zone of tolerance and organizational competitiveness in...

Journal of Emerging Issues in Economics, Finance and Banking (JEIEFB)

An Online International Research Journal (ISSN: 2306-367X)

2015 Vol: 4 Issue: 2

1588 www.globalbizresearch.org

Zone of Tolerance and Organizational Competitiveness in Selected

Commercial Banks in Lagos State, Nigeria

Obianuju Mary Chiekezie,

Department Of Business Administration,

Nnamdi Azikiwe University, Nigeria.

Email: [email protected]

Hope Ngozi Nzewi,




Beauty Mmachinyere Obianefo,




___________________________________________________________________________________

Abstract

The study examined zone of tolerance and organizational competitiveness in selected

commercial banks in Lagos State. The purpose was to determine the extent to which

customer’s service expectations affect quality of service delivery. Research question and

hypothesis were formulated in line with the objective. The research adopted a descriptive

survey research design. The population of the study is infinite and the sample size of 384 was

derived using the formula for infinite population. 384 copies of structured questionnaire were

used to collect data and 294 were found suitable for analysis. Spearman correlation and

regression analysis were used to test the hypothesis. Cronbach alpha was used to test the

reliability of the instrument. It was discovered that there is a positive relationship between

customer’s service expectations and quality of service delivery. The findings revealed that

customers had higher expectation levels compared to their perceptions of the service quality

on all the service attributes that were used to evaluate the expectations of quality of service

delivery. In conclusion, zone of tolerance is a key determinant of commercial banks

competitiveness in the banking sector. The study recommended that managers of these

commercial banks should prioritize meeting customers’ expectations and they should adopt

‘customer appreciation day’ in their bank calendar so as to reward customers for their

continuous patronage.

___________________________________________________________________________

Key Words: Zone of Tolerance, Organizational Competitiveness, Commercial Banks, Service

Delivery, Lagos State

mailto:[email protected]







1. Introduction

1.1 Background of the study

The major goal of every business organization is to make profit and on the long run be a

market leader amongst other competitors. No business starts with the intention of running at a

loss. They therefore constantly develop new strategies to keep abreast with the rapid changes

in the business environment. Unlike manufacturing industry, service industry is more

complex and technical because of the intangibility of their ‘product’. It becomes necessary to

ensure the efficiency in service transaction in order to keep customers within the zone of

tolerance during service process. This may help to reduce the defection of customers to other

service providers, increase their repurchase intention and encourage continuous patronage.

United Bank for Africa Plc., First Bank of Nigeria Plc., Zenith Bank Plc., and Access

Bank are service provider’s that operate in a highly competitive market of Nigeria,

particularly Lagos State. Their long-term success is essentially determined by their ability to

maintain and expand a large and loyal customer base. Maintaining loyal customer base may

be achieved only when they meet up to their customers’ expectations of service delivery.

When deciding the level of service delivery, these banks probably need to keep their

customers’ zone of tolerance in mind. The zone of tolerance represents the range of service

performance that customers are able to tolerate. It is essential because it is central to

customers evaluation of service quality and satisfaction (Gwynne, Devlin and Ennew, 2000),

and it helps managers to analyze the effectiveness of service quality and to identify problem

areas that need improvement (Lo YL, Cavana and Corbett, 2002). The concept of zone of

tolerance is highly useful when trying to understand variability in customers’ service

expectations and perceptions as well as customers’ satisfaction.

A customer satisfaction survey of the Nigerian banking industry conducted by KPMG

International in 2014 showed that an overwhelming majority (92%) of those who reported

excellent customer service as their primary reason for maintaining banking relationships also

rated staff attitude as being important to their banking relationships – more than any other

service measure. With customers now having more choices than ever before, a positive

personal experience or professional touch may often be the differentiator. Out of the four-in-

ten customers who have multiple bank relationships, fewer customers (7% in 2013 compared

to 10% last year) expressed the willingness to change their banking relationships. Over half of

those who may switch banks, most likely do so because of service quality issues.

