CHAPTER - III

CUSTOMER SATISFACTION IN THE

BANKING INDUSTRY - AN OVERVIEW

3.1 INTRODUCTIoN

This chapter deals with various theoretical aspects relating to customer

satisfaction in general and that of banks in particular. A brief description of the

development of banking in India is followed by an in-depth analysis of various

aspects of customer satisfaction, like importance of customer satisfaction in the

banking industry, relationship between service quality and customer satisfaction,

impact of customer satisfaction, various dimensions of customer satisfaction,

instruments for measuring customer satisfaction and the like.

3.2 DEVELOPMENT OF BANKING IN INDIA

Banking in India is indeed as old as the Himalayas. But, the banking

functions emerged as an effective force only after the first decade of 20th century.

Knowledge of “EAH” (English Agency Houses) established by East India

Company is necessary and relevant for a full understanding of history of modern

banking. The Agency Houses were basically trading firms which indulged in

banking business as part of their business. The dual functions and lack of own

capital (Agency Houses depended entirely on deposits for their

capital requirements), led to their failure and disappearance from the scene during

the third decade of 18th century1.

During the last part of the 19th century and the early phase of the 20th

century the ‘Swadeshi Movement’ sowed the seeds for the establishment of a

number of banks with Indian Management. In 1920, the “Imperial Bank of India

Act” was passed for amalgamating the three Presidency Banks. As such, the

‘Imperial Bank of India’ was established in 1921. It was given power to hold

government funds and manage the public debt. The branches of the bank were

functioning as clearing houses (Agency for effecting settlement of funds among

banks). However, it was not authorized to issue currency.

On the basis of the recommendations of the Banking Enquiry Committee,

the Reserve Bank of India Act was passed in 1934. Accordingly, the Reserve

Bank of India came into being in 1935 to regulate the issue of bank notes, securing

monetary stability in India and to operate the currency and credit system of the

country to its economic development. Initially, it was constituted as a private

shareholders’ bank with a fully paid up capital of Rs. 5 crores. After independence,

there was a general attitude towards its nationalization. Thus, ‘Reserve Bank of

India (Transferred to Public Ownership) Act was passed in 1948. Accordingly,

the entire share capital of the bank was acquired by the Central Government

from the private shareholders against compensation and it was nationalized on

January 1, 1949.2

1
Natarajan S and Parameswaran R, “Indian Banking”, S.Chand Publication,
NewDelhi, 2010, p. 2.
2
Ibid., p. 3.
 In 1955, the ‘State Bank of India Act’ was passed. Accordingly the

‘Imperial Bank’ was nationalized and ‘State Bank of India’ emerged with the

objective of extension of banking facilities on a large scale, specifically in the rural

and semi-urban areas and for various other public purposes. In 1959, the ‘State

Bank of India’ (Subsidiary Banks) Act was passed by which the public sector

banking was further extended. In 1963, the first two banks were amalgamated

under the name of “The State Bank of Bikaner and Jaipur”3. In 1969, fourteen

major Indian Commercial banks were nationalized followed by six more in 1980.

These banks constitute the public sector banks while the other scheduled banks

and non-scheduled banks are in the private sector.

The Indian banking industry can be broadly classified into two major

categories: Non-scheduled Banks and Scheduled Banks. The Scheduled banks

consist of commercial banks and the co-operative banks. In terms of ownership,

commercial banks are further grouped into Nationalized Banks, The State Bank of

India and its associate banks, regional, rural banks and private sector banks.

3.3 INDIAN BANKING INDUSTRY – CURRENT SCENARIO

India’s banking sector is currently valued at Rs 81 trillion (US$ 1.31

trillion). It has the potential to become the fifth largest banking industry in the

world by 2020 and the third largest by 2025, according to an industry report. The

face of Indian banking has changed over the years. Banks are now

reaching out to the masses with technology to facilitate greater ease of

3
Ibid., p. 4.
communication, and transactions are carried out through the Internet and mobile

devices. With the parliament passing the Banking Laws (Amendment) Bill in

2012, the landscape of the sector will likely change, as the bill allows the Reserve

Bank of India (RBI) to make final guidelines on issuing new bank licenses. This

could lead to a greater number of banks in the country; the style of operation

could also evolve with the integration of modern technology into the industry.

The revenue of Indian banks increased four-fold from US$ 11.8 billion to

US$ 46.9 billion during the period 2001 to 2010. In that phase, the profit after tax

raised about nine-fold from US$ 1.4 billion to US$ 12 billion. Banking Index

with the Sensex (Bankex) that tracks the performance of primary banking sector

stocks grew at a compounded annual growth rate (CAGR) of nearly 20 per cent

over the period 2003 to 2012. Total number of onsite and offsite ATMs of Indian

Banks reached 100042 in July 2012.

