American Journal of Industrial and Business Management, 2013, 3, 700-707
Published Online December 2013 (
Open Access AJIBM
Applying a SERVQUAL Model to Measure the Impact of
Service Quality on Customer Loyalty among Local Saudi
Banks in Riyadh
Abbas N. Albarq
School of Economics & Administrative Science, Al Imam ibn Muhammad ibn Saud Islamic University, Riyadh, KSA.
Received October 3rd, 2013; revised November 3rd, 2013; accepted November 11th, 2013
Copyright © 2013 Abbas N. Albarq. This is an open access article distributed under the Creative Commons Attribution License,
which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. In accor-
dance of the Creative Commons Attribution License all Copyrights © 2013 are reserved for SCIRP and the owner of the intellectual
property Abbas N. Albarq. All Copyright © 2013 are guarded by law and by SCIRP as a guardian.
This paper evaluates the impact of service quality underlying the SERVQUAL model on customer loyalty, with cus-
tomer satisfaction mediating these variab les. This an alytica l stu dy is mainly based on the pr imary data co llected thro ugh
a questionnaire that was personally administered to 422 individuals selected from five local banks in Riyadh, Saudi
Arabia. The findings indicate that improving serv ice quality can help to enhance cu stomer loyalty. Empathy, assurance,
and reliability are the service quality dimensions that play significant roles in this equation. The study’s findings indi-
cate that while the respondents evaluate the banks positively overall, there is still room for improvement. Few studies
have assessed customer loyalty in Saudi banking. Increased competition between banks means that service quality is
increasingly important and bank managers should consider how they can improve customer satisfaction with respect to
service quality in order to enhance customer loyalty.
Keywords: SERVQUAL; Customer Satisfaction; Customer Loyalty; Local Saudi Banks
1. Introduction
The Saudi banking sector is becoming increasingly
competitive and consolidated, which means that local
banks are facing shareholder pressure to focus on value
rather than revenue growth. The ease and convenience
offered by technologies such as mobile phones and the
internet have help ed Saudi financial in stitutions serv e the
domestic economy and their customers. Banks are now
facing strong and intens e comp etitio n [1 ]. Ban ks in Saud i
Arabia are formulating various strategies to retain cus-
tomers, the key to which is increasing service loyalty
levels. Around the world, customer loyalty (that is, cus-
tomer retention) generally has a strong link to the firm’s
profitability and long-term growth [2]. In the context of
banking services, small increases in customer retention
rates can increase profits dramatically [3]. Saudi banks
need a system to foster customer loyalty.
The roots of Saudi Arabia’s current banking system
date back to October 1952, when the Saudi Arabian
Monetary Agency [4] was created and given primary
responsibility for monetary stability. Before the SAMA
was established, branches of a few foreign banks, along
with some local money changers, provided financial ser-
vices to the trading community and pilgrims. By 1952,
royalties from production and demand for oil had com-
bined to create a significant increase in government
revenues and expenditures, which led to a sharp rise in
demand for financial services [5]. Along with systematic
stability and sustained growth, one of the Saudi govern-
ment’s main policies encouraged a healthy competitive
environment that enables consumers to efficiently and
cost-effectively access a broad range of financial and
banking services. This focus of service and choice has
resulted in a number of policy decisions over the last 50
years or so. The resulting competition is especially no-
ticeable in the corporate and private banking sectors,
where customers are able to choose from a range of do-
mestic and international financial institutions and banks.
In such a competitive environment, banks must plan
Applying a SERVQUAL Model to Measure the Impact of Service
Quality on Customer Loyalty among Local Saudi Banks in Riyadh 701
strategies to differentiate themselves from each other.
One way to achieve this is by delivering high service
quality. Reference [5] has shown that customer satisfac-
tion leads to customer loyalty.
A service provider’s success depends on whether it has
a high-quality relationship with its customers [6], which, in
turn, helps determine customer loyalty [7]. Several stud-
ies have shown that service quality has an influence on
organizational outcomes such as performance superiority,
which increases sales profits [8-10], and market share
[11], which improves customer relations, enhances the
company’s corporate image, and promotes customer loy-
alty [12]. Furthermore, studies have also found customer
satisfaction and service quality to be related to customer
loyalty through repurchase intentions [8,12].