The survey conducted by KPMG International in 2014 also revealed the perception of

customers on what they consider as the top ten most customer focus banks in three segments;

namely the Retail, Small and Medium Enterprise (SME) and Corporate Banking showed the

level of competitiveness of these banks. For the second consecutive year in the retail segment,





Zenith Bank emerged as the most customer-focused bank with 75.67%, while First Bank and

Access Bank where 8th and 10th position with 72.58% and 72.11% respectively. United Bank

for Africa did not meet up. In the SME segment, Zenith Bank moved from second position in

2013 to become the most customer focused bank, in 2014, with 77.61%, while First Bank

ranked 7th position with 74.96% and Access Bank ranked 10th position with 74.40%. United

Bank for Africa did not meet up as well. Corporate banking customers also ranked Zenith

Bank as the most customer focused for the year 2014 with 77.37%. First Bank ranked 6th

position with 73.35% and United Bank for Africa ranked 8th position with 72.32%. In this

segment Access bank did not meet up.

It is imperative that service companies’ measure and monitor service quality and

satisfaction to gain uniqueness and to influence the behavioral intentions of their customers

(Saha and Theingi, 2009). Due to the knowledge explosion and better-educated bank

customers, the need to measure up is no longer a choice but a necessity in meeting rising

expectations of more knowledgeable customers. The ability of United Bank for Africa Plc.,

First Bank of Nigeria Plc., Zenith Bank Plc., and Access Bank Plc., to understand and meet

customers’ expectations and subsequently differentiate their service from competitors are

important for survival in today’s globalized world. Hence, the study of zone of tolerance and

organizational competitiveness is paramount.

1.2 Statement of the problem

The banking sector is known for its competitive nature. The critical nature of the service

industry makes a service provider prone to service failures even with an excellent service

blue-print back-up. Customers tend to be sensitive to little failure in service performance.

Customers’ experience of service failures while performing service transactions, such as

network failure, system delay, poor or slow processing of request and power failure, may lead

to customers’ consideration in withdrawing their patronage from the bank.

A perceived failure in service to meet customer expectations is most likely to cause customer

to lose their trust and loyalty to the service provider. For financial service providers like

United Bank for Africa Plc., First Bank of Nigeria Plc., Zenith Bank Plc., and Access Bank,

error-free service delivery is important as customers are sensitive to service performance.

Error in service delivery may lead to dissatisfaction of customers and consequently lead to

losing of customers trust and loyalty.

A lot of service providers tend to focus on the number of customers they serve without

giving sufficient attention to the value of each customer, which is essential to continuous

patronage and a source of advertising strategy for them. How well a customer is valued leads

to satisfaction and referral of the business by the existing customers to prospective customers.

Moreover, inadequate market research to understand customers’ expectations or insufficient





use of that information by management in formulating their service strategies may cause poor

quality of service delivery.

Another challenge faced by the service firms is the inability to maintain customers

purchase and repurchase intention. Some commercial banks may not place great importance

on the value of their existing customers, but rather seek to get new customers without regards

to the retention of existing customers. Their shift in attention from existing customers to new

or prospective customers may lead to negligence in meeting up with their existing customers’

service expectations. It is therefore these problems that prompted this research study.

1.3 Objective of the study

The broad objective of this study is to examine the extent to which zone of tolerance

influence organizational competitiveness of selected commercial banks in Lagos state of

Nigeria. Specifically, the objective is to examine the extent to which customer’s service

expectations influence quality of service delivery.

1.4 Research Question

The following research question is raised for the study:

To what extent has customer’s service expectations influenced quality of service delivery?

1.5 Research Hypothesis

The following research hypothesis is formulated for the study:

Ho: There is no positive relationship between customer’s service expectations and quality of

service delivery.

1.6 Significance of the Study

This study will help commercial banks and other service organizations to match their

companies’ capabilities and strengths with customer needs. It will also help to analyze the

effectiveness of service quality and to identify problem areas that need improvement. Again,

it will help managers of commercial bank and other related managers to effectively

investigate their customers’ point of view, in order to improve on their service delivery. The

study will also serve as a vital reference material for the academia.

2. Review of Related Literature

2.1 Conceptual Review

2.1.1 Zone of Tolerance

Zone of tolerance is an innovative concept that has attracted considerable attention in the

service marketing arena (Lobo, 2009). It is the extent to which customers recognize and are

willing to accept variation in service performance. The zone of tolerance (ZOT) is defined as

“the difference between desired service and the level of service considered adequate”

(Zeithaml, Berry, and Parasuraman, 1993). According to Zeithaml, Bitner and Gremler





(2009), one can consider the “zone of tolerance” as a range in which customers do not

particularly notice service performance.