3.3.1 Growth of Commercial Banks in India

Table 3.1 presents the particulars regarding the number of commercial

banks operating in India.

Table 3.1
Growth of Commercial Banks in India
Year Number of Commercial Banks Growth Rate (in %)
2005 288
2006 222 -22.92
2007 182 -18.02
2008 173 -4.95
2009 170 -1.73
 2010 167 -1.76
2011 167 0.00
2012 173 3.59
2013 155 -10.40
Source: www.rbi.org.in

Chart 3.1 Growth of Commercial Banks in India

Table 3.1 shows that the number of commercial banks in India was in the

decline year by year. The number thus decreased from 288 in 2005 to 155 in

2013. The reduction in the number of commercial banks may be due to

consolidation of banks and closure of banks on the ground of loss of capital in

Indian banking sector but in future, the number of banks may increase due to the

reforms and opening of new private sector banks.

3.3.2 Growth of Number of Bank Offices in India

 The particulars regarding the number of branches in different locations

and the growth rate over a period of time 2005 - 13 are presented in Table 3.2
 Table 3.2
Growth of Bank Offices in India
Year Rural Growth Semi- Growth Urban Growth Metro Growth Total Growth
Bank Rate Urban Rate Bank Rate Politan Rate Number Rate
Offices (in %) Bank (in %) Offices (in %) Bank (in %) of Bank (in %)
Offices Offices Offices
in
India
2005 30790 - 15325 - 12419 - 11839 - 70373 -
2006 30251 -1.75 15991 4.35 13232 6.55 12598 6.41 72072 2.41
2007 30409 0.52 16770 4.87 14202 7.33 13272 5.35 74653 3.58
2008 30927 1.70 18027 7.50 15566 9.60 14267 7.50 78787 5.54
2009 31598 2.17 19337 7.27 16726 7.45 15236 6.79 82897 5.22
2010 32529 2.95 21022 8.71 18288 9.34 16364 7.40 88203 6.40
2011 33868 4.12 23299 10.83 19046 4.14 17806 8.81 94019 6.59
2012 36503 7.78 26144 12.21 20650 8.42 19080 7.15 102377 8.89
2013 39439 8.04 28691 9.74 21720 5.18 19961 4.62 109811 7.26

Source: www.rbi.org.in

$%&%

’% (
 Table 3.2 reveals the increase in of number of bank offices in India since

2005. The branches in the rural area have increased from – 1.75 per cent in 2006

to 8.04 percent in 2013 and branches in semi urban area from 4.35 per cent in

2006 to 9.74 per cent in 2013, but urban bank branches decreased from

6.55 per cent in 2006 to 5.18 per cent in 2013 and metropolitan bank branches also

have decreased from 6.41 per cent in 2006 to 4.62 per cent in 2013. Thus, the bank

branches in rural and semi urban areas have increased while those in urban and

metropolitan have decreased. The overall status of increase of bank branches in

India is increasing from 2.41 per cent in 2006 to 7.26 per cent in 2013.

3.3.3 Growth of Bank Deposits and Credit in India

Table 3.3 presents the data relating to the deposit mobilization and

disbursement of credit by the scheduled commercial banks in India.

Table 3.3

Growth of Bank Deposits and Credit in India

Year Aggregate deposits Growth Bank credit Growth

(Rs. billion) Rate (Rs. billion) Rate
(in %) (in %)
2005 17001.98 11004.28
2006 21090.49 24.05 15070.77 36.95
2007 26119.34 23.84 19311.90 28.14
2008 31969.40 22.40 23619.13 22.30
2009 38341.10 19.93 27755.49 17.51
2010 44928.26 17.18 32447.88 16.91
2011 52079.69 15.92 39420.83 21.49
2012 59090.82 13.46 46118.52 16.99
2013 67504.54 14.24 52604.59 14.06
Source: www.rbi.org.in
 Chart 3.3 Growth of Bank Deposits and Credit in India
)***% &%"+
,! -

Table 3.3 highlights the growth of bank deposits mobilized and credit

disbursed since 2005 which was in decreasing trend. The deposits were decreased

from 24.05 per cent in 2006 to 14.24 per cent in 2013 and the credit from 36.95

per cent 14.06 per cent in the same period.

3.3.4 Growth of Bank Deposits and Credit – India Vs Tamil Nadu

Table 3.4 presents the state wise distribution of deposits by the

scheduled commercial banks in India.