A review of the literature reveals that no research has
yet applied the SERVQUAL model to customer loyalty
in a developing country such as Saudi Arabia. Under-
standing the impact of service quality underlying the
SERVQUAL model on customer loyalty can help bank
managers to focus their efforts on the key areas that con-
tribute most to increasing customer retention. From an
academic perspective, therefore, the present study offers
insights that will improve the understanding of the im-
pact that various factors related to e-commerce customer
loyalty have in the context of Saudi Arabia, a major de-
veloping coun try in the Middle East. Previous studies [1]
have identified the need to examine customer loyalty
toward banks from the perspective of a less developed
country. Furthermore, no t only is there a shortag e of data
on service quality and customer loyalty in banking in
developing countries, but most of the models that meas-
ure service quality ha ve been created in developed coun-
tries such as the United States [13]. A sentiment shared
by [1], who stated that culture can also influence the
outcomes of the research and went further asking ques-
tioned how valid it is to apply the findings of research
from developed countries to less developed countries;
Care must be taken when extending the findings of stud-
ies conducted in developed countries to less-developed
countries, such as Saudi Arabia.
2. Literature Review
2.1. Customer Loyalty
Loyalty is developed over a period of time based on con-
sistently meeting or exceeding customer expectations
[14]. Reference [15] estimated that the cost of attracting
a new customer may be up to five times greater than the
cost of retaining a happy customer. The definition of
customer loyalty that [16] offered relates to the purpose
of the present study: the degree to which a customer ex-
hibits repeat purchase behavior from a service provider,
has a positive attitude toward th e provider, and considers
using only this provider when they have a need for the
service that the provider offers. According to [16] true
loyalty is different from repeat purchasing behavior,
which is the actual re-buying of a brand, regardless of
commitment. Reference [17] stated that although loyalty
is a multi-dimensional construct that includes both posi-
tive and negative responses, a loyal customer is not nec-
essarily a satisfied customer. Reference [4] noted that
customer defection is not always the inverse of loyalty,
while [8] suggested that, “even if a pro blem is not solved,
approximately half of the customers would remain with
the firm”. This reluctance or inability to change compa-
nies could be due to switching costs, a lack of perceived
differentiation of alternatives, constraints regarding loca-
tion, time, or money, or habits or inertia that are unre-
lated to loyalty [18,19].
2.2. Service Quality
Based on the existing definitions, service quality is the
result of customers’ comparison between their expecta-
tions of a service and their perception of how well the
service has been performed [5,13,20-22]. Reference [13]
defined service quality as the discrepancy between cus-
tomers’ normative expectation for service and their per-
ceptions of service performance. Reference [13] later
developed the definition of service quality as “the overall
evaluation of a specific service firm that results from
comparing that firm’s performance with the customer’s
general expectations of how firms in that industry should
Reference [23] study revealed that perceived service
quality is strongly related to loyalty, which influences
customers to continue using a particular bank and rec-
ommend it to others. However, [23] findings that service
quality affects customer satisfaction loyalty have been
shown to be inconclusive, as many customers change to
other banks due to low switching costs. A study [11]
concluded that perceived service quality in terms of the
efficiency of service delivery is a crucial factor for
banking loyalty. However, that study failed to indicate
which criteria are most important to customers in terms
of customer satisfaction and loyalty. Reference [5] ar-
gued that customer satisfaction perfo rms a mediating role
between service and customer loyalty. Reference [24]
found that the potential d eterminants of customer loyalty
are the dimensions of the service quality. In both of the
two above-mentioned studies, however, the service qual-
ity only has an impact on customer satisfaction of ap-
proximately 50 percent, which has been found to be in-
conclusive as other factors appear to be equally impor-
tant for the delivery of satisfaction and loyalty.