In their original framework for measuring service quality, (Parasuraman, Zeithaml, and

Berry, 1994) used a single expectation standard, desired expectation (that is, what a consumer

feels a service provider should offer) as a comparison against which service performance is

assessed. More recently, these same authors have developed an integrative concept that

captures both service quality and satisfaction perspective of expectations called the zone of

tolerance. The zone of tolerance framework offers a powerful way of understanding levels of

satisfaction that may not be captured by the conventional way of measuring satisfaction.

The zone of tolerance, recognizes that a consumer enter service encounters with different

expectation levels, desired service’ at the top and ‘adequate service’ at the bottom of the scale

(Parasuraman, 2004). Desired service is “the level of service the customer hopes to receive

and the adequate service is “the level the customer will accept”. The customer satisfaction

will result as long as customer perception of service performance, fall in this zone of

tolerance (Zeithaml et al, 1993).

Figure 1: Zone of Tolerance

Source: Parasuraman, Berry, and Zeithaml (1991)

There appear to be three main, though overlapping, applications of the zone; as a

description of an outcome state, a description of a range of pre-performance expectations, and

as the satisfactory range of in-process service performances. Poiesz and Bloomer (1991)

proposed that the zone of tolerance can be used as unifying construct between expectations,

performance and outcomes. Zone of tolerance raises the question of the basis of expectation

formation (Kenesei, Zsófia, Keszey and Tamara, 2014).

2.1.2 Quality of Service Delivery

Service delivery indicates ‘where’, ‘when’ and ‘how’ the service product is delivered to

the customer (Lovelock and Writz, 2004). The service delivery process can be broken down

into service encounters that comprise the main part of the whole process (Danaher and

Mattsson, 1994) and, as noted by Chowdhary and Prakash (2007), some generalization within

service types is possible for different services and service providers, and managers may have





to consider this in its design. Thus, the power to deliver optimal service quality will get the

service firms competitive advantages among others in the same industry (Turel, Serenko and

Bontis, 2007).

In terms of the service provider, service quality is related to productivity, in that improving

service quality and boosting productivity are in conflict (Parasuraman, 2002). Quality in

service suggested starting from comparisons between what users considered that they should

be offered by the provider and what he actually offered (Zeithaml and Parasuraman, 1990). In

this direction, quality service can be considered the ratio of the level of service effectiveness

and expectations of the user. They also stated that, to promote quality service means to meet

the needs and expectations of a user in an effective manner

To evaluate a service is more complex than to evaluate a product, because the product is

tangible and its defects can be detected, its functioning assessed and its durability compared.

Conversely, service is first purchased and then it is produced and consumed simultaneously,

and then the possible nonconformities are produced and experienced, characterizing their

inseparability (Cruz and Melleiro, 2010). Quality of service delivery can be measured with

the use of the SERVQUAL instrument developed by Parasuraman, Zeithaml, and Berry

(1985). Although amended by several researchers over the years, SERVQUAL is still

considered as a reliable tool to measure service quality. The SERVQUAL instrument relies on

five primary dimensions; tangible, reliability, assurance, empathy and responsiveness

(Marshall and Murdoch, 2001).

Tangibility: Physical aspects of what is provided to users.

Reliability: Ability to fulfill what was promised accurately.

Responsiveness: Ability to attend to the users and provide the service promptly,

capturing the notion of flexibility and ability to adapt to the needs of the service user.

Assurance: Competency and courtesy extended to the users and the security provided

by the operations.

Empathy: Individualized attention to the users (Marshall and Murdoch, 2001).

SERVQUAL measures customers’ perceptions. Once these measurements are acquired they

can be used to establish the customer’s zone of tolerance for each of the five dimensions. The

zone of tolerance is the difference between the customer’s minimum service level and the

desired service level. The perceived service level can now be measured in relation to the zone

of tolerance.

2.2 Theoretical Review

The study is hinged on the expectancy disconfirmation theory by Oliver (1977; 1980).