Table 3.4
State-Wise Distribution of Deposits of Scheduled Commercial Banks in
India (Per cent share in total deposits)
States / UT Deposits in Rank Deposits in Rank
2012 2013
(Rs. in Billion) (Rs. in Billion)
Maharashtra 25.81238 1 25.31498 1

Delhi 11.11632 2 10.71885 2

Uttar Pradesh 7.041166 3 7.303799 3

Karnataka 6.668521 4 6.589385 4

Tamil Nadu 6.497775 5 6.333232 5

Source: www.rbi.org.in
 Table 3.4 shows the State-wise distribution of deposits of scheduled

commercial banks in India in 2012 and 2013. Of total 35 states and union territories

in India, Tamil Nadu has been ranked at 5th position both in 2012 and 2013 in case

of the percent share of deposits in India.

Table 3.5

State-Wise Distribution of Credit of Scheduled Commercial Banks in

India (Per cent share in total Credits)

States / UT Credit in Rank Credit in Rank

2012 (Rs. 2013 (Rs.
Billion) Billon)

Maharashtra 29.01615 1 28.62963 1

Delhi 13.6796 2 13.38971 2

Tamil Nadu 9.741148 3 9.974488 3

Andhra Pradesh 7.974578 4 7.956184 4

Karnataka 6.080268 5 6.020892 5

Source: www.rbi.org.in

Table 3.5 presents the State-wise distribution of credit of scheduled

commercial banks in India in 2012 and 2013. Of 35 states and union territories in

India, Tamil Nadu has been ranked at 3rd both in 2012 and 2013 in case of the

percent share of credits disbursed in total credit disbursed by the banks in India.
3.3.5 Deposits, Loans and Advances and Total Assets of Public and Private

Sector Banks in Ramanathapuram District

Table 3.6 presents the data relating to deposits, loans and advances and total

assets of public and private sector banks functioning in Ramanathapuram District.

Table 3.6
Deposits, Loans and Advances and Total Assets in 2013
Details Public Sector Banks Private Sector Banks
(Rs. in Crores) (Rs. in Crores)
Deposits 1891.69 450.14

Loans and Advances 2192.87 851.52

Total Assets 4084.56 1301.66

C - D Ratio 116% 189%

Source: IOB, Lead Bank, Ramanathapuram, Tamil Nadu.

Table 3.6 states that the current status of deposits, loans and

advances provided by the public and private sector banks in Ramanathapuram

District. Even though the performance of public sector banks is higher than the

private sector banks in the case of the deposit mobilization, credit disbursement

and the accumulation of total assets, the credit deposit ratio of private sector banks

(189 per cent) is higher than the public sector banks (116 per cent) in

Ramanathapuram District. Which makes it clear that the private sector banks

perform better than the public sector banks in case of credit deposit ratio in 2013

in Ramanathapuram District.
3.3.6 Deposits Mobilization and Credit Disbursement of Selected Banks in

Ramanathapuram District

Table 3.7 presents the particulars relating to the deposits mobilization and

disbursement of credit by the sample banks selected for the present study.

Table 3.7
Deposits, Loans and Advances in 2013

(Rs. in Crores)
Details SBI IOB CB ICICI TMB CUB
Deposits 691.16 584.26 139.49 106.81 132.39 52.25

Loans and 771.60 656.55 231.04 137.66 218.42 131.01

Advances

Total Assets 1462.76 1240.81 370.53 244.47 350.81 183.26

C - D Ratio 112% 112% 166% 129% 165% 251%

Source: IOB, Lead Bank, Ramanathapuram, Tamil Nadu.

Table 3.7 highlights that the current status of deposits, loans and advances

provided by the sample banks selected for the present study in 2013. Among the

selected public sector banks, Canara Bank (166 per cent) is doing better than SBI

(112 per cent) and IOB (112 per cent). In the case of selected private sector banks,

ICICI (129 per cent) is doing better than TMB (165 per cent) and CUB (251 per

cent). Thus, CUB (251 per cent) is performing better than the other banks in the

study region in case of credit-deposit ratio.

3.4 CONCEPTS IN BANKING - OPERATIONAL DEFINITIONS

Customer

Customer means the depositors and those who receive the loans and

advances from the banks.

Public Sector Banks

The public sector banks are the banks owned by the Government. In the

Indian banking system, they are playing a vital role in the banking business. At

present, there are 27 major public sector banks in India. In addition, a number of

regional rural banks are also working under public sector banks. The researcher

has chosen three public sector banks namely Indian Overseas Bank, State Bank of

India and Canara Bank for the present study.

