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The recent developments in relationship marketing have increasingly focused attention on the beneficial effects of customer retention. The notion of building relationships and delivering quality service in order to encourage loyalty is perhaps of particular importance in the service sector where it is often argued that customer attraction costs are significantly higher than retention costs. Central to the idea of investment in the development of service quality and customer relationships is the belief that such investments will enhance loyalty, retention and profitability. Empirical evidence on the extent to which such links exist is still partial. This paper explores the relationship between service qualitylcustomer relationships and customer loyalty and retention using evidence from the UK banking sector and its small business customers.

The intangibility of services presents a number of problems for the measurement of quality and customer satisfaction. Proposes a simple index which can be applied to ordinal or cardinal data and will provide a convenient aggregate summary of the extent to which a product or service meets consumer expectations. The index, though simple, is robust, and is applied to the problem of analysing the quality of banking services provided to small firms in the United Kingdom.