This theory holds that satisfaction is related to the size of the disconfirmation experience. The

theory implies that consumers enter service transactions with pre-purchase expectations about





the anticipated performance which becomes a standard against which the product is judged.

That is, once the service has been used, outcomes are compared against expectations of

quality of service delivery. If the outcome matches the expectation, confirmation occurs.

Disconfirmation occurs where there is a difference between expectations and outcomes.

The relevance of this theory to the study is that commercial banks and other service

providers are expected to deliver quality service that meets customers’ expectations. It is only

then that they can keep customers within the zone of tolerance and by so doing achieve

organizational competitiveness. Customers are aware that service performance varies and as a

result their expectation might not be met or exceeded most of the times, so customers enter

into a service transaction, having room for variation in service expectations (zone of

tolerance), of quality of service delivery; which they regard as the minimum or adequate

level. Any transaction within the minimum level of expectation or above it (desired level) will

bring about satisfaction of service delivery which is a normal service experience that

customers expect.

2.3 Empirical Review

A number of studies have been carried out that is related to zone of tolerance. Havinal and

Sirigeri (2013) carried out an empirical study on the relation between zone of tolerance and

importance of service quality attributes in commercial banks. Their study was aimed at

identifying the service quality dimensions, establishing the zone of tolerance based on the

minimum and desired service and exploring the relation between the height, width of

tolerance zone. A structured questionnaire was used to collect the data responses from 500

customers of the commercial banks. Spearman rank correlation was used to analyze the data.

The study revealed that the perceived service with respect to all the service quality attributes

were within the tolerance zone. It was also observed from the study that there was positive

correlation between importance of service quality attributes and the height of tolerance zone,

negative correlation between importance of service quality attributes and the width of

tolerance zone.

Salleh, Ariffin, Tih, and Asbudin (2010) carried out a research on ‘Zone of tolerance for

service attributes in full-service airlines versus low-cost carriers.’ The study investigated how

low cost level moderates the effect of service quality attributes on customer satisfaction by

measuring and comparing the zones of tolerance for operation specific services attributes

between full-service airlines and low-cost carriers in Malaysia. A total of 249 copies of

questionnaire were distributed to the passengers of full-service airlines out of which only 109

completed questionnaires were useable. While 100 completed questionnaires were useable

from the low cost carrier passengers. The independent-sample t-test was employed to

compare the size of zone of tolerance between the full-service airlines and low cost carriers





with respect to the 17 attributes. The results revealed that the zones of tolerance for full-

service airline are basically larger than those of low-cost carriers with the exception of four

service attributes, which reported significant differences.

Campos and Nóbrega (2009) investigated on ‘Importance and the Zone of Tolerance of

Customer Expectations of Fast Food Services’. The study was aimed at determining the

perceptions of users regarding the importance of attributes and their expectations in relation to

levels of desired service and the minimum acceptable service. The data was obtained using a

sample of 500 students from a local private university. The interviews were completed on

three different campuses of the university. The results reflected the ascertainment of 442 valid

responses of 500 questionnaires applied. The Statistical Package for Social Sciences (SPSS),

version 12.0 was used to analyze the quantitative data including correlation and reliability.

The finding of the empirical test showed that, as the importance of attributes for service

quality increases, the tolerance zone gets closer and higher for customers.

Durvasula, Lobo, Lysonski and Mehta (2006) investigated on ‘finding the Sweet Spot: A

Two Industry Study. They used zone of tolerance to identify determinant of service quality

attributes. They examined the relationships of perceptions and expectations of service quality,

mean service adequacy (MSA) and mean service superiority (MSS) with service satisfaction

and loyalty. Through a detailed comparison of two major financial services in Singapore: life

insurance and stockbrokerage. In the stockbrokerage study, a total of 170 questionnaires were

returned out of the 240 distributed, however 147 were found useable for the research. In the

life insurance study the 210 survey forms distributed in Singapore, 189 forms were returned

and 182 were found usable for the research. The findings revealed that in the two industries,

expectations drive evaluations of service quality by consumers. Also, results indicated that the

reliability aspect of service quality is strongly related to satisfaction and loyalty in the

stockbrokerage industry, while the assurance aspect of service quality enjoyed a similar status

in the life insurance industry.