Since the early 1990s, organizations in developed
Open Access AJIBM
Applying a SERVQUAL Model to Measure the Impact of Service
Quality on Customer Loyalty among Local Saudi Banks in Riyadh
countries have adopted quality concepts such as total
quality management (TQM) and new public management
(NPM). For example, the main objective of NPM is to
take a customer-oriented approach to improve service
quality delivery. Reference [25] Integrated data envel-
opment analysis (DEA) and neural network (NNs) to
examine relative branch efficiency. The DEA technique
has been used for performance benchmarking of bank
branches in terms of operating efficiency (service quality)
and profitability [26]. Th e most popular model for evalu-
ating service quality is SERVQUAL, which was devel-
oped by [13] and has the attribu tes of tangibility, compe-
tency, courtesy, reliability, responsiveness, credibility,
access, assurance, security, and understanding. Reference
[13] later used a factor analysis to reduce these 10 di-
mensions to five.
The five dimensions are: 1) Tangibles—the physical
facilities, equipment, and staff appearance; 2) Reliabil-
ity—The ability to perform the promised service de-
pendably and accurately; 3) Responsiveness—the will-
ingness to provide prompt service and help to customers.
4) Assurance (which includes competence, courtesy,
credibility, and security)—the knowledge and cour tesy of
employees, plus their ability to inspire trust and confi-
dence; and 5) Empathy (including access, communica-
tion, and understanding the customer)—the caring and
individualized attention that the firm provides to its cus-
Although the SERVQUAL instrument has attracted
some criticism [27], it remains the most commonly util-
ized instrument for its confirmatory factor analyses. To
date, SERVQUAL has proven to be a parsimonious
model used in various service organizations and Indus-
tries, including banks, to measure service quality [5,7,
2.3. Customer Satisfaction
Perceived service quality is a global judgment or attitude
that relates to the superiority of the service, whereas sat-
isfaction refers to a specific transaction [13]. Customer
satisfaction has commonly been described as the leading
determinant of loyalty [23]. Reference [12] argued that
customer satisfaction is significantly positively related to
customer loyalty/retention. In the present study, therefor e,
customer satisfaction acts as a mediator between service
quality and customer loyalty.
2.4. Customer Satisfaction and Loyalty
The service management and marketing literatures agree
that there is a strong theoretical foundation for empiri-
cally exploring the linkages between customer satisfac-
tion and customer loyalty. For example, [33] argued that
there is a strong and positive relationship between cus-
tomer satisfaction and loyalty. Satisfied customers are six
times more likely to repurchase a product and share their
experience with five or six other people [22,34], while an
unsatisfied customer can turn more business away from
an organization than 10 highly satisfied customers would
turn towards it [3 5]. The results of [36] study indicated a
significant positive relationship between customer satis-
faction and customer loyalty, while several other studies
have also found satisfaction to be a leading factor in de-
termining loyalty [37]. The conclusion that these studies
have reached is that a high level of customer satisfaction
will lead to increased loyalty to the firm and has a posi-
tive association with repurchase inten tions, pos itive word
of mouth, and profitability. Based on the abov e empirical
literature, customer satisfaction has been identified as a
leading determinant of customer loyalty.
3. Research Theoretical Model
Figure 1, which has been adapted from [38], depicts the
theoretical model that guides the present study. As the
framework shows, the present study examines the rela-
tionships between tangibles, reliability, responsiveness,
assurance, empathy with customer satisfaction, and cus-
tomer loyalty.
Hypotheses Development
The present study aims to determine the factors that af-
fect customer loyalty in the banking industry in order to
help create a loyalty model for banking customers. With
this in mind, we have formulated the following hypothe-
H1a: Tangibles have a significant positive impact to-
ward customer loyalty.
H1b: Tangibles have a significant positive impact on
customer satisfaction toward customer loyalty.
H2a: Reliability has a significant positive impact to-
ward customer loyalty.
Service Quality In
Saudi Bank
R esponsiveness
E mpathy
A ssurance
Customer Loyalty
sa tisfaction
Figure 1. Research hypothesized model.
