’s performance.

As said by Sakthivel et al., (2005) quality service and customer retention is proved to be the major determinant for long term survival and financial performance of the company (Jones and Sasser,1995). Also, customers are considered as final judges to judge the quality level of product and services offered.

Parasuraman et al. (1985) describes service quality as the evaluation of the general quality of services being provided to customers. Therefore, it can be noted that service quality is the differentiation between the customer’s expectation and the perceptions of services delivered by organizations.

Gronroos (1984) also defined service quality as the outcome of an evaluation of process where the consumer compares their expectations with the service they received. He postulated that customer perceived service quality is a function of expected service, perceived service, and image quality.

Service quality focuses on meeting the customers’ needs and requirements and how well the service delivered matches the customers’ expectation (Philip and Hazlett, 1997).

While customer satisfaction as Lonial and Zaim, (2000) cited in Oladepo and Abimbola (2014) put it, is customers’ positive or negative feeling about the value that was received after the consumption of ideas, goods and services. Service quality and customer retention are global issues that affect all organizations whether private or public businesses, small or large, global or local.

Organizations are interested in studying, evaluating, and implementing marketing strategies that aim to improve customer satisfaction and retention with an intention to maximize the financial performance of the firm.

Service quality and customer retention have long been recognized as playing a vital role towards the organizational success and survival in today’s global competitive markets. ( Kaplan and Norton, 2001).

Service quality is considered as an integral part of any facet of industry and it defines the future of any organization. The rapid increase in technology-based systems related to internet are leading to fundamental ways in how different organizations interact.

This applies same for relation of an organization with its customers. In different services, industries relationship between customer satisfaction and service attributes have been difficult to identify because services nature is intangible (Hong, Goo et al., 2004; Nguyen and Leblanc, 2002).

Due to the intangible nature of services it is difficult for the firms to analyze how the customers perceive and evaluate the desired outcome of the service quality.

This research is conducted to find out the quality of service provided by Mutengene savings and loans cooperative society, how do customers perceive the service provided by Mutengene savings and loans cooperative society and also to understand the service gap and the service quality provided by Mutengene savings and loans cooperative society using SERVQUAL measures or dimensions to determine service quality and customer retention. SERVQUAL scale is the measures of service quality based on the gap between expectation and performance.

Within SERVQUAL model there are five specific dimensions of service quality; tangibility, reliability, responsiveness, assurance and empathy (Parasuraman, Zeithaml and Berry, 1988). But this study will make use of three dimensions which are reliability, responsiveness and assurance.

The SERVQUAL model is used in this study because it takes a broader perspective of service, that is far beyond simple customer service and it is the dominant approach to quantitatively assess service quality.

1.2. Problem statement

The understanding of customer’s needs within current competitive finance industry and most especially in microfinances has become an important factor for service providers successes Owing to that , companies have moved from product-centric to a customer centric positions.

Retention has become of great interest to practitioners because it is important for customer retention (Patterson et al., 1997; Sedon, 1997).

Good customer service is an expectation held by the customer regarding the manner in which they are treated by anyone representing the company and this service quality is not able to affect the retention of customers of the microfinance institution.

Consumers want and expect to be addressed in a respectful and professional manner when dealing with any situation, problem, complaint, question or assistance that may arise pertaining to any aspect of their business relationship without that they.

A negative customer service experience often leads to a dissatisfied or disgruntled customer; and an unhappy customer can tarnish the name and reputation of a company by generating negative feedback.

Customer service is a standard in customer satisfaction, so consumers expect to have their issue managed while being addressed in a polite and in a timely manner.

The Cameroon cooperation of credit union (2017) records that Mutengene savings and loans cooperative society the provider of both savings and loans services has achieved significant customer base but still many of their customers always complain of the quality-of-service render to them. Over the years, there has been a low significant customer base growth even after deployment of new technologies.

Customer retention has helped us understand and implement store loyalty programs (Agustin and Singh, 2005; Carter, 2008).

In a nationwide customer retention survey, majority of the respondents reported that 75% of the sales were from existing customers (Carter, 2008).

98% of the respondents surveyed agreed to the importance of customer loyalty but only half of them were aware of any customer loyalty program being implemented at their firm. 73% of the firms said that they did not measure customer loyalty (Ray and Chiagouris, 2009).

Revenues from the loyal customers continue to grow as the customers continue to be loyal to the firm and Companies spend more in attracting new customers rather than retaining the existing ones.

The front end function of attracting a new customer like substantial budget, management attention and effort of marketing professionals is taken care of while the backend function of retaining customers is usually neglected.

It costs six times more to get a new customer then retaining an existing one. Some companies maintain incoming of new customers to cover up regular loss of existing ones. Customer retention is now emerging as an important area of analysis and planning.

Designing an optimal customer portfolio, designing a special marketing mix and modifying the organization can help build good relationship with the existing customers (Rosenberg and Czepiel, 1992). Companies uninterested in retaining existing customers and looking for new ones is similar to throwing a needle in the Haystack, finding it , again throwing it and then looking for it.

The time and money spent in attracting a new customer is not worth if you cannot keep them. It is recommended that “there needs to be a different marketing mix for retaining customers: product extras, reinforcing promotions, sales force connections, specialized distribution, and post-purchase communication”.

However, there have been many complaints from customers about the service delivery of the Mutengene savings and loans cooperative society in Cameroon, profusely lamented that in spite of the appreciable growth and expansion recorded in the industry, “the quality of service is still poor”

Despite the economic and social benefits of the Mutengene savings and loans cooperative society and market, unlike the developed countries, there is no marketing or management research attention to this sector.

However, it is probable that the mobile operators conduct satisfaction surveys and other marketing research but contact with the mobile operators for any useful information yielded no response.

With the current crisis plaguing the two English speaking regions of the country for three years has greatly affected service delivery especially in the remote areas of the regions. This is due to the reductions of savings of local individuals.

Conclusively, Levesque and McDougall (1996) “confirmed and reinforced the idea that unsatisfactory customer service leads to a drop in customer satisfaction and willingness to recommend the service to a friend.”

This would in turn lead to an increase the number of customers shifts to competitors. As such, this study evaluated service quality on Mutengene savings and loans cooperative society customers’ retention in the Buea municipality.

1.3. Research Questions

The study is structured to provide answers to the following questions:

Main question

What is the effect of service quality on customer retention in the Mutengene savings and loans cooperative society?

Specific Questions

1. How does the reliability of Mutengene savings and loans cooperative society services affect customer retention in the organization?
2. To what extent is the responsiveness of Mutengene savings and loans cooperative society services affect customer retention in the organization?
3. What is the assurance that the services provided by Mutengene savings and loans cooperative society services affect customer retention in the organization?

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