Private Sector Banks

The banks are wholly owned and managed by a group of individuals who

have contributed to the share capital of such banks. Which are governed by a

board of directors partly elected by the shareholders in the annual general body

meeting and partly nominated by the Reserve Bank of India. The researcher has

chosen three private sector banks namely ICICI Bank, Tamilnad Mercantile Bank

and City Union Bank for the present study.

3.5 SERVICES OFFERED BY BANKS IN INDIA

Banks have come a long way to take care of most, if not all, of our financial

needs. Banking services include deposit accounts, loans, investments, and credit

cards. Many banks also have notary services. Local banks vie with
one another to bring new services into the banks so as to make them more

appealing. Many banks also offer online bill payments and help with budgeting

issues.

 Deposits

 Loans

 Payment Services

 Core Banking Services

 Debit Card Services

 Credit Card Services

 Internet Banking

 Mobile Banking

 Mutual fund

 Cheque books

 Individual retirement account (IRA)

 Mortgage

3.6 CUSTOMER SATISFACTION

Customer satisfaction is defined as the fulfilment of customers’

requirements or needs.4 Based on this definition, customer satisfaction is measured

by evaluating the actual perception of individual customers. In general,

satisfaction manifests a person’s feelings of pleasure or disappointment resulting

from comparing a product’s actual performance in

4
Humphary Hung and Wong Y.H, “Organisational Perception of Customer Satisfaction:
Theories and Evidence”, The Service Industries Journal, Vol. 27, No.4, June 2007, pp.495-507.
relation to his or her expectations. If the performance falls short of expectation,

the customer is dissatisfied. If the performance matches the expectations, the

customer is satisfied. If the performance exceeds expectation, the customer is

highly satisfied or delighted.5

Consumer satisfaction is typically defined as the result of an evaluative

process that contrasts pre-purchase expectations with the perceptions of

performance during and after consumption experience. The inclusion of

expectations suggests that products fulfilling high expectations are predicted to

generate greater consumer satisfaction than products that meet low expectations.

While the literature contains significant differences in the definition of

satisfaction, all the definitions share some common elements. In examined as a

whole, three general components can be identified:

(i) Consumer satisfaction is a response;

(ii) Response relates to a particular focus (expectations, product, and

consumption experience); and

(iii) Response occurs at a particular time (after consumption, after choice,

based on accumulated experience).

3.7 IMPORTANCE OF CUSTOMER SATISFACTION IN THE

SERVICE SECTOR

Services are defined as “those economic activities that typically produce an

intangible product such as education, entertainment, food and lodging,

5
Ramesh H Taxak and Manjeet Kaur, “A Study of Customer Satisfaction in Private
and Public Sector Banks”, Gyan Management, Vol. 3, No.1, January-June, 2009, pp 43-54.
transportation, insurance, trade, government, financial, real estate, medical repair

and maintenance like occupations”. The complex nature of services results from

their common characteristics, namely intangibility, perishability, high customer

involvement, simultaneous production and consumption and homogenity.

Today, the service sector occupies a majority of the markets in many

countries. For example, Kotler (2003) in his book Marketing Management states

that 79 per cent of all employees are employed in service sector where services

account for 76 per cent of GDP in US economy. In addition, OECD (Organization

for Economic Co-operation and Development) states that more than 70 per cent of

people are employed in the service sector. These characteristics coupled with the

growing prominence of the service sector have also increased the need for better

service quality as companies look for ways to improve financial performance and

attract customers in a stiff competitive environment.

3.8 IMPORTANCE OF SERVICE QUALITY IN THE INDIAN

BANKING INDUSTRY

Banking and financial services are a demand driven industry, which

constitute an important part of the services industry. Many regulatory, structural

and technological changes have taken place in the world banking industry, in line

with the trend towards a more integrated global banking environment. Banks are

expanding across borders, offering a diverse portfolio of competitive services

and restructuring their services in order to make use of

advance technology and meet the changing needs of customers. Banks in India are

facing increased competition from international banks as geographic boundaries

are eliminated in terms of banking markets. In addition, the banking sector in many

developing countries effects necessary and relevant changes in order to keep up

with global trends. The rapidly changing and highly competitive environment in

which banks are forced to operate are pushing them to rethink their attitude

towards customer satisfaction and optimization of service quality. Customers,

whether at the retail or corporate level have always been important for banks.

