Chapter 1

INTRODUCTION
The background of the selected area is introduced in this chapter. Then, the problem area
will be next discussed to provide a deeper understanding about the research area for
reader. The discussion ends with a research problem and a specific research question.
1.1 Background
The background of the research area is provided in this section. It contains the
general idea of banking sector and customer services. As bank is a major sector of
economy and it need most satisfaction scores in the world. A brief introduction of banking
situation in Pakistan is brought here. This section also describes the importance of service
quality and its relationship with customer satisfaction.
1.2 Bank
A bank is a financial institution licensed by a government. Its primary activities
include borrowing and lending money. Many other financial activities were allowed over
time. For example banks are important players in financial markets and offer financial
services such as investment funds. In some countries, banks have historically owned major
stakes in industrial corporations while in other countries banks are prohibited from owning
non-financial companies.
1.3 History of Bank
The name bank derives from the Italian word banco "desk/bench", used during the
Renaissance by Florentine bankers, who used to make their transactions above a desk
covered by a green tablecloth However, there are traces of banking activity even in ancient
times. In fact, the word traces its origins back to the Ancient Roman Empire, where
moneylenders would set up their stalls in the middle of enclosed courtyards called macella
on a long bench called a bancu, from which the words banco and bank are derived. As a
moneychanger, the merchant at the bancu did not so much invest money as merely convert
the foreign currency into the only legal tender in Rome that of the Imperial Mint. The
earlierst evidence of money-changing activity is depicted on a silver drachm coin from
ancient hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350-325 BC,
presented in the British Museum in London. The coin shows a banker's table (trapeza)
laden with coins, a pun on the name of the city. In fact, even today in Modern Greek the
word Trapeza means both a table and a bank.

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1.4 Traditional Banking Activities
Banks act as payment agents by conducting checking or current accounts for
customers, paying cheques drawn by customers on the bank, and collecting cheques
deposited to customers' current accounts. Banks also enable customer payments via other
payment methods such as telegraphic transfer, EFTPOS, and ATM.
Banks borrow money by accepting funds deposited on current accounts, by accepting term
deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money
by making advances to customers on current accounts, by making installment loans, and
by investing in marketable debt securities and other forms of money lending.
Banks provide almost all payment services, and a bank account is considered
indispensable by most businesses, individuals and governments. Non-banks that provide
payment services such as remittance companies are not normally considered an adequate
substitute for having a bank account.
Banks borrow most funds from households and non-financial businesses, and lend most
funds to households and non-financial businesses, but non-bank lenders provide a
significant and in many cases adequate substitute for bank loans, and money market funds,
cash management trusts and other non-bank financial institutions in many cases provide an
adequate substitute to banks for lending savings to.
1.5 Wider Commercial Role
The commercial role of banks is not limited to banking, it also includes:
i. Issue of banknotes (promissory notes issued by a banker and payable to bearer on
demand)
ii. Processing of payments by way of telegraphic transfer, EFTPOS, internet banking
or other means
iii. Issuing bank drafts and bank cheques
iv. Accepting money on term deposit
v. Lending money by way of overdraft, installment loan or otherwise
vi. Providing documentary and standby letters of credit (trade finance), guarantees,
performance bonds, securities underwriting commitments and other forms of off
balance sheet exposures
vii. Safekeeping of documents and other items in safe deposit boxes
viii. Currency exchange
ix. Acting as a 'financial supermarket' for the sale, distribution or brokerage, with or
without advice, of insurance, unit trusts and similar financial products

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1.6 Banking System in Pakistan
The banking system is passing through a difficult phase mainly because of
excessive political interference in the working of the nationalized banks by the different
governments in the past. Hence the political interference in nationalized banks did not
allow them to carry out their business purely on merit. It may be recalled that some twenty
years back, the banking system was working on such a solid ground that various
developing and under-developed countries used to take guidelines from Pakistani banks.
A little earlier before the creation of country, the role of Muslims of the areas which were
later included in Pakistan was of no significance due to their restricted participation in the
banking sector. There was only a small bank namely Australasia Bank having a few
branches in Lahore and its suburbs. In 1942, the Australasia bank was housed in a garrage
of a trader of Lahore who used to trade at a small scale with Australia during that period.
However the only Bank was run by the Muslims of the sub-continent was Habib Bank
which was established in 1941. At that time Quaid-e-Azam Mohammad Ali Jinnah
expressed his desire that another Muslim bank also be established in Calcutta which came
into reality when Adamjee with the assistance of Isphanis established Muslim Commercial
Bank a few months before the creation of Pakistan in Calcutta. When Pakistan came in to
being The Habib Bank shifted its Headquarters from India to Karachi. A few of Habib
Bank's branches were already in operation in Pakistan. The Muslim Commercial Bank
also moved its headquarters from Calcutta to Dhaka and later on to Karachi. At the time of
independence, another small bank namely Bank of Bahawalpur also started business from
Bahawalpur from December 1947.
Before independence, the financial sector was in the hands of foreign banks some of them
were British by origin. The oldest bank operating from 1883 in this part of the world was
the Chartered Bank while another bank namely the Grindlays Bank which was also
working simultaneously from 1883. In order to expand its business operations, the
Grindlays acquired other small banks and merged them into the business of Grindlays. For
example Allied Bank, National Bank of India etc was merged into Grindlays Bank.
Among the contemporaries, Imperial bank of India was the largest Indian Bank which had
started its operations in 1919 which was discharging the role of a commercial banks as
well as the Central Bank for India until an independent Central Bank i.e. Reserve Bank of
India was established in 1935. However, since the Imperial Bank had the largest network
of its branches all over India, it continued to play its role as a subsidiary of the Reserve
Bank of India. In the Muslim majority areas which were later on became the part of

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Pakistan, small branches of Indian banks were operating and soon after creation of
Pakistan they shifted their branches and headquarters to India. At the time of
independence, two major banks including Punjab National Bank at Lahore and Comila
Banking Corporation were working in the then East Pakistan. This trend was so obvious
that the total number of bank offices between June 30, 1918 and August 14, 1947 were
reduced from 631 to 195 only. During the early part of 1949 the number of branches of
Imperial Bank of India in Pakistani areas was more than of Habib Bank. In the early days
of Pakistan, the government worked hard left no stone unturned to establish and strengthen
the banking system in Pakistan. These efforts resulted in the establishment of State Bank
of Pakistan which was inaugurated by Quaid-e-Azam on July 1, 1948. Quaid-e-Azam
flewed from Quetta to Karachi specially to grace the occasion. Originally the State Bank
was scheduled to be established in September 1948. Zahid Hussain, who was the first
Governor of the State Bank devoted all his time and energy to streamline the working of
the State Bank. In normal situation, the Central Bank of a country is only established when
the commercial banking start working on sound footings. But the circumstances forced the
government to establish Central Bank and the task of stabilizing the commercial banking
was also assigned to the State Bank, which it really did.
We selected Bank of Punjab for our study, Bank was established in 1989, in
pursuance of The Bank of Punjab Act 1989 and was given the status of scheduled bank in
1994. It is not the same institution as the former Bank of Punjab Ltd. in India, which
merged with Centurion Bank to become Centurion Bank of Punjab. It is a public bank, and
Mr Safdar Javaid Syed is the chairman and Mr. Neem Ud Din is the president of the bank.
1.7 Overview
The Bank of Punjab is working as a scheduled commercial bank with its network of 266
branches at all major business centers in the country. The Bank provides all types of
banking services such as Deposit in Local Currency, Client Deposit in Foreign Currency,
Remittances, Advances to Business, Trade, Industry and Agriculture. The Bank of Punjab
has entered a new era of science to the nation under experience and professional hands of
its management.
The Bank of Punjab plays a vital role in the national economy through mobilization of
hitherto untapped local resources, promoting savings and providing funds for investments.
Rates of profit on all types of deposits, opening of Foreign Currency Accounts and
handling of Foreign Exchange business such as Imports, Exports and Remittances,
Financing, Trade and Industry for working capital requirements and money market

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operations are some facilities being provided by the Bank. The lending policy of Bank is
not only cautious and constructive but also based on principles of prudent lending with
maximum emphasis on security. As agriculture is considered as the backbone of the
Pakistani economy, the Bank of Punjab has introduced "Kissan Dost Agriculture Finance
Scheme" catering to small farmers.
City of Gujrat is selected for this research because it is fusible economically and according
to time. The branches whose customers take participation as respondent are as follow:
1. CIRCULAR ROAD
2. RAMTALAI RD
3. SARGODHA ROAD
4. KUTCHERY ROAD
5. NISHANE HAIDER CHOCK
6. SHAH DAULA GATE
7. G.T.ROAD
8. University of Gujrat Hafiz Hayat Campus
1.8 Customer Satisfaction
One of the important factors of service business is to satisfy customers. Especially, for the
bank, which is the principal service business, the evaluation of the satisfaction by the
customers for various kinds of services is a very important index for measuring the
competition level of the bank. The banking Sector is highly competitive, with banks not
only competing among each other; but also with non-banks and other financial
institutions. Most bank product developments are easy to duplicate and when banks
provide nearly identical services, they can only distinguish themselves on the basis of
price and quality. Therefore, customer retention is potentially an effective tool that banks
can use to gain a strategic advantage and survive in todays ever-increasing banking
competitive environment. The majority of Pakistans banks has non-domestic owners, and
is not very diversified in terms of the products and services they offer. This suggests that
the Pakistans banking sector has reached the maturity phase of the product lifecycle and
has become commoditized, since banks offer nearly identical products. This carries the
danger of creating a downward spiral of perpetual price discounting fighting for customer
share. One strategic focus that banks can implement to remain competitive would be to
retain as many customers as possible.

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Customer satisfaction is the leading criterion for determining the quality that is actually
delivered to customers through the product/ service and by the accompanying servicing.
The argument for customer retention is relatively straightforward. It is more economical to
keep customers than to acquire new ones. The costs of acquiring customers to replace
those who have been lost are high. This is because the expense of acquiring customers is
incurred only in the beginning stages of the commercial relationship. In addition, longer-
term customers buy more and, if satisfied, may generate positive word-of-mouth
promotion for the company. Additionally, long-term customers also take less of the
companys time and are less sensitive to price changes. These findings highlight the
opportunity for management to acquire referral business, as it is often of superior quality
and inexpensive to obtain. Thus, it is believed that reducing customer defections by as
little as five percent can double the profits.
This creates the challenge of maintaining high levels of service, awareness of customer
expectations and improvement in services and product. Knowledge of customer
expectations and requirements, Hayes states, is essential for two reasons it provides
understanding of how the customer defines quality of service and products, and facilitates
the development of a customer satisfaction questionnaires. Furthermore, customer
satisfaction is recognized as of great importance to all commercial firms because of its
influence on repeat purchases and word-of-mouth recommendations. Satisfaction,
reinforces positive attitudes toward the brand, leading to a greater likelihood that the same
brand will be purchased again dissatisfaction leads to negative brand attitudes and lessens
the likelihood of buying the same brand again. If consumers are satisfied with a product or
brand, they will be more likely to continue to purchase and use it and to tell others of their
favorable experience with it, if they are dissatisfied, they will be more likely to switch
brands and complain to manufacturers, retailers, and other consumers about the product.
Satisfaction of customers also happens to be the cheapest means of promotion. Various
researchers have found this ratio to range from about 10 to 1. There are several ways to
assess the quality of services and customer satisfaction through subjective, or soft,
measures of quality, which focus on perceptions and attitudes of the customer rather than
more concrete objective criteria. These soft measures include customer satisfaction
surveys and questionnaires to determine customer attitudes and perceptions of the quality
of the service they are receiving. Because the extent to which goods or services meet the
customer's needs and requirements is the index by which quality is determined, customers'
perceptions of service is vital in identifying customer needs and satisfaction. To be