Open Access AJIBM
Applying a SERVQUAL Model to Measure the Impact of Service
Quality on Customer Loyalty among Local Saudi Banks in Riyadh 703
H2b: Reliability has a significant positive impact on
customer satisfaction toward customer loyalty.
H3a: Responsiveness has a significant positive impact
toward customer loyalty.
H3b: Responsiveness has significant positive impact
on customer satisfaction toward customer loyalty.
H4a: Empathy has a significant positive impact to-
ward customer loyalty.
H4b: Empathy has a significant positive impact on
customer satisfaction toward customer loyalty.
H5a: Assurance will have a positive effect toward
customer loyalty.
H5b: Assurance has a significant positive impact on
customer satisfaction toward customer loyalty.
H6a: Customer satisfaction is a mediator between ser-
vice quality in Saud bank and customer quality.
H6b: Customer satisfaction has a significant positive
impact on customer loyalty.
4. Method
To test the above hypotheses, we conducted a survey of
customers of several local banks in Riyadh, the capital of
Saudi Arabia. Conducting the survey involved certain
challenges, especially in terms of how to design the sam-
pling procedures, given that it is not legally or socially
permitted for male strangers to approach females in
Saudi Arabia. Accordingly, we used a convenience sam-
ple. The questionnaires were self-administered, meaning
that instead of an interviewer asking the questions of the
respondents, the respondents themselves read and an-
swered the questionnaire. We also had female assistances
to help us distribute the questionnaires to the females. In
Saudi Arabia, all banks must have one section for males
and another for female. Participation in the study was
voluntary and limited to customers who had at least one
bank account.
The fact that the survey was conducted in Saudi Ara-
bia meant it was necessary to translate the questionnaire
from English to Arabic and ensure that both versions
used equivalent language. Two bilingual Arabic/English
lecturers at the Al Imam Language Center translated the
questionnaire into Arabic. We used the double-transla-
tion method to avoid confusion or misinterpretation and
to ensure that the Arabic version accurately represented
the English version [3 9].
We adapted SERVQUAL for measuring service qual-
ity and adopted the customer loyalty measurement from
[5]. For the measurement, we used a seven-point Likert
scale, ranging from 1 (strongly disagree) to 7 (strongly
agree). The questionnaire included questions about the
respondents’ demographic profile, as well as items to
measure the constructs. The questionnaires were pre-
tested with 10 selected customers who had experience
with banking at their branch. The respondents were re-
quested to provide feedback about the clarity and struc-
ture of the questions. Based partly on the pre-test, we
refined the original questions and made some other
changes to the questionnaire. The self-administered
questionnaire was th en us ed to g ather d ata from a to tal of
422 bank cu stomers.
5. Results
Table 1 shows the results obtained after the recorded
demographic variables were analyzed using descriptive
statistics. The frequency and percentage for each variable
is listed according to the survey categories in this table.
In Table 2, the frequency distribution for banking
transactions per month, the most common channels used
for carrying out banking transactions were Internet
banking with 233 respondents (55.2 percent), ATMs (114,
27.0 percent), telephone banking (18, 4.3 percent), and
branch banking (57, 13.5 percent). See Table 2 for mor e
details. We assessed the reliability of th e measures using
the inter-item consisten cy meas ure of Cronbach’s alpha.
The alpha for all the independent variables and the
dependent variable ranged from 0.988 to 0.941, which
exceeds the minimum acceptable value of 0.70 [40]; ac-
cordingly, no items were deleted. Assurance was the
variable with the highest standard deviation (1.59), fol-
lowed by customer satisfaction, empathy, tangibility,
reliability, and responsiveness (1.14). The fact that there
are only small differences in standard deviation for all
Table 1. Personal profile of respondents (N = 422).