In the present competitive Indian banking context, characterized by rapid

change and increasingly sophisticated customers, it has become very important

that banks in India determine the service quality factors which are pertinent to the

customer’s selection process. Recognition of service quality as a competitive

weapon is relatively a recent phenomenon in the Indian Banking sector. Prior to

the liberalization era, the banking sector in India was operating in a protected

environment and was dominated by nationalized banks. Banks at that time did not

feel the need to pay attention to service quality issues and they assigned very low

priority to identification and satisfaction of customer needs. At present the banking

industry is passing through a phase of customers’ market.

There is a
hectic
competition
among the
banks in
retaining the
old
customers and attracting new customers. The cost of gaining new customers is

approximately five times that of retaining present ones.6

The current problem for the banking industry in India is to determine the

dimensionality of customer-perceived service quality simply because such

identification would enable service managers to improve the delivery of the

customer perceived quality during the service process and exercise greater control

over the overall outcome. Moreover, investigating the influence of the dimensions

of service quality on customer’ behavioral intentions would provide a better

understanding of the customer satisfaction and also help to satisfy, measure,

control and improve customer perceived service quality. Hence, to gain and

sustain advantages in the fast changing retail banking industry in India, it is crucial

for banks to understand in depth what customers perceive to be the key dimensions

of service quality and what impact the identified dimensions have on customer’s

behavioral intentions.

3.9 COMMON ELEMENTS OF SERVICE EXCELLENCE

The banks have been attempting to develop and offer a new kind of

products and services in order to succeed and survive in the competitive banking

environment. Their main aim is to enhance the level of customer satisfaction by

offering improved service quality. The important elements of service excellence

are listed below:

6
Dharmendra Singh, “Service Failure in Indian Banking Industry: A Customer’s
Perspective”, Vinimaya, Vol. XXXII, No. 2, July-September, 2011, pp. 41-48.
The banking culture

The changes as deregulation and ever growing competitive environment

which have totally changed the face of banking industry to overcome which the

banks have to change themselves by designing, developing and executing new

strategies. As found not only insufficient but also outdated the traditional lure of

promotion as an incentive for motivation and commitment in cultural changes, to

create the alternative ways to ensure better service excellence and customer focus

have to be planned transacted profits the offshoot of such an ability to create this

culture, which requires strong commitment to change and deep involvement by

the management.

Leadership of management

It is the leadership which shares the vision with others and inspires them to

strive, and which floats innovative ideas and keep strict vigil on management to

reach the goal. Furthermore, the management’s commitment is shown in every

aspect of change from employee participation to process improvement. When

bank employees, suppliers, and customers feel certain about the management’s

commitment to and clear about the vision, and find their actions consistent to meet

the required changes in behaviour, they will never feel reluctant to extend their

utmost cooperation for the survival and success of the bank.

Employee development

A critical step towards service excellence is investing in the skills and

knowledge development of servers, giving them the preparation to serve and, in so

doing, stoking their desire to serve. Employee development starts from recruitment

of personnel who have the ability, desire and personality to be excellent service

providers. Employees are considered as strategic assets. Empowering those service

providers means they have the flexibility and creativity to serve customers better.

Process excellence with technological support

High-performance banks are shifting from organization to process. The

primary emphasis on the processes is how the work is to be done in order to satisfy

customers’ needs or a target market. Consequently, it reflects customer’s point

of view rather than the organization’s point of view. The data warehouse system

and extended cash management system at Bank of America improved the

efficiency of the operating processes and gave more information on customers for

better services. Citi Bank’s extensive worldwide ATM network has successfully

met customer needs as well as improved tremendous operating efficiency.

Effective use of technology for processes improvement becomes a part of quality

service. It gives the banks more information on what customers need and when

they satisfy those needs they make their competitive advantages.7

7
Seonmee Kim and Brian H. Kleiner, “Service Excellence in the Banking Industry”,
Managing Service Quality, Vol. 1, No. 6, 1996, pp. 22-27.
3.10 FACTORS INFLUENCING THE EXPECTATIONS OF SERVICE

QUALITY

Quality is defined as superiority or excellence or, as the consumer’s overall

impression of the relative inferiority or superiority of the organization and its

services. Perceived service quality is defined as the consumer’s global attitude or

judgments of the overall excellence or superiority of the service. Perceived service

quality results from comparisons of expectations by consumers with their

perceptions of service of the suppliers. The key to ensuring service quality

perception is in meeting or exceeding the expectations of the customers. Thus, if

perception of the actual service delivered by the supplier falls short of expectation,

a gap is created which should be addressed through strategies that affect the

direction either of expectations or perceptions, or both.