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successful, a customer satisfaction measurement (CSM) program must come from and be
incorporated into the firm's corporate culture. In today's competitive environment one of
the most important goals of corporate cultures is retaining and satisfying current and past
customers. Experience shows that only consumer oriented corporations can achieve this
goal. These companies focus on the needs and want of specific target groups and then
work hard to maximize satisfaction with the product or service being offered. Instead of
waiting for customer complaints to let them know when something isn't satisfactory or
wrong, a consumer oriented'' corporate culture, seeks continuous feedback from its
customers through repeated customer satisfaction measurements. In reality, application of
CSM often does not accomplish the objectives of the researcher or company. The reasons
for this shortfall are numerous. First, organizations often set customer satisfaction goals
without any clear understanding of their current customers' satisfaction levels. Second, the
companies that do measure customer satisfaction don't always act on the results obtained.
Finally, as organizations become more experienced with CSM, problems become
increasingly apparent.
Satisfaction data does not always correlate highly with organizational performance. This
was supported by customers who responded that they were satisfied with the organization,
yet purchased goods and services elsewhere. Finding a strong relationship between
satisfaction scores and performance does not ensure economic success. In the long run the
level of satisfaction may decline; customers' attitudes and desires change, and new
competition may emerge. Quality may no longer provide a clear competitive advantage.
Increasing numbers of managers reported that product innovation and quality no longer
provided the basis for a competitive advantage.
The definition of customer satisfaction has been widely debated as organizations
increasingly attempt to measure it. Customer satisfaction can be experienced in a variety
of situations and connected to both goods and services. It is a highly personal assessment
that is greatly affected by customer expectations. Satisfaction also is based on the
customers experience of both contact with the organization (the moment of truth as it is
called in business literature) and personal outcomes. Some researchers define a satisfied
customer within the private sector as one who receives significant added value to his/her
bottom line a definition that may apply just as well to public services. Customer
satisfaction differs depending on the situation and the product or service. A customer may
be satisfied with a product or service, an experience, a purchase decision, a salesperson,
store, service provider, or an attribute or any of these. Some researchers completely avoid

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satisfaction as a measurement objective because it is too fuzzy an idea to serve as a
meaningful benchmark. Instead, they focus on the customers entire experience with an
organization or service contact and the detailed assessment of that experience. Customer
satisfaction is a highly personal assessment that is greatly influenced by individual
expectations. Some definitions are based on the observation that customer satisfaction or
dissatisfaction results from either the confirmation or disconfirmation of individual
expectations regarding a service or product. To avoid difficulties stemming from the
kaleidoscope of customer expectations and differences, some experts urge companies to
concentrate on a goal thats more closely linked to customer equity. Instead of asking
whether customers are satisfied, they encourage companies to determine how customers
hold them accountable. In the public sector, the definition of customer satisfaction is often
linked to both the personal interaction with the service provider and the outcomes
experienced by service users. It was the consensus of the groups that lack of information
often leads to low expectations. They further agreed that the process of obtaining a service
and the way it is delivered can have a major impact on the users experience. The qualities
of relationships and staff were central to positive outcomes. Because customer satisfaction
is a highly variable assessment that every individual makes based on his/her own
information, expectations, direct contact and interaction, and impact, it makes sense to
involve and consult consumers when designing customer satisfaction approaches.
1.9 Objective of Study
1. To explore the demographic characteristics of the customers of The Bank of
Punjab Gujrat
2. To find the association between the factors
3. To conform the factor that can effect the customer satisfaction
4. To develop the customer satisfaction model for The Bank of Punjab Gujrat

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Chapter 2
LITERATURE REVIEW
Hirschman (1970) illustrate that Customer satisfaction index was the evaluation outcome
about customer satisfaction by the particular consequence. It was a fire-new index about
product quality. It could evaluate the customer satisfaction degree on product and service,
also provided the directions on the service quality to strengthen the market competition
and improved management performance. The index obtained customer satisfaction by the
satisfaction index of structure variable that customer was satisfied with some specific
product or service. Therefore, the index reflected the market directly to the approbation
degree of the service quality. Customer Satisfaction Index theory, showed the immediate
consequences of increased customer satisfaction are decreased customer complaints and
increased customer loyalty
Hull (1971) describe that one of the important factors of service business is to satisfy
customers. Especially, for the bank, which is the principal service business, the evaluation
of the satisfaction by the customers for various kinds of services is a very important index
for measuring the competition level of the bank. The banking Sector is highly competitive,
with banks not only competing among each other; but also with non-banks and other
financial institutions. Most bank product developments are easy to duplicate and when
banks provide nearly identical services, they can only distinguish themselves on the basis
of price and quality. Therefore, customer retention is potentially an effective tool that
banks can use to gain a strategic advantage and survive in todays ever-increasing banking
competitive environment. The majority of Pakistans banks has non-domestic owners, and
is not very diversified in terms of the products and services they offer.
According to Laroche and Taylor (1988) customer satisfaction in retail banking is also
likely to be influenced by the perceived competitiveness of the bank's interest rates. Since
services exist in real time, services are consumed at the very moment when they are made
available to customers. They cannot be stored and checked for their quality like a physical
product. Hence, every service production failure is likely to be experienced by a customer.
Consequently, "dissatisfaction with a service might occupy most of the time over which
service is consumed". However, customers might not instantly switch their banks after
experiencing a problem during the service production. This is mainly because of the fact
that the perceived costs of switching are relatively high in retail banking. Customers,
however, might display a passive response to a problem, which can be in the form of

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making a formal complaint. Customer satisfaction in such cases can depend upon the
efficient and effective response of the service provider.
Cronin and Taylor (1992) enlighten that in the service literature, strong emphasis is placed
on the importance of service quality perceptions and the relationship between customer
satisfaction and service quality. Service quality has been described as a form of attitude
that results from the comparison of expectations with performance. Customers, while
evaluating the quality of a service, compare the service they expect with perceptions of the
services they actually receive. It has been argued that the quality of service is not a one-
dimensional construct. Rather, service quality incorporates various dimensions that relate
to both core and augmented service initially described five dimensions of service quality
reliability, tangibles, responsiveness, assurance and empathy.
Rust and Zahorik (1993) argue the financial implications of attracting new customers may
be five times as costly as keeping existing customers. However, maintaining high levels of
satisfaction will not, by itself, ensure customer loyalty. Banks lose satisfied customers
who have moved, retired, or no longer need certain services. As a consequence, retaining
customers becomes a priority. Previous research shows, however, that longevity does not
automatically leads to profitability.
Patterson and Johnson (1993) articulate customer satisfaction is generally described as the
full meeting of one's expectations. Customer satisfaction is the feeling or attitude of a
customer towards a product or service after it has been used. A review of the existing
literature indicates that there can be potentially many antecedents of customer satisfaction,
as the dimensions underlying satisfaction judgements are global rather than specific.
Reichheld (1996) explain that Customer retention improves profitability principally by
reducing costs incurred in acquiring new customers. A prime objective of retention
strategies must therefore be zero defections of profitable customers. There is, however, a
distinction between customers who are simply retained and those who are loyal. The
concept of consumer inertia implies that some customers are only being retained, rather
than expressing loyalty. Truly loyal customers are usually portrayed as being less price-
sensitive and more inclined to increase the number and/or frequency of purchases. They
may become advocates of the organization concerned and play a role in the decision
making of their peers or family.
According to Colgate, et al. (1996) Satisfaction with a bank's products and services thus
also plays a role in generating loyalty that might be absent in the retention situation.
Customer loyalty is therefore not the same as customer retention, as loyalty is distinct

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from simple repurchase behavior. Loyalty is only a valid concept in situations where
customers can choose other providers. Companies thus need to understand the nature of
their consumers reasons for staying and must not assume that it is a positive, conscious
choice. Studies have identified the benefits that customer retention delivers to an
organization; the longer a customer stays with an organization the more utility the
customer generates. This is an outcome of a number of factors relating to the time the
customer spends with the organization. These include the higher initial costs of
introducing and attracting a new customer, increases in both the value and number of
purchases, the customer's better understanding of the organization, and positive word-of-
mouth promotion.
Levesque and McDougall (1996) describe that factors related to service offerings are also
related to customer satisfaction. Convenience and competitiveness of the bank are two
important factors which are likely to influence the overall satisfaction levels of a customer.
A number of researchers have looked into the bank selection criteria adopted by
customers. Empirical findings from this stream of research suggest that convenient
location is a critical factor influencing the choice of a bank by customers. A convenient
bank location means customers can easily do business with their banks on a regular basis.
Accessibility is also a related factor which, while acting together with convenience,
enables customers to deal with their banks more easily.
Fornell, et al. (1996) say, the effort to improve business performance; customer
satisfaction should be measured and managed and its importance has led marketing
scholars to recommend firms to improve their customers satisfaction judgements because
satisfaction is a key to customer loyalty and retention
Methlie and Nysveen (1999) take this concept even deeper and express the importance of
the satisfaction of the customer since it is harder for a competitor to take a satisfied
customer away, than an unsatisfied customer. The authors propose that banks must have
the knowledge on how to get their customer satisfied it shall be prioritized. Moreover they
explain that the banks shall listen to the customers needs through communication, the
customers shall get the opportunity to discuss the supply of the bank and recommend
changes. The importance of tailor made and value adding products is also stressed.
Tsui and Gutek (1999) proposed that the type of service interaction would moderate the
relationship between dissimilarity and subsequent outcomes. In service encounter, where
customer interaction with the service provider if brief and there is an absence of continued
interaction, demographic differences are unlikely to play an impotent role the satisfaction

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of the customer. While in the service industry where relationship of the customer and
employees because of direct interaction with one another the difference of the
demographic difference may impede the development of the relationship and in the
attitude of the customer toward the service provider.
Winnie, et al. (1999) conducted a study on measuring Customer Satisfaction on retail
banking in Hong Kong. In his study he apply ACSI, ECSI and kanji customer satisfaction
index for measuring the customer satisfaction on retail banking. He applies the same
multivariate technique behind them and found that all three models may serve as a reliable
foundation for devilment of a uniform macro customer satisfaction system for Hong Kong.
For Data collection survey was conducted in Hong Kong and 450 customers of retail
banks in Hong Kong are selected for his study. SAS and EQS 5.8 programme was used
data analysis. Both techniques structural equation modeling (SEM) and Partial Least
square (PLS) was used for determining the results. It is found that the Hong Kong
customers rate their retail bank an overall customer satisfaction index of 68.5 which is
sufficient and also provide the empirical evidence on the direct relationship between
perceived value and loyalty in a Chinese retail banking context.
Brassington and Pettitt (2000) say, there are four attributes that are unique to services
compared to usual products; intangibility, perishability, heterogeneity and inseparability.
Intangibility means that the service cannot be touched, smelled or tasted of. It is therefore
hard for prospective customers to assess the service quality before they have used it, for
which they must often purchase the service. The perishability of a service tells that it
cannot be saved for later use than the intended occasion. However, one can argue that the
banking service might be saved for later use, as loans and money usually do not disappear
in other cases than the customer consuming it. Inseparability means that a service cannot
be performed if the customer does not accept the service provider, that is the service
production must be performed at the same time as the service consumption. There are
positive and negative aspects of this, for example the possibility to direct feedback but also
waiting in queues. Heterogeneity measures the possible standardization and quality control
levels, which are both very low for most services. This is due to the contact between the
service provider personnel and the customer from day to day, which might vary depending
on feelings and humor of both parts each day. The personnel performance will evolve
from the mood of the day, the performance might therefore vary as most services are
performed by humans.

