Abstract
M.Comm.
The size of South Africa's banking industry grew from R398 billion in 1995 to R471 billion in 1996 while banking transactions totalled R58 634 billion during 1996. Like most other service companies, the banking industry also experiences customer turnover. During the
period March 1995 to February 1996 customer switch, which refers to the closing of an account at one institution and the opening of a new account at another institution, by clients of all banks amounted to 4,9 percent. Mutual interaction between a service provider and a client is a very important determinant of customer satisfaction with a service. It is therefore important for the company to focus on the retention of customers because it is more profitable to retain a customer rather than recruiting new customers.
Customer switching can damage the future stream of income of a company. The loss of a customer therefore, is not only one transaction, the company looses a life long stream of income. Customer satisfaction therefore influences the primary source of future income of most companies directly. Quality service is of utmost importance for the success and survival of companies in today's competitive environment. To be successful it is necessary for each department within the company to operate effectively and to be
client orientated. Companies believe that they will be more profitable if a marketing orientation is established within the company. Employees must therefore, understand their role in the total service chain. A client's perception of a service becomes reality when he/she experiences the service during a service encounter where interaction between the customer and the company takes place with the employee as intermediary. Employees of the company are seen as individuals who are in a relationship with the company similar to that between an external customer and the company. A company must therefore
concentrate on both his external and internal clients because quality service rendered to internal clients results in quality service to the external client. The rendering of quality service is a very important dimension, in ensuring success and survival of a company. If investment in service quality therefore results in perceived improvement in service, quality
is a profit strategy. Although theoretical studies suggest that companies offering a higher degree of service quality generate higher profits, no published studies or model exist where the total series of consequences, from the allocation of resources to customer satisfaction and eventually profitability, is discussed. Researchers believe that customer satisfaction results in profitability, but question the possibility of a positive correlation between market share and customer satisfaction. Against this background it was the purpose of this study to determine the impact of service quality, customer retention and staff retention on the market share and profitability of a financial institution by
constructing a service quality-profitability relationship model to determine the relationship between the different dependent and independent variables. A literature and empirical study was therefore undertaken to on the one hand evince the role and importance of the relationship between the service company and the customer, employee and internal
markets in accomplishing a loyal customer base and enduring market share and to on the other hand relate service quality with market share and profitability. The primary finding of this study is that relationships exist between the various dependent and independent variables of the hypothesized model which confirms that service quality do impact on market share which in turn correlates with the profitability of a company. Moreover, customer retention positively correlates with profitability. It was also determined that customer retention positively correlates with market share. It was, however, found that no correlation exists between service quality and customer retention whilst relationships between marketing costs and market share and marketing costs and profitability could also not be determined. In view of the findings of the empirical investigation, it is recommended that the chosen bank attends to the following aspects: the improvement of service excellence; the improvement of aspects accomplishing customer and employee retention; establishing a more Afrosentric rather than a Eurosentric dimension of culture within the organisational culture and managerial practice of the bank; determining the critical psychological state of employees; establishing a positive and constructive psychological state within the bank; revising the format of reporting management information in order to calculate the impact of service quality on profitability rather than determining relationships between the elements. In taking this approach, the bank should be able to employ the service quality-profitability relationship model to the advantage of the bank to measure the impact of service quality on profitability and optimizing the relationship between service quality and profitability.