The Effect of Differentiation Strategy on Customer Retention: The Mediating Role of Customer Satisfaction in The Case of Commercial Banks in Ethiopia

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2025-01-22

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AAU

Abstract

It is important for service industry, like banks to understand perceived differentiation strategy that affects customer retention in order to be successful in competitive business environments. The primary goal for the research was assess impact of differentiation strategies dimensions on customer retention, and mediator role of customer satisfaction in case of Ethiopian commercial banks. In particular this study try to examine the effect of service differentiation, product differentiation, personnel differentiation, channel differentiation, image differentiation on customer retention with the mediator role of customer satisfaction. Primary data collected using structural questionnaire from three banks namely CBE, NIB, and BOA. To sample banks and respondents used stratified, simple random, convenience sampling method was employed and distributed 385 questionnaire to three selected banks and 378 questionnaire used to data analysis. The SPSS software version 26 used to Descriptive statistics and EFA analysis and also AMOS version 26 were used to conduct inferential analysis by SEM and CFA model. The result of path analysis show that service differentiation, product differentiation, personnel differentiation, channel differentiation, image differentiation have positive and significant direct effect on customer retention and also these variables have significant and positive effect on customer retention through satisfaction of customer. In addition to this customer satisfaction has mediator role on the relationship between perceived differentiation strategy and customer retention. This study recommend that banks should invest on differentiation strategies to retain their customers and to become profitable

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