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Dholakia and Morwitz (2002) studied aware that the satisfaction study is being conducted
on the behalf of the customer and the findings that the impact of measuring customers
expectation just before a shopping experience on their subsequent evaluations of that
experience and the firm. Research suggested that measuring customers satisfaction with
the firm past performance include more favorable evaluations of the firm has a positive
effect on purchase behavior and loyalty. Findings suggest the possibility that the
satisfaction of the customer can be used as a strategically to potency customers
relationship. Because customers evaluation with the firms past performance is likely to
provide the expected future performance, measuring expectations might have a similar
effect on subsequent evaluation and behavior is measuring as a satisfaction. If we consider
that the measuring of the past customer satisfaction is likely or equaling to the basis of the
future expected performance it means that we observe the positive effect of stating on later
performance. The user of the firms service is as include a relatively high proportion of the
satisfied customers which are often the reason the following customer are in the front
place of the form. Accordingly, ask to these front line customers to state their expectation
for the firm causes them to articulate their favorable evaluations and thus further reinforce
to their positive post experience evaluations.
According to Sureshchandar, et al (2002), people whose perception of service quality is
poor have poor satisfaction level, and those who have ranked the service quality as high
are highly satisfied with the services of the organization. There is a strong correlation
between service quality and customer satisfaction, the two constructs are indeed different
which means that is becomes imperative for the service providers to view the two
constructs separately.
Bell (2002) considers that the customer loyalty is an important strategic objective of all
managers all over the world. Survey conducted by the (Bell 2002) of chief executive
officers and found that customer loyalty and retention was the most important challenge
that chief executive officers believe they face.
Looy, et al (2003) points out the distinction between the two is a very important one. The
level of customer satisfaction is the result of the customers comparison of the service
quality expected in a given service encounter, with the perceived service quality. In
addition, the distinction is that in measuring customer satisfaction, the actual experience of
the customer is the basis of assessments while in service quality measurement the
customer experience is not required.

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Bennett and Rundle (2004) demonstrated in their research, satisfaction and loyalty are not
the same, and in some cases satisfaction does not predict loyalty (consider banks where
customers are highly dissatisfied yet remain loyal). This suggests that marketing managers
need to test both customer satisfaction and loyalty levels because high levels of
satisfaction do not always translate into high levels of attitudinal loyalty.
Venetis and Ghauri (2004) enlighten that service quality contributes very strongly to the
maintenance of long-term customer relationships. Its impact on customers commitment
was found to be stronger than the impact of trust, which is regarded as a key-mediating
variable in other business relationships. They found that service quality is not only
strongly related to customers affective commitment, but also directly related to their
behavioral intentions. This is an important contribution to existing research on service
quality.
Zeithaml, et al (2006) say, although service quality and customer satisfaction are used
interchangeably, there is indeed a distinction. Customer Satisfaction is when the outcome
of the service matches the expectations of the service. Satisfaction or dissatisfaction is a
measure or evaluation of a product or services ability to meet a customers need or
expectations. If the customers of an organization are satisfied by their services the result is
that, they will be loyal to them and consequently be retained by the organization, which is
positive for the organization because it could also mean higher profits, higher market
share, and increasing customer base.
Lewis and Soureli (2006) state that customer satisfaction, perceived service quality,
service attributes, corporate image, perceived value, switching costs, interpersonal
relationships with bank employees commitment-attachment, trust, customer characteristics
and the organizations efforts to make relationship all are precedents of customer loyalty.
Discuss why customers are satisfied. Their research shows thatspeed of delivery,
competence and friendliness of staff, reliability and responsiveness are important aspects
for creating satisfied customers. They state, that banks shall make efforts to find out the
reason why customers are not satisfied and make changes.
Reicheld (2006) presents research that shows that satisfied customers also leave their
suppliers and a lot of dissatisfied customers never say something about their
dissatisfaction, they just leave the company. The research also shows it is much more
costly to find new customers than to keep old customers and totally satisfied customers
possibly re-purchases six times more than just satisfied customers.

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Chapter 3
MATERIAL AND METHODS
This chapter will present detailed idea that how this research will be conducted. This
includes the data for the research, research approach, research strategy, sample selection
methods, data collection methods and data analysis methods.
3.1 Data
There are two major approaches to gathering information about a situation, person,
problem or phenomenon. Sometimes, information required is already available and only
need to be extracted. However there are times when the information must be collected.
Based upon these broad approaches to information gathering data are categorized as:
Secondary data and Primary data. Primary data are collected through: observation,
interviews and/or questionnaires. Data collection procedure in qualitative research
involves four basic types: Observations, Interviews, documents and audio-visual materials.
In this study quantitative survey is used as data collection method. A survey procedure
used to collect primary data from individuals. The questionnaire was developed based on
research question. For understanding the importance and satisfaction of each service
quality dimension a 5-scale was used (1=very unsatisfied, 3= neutral, 5= very satisfied).
3.2 Study Design
It is a retrospective cross sectional observational and analytical study. Because in this
study participants were asked about their past experiences, data collected at the single
defined time point (no repetition of the observations) and only it consist of observations so
this study became retrospective crossectional observational analytical study.
3.3 Instrument of the Study
A simple well defined questionnaire was used. It was consisted of 79 questions and there
were eight sections about different aspects of the customer satisfaction. First section was
about demographic informations, 2
nd
was about employees attitude to wards the customer,
3
rd
section was about the problem solving ability of employees towards the queries of
customer, 4
th
was about the service environment provided by bank to there customer. 5
th
section of questionnaire was about the services provided by bank, 6
th
about the products of
bank. Second last section of the questionnaire is overall satisfaction of customers towards

15
there bank and 8
th
section which is the last section is ask to customer about the continuous
correspondence to there bank.
Questionnaire was designed in two stages. In stage one an initial questionnaire will
construct from discussions with bank services sector experts to develop an understanding
of customer attitudes and behavior when using a bank service and their criteria in selecting
a service provider. This stage one involved interviews with 5 executives of the banking
sector in Gujrat, 3 professors in management and 15 users as well as lecturer of business
and management who are expert about the issue. In stage two questionnaire pre testing
held by 25 respondents and then finalizes the questionnaire.
3.4 Sample Size
Sample size was time based. Owing to limited time only 315 customers data was
collected. In this data 112 female are selected and 203 male respondents are used.
3.5 Sampling Technique
Selection of the sampling method to use in a study depends on a number of related
theoretical and practical issues. These include considering the nature of the study, the
objectives of the study and the time and budget available. It was purposive sampling
because the record of the customer is confidential which is not provided by the bank. So
only those customers are selected who visit the branch in the time frame of study.
3.6 Selection of the Respondent
The study was conducted in the branches of The Bank of Punjab Gujrat from 15, Jun
2009 to 20, July 2009 in the timing of 10 am to 3 pm. The customer coming in the
branches of The Bank of Punjab belong to different areas of Gujrat as well as Pakistan.
The customers who have there account in the branch are selected as our respondent.
3.7 Exclusion Criteria
Those customers who come to bank just for utility billing services or any other common
public services and have not there account in the branch were not selected for the study.
3.8 Methodology
The research will do in two stages. In stage one; an initial questionnaire will constructed
from discussions with Bank services sector experts to develop an understanding of
customer attitudes and behavior when using a bank service and their criteria in selecting a

16
service provider. This stage one involved interviews with 5 executives of the banking
sector in Gujrat, 3 professors in management and 15 users who are experts about the
issues. Four dimensions of satisfaction are developed customer service/Products, Service
Environment, Employer Ability and Employer attitude and a draft questionnaire will then
developed for pretesting in further interviews with the respondents. In stage two, the
purposive sampling is used because the record of the customer is confidential which is not
provided by the bank. The survey data was analyzed using structural equation modeling
(SEM). SEM techniques are particularly appropriate for the study of multiple dependence
relationships such as those investigated in this research. The sample size of 315
respondents will be used for this research. The software package used for SEM in this
research was AMOS 5.0v, STATISTICA 7.0v and SPSS 13.0v because of there user
friendliness, that is, there graphical user interface and ability to import data.
3.9 Data Analysis Techniques
Fellowing techniques are used in the analysis of data.
3.9.1 Descriptive Statistics
Descriptive statistics are used to describe the basic features of the data in a study. It
provides simple summaries about the sample and the measures. In this technique we
simply describing what is or what the data shows. Descriptive Statistics are used to present
quantitative descriptions in a manageable form. In a research study we may have lots of
measures or we may measure a large number of people on any measure. Descriptive
statistics help us to simply large amounts of data in a sensible way. Each descriptive
statistic reduces lots of data into a simpler summary. Descriptive statistics provide a
powerful summary that may enable comparisons across people or other units.
3.9.2 Association
Association is any relationship between two measured quantities that renders them
statistically dependent. The term "association" refers broadly to any such relationship,
whereas the narrower term "correlation" refers to a linear relationship between two
quantities. There are many statistical measures of association that can be used to infer the
presence or absence of an association in a sample of data. In quantitative research, the
term "association" is often used to emphasize that a relationship being discussed is not
necessarily causal.

17
3.9.3 Factor Analysis
Factor analysis is a statistical method used to describe variability among observed
variables in terms of fewer unobserved variables called factors. The observed variables are
modeled as linear combinations of the factors, plus "error" terms. The information gained
about the interdependencies can be used later to reduce the set of variables in a dataset. Or
we can say it is a statistical approach that can be used to analyze interrelationships among
a large number of variables and to explain these variables in terms of their common
underlying dimensions (factors). The statistical approach involving finding a way of
condensing the information contained in a number of original variables into a smaller set
of dimensions (factors) with a minimum loss of information. Before you use the
questionnaire on your sample, you decide to pretest it (always wise!) on a group of people
who are like those who will be completing your survey. When you analyze your data, you
do a factor analysis to see if there are really two factors, and if those factors represent the
dimensions of task and people skills. If they do, you will be able to create two separate
scales, by summing the items on each dimension. If they don't, well it's back to the
drawing board.
Factor analysis requires that you have data in the form of correlations, so all of the
assumptions that apply to correlations, are relevent here.
Principal component analysis -- this method provides a unique solution, so that
the original data can be reconstructed from the results. It looks at the total variance
among the variables, so the solution generated will include as many factors as there
are variables, although it is unlikely that they will all meet the criteria for retention.
There is only one method for completing a principal components analysis; this is
not true of any of the other multidimensional methods described here.
Common factor analysis -- this is what people generally mean when they say
"factor analysis." This family of techniques uses an estimate of common variance
among the original variables to generate the factor solution. Because of this, the
number of factors will always be less than the number of original variables. So,
choosing the number of factors to keep for further analysis is more problematic
using common factor analysis than in principle components.
Steps in conducting a factor analysis
There are four basic factor analysis steps:

18
data collection and generation of the correlation matrix
extraction of initial factor solution
rotation and interpretation
construction of scales or factor scores to use in further analyses
Extraction of an initial solution
The output of a factor analysis will give several things. One good rule of thumb for
determining the number of factors, is the "eigenvalue greater than 1" criteria. For
the moment, let's not worry about the meaning of eigenvalues, however this
criteria allows us to be fairly sure that any factors we keep will account for at
least the variance of one of the variables used in the analysis. However, when
applying this rule, keep in mind that when the number of variables is small, the
analysis may result in fewer factors than "really" exist in the data, while a large
number of variables may produce more factors meeting the criteria than are
meaningful. There are other criteria for selecting the number of factors to keep,
but this is the easiest to apply, since it is the default of most statistical computer
programs.
3.9.3.1 Theoretical Framework
3.9.3.1.1 Notation
What we will do here is collect all of the variables X 's into a vector X for each individual
subject. Let X
i
denote observable trait i. These are the data from each subject, and will be
collected into a vector of traits.
X =
1
2
.
.
.
p
X
X
X
_








,
Vector of traits

19
This will be a random vector, with a population mean. We shall assume that vector of
traits X is sampled from a population with population mean vector:

=
1
2
.
.
.
p

_








,
Population Mean Vector
Here, E (X
i
) =

i
denotes the population mean of variable i.
The factors themselves f
1
, f
2
, ..., f
m
are also called common factors . So, f
i
is the ith
common factor. Note that the common factors are not observable. Here we have m
common factors. Generally, m is going to be selected to be less than p - generally
substantially less than p .
The common are also collected into a vector, in this case a number m of common factors.
f =
1
2
.
.
.
m
f
f
f
_








,
Vector of common factors
3.9.3.1.2 Model
Our factor model can be thought of a series of multiple regressions, predicting each of the
observable variables X
i
from the values of the unobservable common factors f
i
:

20
1 1 11 1 12 2 1 1
2 2 21 1 22 2 2 2
1 1 2 2
.........
.........
.
.
.
.........
m
m
p p p p pm p
X l f l f l
X l f l f l
X l f l f l



+ + + + +
+ + + + +
+ + + + +
Here, the variable means
1
through
p
can be regarded as the intercept terms for the
multiple regression models.
The regression coefficients l
ij
(the partial slopes) for all of these multiple regressions are
called factor loadings . Here, l
ij
= loading of the ith variable on the jth factor. These will be
collected into a matrix as shown here:
L =
11 12 1
21 22 2
1 2
m
m
p p pm
l l l
l l l
l l l
1
1
1
1
1
1
]
L
L
M M M M
K
And finally, the errors
i
are called the specific factors. Here,
i
= specific factor for
variable.
The specific factors are also collected into a vector:

=
1
2
.
.
.
p

_








,
In summary, the basic model is going to look a bit like a regression model. Each of our
response variables X is going to be written as a multiple regression, predicting each X
variable as a linear function of the unobserved common factors. All these equations are are
multiple regressions, but where the explanatory variable are our unobserved factors f
1
, f
2

21
through f
m
. Thus, our explanatory variables are f
1
, f
2
through f
m
. Therefore, here we are
going to say that we have m unobserved factors that control the variation among our data.
We will generally reduce this into matrix notation as shown in this form here:
X Lf + +
Note: In general we want m < p.
3.9.3.1.3 Assumptions
We have a fairly lengthy list of assumptions associated with factor analysis and here we
will group them by mean, variance and correlation.
Mean
The specific factors or errors all have mean zero:
( ) 0; 1, 2,.....,
i
E i p
We assume that these errors are random. So they will have a mean and the mean we will
assume will be zero here.
1. The common factors, the f's, have mean zero:
( ) 0; 1, 2,.....,
i
E f i m
All of the unobserved explanatory variables will have a mean of zero.
A consequence of these assumptions is that the mean response of the jth trait is
i
.
That
is, E( X
i
) =
i
.
Variance
1. The common factors have variance one:
( ) 1; 1, 2, .....,
i
Var f i m
These unobserved common factors are all assumed to have a variance of one.
2. The variance of specific factor i is
i
:
( ) ; 1, 2,.....,
i i
Var i p

22
Or, the errors or specific factors are assumed to have variances,
i
, for the ith
specific factor. Here,
i
is called the specific variance.
Correlation
1. The common factors are uncorrelated with one another:

cov( , ) 0 1, 2,....,
i j
f f for i j m
2. The specific factors are uncorrelated with one another:

cov( , ) 0 1, 2,....,
i j
for i j p
3. The specific factors are uncorrelated with the common factors:
cov( , ) 0 ; 1, 2,.... ; 1, 2,....,
i j
f i p j m
These assumptions are necessary because in this case if we do not add these constraints to
our model it is not possible to uniquely estimate any of the parameters. You could get an
infinite number of equally well fitting models with different values for the parameters
unless we add these constraints if these assumptions are not made.
3.9.3.1.4 Results
1. Under this model the variance for the ith observed variable is going to be equal to
the sum of the squared loadings for that variable:
The variance of trait i is:
2 2
1
var( )
m
i i ij i
j
X l

+
This is a derivation that can be
made based on the previous assumptions.
a.
2
1
m
ij
j
l

= Communality for variable i - the sum of the squared loadings. Later on we

will see how this is a measure for how well the model performs for that particular
variable. The larger the communality, the better the model performance for the ith
variable.
b.
i
= Specific Variance

23
2. The covariance between pairs of traits i and j is:
1
cov( , )
m
ij i j ik jk
k
X X l l

this looks at the covariance here between two variables
3. The covariance between trait i and factor j is:
cov( , )
i j ij
X f l
as given by the factor loading l
ij

In matrix notation, our model for the variance-covariance matrix is going to be expressed
as shown below:
LL +
This is the matrix of factor loadings times its transpose, plus a diagonal matrix containing
the specific variances.
Here equals:

=
1
2
0 0
0 0
0 0
p

1
1
1
1
1
1
]
L
L
M M M M
L

So this produces a model for the variance-covariance matrix and it is this model that is
used to do the estimation. We are assuming that what we end up with, based on all of these
results, is a model for the variance-covariance matrix. This is a simplified model which
will hopefully contain fewer parameters than we would normally have in a variance-
covariance matrix. Therefore, this is a more parsimonious model of the variance-
covariance matrix.
3.9.3.1.5 Notes:
1. The model assumes that the data is a linear function of the common factors. However,
since the common factors are not observable, there is no amount of data that can be used
to check for linearity.

24
2. We have to remember that the variance-covariance matrix is a symmetric matrix, that is
the variance between variables i and j is the same thing as the variance between j and i .
For this model:
LL +
The variance-covariance matrix is going to have p(p +1)/2 unique elements of which are
approximated by:
mp factor loadings in the matrix L , and p specific variances
This means that there is going to be mp plus p parameters in this model of the variance-
covariance matrix. What we want is a parsimonious model where m is small. The simpler
interpretation is going to be a case where m is small. And, ideally mp + p is going to be
substantially smaller than p(p +1)/2 . However, is mp is too small, the mp + p parameters
may not be adequate to describe - the variance-covariance matrix. The other thing that
might be going on here is that perhaps this is not the right model. Maybe you cannot
reduce the data to a linear combination of factors.
3.If we have more that one variable in our analysis, that is if p > 1, the model is going to
be inherently ambiguous. The way we can see this is through the use of orthogonal
matrixes. Let T be any n x m orthogonal matrix ; that is, if you take the matrix transpose
times itself you get back the identity matrix I . Or, if you take the matrix times its
transpose you also get back an identity matrix. You have an orthogonal matrix if its
inverse is equal to the transpose of the original matrix.

T T TT I

Then we can write our factor model in matrix notation:
* *
X Lf LTT f L f + + + + + +
Note that I can always place the identity matrix between the L and the f, as in the third
expression above. This does not change the calculation since the identity matrix times any
matrix just gives back the original matrix. This results in an alternative factor model,
where the relationship between the new factor loadings and the original factor loadings is:
*
L LT

25
and the relationship between the new common factors and the original common factors is:
*
f T f
This gives a model that fits equally well. Moreover, since there are an infinite number of
orthogonal matrices, then there is an infinite number of alternative models. This model, as
it turns out, it satisfies all of the assumptions that we discussed earlier.
Note:
*
( ) ( ) ( ) 0 0 E f E T f T E f T
*
var( ) var( ) var( ) f T f T f T T IT T T I
And
*
cov( , ) cov( , ) cov( , ) 0 0 f T f T f T
So
*
f satisfies all of the assumptions, and hence
*
f is an equally valid collection of
common factors. So, there is a certain apparent ambiguity to these models, however, it is
the same ambiguity that we are going to exploit. This ambiguity is going to be used to
justify the factor rotation we will use later to obtain to more parsimonious description of
the data.
We shall consider two different methods for estimating the parameters of a factor model:
1. Principal Component Method
2. Maximum Likelihood Estimation
A third method, principal factor method, is also available but will not be considered in this
class. First, in this study we use principal component method so that method discussed
here.
Principal Component Method
We will use our usual notation as follows:
A vector of observations for ith subject. Here we are collecting the values for that subject's
p variables into a vector as usual:

26
S will be
used to
denote our
sample
variance-covariance matrix and is expressed as:
1
1
( )( )
1
n
i i
i
S X x X x
n

We will have p eigenvalues for this variance-covariance matrix as well as corresponding
eigenvectors for this matrix.
Eigenvalues of S (R):

1 2

, ,.......,
p

Eigenvectors of S (R):
1 2
, ,......,
p
e e e
Earlier when we talked about principal component analysis you might recall that we noted
that the variance-covariance matrix can be re-expressed in the following form as a
function of the eigenvalues and the eigenvectors:
Spectral Decomposition of .
1 1
2 2
1 1 2 2
1 1
( )
p m
i i i i i i m m
i i
m m
e
e
e e e e e e e
e

,

L
M
We can express the variance-covariance matrix as the sum of our p eigenvalues
i
multiplied by their eigenvectors e
i
and their transposes. The idea behind the principal
component method is to approximate this expression. Instead of summing from 1 to p,
now we would sum it from 1 to m instead, ignoring the last p - m terms in the sum, to

27
1
2
.
.
.
i
i
i
ip
X
X
X
X
_








,
obtain the third expression. We can rewrite this as shown in the fourth expression, which
is used to define the matrix of factor loadings L, yielding the final expression in matrix
notation.
(Note: If standardized measurements are used, we replace S by the sample correlation
matrix R.)
This yields the following estimator for the factor loadings:

ij ij i
l e
In summary, we have collected our eigenvectors into a matrix, but for each column of the
matrix we will multiply it by the square root of the corresponding eigenvalue. This will
now form our matrix L of factor loading in the factor analysis. This is followed by the
transpose of L. This result yields the above estimator for the ijth factor loading, which
models the effect of the jth factor on the ith variable. We are going to estimate that by
taking e
ij
, the jth element of the ith eigenvector times the square root of the ith eigenvalue.
To estimate our specific variances, recall that our factor model for the variance-covariance
matrix is
LL +
In matrix notation. is now going to be equal to the variance-covariance matrix minus
LL .
LL
This in turn suggests that the specific variances, which are the diagonal elements of this
matrix can be estimated using this expression:
2 2
1

m
i i i ij
i
s e

Here, we take the sample variance for the ith variable and subtract from that, the sum of
the squared factor loadings (i.e., the communality).

