THE RELATIONSHIP BETWEEN CUSTOMER

SATISFACTION AND SERVICE QUALITY IN LEASING &

FINANCE SECTOR IN SRI LANKA

by

K N Jayamuni
0000019076

An Integrated Research Project submitted to the Sri Lanka Institute of Marketing

in partial fulfilment of the requirements for the Postgraduate Diploma in
Marketing

Supervisor: Mr. Priyantha Neelawala

Sri Lanka Institute of Marketing

Matara
June, 2015

Research Proposal Evaluation

Marking Scheme
Student Name

K N Jayamuni

Registration Number

0000019076

Criteria

Allocated
Marks

The background of the problem

15

The significance/rationale of the exploration of the problem

15

The objective/s of the report

15

Methodology of perspective
4.1. Conceptual framework
4.2. Operationalization

15

The approach to data collection and analysis

15

Delimitations of the study

The Time Plan

References (Harvard Reference System)

Bibliography

10 Adherence to stipulated format

Total
Special Remarks:

Signature of Examiner

5
100

Awarded
Marks

Table of content
Page
List of Figures.

ii

List of Tables...

ii

1. Background of the problem

1.1. Introduction...

2. The significance of the exploration of the problem

3. The objective of the research

4. Brief literature review

4.1. Service quality

4.1.1. Tangibles..

4.1.2. Reliability

4.1.3. Responsiveness

4.1.4. Assurance

4.1.5. Empathy..

4.2. Customer satisfaction

5. Methodology perspective

5.1. Conceptual Frame work of the study

5.2. Operationalization

10

5.2.1. Operationalization of Service Quality

10

5.2.2. Operationalization of Customer Service

10

5.3. Hypotheses of the research

11

6. The approach to data collection

12

6.1. Quantitative design

12

6.2. Primary data..

12

6.3. Secondary data

12

6.4. Sampling design

13

6.4.1. Research population

13

6.4.2. Sampling techniques..

13

6.4.3. Sampling size

14

6.5. Research instruments

14
14

6.6. Method of data analysis

7. Delimitations of the study

15

8. The time plan...

16

9. References

17

List of Figures
Page
SERVQUAL model with five dimensions.

Conceptual framework...

List of Tables
Page
Operationalization of Service Quality

10

Operationalization of Customer Satisfaction

10

The time plan..

16

1. Background of the Problem

1.1. Introduction
This study will be focused on customer satisfaction problems of Leasing and
Finance Sector in Sri Lanka towards service quality. Products and services
offered by Leasing & Finance companies are similar, but the differentiator is the
service quality and how customers perceive it. This study will highlights the
degrees of impact of human related factors and non-human related factors of
perceived service quality on customer satisfaction.
Customer loyalty is the most precious intangible assets of modern business. High
loyalty is not only the key of business competition to win, but also the
fundamental guarantee of businesss stability. The satisfaction of customer is
directly affected to the Customer Loyalty. In the period of service economy,
improving the service quality has always been considered as one of the effective
ways to improve customer satisfaction.
This study examines the relationship between customer satisfaction and service
quality from the approach of customer service using some selected Leasing &
Finance companies in Sri Lanka. The study is a research work which uses a
literature based research instrument [questionnaire] to measure the application of
relationship between customer services to achieve customer loyalty.
After the research work the researcher should be able to identify key factors to
create the customer satisfaction through customer service in leasing & finance
industry. And it will be important to new comers to the industry as well as to the
top management in the industry to know the behavior of customers among
customer service of the company.

2. The significance of the exploration of the problem

It is obvious that customers are important for the business and their satisfaction
is a priority to management of the organization. Customer satisfaction has been a
subject of great interest to organizations and researchers alike. In recent years,
organizations are obliged to render more services in addition to their offers. The
quality of customer service has become an aspect of customer satisfaction. It has
been proven by some researchers that service quality is related to customer
satisfaction, and also uses service quality dimensions to evaluate service quality.

A lot of finance and leasing companies think the low interest rate (low price)
will make the high customer satisfaction, but reducing the interest rate of leasing
facilities will reduce the profit margin of the company as well as with the high
competition in the industry low price is not the only thing to create customer
loyalty. The main purpose of this study is to examine the relationship between
customer satisfaction and service quality in Leasing and Finance sector in Sri
Lanka with respect to the service quality dimensions and prove the service
quality is also be a significant factor to create the customer loyalty.

Banks & Finance companies are the key players in financial markets
operations and play a major role in keeping the economy running smoothly of a
country. In todays highly competitive corporate environment, quality of services
is an essential element for enhancing customer satisfaction and customer loyalty.
These are major factors in improving the performance of Finance & Leasing
Companies and in determining their success.