Expectations are formed from a variety of sources such as the customer’s

personal needs and wishes, the customer’s personal philosophy about a particular

service, by promises (staff, advertising and other communications), by implicit

service promises (such as price and the tangibles associated with the service), by

word-of-mouth communication (with other customers, friends, family and

experts), as well as by past experience of that service.8

8
Peter Kangis and Vassilis Voukelatos, “Private and Public Banks: A Comparison of
Customer Expectations and Perceptions”, International Journal of Marketing, Vol. 15, No.7,
1997, pp 279-287.
3.11 FACTORS INFLUENCING THE PERCEPTIONS OF SERVICE

QUALITY

Four primary factors have been identified as influencing customer

perceptions of service: service encounters or moments of truth, the evidence of

service, image and price. These form the customer’s overall perceptions of quality,

satisfaction and value.9

Service Encounters

Verbal and non verbal behaviour are as important determinants of quality

as tangible cues such as the equipment and physical setting.

Evidence of Service

Owing to the intangibility of services and the simultaneity of production

and consumption, customers examine the focal points to help them determine the

level of service. Three major categories of evidence have been identified:

• Employees – how they are dressed, their personal appearance and their

attitude and behaviour;

• Process – whether the service is complex, bureaucratic; and

• Physical evidence – all the tangible aspects of the service such as reports,

equipment, statements, and in some cases the physical facility where the service

is offered (the branch).

9
Ibid., pp. 279-287.
Image and Reputation

The set of perceptions reflected in the associations held in the memory of

the consumer. These can be specific (for example hours of operation, ease of

access) or of an intangible nature (for example trustworthiness, tradition,

reliability). A favourable image can influence positively perceptions of quality,

value and satisfaction.

Price

If the price is high, customers are likely to expect high quality, and their

actual perceptions will be influenced accordingly. If the price is too low, customers

might have doubts about both the ability of the institution to deliver quality and

about the actual level of service received.10

3.12 RELATIONSHIP BETWEEN SERVICE QUALITY AND

CUSTOMER SATISFACTION

Customer satisfaction is yet another important aspect for service

organizations which is closely related with service quality. Improved service

quality certainly increases customer satisfaction which in turn leads to behavioural

outcomes such as commitment, intent to stay (customer retention), creation of a

mutually rewarding relationship (bond) between the service provider and the user,

increased customer tolerance for service failures and positive word-of-mouth

advertising about the organization. Service quality has

10
Ibid., pp. 279-287.
been linked with customer satisfaction within the banking industry. Banks now

know that delivering quality service to customers11.

3.13 RELATIONSHIP BETWEEN CUSTOMER SATISFACTION AND

LOYALTY

Loyalty is defined as “a deeply held commitment to re-buy or re- patronize

a preferred product/service consistently in the future”12. Loyalty should be the

prime objective of company strategy. It has been ascertained that the increase in

profit resulting from 5 percent increase in retention varies between 25 and 85

percent.

The theoretical relationship between customer satisfaction and loyalty has

been confirmed empirically in several studies as quoted by Riadh Ladhari et al.,

in Bank Service Quality: Comparing Canadian and Tunisian Customer

Perceptions, Cronin et al (2000), report that customer satisfaction has a significant

positive effect on behavioral intentions (loyalty and recommendation) in four

service industries (fast food, spectator sports, participation sports, and

entertainment). However, the positive effect was not significant in health care and

long distance carriers. In the retail banking sector, Bloemer et al., (1998) and

Karapte et al., (2005) find that quality has both a direct and an indirect influence

(through satisfaction) on loyalty. Baumann et al, (2007) find that overall

satisfaction, affective attitude, and empathy predict loyalty. Ehigie (2006) finds

that perceived service quality and

11
Riadh Ladhari, Ines Ladhari and Miguel Morales, “Bank Service Quality:
Comparing Canadian and Tunisian Customer Perceptions”, International Journal of Bank
Marketing, Vol. 29, No. 3, 2011, pp. 224-246.
12
Ibid., pp. 224-246.
satisfaction are important predictors of loyalty among bank customers in

Nigeria.

3.14 IMPACT OF CUSTOMER SATISFACTION

In the marketing literature, series of attempts have been made to identify

the antecedents and consequences of customer satisfaction. It is proposed that

satisfied employees produce satisfied customers, who in turn tend to patronize

more, ultimately increasing the revenues and profits of the service provider.

Increased customer satisfaction is presumed to lead to greater customer retention

and loyalty, resulting in maximizing profitability. The satisfied customers who

maintain a long-term relationship with a service provider tend to impact

profitability through their repeat business, reduced expenditures on advertising,

promotion and start-up activities, and spreading positive word-of- mouth.