28
3.9.4 Confirmatory Factor Analysis
The confirmatory factor analysis is used to confirm the variables of a factor for the
use of structural equation modeling, not confirm variables are discarded from
the factor and only confirm variable are use for the analysis.
3.9.4.1 Terms and concepts in confirmatory factor analysis (CFA)
Theory: In confirmatory factor analysis, theory is a systematic set of casual relationships
that provide the comprehensive explanation of a phenomenon.
Model: In confirmatory factor analysis, model is a specified set of dependant relationships
that can be used to test the theory.
Path analysis: In confirmatory factor analysis, path analysis is used to test structural
equations.
Path diagram: In confirmatory factor analysis, the path diagram shows the graphical
representation of cause and effect relationships of the theory.
Endogenous variable: In confirmatory factor analysis, endogenous variables are the
resulting variables that are a causal relationship.
Exogenous variable: In confirmatory factor analysis, exogenous variables are the
predictor variables.
Confirmatory analysis: In confirmatory factor analysis, confirmatory analysis is used to
test the pre-specified relationship.
Cronbachs alpha: In confirmatory factor analysis, Cronbachs alpha is used to measure
the reliability of two or more construct indicators.
Identification: In confirmatory factor analysis, identification is used to test whether or not
there are a sufficient number of equations to solve the unknown coefficient. In
confirmatory factor analysis identifications are of three types: (1) under identified, (2)
exact identified, and (3) over-identified.
Goodness of fit: In confirmatory factor analysis , goodness of fit is the degree to which
the observed input matrix is predicted by the estimated model.
3.9.4.2 The following are the procedures involved in confirmatory factor analysis
1. Defining individual construct: In confirmatory factor analysis, first we have to define
the individual constructs. In confirmatory factor analysis, the first step involves the

29
procedure that defines constructs theoretically. This involves a pretest to evaluate the
construct items, and a confirmatory test of the measurement model that is conducted using
confirmatory factor analysis, etc.
2. Developing the overall measurement model theory: In confirmatory factor analysis, we
should consider the concept of unidimensionality between construct error variance and
within construct error variance.
3. Designing a study to produce the empirical results: In confirmatory factor analysis, the
measurement model must be specified. In confirmatory factor analysis, most commonly,
the value of one loading estimate should be one per construct. In confirmatory factor
analysis, two methods are available for identification. The first is rank condition, and the
second is order condition.
4. Assessing the measurement model validity: In confirmatory factor analysis, assessing
the measurement model validity occurs when the theoretical measurement model is
compared with the reality model to see how well the data fits. In confirmatory factor
analysis, to check the measurement model validity, the number of the indicator helps us.
For example, in confirmatory factor analysis, the factor loading latent variable should be
greater than 0.7. Chi-square test and other goodness of fit statistics like RMR, GFI, NFI,
RMSEA, SIC, BIC, etc., are some key indicators that help in measuring the model validity
in confirmatory factor analysis.
Confirmatory factor analysis (CFA) and statistical software: Usually, statistical
software like AMOS, LISREL, EQS and SAS are used for confirmatory factor analysis
(CFA). In AMOS, visual paths are manually drawn on the graphic window and analysis is
performed. In confirmatory factor analysis in LISREL, confirmatory factor analysis can be
performed graphically as well as from the menu. In SAS, confirmatory factor analysis can
be performed by using the programming languages.
Confirmatory factor analysis is a multivariate statistical procedure that is used to test how
well the measured variables represent the number of constructs. Confirmatory factor
analysis and exploratory factor analysis (EFA) are similar techniques, but in exploratory
factor analysis, data is simply explored and provides information about the numbers of
factors required to represent the data. In exploratory factor analysis, all measured variables
are related to every latent variable. But in confirmatory factor analysis, researchers can
specify the number of factors required in the data and which measured variable is related
to which latent variable. Confirmatory factor analysis is a tool that is used to confirm or
reject the measurement theory.

30
3.9.5 Path Analysis
To construct a structural equation model we need a path analysis first because it provide
the base for both confirmatory factor analysis as well as SEM. Path analysis is an
extension of the regression model, used to test the fit of the correlation matrix against two
or more causal models which are being compared by the researcher. The model is usually
depicted in a circle-and-arrow figure in which single-headed arrows indicate causation. A
regression is done for each variable in the model as a dependent on others which the
model indicates are causes. The regression weights predicted by the model are compared
with the observed correlation matrix for the variables, and a goodness-of-fit statistic is
calculated.
Path analysis requires the usual assumptions of regression. It is particularly sensitive to
model specification because failure to include relevant causal variables or inclusion of
extraneous variables often substantially affects the path coefficients, which are used to
assess the relative importance of various direct and indirect causal paths to the dependent
variable. Such interpretations should be undertaken in the context of comparing alternative
models, after assessing their goodness of fit discussed in the section on structural equation
modeling. When the variables in the model are latent variables measured by multiple
observed indicators, path analysis is termed structural equation modeling, treated
separately. We follow the conventional terminology by which path analysis refers to
modeling single-indicator variables.
Estimation: Note that path estimates may be calculated by OLS regression or by MLE
maximum likelihood estimation, depending on the computer package. Two-Stage Least
Squares (2SLS), discussed separately, is another path estimation procedure designed to
extend the OLS regression model to situations where non-recursively is introduced
because the researcher must assume the covariance of some disturbance terms are not 0.
Path model: A path model is a diagram relating independent, intermediary, and dependent
variables. Single arrows indicate causation between exogenous or intermediary variables
and the dependent(s). Arrows also connect the error terms with their respective
endogenous variables. Double arrows indicate correlation between pairs of exogenous
variables. Sometimes the width of the arrows in the path model is drawn in a width which
is proportional to the absolute magnitude of the corresponding path coefficients.

31
Causal paths: to a given variable include (1) the direct paths from arrows leading to it,
and (2) correlated paths from endogenous variables correlated with others which have
arrows leading to the given variable. Consider this model:

This model has correlated exogenous variables A, B, and C, and endogenous variables D
and E. Error terms are not shown. The causal paths relevant to variable D are the paths
from A to D, from B to D, and the paths reflecting common anteceding causes the paths
from B to A to D, from C to A to D, and from C to B to D. Paths involving two
correlations (C to B to A to D) are not relevant. Likewise, paths that go backward (E to B
to D, or E to B to A to D) reflect common effects and are not relevant.
Exogenous and endogenous variables: Exogenous variables in a path model are those
with no explicit causes (no arrows going to them, other than the measurement error term).
If exogenous variables are correlated, this is indicated by a double-headed arrow
connecting them. Endogenous variables, then, are those which do have incoming arrows.
Endogenous variables include intervening causal variables and dependents. Intervening
endogenous variables have both incoming and outgoing causal arrows in the path diagram.
The dependent variable(s) have only incoming arrows.
Path coefficient/path weight: A path coefficient is a standardized regression coefficient
(beta) showing the direct effect of an independent variable on a dependent variable in the
path model. Thus when the model has two or more causal variables, path coefficients are
partial regression coefficients which measure the extent of effect of one variable on
another in the path model controlling for other prior variables, using standardized data or a
correlation matrix as input. Recall that for bivariate regression, the beta weight (the b
coefficient for standardized data) is the same as the correlation coefficient, so for the case
of a path model with a variable as a dependent of a single exogenous variable (and an error
residual term), the path coefficient in this special case is a zero-order correlation
coefficient.

32
A
B
C
D
E
3.9.6 Structural Equation Modeling
Structural equation modeling is a multivariate statistical analysis technique that is used to
analyze structural relationships. Structural equation modeling technique is the combination
of factor analysis and multiple regression analysis, and it is used to analyze the structural
relationship between measured variables and latent constructs. Structural equation
modeling is preferred by the researcher because it estimates the multiple and interrelated
dependence in a single analysis. In structural equation modeling, two types of variables are
used, endogenous variables and exogenous variables. In structural equation modeling,
endogenous variables are equivalent to dependent variables. In structural equation
modeling, exogenous variables are equal to the independent variable.
3.9.6.1 Structural equation modeling and theory:
In structural equation modeling, theory can be thought of as a set of relationships
providing consistency and comprehensive explanations of the actual
phenomena. Structural equation modeling consists of two types of models:
1. Measurement model: In structural equation modeling, the measurement model
represents the theory that specifies how measured variables come together to
represent the theory.
2. Structural model: In structural equation modeling, the structural model represents
the theory that shows how constructs are related to other constructs.
Structural equation modeling is also called casual modeling because structural equation
modeling tests the proposed casual relationships. The following assumptions are assumed
in structural equation modeling:
1. Multivariate normal distribution: In structural equation modeling, the maximum
likelihood method is used and assumed for multivariate normal distribution. Small
changes in multivariate normality can lead to a large difference in the chi-square
test.
2. Linearity: In structural equation modeling, a linear relationship is assumed
between endogenous and exogenous variables.

33
3. Outlier: In structural equation modeling, data should be free of outliers. Outliers
affect the model significance.
4. Sequence: In structural equation modeling, there should be a cause and effect
relationship between endogenous and exogenous variables and a cause has to occur
before the event.
5. Non-spurious relationship: In structural equation modeling, observed covariance
must be true.
6. Model identification: In structural equation modeling, equations must be greater
than the estimated parameters or models should be over identified or exact
identified. Under identified models are not considered in structural equation
modeling.
7. Sample size: In structural equation modeling, most of the researchers prefer a 200
to 400 sample size with 10 to 15 indicators. As a rule of thumb, that is 10 to 20
times as many cases as variables.
8. Uncorrelated error terms: In structural equation modeling, error terms are
assumed uncorrelated with other variable error terms.
9. Data: Interval data is used in structural equation modeling.
3.9.6.2 Theoretical Framework
The General Structural Equation Model is
y By x + +
or
1 12 1 1 11 12 1 1 1
2 21 2 2 21 22 2 2 2
1 2 1 2
0
0
0
p q
p q
p p p p p p pq q p
y y x
y y x
y y x



1 1 1 1 1 1
1 1 1 1 1 1
1 1 1 1 1 1
+ +
1 1 1 1 1 1
1 1 1 1 1 1
1 1 1 1 1 1
] ] ] ] ] ]
L L
L L
L L L L L L L L L L L L
L L
Where

y
=Vector of "p" endogenous variable

34
B = Regression coefficients for endogenous variables on other endogenous variables
= Regression coefficients for endogenous variables on exogenous variables
x
= Exogenous variables

= Specification error
The Latent model is
( 1) ( 1) ( 1) ( 1)
( ) ( )
m m n m
i m m i m n i i
B


+ +
Measurement model is
( 1) ( ) ( 1) ( 1)
( 1) ( ) ( 1) ( 1)
p p m m p
q q n n q
i y i i
i x i i
y
x




+

)
+

and parameters of the model is

; ;
y x
B

Some Basic Assumption and definition is
'
E(y) = 0, E(x) = 0, Cov(x, ) = 0, | | 0, V(x) = E(xx ) = , V( ) = E( ) = I B
Reduced form Coefficients vs. Structural Coefficients
1 1
( )
( ) ( )
y By x
y By x
I B y x
y I B x I B
y Gx e

+ +
+
+
+
+
Where

1
1
( )
( )
G I B
e I B

The Model's implications for V(y)
/ /
( ) [( )( ) ] E yy E Gx e Gx e + +

/ / / / / /
( ) ( ) ( ) ( ) E Gxx G E Gxe E ex G E ee + + +
Where

35
( )
/
1
/ /
( ) E Gxe E Gx I B

1

' )
1
]