The leasing industry recorded a significant growth in 2010/2011 in Sri Lanka

an industry made up of Registered Leasing & Finance establishment which is 90
entities in number. They take forms of specialized Leasing Companies (12),
Registered Finance Companies (45), Licensed Commercial Banks (24) and
Licensed Specialized Banks (9). Since most of above institutes are offering
leasing facilities, it is making a high competition each other; therefore, the study

of the relationship between customer satisfaction and the service quality will be
very important to keep the customer loyalty among the company.

As well as, novelty customers demand better quality service from Leasing
Companies; it has boosted the competition among various Leasing & Finance
Companies particularly those private sectors. Therefore, the present study
research problem is to understand whether there is a relationship between
customer satisfaction and service quality in Leasing and Finance Sector in Sri
Lanka.

3. The Objectives of the research

This study will be undertaken to investigate the relationship between the
service quality and its impact on customer satisfaction. It will focus on the
relationship of five independent variables of SERVQUAL model (Parasuraman,
Zeithaml & Berry, 1988) which are tangibles, reliability, responsiveness,
assurance and empathy with the identified dependent variable.

3.1.1. To determine the relationship between service tangibility and the customer
satisfaction in finance & Leasing Sector
3.1.2. To determine the relationship between service reliability and the customer
satisfaction in finance & Leasing Sector
3.1.3. To assess the relationship between service responsiveness and the
customer satisfaction in finance & Leasing Sector
3.1.4. To explore the relationship between service assurance and the customer
satisfaction in finance & Leasing Sector
3.1.5. To find out the relationship between service empathy and the customer
satisfaction in finance & leasing sector

The researcher should focus to examine the relationship between five

variables of service quality which is discussed of SERVQUAL model
(Parasuraman, Zeithaml & Berry, 1988) and customer satisfaction
dimensions as the brief literature review.

4. Brief Literature Review

This is presents the overview of current literature in the frame of the presented
research problem. Each of the bodies of literature is discussed which is focus on
the specific nature of the relevant literatures that relates to this study.

A literature review is a step by step process that involves the identification of

published and unpublished work from secondary data sources on the topic
interest, the evaluation of this work in relation to the problem and the
documentation of this work (Sekaran and Bougie 2010). Therefore, in this study,
each independent variables and a dependent variable will be reviewed on
previous studies that are related to this topic.

4.1. Service Quality

Services are a continues process of on-going interactions between customers

and service providers comprising a number of intangible activities provided as
premium solutions to the problems of customers and including the physical and
financial resources and any other useful elements of the system involved in
providing these services (Gronroos, 2004).

Premium service quality is a key to gain a competitive advantage in services

industry. The satisfaction level of customers is dependent on their perception of
service quality and the trust in service provider (Ismail et al., 2006; Aydin &
Ozer, 2005; and Parasuraman et al., 1988). By providing better quality services to
customers, a firm revives the perception of customers about quality of services.

Leasing & Finance industry is totally running on service based products

therefore, premium service quality plays a pivotal role for customers in
evaluating the performance of a service provider and is the key to gain customer
satisfaction and customer loyalty. A Leasing company can gain competitive
advantage and build long term relationship with its customers by providing
premium quality services.

SERVQUAL scale (Parasuraman, Zeithaml & Berry, 1988), is the most

famous measure of service quality. It classifies and measures service quality in
five dimensions. I will be focus thats five dimensions in this research, which are
tangibles, reliability, responsiveness, assurance and empathy with the identified
dependent variable.

Reliability

Assurance

Responsiveness

SERVQUAL
Model

Empathy

Tangibles

Figure No.1: SERVQUAL model with five dimensions

(Source: www.marketingstudyguide.com)

A brief explanation of these dimensions is given below.

4.1.1. Tangibles

Tangibility of a service is a scale that measures how dependable a

customer views a service provider to be based upon the quality of its most
visible attributes. Tangibles can include physical facilities, equipment and
staff appearance, etc. The office physical appearance, cleanliness,
modernism also can be an example of tangible service quality. Physical
quality refers to the tangible aspects of the service. (Blery et al., 2009)

4.1.2. Reliability

Reliability of a service can be defined as the ability of service provider

to perform the promised service dependably and accurately. (Blery et al.,
2009). For example, the customers who come to a Leasing company to
obtain a leasing facility, while the company advertised and promised to
offer a leasing facility within an hour, so the company needs to keep the
promise and cannot make the customer to wait.

4.1.3. Responsiveness

Responsiveness are reflects of the willingness to help customers and

provide prompt service. (Blery et al., 2009). In this case, the company
must avoid keeping customers waiting for no apparent reason especially
when come to a competitive product, such as low exposure, high demand
customer. There are no excuses given for the high demand customer to any
late service.

4.1.4. Assurance

Assurance of service quality is the knowledge and courtesy of

employees and their ability to inspire trust and convey confidence among
customers. (Blery et al., 2009). For example, the customer service
representatives at Leasing and Finance Sector should be shown respect for
any customer who came to the office and being polite to them.