Moreover, existing satisfied customers are found to be less price- sensitive, more

willing to buy additional products, and more resistant to competitors’ offers

(Hansemark and Albinsson, 2004). From an economic perspective, profitability

can further be maximized by the minimization of costs.

Tantakasem and Lee (2007) argue that the cost of retaining existing

customers by ensuring their satisfaction is significantly lower than the cost of

acquiring new customers. They indicated that five per cent increase in customer

retention could result in an average of 50 per cent increase in a bank’s profitability.

 The relationship between customer satisfaction and profit has been

considered to be neither simple nor straightforward. Significant body of services

literature has tried to establish the linkage between customer satisfaction and

different firm performance para-meters. For example, improved service quality

and customer satisfaction have been shown to lead to higher productivity,

increased loyalty, lower transaction cost, price-premium, favourable word-of-

mouth, market share, repurchase intention, customer retention and improved firm

reputation. It is generally believed that better service leads to improved

performance for a service firm. Chart 3.1 shows the factors influencing customer

satisfaction and its relation to word of mouth.

Chart 3.4

Impact of Customer Satisfaction

Tangible

Reliability

Responsiveness

Assurance
3.15 MODELS OF CUSTOMERS’ SATISFACTION

A thorough review of the marketing literature leads but to the conclusion

that there is no consensus on a definition of customer satisfaction simply because

customer satisfaction is not the product of single but of diverse perspectives of

customer who also differ on many counts. The review of literature relating to

customer satisfaction reveals that there are different models of customers’

satisfaction, namely, the expectancy-disconfirmation paradigm, the attribution

model and the equity model of which the expectancy- disconfirmation model has

gained the widest popularity in the academic community. It is based on the

premise that customers form certain expectations about a product or service prior

to consumption, and these expectations become a standard to compare actual

performance. It is clear that customer satisfaction is a post-purchase response that

occurs as the result of comparing pre-purchase expectations and perceived

performance.13

In other words, customer satisfaction characterizes the perceived

discrepancy between a customer’s expectations and the perceived performance of

a product or service. Pre-purchase expectations refer to subjective beliefs or

desires or wants of a customer about anticipated performance of the product or

service. Disconfirmation refers to the difference between these expectations and

the post-purchase judgment of the customer about the service

13
Abdulkarim S. Al.Eisa and Abdulla M. Alhemoud, “Using a Multible-Attribute
Approach for Measuring Customer Satisfaction with Retail Banking Services in Kuwait”,
International Journal of Bank Marketing, Vol. 27, No. 4, 2009, pp 294-314.
performance14 (Parasuraman et al., 1994). When perceived performance surpasses

a customer’s pre-purchase expectations, a positive disconfirmation occurs, leading

to customer satisfaction and strengthening the customer’s attitudes towards the

product or service. A negative disconfirmation takes place when the customer’s

expectations are not met after having an experience with the product or service,

resulting in dissatisfaction and weakening the customer’s relationship with the

service provider. In case the product or service perform is as expected, simple

confirmation occurs. Vavra (1997) viewed the terms used by Oliver as confusing;

thus, he proposed the words ‘affirmed’ (when perceived performance excels

expectations), ‘confirmed’ (when perceived performance equals expectations) and

‘disconfirmed’ (when perceived performance falls short of expectations).

Olsen and Johnson (2003) differentiate between two forms of customer

satisfaction as cumulative and transaction-specific. Whereas cumulative

satisfaction denotes a customer’s overall evaluation of a product or service

measured on a single-item rating scale, transaction specific refers to a customer’s

evaluation of an array of different attributes of the product or service.

In his work, Oliver (1989) suggests five models of customer satisfaction

and its antecedents. Labeled as evaluative-based satisfaction, three of these models

describe customer satisfaction as a consequence of the disconfirmation of

14
expectations, while the other two dubbed as emotional-based satisfaction

Ibid., pp. 294-314.

regard customer satisfaction as an outcome of non-rational processes.15 Thus,

customer satisfaction constitutes a combination of cognitive (beliefs about the

product or service) and affective (feelings toward the product or service)

dimensions (Bagozzi et al., 1999). Oliver (1993) found significant associations

between positive and negative dimensions and satisfaction or dissatisfaction with

the individual attributes of a product or service. The positive and negative

dimensions of satisfaction were also found to directly influence complaint

behavior and word-of-mouth activity.16

3.16 MEASUREMENT OF CUSTOMER SATISFACTION

The analysis of various issues relating to the measurement of customer

satisfaction naturally highlights the importance of customer satisfaction and the

difficulty involved in driving so. The further analysis of various tools available for

measuring customer satisfaction throws light on criticisms over SERVQUAL

scale.