Nadiri (2012), investigated on ‘how to determine whether it is narrow or broad’. The aim

of the study was to discover to determine when a zone of tolerance is narrow or broad. He

used correlation analysis to analyze the width of width of the zone of tolerance. He

discovered that a narrow or broad perspective in zone of tolerance is related to its width.

When the width of zone of tolerance is found to be less than 20% of the point-of-scale used, it

should be considered ‘a narrow zone of tolerance’ and when the width is found greater than

60% of the point-of-scale used, it should be considered ‘a broad zone of tolerance’. In the

remaining case of the middle condition, the neutral zone of tolerance exists. He also noted in

his findings that, the percentages were only suggestions and that other range and descriptions

of wideness are possible.





Teas and Decarlo (2004) conducted a study on “An Examination and Extension of Zone-

Of-Tolerance Model”. Their focus was on universities student’s perception of lecturing

performance. Spearman rank correlation was used to analyze the data. A structured

questionnaire was used to gather data from the respondents. They discovered that

performance based models offered more explanatory power than zone of tolerance regarding

the relationship between perceived quality and purchase intensions. They also found that zone

of tolerance offered superior performance when evaluating the linkage between perceived

quality and satisfaction.

Yap and Sweeney (2007) investigated on how ‘Zone-of-tolerance moderates the service

quality-outcome relationship’. They used exploratory and confirmatory factor analyses to

assess measurement properties and regression analysis to test the hypotheses regarding the

zone of tolerance. Survey was conducted on customers of the retail banking sector in

Australia. A multi-stage sampling method was used. 400 copies questionnaires were

distributed and 203 were returned. They discovered that the relationship between service

quality and outcomes did not strengthen above or below the zone of tolerance for any of these

outcomes and was significantly weaker below the zone of tolerance for satisfaction, loyalty

and propensity to switch. They concluded that, there should be a focus on increasing service

quality beyond the adequate level, rather than seeking to develop a customer franchise by

creating “delight.”

Gwynne, Devlin, and Ennew (2000) investigated on ‘the zone of tolerance: Insights and

influences’. They focused on the width of the zone of tolerance relative to the different

service quality dimensions. The sample comprised of 218 students. They found in their study

that, service quality dimensions that are perceived as more important enjoy a wider zone of

tolerance. Their results attribute this to higher levels of desired expectations for the most

important service quality dimensions. It was also found that these desired expectations tend

to be relatively stable.

Stodnick and Marley (2013) investigated on ‘A longitudinal study of the zone of

tolerance’. The aim of their study was to use a longitudinal analysis of the zone of tolerance

to reconcile the difference between the acceptance of the theoretical model and the lack of

empirical support for it. A combination of simple linear regression and piece wise regression

was used to analyze the data. 699 respondents of a focus group were observed in a training

program from the telecommunication industry. They discovered that, exceeded expectations

result in higher satisfaction, while not meeting expectations, satisfaction decrease can be

huge.





2.4 Summary of Related Literature

From the empirical work reviewed such as Havinal and Sirigeri (2013); Campos and

Nóbrega (2009) and Salleh, Ariffin, Tih, and Asbudin (2010). Their study was aimed at

establishing the zone of tolerance based on the minimum and desired service level with the

service attributes and exploring the relation between the height, width of tolerance zone. Their

focus was majorly to measure the width and height of the zone of tolerance in order to

determine the exact zone of tolerance (desired and adequate level of expectation) which still

results in satisfaction. The difference is only in the varying degree of satisfaction. However,

fewer studies have been carried out to determine customers’ service expectations on the

quality of service delivery in the banking sector in Nigeria, it is therefore the gap in

knowledge that the study seeks to fill.

3. Methodology

The research adopts a descriptive survey research design. The population under

consideration consists of the customers of United Bank for Africa Plc., First Bank of Nigeria

Plc., Zenith Bank Plc. and Access Bank Plc. in Lagos State. The customers comprise of both

account holders and non-account holders. The sample size is three hundred and eighty-four

(384). It was derived using the formula for infinite population:

n = P (1-P) z 2

e

Where,

n = Sample size

P = Population parameter (0.5)

Z = Level of confidence is 90% (1.65)

e = Level of significance (0.05)

1 = a constant

Substituted:

n = 0.5 (1-0.5) 1.96 2

0.05

n = 0.25 (1536.64)

n = 384.16

Judgmental sampling technique was used in selecting respondents who were drawn from

the United Bank for Africa Plc., First Bank of Nigeria Plc., Zenith Bank Plc. and Access Bank

Plc. 384copies of questionnaire were administered and returned. However 294 copies were

properly filled and found suitable for use. The hypothesis was analyzed using Spearman

correlation and regression was used to test how the independent variable influences the

dependent variable on SPSS ver.20.