4.1.5. Empathy

Empathy quality is a caring, ability to be approachable, and giving

individual attention that the company can provides to the customers.
(Blery et al., 2009). For example, sales executive should be a good listener
to identify customer real needs & wants.

4.2. Customer Satisfaction

Satisfaction is a feeling that surfaces from an evaluation process, i.e. when the
consumer of a good or service compares what is received against what is
expected from the utilization of that good or service (Kotler et al., 2009).

The following criteria are laid down for measuring the satisfaction level of
customers regarding purchase and subsequent consumption of goods or services
(Liu et al., 2008):

4.2.1. Satisfaction : the perception developed by the customers that the goods or
services are acceptable or tolerable
4.2.2. Content : the features of goods or services and the underlying benefits
gives customer a positive consumption experience
4.2.3. Relived : the alleviation of the negative state of customers mind of by the
goods or services provided
4.2.4. Novelty : the goods or services bring freshness and excitement in
customers
4.2.5. Surprise : the amazement and unexpected pleasure brought to people by
goods or services consumed

Customer satisfaction is a degree of satisfaction provided by the goods or

services of a company as measured by the number of repeat customers or
how service meets the customers expectation. Service quality has become
an important topic because of its apparent relationship to costs, profitability,
customer satisfaction, customer retention and positive word of mouth and it
is widely considered as a driver of corporate marketing and financial
performance (Triplett, 2007). In this study, the researcher will be more
interested in service quality and customer satisfaction by using the
SERVQUAL model to assess them the service quality in Leasing and
Finance Sector.

5. Methodology of Perspective
Survey method will be used for this study using questionnaire as data collection
instrument. The questionnaire will be adapted from scales already used for previous
studies in the literature. The final questionnaire consists of two sections. The first
section contains items regarding dependent and independent variables of the study,
and was divided into seven parts such as Tangibles, Responsiveness, Reliability,
Assurance, Empathy, in Service Quality and second section contains items regarding
dependent variables of Customer Satisfaction.

5.1. Conceptual Frame work of the study

Dimensions of Service
Quality [SERVQUAL]
Tangible

H1

Reliability

H2

Responsiveness

H3

Assurance

H4

Empathy
Independent Variables

Customer Satisfaction

H5
Dependent Variables

Figure No. 2: Conceptual frame work of correlation between the dimension of

SERVQUAL and the satisfaction of customers in Leasing & Finance Sector
The framework above shows proposed framework to serve as foundation of
this study. It is modified from the gap model theory (Zeithaml et al., 1985).

Purpose of this study is to examine how tangibility, responsiveness, assurance,

reliability and empathy of service which are the independent variable, customer
satisfaction towards the service quality at Leasing & Finance Sector.

5.2. Operationalization
5.2.1. Operationalization of Service Quality

Variable

Concept

Item

Item indicator

Service

Difference

Tangible

Appearance of employees

Quality

between

Appearance of Office/Branch

quality

Appearance of Transport

expectation

Responsiveness

Speed of need fulfillment

and the

Speed response to complaints

delivered

Speed of closing business

quality

Assurance

Competence
Correct information deliver
Confidentiality of employees

Reliability

Accuracy of the service deliver on

time
Range of products
Consistency of service

Empathy

Interest in solving problems

Understandable communication
Individual attention

Table 01: Operationalization of Service Quality

5.2.2. Operationalization of Customer Satisfaction

Variable

Concept

Item

Customer

A response

Satisfaction Overall satisfaction

Satisfaction pertains to a
particular

Customer

Item indicator

Satisfaction about interest rate (Price)

Satisfaction about product range

expectation
and occurs at a
particular

Satisfaction about service quality

Satisfaction about sales executive

moment in
time
Table 02: Operationalization of Customer Satisfaction

5.3. Hypotheses of the research

This study will test the following hypotheses;

5.3.1. (H1) There is a positive relationship between service tangibility and
customer satisfaction in Finance & Leasing Sector
5.3.2. (H2) There is a positive relationship between service reliability and the
customer satisfaction in Finance & Leasing Sector
5.3.3. (H3) There is a positive relationship between service responsiveness and
the customer satisfaction in finance & leasing sector
5.3.4. (H4) There is a positive relationship between service assurance and the
customer satisfaction in finance & leasing sector
5.3.5. (H5) There is a positive relationship between service empathy and the
customer satisfaction in finance & leasing sector