/ 1
( )( ) GE x I B



/ / / /
( ) ( ) ( ) E yy GE xx G E ee +
Proceeding With the V(y)
/ / / /
( ) ( ) ( ) E yy GE xx G E ee +

1 / 1 / 1 / 1
1 / / 1
( ) ( ) ( ) ( )
( ) [ ]( )
I B I B I B I B
I B I B


+
+
where
/
( ) ( ) E xx V x ,
1
( ) G I B

,
1
( ) e I B

,
( ) V
and
Cov(x, y)
/ /
/ / /
/ / / / 1
/
/ / 1
( ) [ ( ) ]
[ )]
( ) ( )( )
0
( )
E xy E x Gx e
E xx G xe
E xx G E x I B
G
I B

+
+
+
+

The Structure of the Covariance Matrix for All the Variables
1 / / 1
/ / 1
( ) [ ]( )
( )
yy
xy xx
I B I B
I B

1

1

]
1 +

1

1
]
Mathematical Formula of Some Useful Measures
1. Normed Fit Index:
2 2
; 0 1
2
indep model
NFI NFI
indep

36
Value of greater than 0.9 indicates good fit. This index may underestimate the fit of a
good fitting model.
2. Non-Normed Fit Index:
( )
2 2
2
df df
indep indep model model
NNFI
df
indep indep

This index may go outside the (0-1) range. In small samples this may be too small.
3. Incremental Fit Index:
2 2
; 0 1
2
indep model
IFI IFI
df
indep model

This index is less variable as compared with the Non-Normed Fit Index.
4. Comparative Fit Index:
.
1 ; 0 1
.
2
. . .
2
.
. .
est model
CFI CFI
indep model
df
est model est model est model
df
indep model
indep model indep model

5. Absolute Fit Index:
2
; 0 1
2
df
model model
MFI exp MFI
n

1

1
]
This index depends only on the model under study.
6. Goodness of Fit Indices:
( )
( )
/

1
; 1 ; 0 , 1
/ 1

tr
GFI
GFI AGFI GFI AGFI
k n
tr

W
s Ws
This index is similar to the R
2
of Regression Analysis

37
7. Parsimony Fit Index:
1 ; 0 1
k
PGFI GFI PGFI
n

' )

Depends upon number of estimated parameters
8. Akaike Information Criterion:
( ) { }
2 2
2 ; 1 AIC df CAIC ln n df
model model model model
+

Small value of these indices indicates good fit.
9. Root Mean Square Residual:

( )
( )
2

2
1
1 1
s
k i
ij ij
RMR
k k
i j


+

3.9.6.3 The following steps are involved in structural equation modeling
1. Defining individual constructs: The first step in structural equation modeling is
to define the constructs theoretically. Conduct a pretest to evaluate the item. A
confirmatory test of the measurement model is conducted using CFA.
2. Developing the overall measurement model: In structural equation modeling, the
measurement model is also known as path analysis. Path analysis is a set of
relationships between exogenous and endogens variables. This is shown by the use
of an arrow. The measurement model follows the assumption of unidimensionality.
Measurement theory is based on the idea that latent constructs cause the measured
variable and that the error term is uncorrelated within measured variables. In a
measurement model, an arrow is drawn from the measured variable to the
constructs.
3. Design the study to produce the empirical results: In this step of structural
equation modeling, the researcher must specify the model. The researcher should

38
design the study to minimize the likelihood of an identification problem. In
structural equation modeling, order condition and rank condition methods are used
to minimize the identification problem.
4. Assessing the measurement model validity: In structural equation modeling,
assessing the measurement model is also called CFA. In CFA, a researcher
compares the theoretical measurement against the reality model. In structural
equation modeling, the result of the CFA must be associated with the constructs
validity.
5. Specifying the structural model: In this step of structural equation modeling,
structural paths are drawn between constructs. In the structural model, no arrow
can enter an exogenous construct. A single-headed arrow is used to represent a
hypothesized structural relationship between one construct and another. This
shows the cause and effect relationship. In structural equation modeling, each
hypothesized relationship uses one degree of freedom. In structural equation
modeling, the model can be recursive or nonrecursive.
6. Examine the structural model validity: In the last step of structural equation
modeling, a researcher examines the structural model validity. In structural
equation modeling, a model is considered a good fit if the value of the chi-square
test is insignificant, and at least one incremental fit index (like CFI, GFI, TLI,
AGFI, etc.) and one badness of fit index (like RMR, RMSEA, SRMR, etc.) meet
the predetermined criteria.

39
3.10 Conceptual Model

40
Figure 3.1 Diagram of the Purposed Structural equation model
For The Punjab Bank Gujrat
Attitude
Problem
solving ability
Service
Environment
Services and
Products
General
Satisfaction
Desirability of
Continuous
correspondenc
e
e1
e2
Chapter 4
Results and Discussion
Since descriptive statistics deals with collection of data, its presentation in various forms,
such as tables, graphs and diagrams and finding averages and other measures which would
descibe the data. The pupose of decriptive statistics is to present the information in such a
way as can readily help in decion making. And a frequency Distribution shows us a
summarized grouping of data divided into mutually exclusive classes and the number of
occurrences in a class. It is a way of showing unorganized data. Table 4.1 given on next
page shows the frequencies of different demographic variables. In this study 35.6% female
and 64.4% male take participation in whole of 315 respondents. In this study 16.2%
respondents are using current account and 83.8% respondents are using saving account.
240 respondents out of 315 of this study are using Bank of Punjab services up to 5 years
and 75 are using services 6-10 year interval. The Bank of Punjab customers belong to city;
town and villages, 64.1% respondent of this study belonging to city 18.1% belong to town
and 17.8% are from villages. In this study 40.3% respondents having Master Degree
education and 22.9% are intermediate, 1.9% is illiterate and remaining has other education
(Elementary, Metric, Graduation, M.Phil and PhD). Age wise respondents of this study are
divided into four categories (21-30, 31-40, 41-50, 51-60), 58.4% are from 21-30 years age.
We study that 60% of the customer of The Bank of Punjab Gujrat are using Cash
management service of the bank (Table A1.3 of Appendix-I).
Table 4.2 is a table of customer satisfaction agreement with bank of Punjabs staff attitude,
problem solving ability of employee, services and products provided by The Bank of
Punjab, overall satisfaction and customers continuous correspondence with there bank.
Table 4.2 shows that 92.4% respondent of this study are agreed with the staff attitude of
there bank is satisfactory, 89.8% are satisfied with employee problem solving ability,
81.9% satisfied by the services and 64.1% with products provided by there bank. Overall
71.7% respondents of this study are satisfied by The Bank of Punjab Gujrat and 55.9%
respondents want to use continuously services and products of there bank as much time as
more for their needs.

41
Table 4.1: Frequencies of Demographic variables
Variable
Variable
Category
Frequency Percent
Sex
Female 112 35.6
Male 203 64.4
Account Type
Current 51 16.2
Saving 264 83.8
Account Age
Up to 5 240 76.2
6-10 75 23.8
Location
City 202 64.1
Town 57 18.1
Village 56 17.8
Education
Illiterate 6 1.9
Elementary 15 4.8
Metric 2 .6
Intermediat
e
72 22.9
Graduate 53 16.8
Master 127 40.3
Other 40 12.7
Age
21-30 184 58.4
31-40 53 16.8
41-50 60 19.0
51-60 18 5.7
Table A1.3 of Appendix-I shows that customer of The Bank of Punjab Gujrat using
mostly one or more services from the following five type of services, Commercial
Banking, Corporate and Investment, Cash Management Services, Utility Bills, and
Lockers. 60% respondent of this study are using Cash Management Service of there bank.
Detail percentage and number of respondents are shown in table A1.3. 37.5% respondents
of the study tells that their Branch of BOP Gujrat having locker facility (table A1.4).
27.3% respondents are using loan products of BOP (table A1.4), 23.2% are using Non
fund base products (table A1.4), and 38.8% are using debit card facility of the BOP Gujrat
(table A1.4).
Table 4.2: Frequency table of customer satisfaction agreement
With bank of Punjab using different factors
Frequency Percent

42
Staff
Attitude
Neutral 24 7.6
Agree 291 92.4
Problem
Solving
Neutral 32 10.2
Agree 283 89.8
Services
Neutral 57 18.1
Agree 258 81.9
Products
Neutral 113 35.9
Agree 202 64.1
Overall
Satisfaction
Neutral 89 28.3
Agree 226 71.7
Continuous
Correspondence
Neutral 139 44.1
Agree 176 55.9
Table A1.3 of Appendix-I shows that customer of The Bank of Punjab Gujrat using
mostly one or more services from the following five type of services, Commercial
Banking, Corporate and Investment, Cash Management Services, Utility Bills, and
Lockers. 60% respondent of this study are using Cash Management Service of there bank.
Detail percentage and number of respondents are shown in table A1.3. 37.5% respondents
of the study tells that their Branch of BOP Gujrat having locker facility (table A1.4).
27.3% respondents are using loan products of BOP (table A1.4), 23.2% are using Non
fund base products (table A1.4), and 38.8% are using debit card facility of the BOP Gujrat
(table A1.4).
Table 4.3: Test of Normality
Kolmogorov-
Smirnov(a)
Shapiro-Wilk
Statistic df Sig. Statistic df Sig.
Staff Attitude .150 315 .000 .925 31
5
.000
Problem Solving .204 315 .000 .895 31
5
.000
Service Environment .233 315 .000 .861 31
5
.000
Services .179 315 .000 .939 31 .000

43
5
Overall Satisfaction .153 315 .000 .908 31
5
.000
Continuous
Correspondence
.183 315 .000 .870 31
5
.000
Table 4.3 above describes the normality of the data of each factor which is used to check
the satisfaction level of customers of BOP. Checking of normality assumption is desired
before applying any statistical test. From the result given in table 4.3 it is concluded that
no any factor of satisfaction having normality. The Kolmogorov-Smirnov and Shapiro
Wilk tests are used to check the normality assumption.
To see the association between customer satisfaction with age, sex, account usage
time, education and living place. A cross tabulation is used to construct the association
between above mention variables with satisfaction. Satisfaction level have three
categories, some one who are satisfied with BOP, some one who are not satisfied with
there bank and 3
rd
group is that which have no comment on there satisfaction. In our study
we see that no respondent out of 315 declared that he/she is dissatisfied by there bank
completely. In table A1.5 the expected count and observed count of sex with overall
satisfaction score and Pearson chi square test value is expressed which 0.020; there is no
any evidence to accept the hypothesis of no association. Hence we conclude from the P-
value that there is association between gender and satisfaction of customer.
Table A1.5 section II test the significance of association between location of customer
which has three categories (city, town, villages). The Kandall tu b and c test are used, and
significance value obtained is 0.000. The Kandalls strongly suggest accepting the
hypothesis of no association between location and satisfaction. Hence it is concluded that
location does not matter on the customer satisfaction.
To test the satisfaction of customer with there account type we use Pearson Chi Square
test shown in table A1.5 with significance value 0.004. This significance value of chi
square rejects the hypothesis of no association and concludes that account type of
customer also play an important rule in the satisfaction of customer.
Education is an important variable in any study; here we use education level of customer
to check the association with customer satisfaction. Results of table A1.6 describe that
there in an association between education level of customer and satisfaction. Similarly the

