CHAPTER present an overview of related literature to the

CHAPTER TWO

2. LITERATURE
REVIEW

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In
this chapter will present an overview of related literature to the research
problem Presented in the previous chapter. It includes that the establishment
of commercial bank, definition and characteristics service, service quality,
customer satisfaction, relation between customer satisfaction and service
quality and service quality model is included in order to give a clear idea
about the research area.

2.1.
Establishment of Commercial Bank of Ethiopia

Commercial Bank of Ethiopia
was incorporated as a share company on December 16, 1963 per proclamation
number 207-1955 to take over the commercial banking activities of the former
state Bank of Ethiopia. Under this name, it began operation on January 1, 1964,
with a capital of Ethiopian Birr 20,000,000 and served for about 16 years. The
bank was wholly owned by the state and operated as an autonomous institution
under the commercial code of Ethiopia under the socialist regime in Ethiopia
(1974-1991).

The Commercial Bank of
Ethiopia Share Company and Addis Bank had identical objectives power and
duties. Hence, the socialist regime saw it necessary to merge them in order to
eliminate the duplication of efforts and bring them under a centralized banking
structure; consequently, the present day commercial Bank of Ethiopia was
established under proclamation No.184 of Augest2,1980 (Belay, 1987).

2.2. Services
Rendered by Commercial Bank of Ethiopia

Commercial Bank of Ethiopia provides three major services which
comprises of Domestic banking service, International banking service and
recently E-payment services. Domestic banking services consist of Deposit,
Credit and Local transfer service, International banking services consists of
Trade service, Foreign service and International money transfer using different
money transfer agencies and E-payment service also includes Internet Banking
Service, ATM, POS Card Banking and Mobile Banking Service (www.cbe.com).

2.3. Definition
of service

According to Philip
Kotler, Veronica Wong, John Saunders and Gary Armstrong (2005) service can be defined as any intangible activity or benefit that can be offered by
one party to another which is does not result in the ownership of anything. It
may be either tied with production or may not be tied to a physical product.
Service can be defined as economic activities that produce time, place, form,
or psychological utilities (Kotler and Armstrong, 2012).

Kotler and Armstrong, (2012) state on
their book principle of marketing, Services are growing faster in the world
economy and it making up 64 percent of the gross world product. Due to the
Service industries vary greatly, Governments
and private organization which are profit oriented or nonprofit oriented offer
services.

According to Kotler and Armstrong, (2012)
list out that some example of services offered by government like courts,
employment services, hospitals, military services, police and fire departments,
the postal service, and schools. Private
which are not-for-profit organizations offer services like museums,
charities, churches, colleges, foundations, and hospitals. And a large number
of business (profit oriented)
organizations offer services like airlines, banks, hotels, insurance
companies, consulting firms, medical and legal practices, entertainment and
telecommunications companies, real-estate firms, retailers, and others.

2.3.1. The Nature and Characteristics of a Service

According to Kotler and
Armstrong, (2012) there are four special service characteristics. These are
intangibility, inseparability, variability, and perishability of services.

2.3.1.1. Service
intangibility

Service intangibility means that services
cannot be seen, tasted, felt, heard, or smelled before they are bought.

2.3.1.2.
Inseparability of service

Service inseparability means that services
provider and service doesn’t separate each other. The providers are either
people or machines. While employee (service provider) provide a service, it
will be becomes a part of the service. Because the customer is also
present as the service is produced, provider-customer interaction is a special feature of
services marketing. Both the provider and the customer affect the
service outcome.

2.3.1.3. Service variability or Heterogeneity

Service variability means that the quality
of services depends on who provides them as well as when, where, and how they
are provided. It is the degree of uniformity is varying in service delivery. This is a
particular problem for services with high labor involvement, as the service
performance is delivered by different people and the performance of people can
vary from day to day and also from person to person.
Heterogeneity
of Services Besides, it
offers the opportunity to provide high degree of flexibility and customization
of the service and this can be used as a benefit and point of differentiation
(Wolak et al., 1998).

2.3.1.4. Perish
ability of Services

Perish ability of Services means that services
cannot be stored and carried forward to a future time period and suggest that
services are time dependent and time important which make them very perishable.
The issue of perish ability is primarily the concern of the service producer
and that the consumer only becomes aware of the issue when there is
insufficient supply and they have to wait for the service (Bitner et al.,1993).

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