6. The approach to data collection

In this study, the researcher will be gathered data through primary data but also will
be use secondary data to gather research population and industry sales.
6.1. Quantitative Design
Quantitative research will be applied based on the nature of study to gather a
representative data from the targeted respondents. To better understand the
relationship between service quality and customer satisfaction through a
SERVQUAL analysis, it will be used to quantify attitudes, behaviors of the
customers that consume service in Leasing & Finance Sector in Sri Lanka. The
advantage of using quantitative research is that it produces reliable data that are
usually qualified to some large population (Wyse, 2011). In this study,
Questionnaire will be used to collect the data from the respondents.
6.2. Primary data
Primary data will be organized for the specific purpose of addressing the
problem on hand. In this research, the primary data will be used is questionnaire
survey whether by online or paper. While distribute the questionnaire, the
researcher need cooperation and clarification from the respondents. Besides that,
primary data refer as firsthand information or data obtained originally by the
researcher on the variables of interest for the specific purpose of the study. The
questionnaires will be distributed to the respondents whom their respond and
answers may differentiate on specific issues regarding to the topic. Those
questionnaires were administered personally to the respondents.

6.3. Secondary data

Secondary data refer to information gathered by other party that already
conduct a previous study. It helps researchers to get better understand to obtain
research population for questionnaire survey and collect financial data to analyze
primary data. To obtain secondary data, can be obtained the relevant articles and
other sources through internet and online library are aiding in the research. The
researcher should collect customer information from Finance & Leasing
Companies at Hambantota & Matara Districts to define the research sample and

also should consider the annual reports of each Leasing & Finance companies for
analysing primary data.

6.4. Sampling design

There are few steps under sampling design as follows;

6.4.1. Research population

Research population is the group of people where researcher is

interested in analyzing to get relevant information for research purpose.
The population refers to the entire group of people, events, or things of
interest that the researcher wishes to investigate. (Sekaran & Bougie, 2009,
p.262). On the other hand, simple random sampling has been chosen in
order to select the customer in Leasing & Finance Sector which is the
respondents in this study. Simple random sampling is one of the
probabilities sampling which is randomly selected sample from a larger
sample or population. The sample has been selected from the Matara &
Hambantota Districts and the sample comprised 150 individuals who are
already obtained Finance & Leasing facilities or who are not obtained yet
but about to obtain Finance & Leasing facilities in future, because each
individual in the population has an equal likelihood or chance to be
chosen. As well as, equal number of men and women will be included in
the sample.

6.4.2. Sampling techniques

In this study, simple random sampling technique was selected. To assess

customer's perceptions on quality of service in Leasing & Finance Sector
researcher has to get organized sampling frame. To accomplish this,
researcher will go through companys customer records and history to
identify the customers information such as email, home or office address.
Then should have to draw the sample can could be select the particular
sample through MS Excel spreadsheet functions.

6.4.3. Sampling size

Before distributing the real questionnaire to the selected respondents,

the researcher needs to pre-test the questionnaires to the other people such
as friends and family members. It is important to ensure the respondents
understand the questionnaires and to avoid misunderstanding occur in the
future. Researcher distributes 5 questionnaires for this pre-test. Any
misunderstanding about the questions, then researcher need to redo the
questionnaire until it suits with the purposes of the study.

6.5. Research Instruments

Questionnaire survey has been used in this study. Questionnaires are defined as
the series of questions aim to gather prompt and accurate information from
respondents. Thus, in order to perform a good research, a good questionnaire
must be designed. Hair, Babin, Money, and Samouel (2003) mentioned that
effectiveness and high response rate are the reasons for researchers use
questionnaire widely to collect primary data if the population of respondents is
well-educated. The main data collection instrument of this study is structured
questionnaire based on literature review focusing on relationship between
Customer Satisfaction and Service quality of Leasing & Finance Sector.

6.6. Method of data analysis

The data analysis starts with an exploration of the response, the respondents
and the reliability of the item indicators of service quality and customer
satisfaction.
Descriptive Statistics; are used to describe the basic features of the data in a
study. They provide simple summaries about the sample and the measures.
Together with simple graphics analysis, they form the basis of virtually every
quantitative analysis of data. The Standard Deviation is a more accurate and
detailed estimate of dispersion because an outlier can greatly exaggerate the
range. The findings will be calculated by using SPSS and ANOVA. (www.
socialresearchmethods.net, 2015)

7. Delimitations of the study

7.1. The research population of this study will be limited for 150 individuals because
of the cost.
7.2. This study will be limited to Matara & Hambantota districts due distance barrier
and the cost.
7.3. The researcher should be considered the language barrier to get right information
through questionnaires due to target sample is not fluent in English language
therefore, should be created in bilingual (Sinhala/English).
7.4. May be difficult to be obtained customer information from Leasing & Finance
Companies therefore, the researcher should practice various methods to obtained
customer information.

8. The time plan

Activity

February
1

Identify a research topic

Supervisor approval for topic
Preparing research proposal
Getting approval for
proposal
Research proposal
presentation
Developing research
Data collection
Data analyzing
VIVA defense
Research hard bound
submission
Table 03: The Time Plan

March
4

April
4

May
4

June
4

July
4

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