44
table A1.5 shows that there is an association of using time period (in years) and
satisfaction.
In table A1.6 we check the association between customer age and customer satisfaction.
Table contain the significance value 0.112 of Kandalls test which strongly suggests to
accepting the hypothesis of no association between age and customer satisfaction. By this
significant value of Kandalls test we conclude that age of customer not plays an important
rule in the satisfaction of customer.
And at last we can check the association of customer satisfaction with the services proved
by The Bank of Punjab at Gujrat. We categories these services into five category,
Commercial Banking, Corporate and Investment, Cash Management Services, Utility
Bills, and locker. The table A1.7 suggests that there is a strong evidence of association
between services provided by bank and customer satisfaction. Hence we conclude that
services of bank also play an important rule in the satisfaction of customer.
Customer satisfaction is an important factor for any service business and in
banking sector its significance increased more. In the Bank of Punjab Gujrat Services are
depend on Service environment and staff attitude depend on problem solving ability of the
staff. The overall satisfaction of customer is infected by services and staff attitude, and
customers continuous correspondence depends on overall satisfaction of customer. These
relations are presented in path diagram in figure 4.1 (a).
Figure 4.1 (a) Diagram of the effect of overall satisfaction
And continuous correspondence of customer
Casual order as indicated by the directional arrows, each arrow in the model represented a
presumed casual path of causal influence. Through regression techniques, the strength of
each separate path can be estimated. The analysis contains five regression equations. In the
first equation services depend on service environment, in second equation staff attitude
depend on problem solving ability of staff, in 3
rd
and 4
th
equation overall satisfaction of

45
SE
PS
S
SA
OS
CC
SE Service Environment
PS
Problem Solving
Ability of Staff
S Services of the Bank
SA Staff Attitude
OS
Overall Satisfaction of
customer
CC
Continuous
Correspondence
customer depend on Services and Staff Attitude respectively and in last equation
continuous correspondence of customer depend on overall satisfaction. These equations
are calculated by using Statistical Package for social sciences (SPSS) 13.0v; results are
presented by tables given below.
Table 4.4: Coefficients results when Services is dependent
And Environment independent
Model Un standardized
Coefficients
Standardized
Coefficients
t Sig.
B Std. Error Beta
1 (Constant) 6.406 .909 7.045 .000
Service
Environment
.543 .024 .791 22.85
7
.000
a Dependent Variable: Services
In table 4.4 regressions is run using Services as dependent variable and service
environment as in dependent variable. The rate of change between service and
environment is 0.791 with standard error 0.024 and in table 4.5 the coefficient of beta is
0.785 with standard error 0.043, and both equations have significant values.
Table 4.5: Coefficients results when Staff Attitude is dependent
And Problem solving independent
Model Unstandardized
Coefficients
Standardized
Coefficients
t Sig.
B Std. Error Beta
1 (Constant) 5.649 1.056 5.352 .000
Problem
Solving
.970 .043 .785 22.40
8
.000
Table 4.6: Coefficients results when Overall Satisfaction is dependent
And all other factors are independent
Model Unstandardized
Coefficients
Standardized
Coefficients
t Sig.
B Std. Error Beta
1 (Constant) -1.058 1.711 -.618 .537
Service_Envornment .811 .072 .800 11.21
3
.000
Services -.243 .109 -.164 -2.221 .027
Problem_Solving -.717 .124 -.440 -5.765 .000

46
Statt_Attitude .952 .092 .722 10.35
2
.000
a Dependent Variable: Overall_Satisfaction
Table 4.7: Coefficients results when Continuous Correspondence is dependent
And all other factors are independent
Mode
l
Unstandardized
Coefficients
Standardized
Coefficients
t Sig.
B Std. Error Beta
1 (Constant) -1.851 1.102 -1.679 .094
Service_Envornment .353 .055 .585 6.400 .000
Services -.052 .071 -.059 -.734 .463
Problem_Solving -.041 .084 -.042 -.489 .625
Statt_Attitude .296 .069 .377 4.318 .000
Overall_Satisfaction .005 .037 .008 .124 .902
a Dependent Variable: Continuous_C
Similarly In table 4.6 regressions are performed using Overall Satisfaction as dependent
variable and services, service environment, problem solving ability and staff attitude as
independent variable and in table 4.7 continuous correspondence as dependent and all
other variables are independent. The coefficient of Beta which is the rate of change
between dependent and independent variable are presented in tables with there standard
error, the path diagram in figure 4.1 (b) shows these results clearly.
Figure 4.1 (b) Diagram of the effect of overall satisfactions
And continuous correspondence of customer
In path diagram we see that overall satisfaction of customer and there continuous
correspondence can be achieved indirectly by two ways. Firstly service environment of

47
SE
PS
S
SA
OS
CC
0.791
0.785
-0.16
0.722
0.008
bank play positive rule in providing services to there customer and services of the bank are
important and significant for overall satisfaction of customer and overall satisfied
customer think to continuously purchase the service of there bank. We can express this
relation as follow:
Service Environment Services Overall Satisfaction Continuous Correspondence
In second way Problem solving ability of staff create impact on staff attitude and staff
attitude play a significant rule in overall satisfaction of customer and overall satisfied
customer like to continuous purchase services. It can be expressed as follow
Problem Solving Staff Attitude Overall Satisfaction Continuous Correspondence
Using path analysis it can be concluded that staff attitude effected on overall satisfaction
positively while the services of the bank inversely effected on overall satisfaction of
customer because many other variable are also included in services of the bank. And it
concluded overall satisfied customer will continuously purchase the services from the
bank.
Confirmatory Factor Analysis is used to confirm the variables which are included in the
factor, to utilize the data for further statistical analysis. STATISTICA 7.0v is used for this
purpose. The results of these conformations are shown below in each table.
In the table 4.8 factor of staff attitude is tested for conformation. The hypothesis of
factors or not conform is rejected and we conclude that all the variable of staff attitude (Q1
to Q7) are significant. Table also contain the parameter estimated value there standard
error and test statistic values. Hence we use these factor variables for other statistical
analysis.
Table 4.8: Model Estimates of Staff Attitude
Staff
Attitude
Parameter
Estimates
Standard
Error
T
Statistic
s
Prob.
Level
Q1 0.493 0.039 12.738 0.000
Q2 0.322 0.035 9.234 0.000
Q3 0.266 0.029 9.228 0.000
Q4 0.498 0.031 16.071 0.000
Q5 0.641 0.043 14.990 0.000
Q6 0.572 0.036 15.911 0.000
Q7 0.721 0.066 10.985 0.000
The table 4.9 is factor of Problem Solving Ability of Staff. The hypothesis of factors or
not conform is rejected and we conclude that all the variable of Problem Solving Ability

48
of Staff (Q1 to Q6) are significant. Hence we use these factor variables for other statistical
analysis
Table 4.9: Model Estimates of Problem Solving Ability
Problem
Solving
Parameter
Estimates
Standard
Error
T
Statistic
s
Prob.
Level
Q1 0.361 0.041 8.744 0.000
Q2 0.499 0.038 13.016 0.000
Q3 0.219 0.042 5.243 0.000
Q4 0.420 0.045 9.333 0.000
Q5 0.609 0.032 19.072 0.000
Q6 0.583 0.039 14.836 0.000
. The table 4.10 is factor of Service Environment of the Bank. The hypothesis of factors or
not conform is rejected and we conclude that all the variable of (Q1 to Q10) are
significant. Hence we use these factor variables for other statistical analysis.
The table 4.11 given above is factor of Services provided by the Bank. The hypothesis of
factors or not conform is rejected and we conclude that all the variable of (Q1 to Q7) are
significant. Hence we use these factor variables for other statistical analysis.
Table 4.10: Model Estimates of Service Environment
Service
Environment
Parameter
Estimates
Standard
Error
T
Statistic
s
Prob.
Level
Q1 0.602 0.055 10.915 0.000
Q2 0.442 0.030 14.804 0.000
Q3 0.483 0.049 9.941 0.000
Q4 0.549 0.046 11.872 0.000
Q5 0.524 0.053 9.836 0.000
Q6 0.506 0.042 12.192 0.000
Q7 0.186 0.072 2.583 0.000
Q8 0.263 0.035 7.539 0.000
Q9 0.180 0.083 2.158 0.000
Q10 0.307 0.031 9.866 0.000
Table 4.11: Model Estimates of Services
Services Parameter
Estimates
Standard
Error
T
Statistic
Prob.
Level

49
s
Q1 0.347 0.066 5.218 0.000
Q2 0.543 0.042 12.825 0.000
Q3 0.198 0.035 5.632 0.000
Q4 0.663 0.042 15.831 0.000
Q5 0.462 0.037 12.457 0.000
Q6 0.358 0.046 7.735 0.000
Q7 0.415 0.036 11.419 0.000
Table 4.12: Model Estimates of Overall Satisfaction
Overall
Satisfaction
Parameter
Estimates
Standard
Error
T
Statistic
s
Prob.
Level
Q1 0.535 0.043 12.362 0.000
Q2 0.446 0.030 14.651 0.000
Q3 0.549 0.042 13.130 0.000
Q4 0.611 0.034 18.062 0.000
Q5 0.561 0.042 13.511 0.000
Q6 0.417 0.068 6.108 0.000
Q7 0.429 0.032 13.429 0.000
Q8 0.498 0.034 14.446 0.000
Q9 0.284 0.080 3.543 0.000
The table 4.12 is factor of Overall satisfaction of customer to there Bank. The hypothesis
of factors or not conform is rejected and we conclude that all the variable of (Q1 to Q9)
are significant. Hence we use these factor variables for other statistical analysis.
Table 4.13 (a): Model Estimates of Continuous Correspondence
Continuous
Correspondence
Parameter
Estimates
Standard
Error
T
Statistic
s
Prob.
Level
Q1 -0.195 0.054 -3.611 0.000
Q2 0.054 0.041 1.322 0.186
Q3 0.090 0.032 2.828 0.000
Q4 0.922 0.081 11.375 0.000
Q5 1.214 0.049 25.015 0.000
The table 4.13 (a) given above is factor of customers Continuous Correspondence with
there Bank. The hypothesis of factors or not conform is accepted because the second
variable Q2 is insignificant so we remove this variable from the factor and then again run

50
the confirmatory factor analysis and then check the result the new results are shown in
table given below.
Table 4.13 (b): Model Estimates of Continuous Correspondence
Continuous
Correspondence
Parameter
Estimates
Standard
Error
T
Statistic
s
Prob.
Level
Q1 0.119 0.054 2.198 0.000
Q3 0.034 0.032 1.069 0.285
Q4 1.576 0.063 25.060 0.000
Q5 0.710 0.062 11.374 0.000
In this table we again run the confirmatory factory analysis and see that this time again the
hypothesis of factors is not conform is accept because the 2nd variable Q3 is insignificant.
So we again drop this variable from the factor and then run the analysis again.
Table 4.13 (c): Model Estimates of Continuous Correspondence
Continuous
Correspondence
Parameter
Estimates
Standard
Error
T
Statistic
s
Prob.
Level
Q1 0.119 0.054 2.198 0.028
Q4 1.576 0.063 25.060 0.000
Q5 0.710 0.062 11.374 0.000
After dropping variable Q2 and Q3 we again run the confirmatory factory analysis and
result is shown now in table 4.13 (c) the remaining variable are significant so the
hypothesis of factor is not conform is rejected and we conclude that factor continues
correspondence is conform for the further statistical analysis.
Table 4.14: Confirmatory Factor Goodness of Fit
Factors
2

d.f
2
/d.f.
GFI AGFI RMSEA
Staff Attitude 130.13 72 1.807 0.974 0.910 0.057
Problem Solving 124.18 67 1.853 0.932 0.911 0.043
Service Environment 131.19 71 1.847 0.944 0.933 0.062
Services 115.05 66 1.743 0.916 0.940 0.051
Overall Satisfaction 103.04 63 1.635 0.921 0.921 0.041
Continuous Correspondence 111.23 65 1.711 0.926 0.943 0.071
Recommended good fit value 3.0 0.90 0.90 0.08