3.1 Test of Hypothesis

3.1.1 Hypothesis Test using Spearman correlation coefficient

Ha: There is no positive relationship between customer's service expectations and quality of

service delivery.

Source: SPSS Analysis, 2015

3.2 Decision

Spearman correlation coefficient shows statistical dependence of two variables, and

statistical correlation is significant if coefficient is more than 0.5. Moreover, if p-value is low

(under 0.01), it means that the correlation actually exists. If p-value is high, it cannot be

determined that the correlation actually exists. Table-1 shows the p-value (0.000) is less than

0.01 (at a 2-tailed test), customer's service expectations and quality of service delivery are

highly positively correlated with each other with the correlation coefficient of 0.991.This

means that with the high increase of customer's service expectations, quality of service

delivery also increases at a high pace due to the competitive nature of the banking sector.

Source: SPSS Analysis, 2015

Regression analysis is also used to see the influence of independent variable on dependent

variable. Table-2 shows regression model summary, in which adjusted R2 is found to be

0.967. This adjusted R2 means that “how much variability is explained by the independent

variable (customer's service expectations) on the dependent variable (quality of service

delivery).

Table 1: Spearman correlation coefficient

CSE QSD

Spearman's rho

CSE

Correlation Coefficient 1.000 .991**

Sig. (2-tailed) . .000

N 294 294

QSD

Correlation Coefficient .991** 1.000

Sig. (2-tailed) .000 .

N 294 294

**. Correlation is significant at the 0.01 level (2-tailed).

Table 2: Regression Model Summary

Model R R Square Adjusted R

Square

Std. Error of the

Estimate

1 .989a .977 .967 .90023

a. Predictors: (Constant), SE





4. Discussion and Implications

This study tested whether there is a significant relationship between customer’s service

expectations and quality of service delivery. The result confirmed that customer’s service

expectations affect the quality of service delivery. The findings of this study also addressed

the gap in literature because the major reason why an organization exists is to meet the needs

of the customers. Customers are ‘King’ and they are the major determinant of commercial

banks competitiveness in the market. This supports Campos and Nóbrega (2009), Yap and

Sweeney (2007) and Salleh, Ariffin, Tih, and Asbudin (2010), that customer’s expectations

determine quality of service delivery.

The finding showed that custo mer’s expectations are generally anticipated to be in line

with the acceptable levels of service quality in the banking sector. The results revealed that

customers had higher expectation levels compared to their perceptions of the service quality

on all the service attributes that were used to evaluate the expectations of service quality. The

results highlighted the importance of high expectations on service quality on all constructs.

The analyses revealed a significant positive relationship between these variables, which

agreed with the study carried out by (Havinal and Sirigeri, 2013).

5. Conclusion

In view of the above findings, the study concludes that zone of tolerance is a key

determinant of commercial banks competitiveness in Lagos state. It enables commercial

banks to match their customers’ needs with the services delivered. This is because with the

awareness of customers’ zone of tolerance level, commercial banks can deliver services that

meet up to their customers’ expectations. When customers’ expectations are met by the bank,

it increases customer loyalty and increases repurchase intentions.

6. Recommendations

On the basis of the findings and conclusion drawn from the study, the following

recommendations are proffered.

The managers of these commercial banks should prioritize meeting customers’

expectations, by constantly developing strategies to improve the quality of their

service delivery.

Commercial banks should devise policies and procedures that will ensure that

customers expectations are within the zone of tolerance

Also, they should adopt ‘customer appreciation day’ in their bank calendar, where

customers are given gift items and treated with special attention on arrival for

business transaction so as to reward customers for their continuous patronage.

Employees in these banks should be properly trained on how to handle customer’s

request. Periodic training such as negotiation skills, customer relations skills, and

communication skills should be undertaken by all their employees. This will help

them in their service delivery.





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