Profile Description Number of
Respondents (%)
18 - 29 165 39.0
30 - 39 119 28.2
40 - 49 96 22.7
50 and above 42 10.1
Male 243 57.9
Gender Female 179 42.1
High school 141 33.4
Bachelor Degree 178 42.2
Master’s Degree 71 16.8
Doctoral Degree 32 7.6
Less than 5000 SAR 80 18.5
5000 - 10,000 SAR 131 31.0
10001 - 15,000 SAR 143 33.9
Income per
15,001 SAR and over 68 16.6
Open Access AJIBM
Applying a SERVQUAL Model to Measure the Impact of Service
Quality on Customer Loyalty among Local Saudi Banks in Riyadh
Table 2. Frequency distribution for banking transactions
per month.
Variable Instruments Frequency (%)
1 time 42 9.9
2 114 27.0
3 119 28.2
4 96 22.7
Number of times
bank used per
More than 4 times 51 12.2
Savings account 188 44.5
Current account 101 23.9
Personal loans 91 21.6
Mortgage 38 9.0
Type of accounts
Others 4 1.0
Branch banking 57 13.5
ATM 114 27.0
Internet banking 233 55.2
Phone banking 18 4.3
Type of channels
to carry out
Other - -
variables indicates that respond ents are consistent in their
evaluation (see Table 3).
We conducted the regression tests in the manner sug-
gested by [41], in the four following separate analysis
steps: Step 1 analyzed customer loyalty as the dependent
variable and dimensions of service quality as the inde-
pendent variables. Step 2 ex amined customer satisfaction
as the dependent variable and dimensions of service
quality as the independent variables In Steps 3 and 4,
customer loyalty was the dependent variable and cus-
tomer satisfaction, together with dimensions of service
quality, were the independen t variables.
As Table 4 shows, Tangibles (IV) was found to be
non-significant against Customer Loyalty (DV), which
means that no mediation occurs.
6. Discussion
The regression analysis revealed that tangible factors
have no significant impact on customer loyalty, a finding
that contradicts those of [30]. We observed a changing
trend, and respondents no longer treated tangibility as an
important measurement due to the availability of self-
service terminals. This suggests that Saudi banks must
look into upgrading the proficiency of their self-service
terminals rather than upgrading the interiors of the
branches. Also, the emergence of technology has led to
tangibles losing its importance as a measurement of cus-
Table 3. Reliability coefficient, mean, and standard devia-
tion (SD) for the major variables.
Variables Number
of items
Alpha MeanS.D
Tangibles 5 0.941 5.32 1.29
Reliability 4 0.967 5.32 1.31
Responsiveness 3 0.938 4.92 1.14
Empathy 4 0.944 4.81 1.40
Assurance 3 0.988 5.00 1.59
Customer satisfaction3 0.988 5.77 1.49
Customer loyalty 4 0.961 5.62 1.58
Table 4. Results of multiple regressions.
Step 1 Step 2 Step 3 + Step 4
DV. LoyaltySatisfaction Loyalty
IVs. Standardized coefficients -β
Tangibles 0.06 0.9 0.01
Reliability 0.24** -0.05 0.28**
Responsiveness0.01 0.14** -0.07
Empathy 0.28** 0.24** 0.014* Partially mediated
Assurance 0.37** 0.41** 0.03 Fully mediated
Satisfaction 0.65**
Steps summaryStep 1 Step 2 Step 3 + Step 4
R 2 0.797 0.841 0.859
Adjusted R 2 0.791 0.831 0.855
Durbin Watson2.18 1.49 1.89
F value 188.42** 241.61** 239.49**
**p < 0.01, *p < 0.05.
tomer loyalty. Internet banking has become extremely
popular among Saudi bank customers. Technology de-
velopments and innovations have had a significant im-
pact on the banking business. For example, there were
estimated to be approximately 7.5 million foreign
workers in Saudi Arabia as of April 2013 [3]. Most of
these workers travel back to their home countries at least
once a year and need to use their bank accounts overseas.
Saudi banks should consider IT issues such as this and
use IT as a measurement for customer loyalty; this will
provide a better reflection of the current banking envi-
ronment. Our study also found that tangibles were not
significant as a mediating variable (customer satisfaction)
and bank customers do not view tangibility as an impor-
tant factor.