51
Structural equation model is analyzed using STATISTICA 7.0v. The results of
fitted model are shown in the table 4.14 the table model estimates. Table contain the
estimated parameter, there standard error, test statistics and significant p-values. The
hypothesis of model is not fitted is rejected since all the relationship of the model are
significant P-values. So using these results of STATISTICA 7.0v we conclude that Service
Environment of the Bank create positive effect on Services of the bank, Staff Attitude of
the bank is also positively related to Problem solving ability of staff. It is also concluded
that Services of the Bank and Staff Attitude create positive effect on overall satisfaction of
customer and Overall Satisfaction of Customer plays a positive rule in customers
continuous correspondence.
Table 4.15: Model Estimates of SEM
Parameter
Estimate
Standard
Error
T
Statistics
Prob.
Level
SE --> S 0.536 0.049 10.993 0.000
PS --> SA 0.429 0.041 10.541 0.000
S --> OS 0.656 0.082 8.034 0.000
SA --> OS 0.549 0.086 6.407 0.000
OS --> CC 0.914 0.133 6.861 0.000
The estimates are presented in figure 4.2, which shows all of the measurement model and
structural model coefficients. Note that under each path coefficient is a t-statistic in
parentheses. As shown, all of the path coefficients are statistically significant at the 95
percent confidence level.
The most important aspect of the model presented in figure 4.2 is that it represents an
excellent fit with the relationships present in the data set. Several measures of goodness of
fit were evaluated for the structural model: chi-square, chi-square/d.f, goodness of fit
index (GFI), normed fix index (NFI), and root means square error of approximation
(RMSEA). Details are presented in table 4.15; overall model fit is marginal with the
values of GFI and RMSEA at the acceptable levels, and the value of Chi-square/d.f less
than 3.
Table 4.16: Goodness of Fit Measures
2

d.f
2
/d.f.
GFI AGFI RMSEA
SEM 130.13 72 1.807 0.974 0.910 0.057
Recommended
good fit value
3.0 0.90 0.90 0.08

52
Figure 4.2 Diagram of the fitted Structural equation model
For The Punjab Bank Gujrat
4.1 Conclusion
The study examined the effect of Staff Attitude, Service Environment of the bank,
Problem solving ability of staff, and services/products of the bank on overall satisfaction
of customers and there continuous correspondence. For the purpose of data collection a
questionnaire is designed and data is collected from the branches of The Bank of Punjab
Gujrat. A time based purposive sampling is used for the selection of sample and collection
of information. A sample of 315 respondents is selected for the analysis. For the analysis
of data cross tabulation, factor analysis, structural equation modeling and some other
statistical techniques are used. Data can be analyzed using computer software SPSS 13.0v,
STATISTICA 7.0v, MS Excel and AMOS. The effect of each interacorrelated variables
over satisfaction of customer is examined. Because study is conducted in the city of
Gujrat, hence 64% respondents of over population belong to city and 40% having Master
degree education. Results of study show that 58.4% young people of age 21-30 are using
services of the bank of Punjab. Results also indicate that 92.4% respondent of the study
are satisfied with the staff attitude of the bank, 90% satisfied with the problem solving

53
SE
PS
S
SA
OS
CC
0.536
0.429
0.656
0.549
0.914
.13
.08
.05
.04
.09
ability of the staff, 81% are satisfied with the services provided by there bank, and 64%
are satisfied by the products of the bank. We see in the study result that no respondent is
dissatisfied by there bank. The results which show neutral behavior are due to lack of
information. Customers do not know about the services and products which are provided
by there bank. Overall 71% customers in our response are satisfied with the bank in each
aspect but 60% are willing to connect continuously with there bank. Study also describes
that gender of customer, account type of customer, education level of customer and service
provided by the bank are associated with satisfaction of customer but location and age of
customer does not matter in satisfaction. It is also noted that staff attitude and services
provided by the bank can effect on customers satisfaction. Result shows that staff attitude
is affected by the problem solving ability of the employee. If employees have quick and
efficient aptitude in solving customer problems then it can create positive effect on staff
attitude. And a glowing staff attitude positively impact on overall satisfaction of customer.
In the same way service environment provided by the bank construct optimistic
consequence on services of the bank and service of the bank are significant obsession in
the satisfaction of customer. A contented customer must like to continuous use the
services of the bank hence in the SEM result it can be concluded that a satisfied customer
have positive effect on continuous correspondence with there bank.
Using the resulting structural model of study of Lee and Kim (2001) Measurement of the
Customer Satisfaction Index of the Bank, Department of Applied Statistics, Chung-Ang
University Seoul,156-756, Korea, we use the same factor in our purposed study model for
measurement of customer satisfaction at The Bank of Punjab Gujrat. In lee and Kims
study it is concluded that Attitude, ability, environment and auto banking affected on
general satisfaction of customer, and general satisfaction of customer construct optimistic
effect on correspondence. Attitude, ability and environment also impact on
correspondence. They also concluded that attitude is correlated with auto banking, attitude
correlated with environment, ability with auto banking, environment with auto banking,
ability with environment, and attitude correlated with ability. This purposed model is
shown in figure 1.1 with little bit change (auto banking in to services/products). Lee and
Kim resulting model is presented in figure A1.1 Appendix-I.
In my study which is conducted at The Bank of Punjab Gujrat (Pakistan) the resulting
structural model is different and we conclude that in the city of Gujrat attitude is effected
by the ability of problem solving of the bank employees and services are effected by the
environment of the bank while the factor of product is not conform for statistical analysis

54
because mostly people of the bank does not know the products which there bank is
providing. The staff attitude and services influence on general satisfaction of customer
which alone influence on correspondence. The final model for The Bank of Punjab Gujrat
is presented in figure 4.2 which graphical contradict the Lee and Kim model sown in A1.1.
It is conclude that area of study is affected on the model.
On the other hand it is find that the customer of the Bank of Punjab are satisfied by it,
science 71.7% customers of the bank response is that they satisfied by there customer. It is
also very significant that 92.4% response is that they are satisfied by the staff attitude and
89.9% satisfied by services of the bank. These both factor are essential for the overall
satisfaction of customer and there continuous correspondence. Study also derives that
education of customer and type of account of customer has significant association on
customer satisfaction.
4.2 Limitation of the Study
The results reported, however, must be treated with caution; it is a retrospective cross
sectional observational and analytical study. Because in this study participants were asked
about their past experiences, data collected at the single defined time point of 10 am to 3
pm on 15 Jun 2009 to 20 July 2009. In this time period the month of Jun is the closing
month of budget and small number of business customer come to bank and mostly
business man can like visit to bank after 4 pm for their day closing budget and 3rdly in the
start of month mostly pay taker customer of different Government departments visit the
bank who do not use any other service of the bank. Moreover, sample size is far below
the number of cases reported in other research, which has led more complex in data
collection in short time period and data analysis. It would be advisable to replicate the
study in broader contexts to confirm the underlying factors identified in this case. The use
of self-reported data may induce social desirability bias, although the assurance of
anonymity can reduce such bias when responses concern sensitive topics. Finally,
although some items have been deleted in the validation process, it must be borne in mind
that the different items employed to approximate the underlying constructs overlap to
some extent to try to capture the underlying constructs measure. Thus, items are expected
to be correlated (measures should possess internal consistency reliability) so that dropping
some items of the measurement model does not necessarily alter the meaning of the
construct. Some problems were encountered merely because of sample design only. The
study based on purposive sampling for collection of information because sampling frame
is not available from the bank due to confidential records. So many times same type of

55
response customer visit bank like TMA employer of scales BPS-1 for pay purpose in the
start of the month of July 2009. The large numbers of female customers visit UOG Branch
of bank with same educational background and having same response.
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58
APPENDIX- I
Table A1.3: Services of BOP
Frequency Percent
Commercial Banking 15 4.8
Corporate and Investment 3 1.0
Cash Management Services 189 60.0
Commercial Banking and Utility Bills 47 7.9
Cash Management and Utility Bills 46 14.6
Cash Management, Utility Bills and Lockers 15 4.8
Table A1.4: Respondents who are using different services of bank
Frequency Percent
Locker service
Yes 118 37.5
No 197 62.5
Loan Products
Yes 86 27.3
No 229 72.7
Non fund base Products
Yes 73 23.2
No 242 76.8
Debit Card Products
Yes 97 30.8
No 218 69.2
Table A1.5: Cross tabulation

59
Overall Satisfaction
Sig
Not Sure Agree
Sex
Female
Count 25 87
Pearson Chi-Square
.020
Expected Count 17.8 94.2
Male
Count 25 178
Expected Count 32.2 170.8
Location
City
Count 49 153
Kendall's tau-b
.000
Kendall's tau-c
.000
Expected Count 32.1 169.9
Town
Count 0 57
Expected Count 9.0 48.0
Village
Count 1 55
Expected Count 8.9 47.1
Account
type
Current
Count 15 .020
Pearson Chi-Square
.004
Expected Count 8.1 42.9
Saving
Count 35 229
Expected Count 41.9 222.1
Account
Age
Up to 5
Count 50 .004
Pearson Chi-Square
.000
Expected Count 38.1 201.9
6-10
Count 0 75
Expected Count 11.9 63.1
Figure A1.1 Diagram of the fitted Structural equation model
Lee and Kim study
Table A1.6: Cross tabulation
Overall
Satisfaction
Sig
Not Sure Agree
Age interval
21-30
Count 30 157 Kendall's tau-b
.112
Kendall's tau-c
Expected Count 29.3 157.7
31-40
Count 16 32
Expected Count 7.5 40.5
41-50 Count 3 57

60
.112 Expected Count 9.4 50.6
51-60
Count 0 18
Expected Count 2.8 15.2
Education
Illiterate
Count 3 3
Kendall's tau-b
.000
Kendall's tau-c
.000
Expected Count 1.0 5.0
Elementary
Count 0 15
Expected Count 2.4 12.6
Metric
Count 0 2
Expected Count .3 1.7
Intermediate
Count 1 71
Expected Count 11.4 60.6
Graduate
Count 0 53
Expected Count 8.4 44.6
Master
Count 24 103
Expected Count 20.2 106.8
Other
Count 22 18
Expected Count 6.3 33.7
Table A1.7: Cross tabulation
Total Score
Sig
Not Sure Agree
Service
s
Commercial Banking
Count 14 1 Kendall's tau-b
.000
Kendall's tau-c
.000
Phi
.000
Cramer's V
.000
Expected Count 2.4 12.6
Corporate and
Investment
Count 0 3
Expected Count
.5 2.5
Cash Management
Services
Count 27 162
Expected Count
30.0 159.0
Commercial Banking
and Utility Bills
Count 6 19
Expected Count
4.0 21.0
Commercial Banking,
Utility Bills and
Lockers
Count 0 22
Expected Count
3.5 18.5
Cash Management
and Utility Bills
Count 3 43
Expected Count 7.3 38.7

61
Cash Management,
Utility Bills and
Lockers
Count 0 15
Expected Count 2.4 12.6

62