Open Access AJIBM
Applying a SERVQUAL Model to Measure the Impact of Service
Quality on Customer Loyalty among Local Saudi Banks in Riyadh 705
We found that reliability had a positive relationship
with customer loyalty, a finding that supports previous
studies such as [42,43 ]. However, reliability was found to
be non-significant for customer satisfaction. This is in
line with the finding that customers may remain with a
company even if they are dissatisfied because they feel
they have no choice. Surprisingly, our finding the rela-
tionship between responsiveness and customer loyalty to
be insignificant is contrary to findings of other studies
[44-47]. Customer loyalty remains an important factor
that banks must take seriously. Bank customers are being
increasingly more educated and knowledg eable , an d their
demands are also increasing; therefore, banks must im-
prove their customer service. Loyalty programs are one
way to retain customers.
The arrival of foreign banks in Saudi Arabia has meant
that local banks must improve their service quality. Re-
sults from the present study’s hypotheses testing also
show that responsiveness has a positiv e relationship with
customer satisfaction. This finding is in keepin g with that
of [47], who noted that perceptions of service quality
were enhanced by the speed of service delivery, and [46],
who found that the absence of waiting time in creased the
satisfaction levels of customers.
Our finding that empathy has a significant positive re-
lationship with customer loyalty is supported by the
findings of [12,48,49]. Reference [48] argued, the exis-
tence of friendship between customers and certain ser-
vice employees can have a significant influence on cus-
tomer loyalty. According to reference [49], companies
can achieve customer satisfaction by offering personal-
ized, flexible, and adjustable services. The present study
reached a similar conclusion, finding that empathy has a
positive impact on customer satisfaction.
The present study has shown a significant relationship
between assurance and customer lo yalty and is consisten t
with previous studies, including [7,19]. The present study
found assurance to be a significant prediction of cus-
tomer satisfaction, which is in line with [49] argument
that communication is a strong indicator of overall satis-
faction and an important source of customer satisfaction
in the Malaysian banking sector. The present study also
found that satisfaction has a mediating effect on the rela-
tionships between serv ice quality d imen sion s (tan g ibility,
reliability, responsiveness, empathy, and assurance) and
customer loyalty. This result is in line with [5,23,48].
In terms of legislation, the Banking and Financial Act
2000 governs the conduct of banks in Saudi Arabia. Al-
though this legislation stipulates that customer’s infor-
mation must not be divulged to third parties without the
customers’ consent, customer information is being sold,
especially to banks’ marketing departments. Marketers of
credit, loan, and insurance products obtain customers’
information from various sources and then make calls to
customers to market their products. The banking Indus-
try’s outsourcing of some of its departments will create
further potential for customer information to be divulged
without permission. This is an area for Saudi Banks to
investigate because customers will not be happy to learn
that their information has been sold to third parties with-
out their consent. The present study shows that respon-
dents evaluate Saudi bank positively overall, with every
variable having a mean above 4.00 (see Table 3). How-
ever, there is still room for improvement.
The main managerial implication of this study is that
bank managers require effective recruitment and training
programs in order to ensure that their employees offer
professional services, pay greater attention to customer
needs, and avoid revealing customer information to third
7. Conclusion
Banks must continue to address customer service in order
to meet the changes in the banking industry. Future re-
search should incorporate new technologies as a factor
with which to measure service quality. Studies and re-
lated questionnaires must also accommodate the new
banking requirements of the customer. Having a clearer
understanding of th e relationship between serv ice quality,
customer loyalty, and customer satisfaction can help en-
sure better targeting of customers using limited market-
ing resources.
8. Limitations
This study has certain li mitation. Firstly, we did not con-
sider control variables of socio-demographic variables. [5]
found education and age to be salient segmentation vari-
ables. Secondly, all of the questionnaires were adminis-
tered to respondents in Riyadh City, therefore, future
studies can be conducted to a wider population or bank
customers, as well as cultural issues, should be taken
with caution.
9. Acknowledgements
A. Abbas is grateful to the respondents, who completed
our questionnaire and Dr. Amal K. Suleiman for provid-
ing statistical support. This study was funded by the
Al-Mawred for Bank Operations Training.
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