3.16.1 Importance of Measuring Customer Satisfaction

Satisfied customers are central to optimal performance and financial

returns. The international business organizations have been elevating the role of

the customer as can par with a key stakeholder over the past twenty years. Hence

customers satisfaction with the enterprise grown in the significance which has to

be incorporated in strategic planning efforts. Forward-looking

companies are finding value in directly measuring and tracking customer

15
Ibid., pp. 294-314.
16
Ibid., pp. 294-314.
satisfaction as an important strategic success indicator. Evidence is mounting that

placing a priority on customer satisfaction is critical to improved organizational

performance in global market.

A better understanding of customers’ perceptions enables companies to

determine the actions required to meet the customers’ needs. They can identify

their own strengths and weaknesses, where they stand in comparison to their

competitors, chart out path future progress and improvement. Customer

satisfaction measurement helps to promote an increased focus on customer

outcomes and stimulate improvements in the work practices and processes used

within the company.

3.16.2 Methods of Tracking and Measuring Customer Satisfaction in the

Banking Industry

The bank’s tools for tracking and measuring customer satisfaction range

from primitive to sophisticated ones. Which are described below:

Complaint and Suggestion Systems

A customer-centered organization would make it easy for its customers to

record suggestions and complaints. A bank could place suggestion boxes in the

bank lobby, supply comment cards to clients, establish “customer hot lines” with

toll-free telephone numbers to make it easy for customers to inquire, make

suggestions, or complain. These information flows enlighten these banks on many

burning issue and enable them to act more rapidly to resolve problems and redress

grievances.
Customer Satisfaction Survey

The bank cannot take it for granted that complaint and suggestion system,

would solve all problems related to satisfaction or dissatisfaction of customers.

Customer satisfaction can be measured in a number of ways for example,

by assessing the level of satisfaction on a five point scale base as highly satisfied

(5), satisfied (4), indifferent (3), dissatisfied (2), and highly dissatisfied (1). It is a

way of measuring directly reported satisfaction of the customers. For derived

reported dissatisfaction, customers can be asked to record the difference between

their volume of expectation of a particular attribute and the volume of their actual

experience. Still another method is to ask customers to list any improvements

they could suggest (problem analysis). Finally, banks could ask respondents to rate

various elements of the services on offer in terms of the importance of each

element and how well the bank performed each service (importance/performance

ratings).

Customer Analysis

Banks should contact discontinued customers to learn of the reasons for

ceasing to be a customer of that bank which would make them aware of the

particular area in which they stuffer or fail such as deficiency in

service/inconvenient facilities/unreliability of products and so on. Not only it is

important to conduct exit interviews but also to monitor the customer loss
rate which, if it is increasing, clearly indicates that the company is failing to

satisfy its customers.17

3.16.3 Approaches to the Measurement of Customer Satisfaction

The measurement of customer satisfaction has witnessed unprecedented

growth over the last two decades, which prompted researchers to develop

theoretical and methodological frameworks to measure customer satisfaction in a

more reliable fashion. A common aspect of the underlying methodologies of most

of previous research on customer satisfaction is the heavy reliance on using a

single-item approach for measuring customer satisfaction (Smith and Bolton,

2002). Such a single question was found which seriously deficient by Hansen and

Hennig-Thurau in their comparative investigation of National Customer

Satisfaction Indices to constitute a serious deficiency in the methodology of the

German Customer Satisfaction Barometer. Those authors indicated that, “On the

single-item scale used, the difference between the best and the worst satisfaction

score on the level of branches is approximately only

0.2 points that implies the assumption that the used measurement scale has no good

selectivity due to skewness”.18 The issue of single-item versus multiple- item

measures has been the subject for heated debates among methodologists in the

social sciences in general and in the field of marketing in particular. Which the

advocates of single-item measures argue that such measures allow for more

17
Liu and Chu-Mei, “An Assessment of Banking Operation Strategies of Private Banking
Institutions in the Philippines”, Asia Pacific Journal of Marketing and Logistics, pp 57-71.
18
Abdulkarim S. Al.Eisa and Abdulla M.Alhemoud, “Using a Multible - Attribute
Approach for Measuring Customer Satisfaction with Retail Banking Services in Kuwait”,
International Journal of Bank Marketing, Vol. 27, No. 4, 2009, pp. 294-314.
efficient use of questionnaire space, reducing cost of survey development and

data-processing, enhancing face validity and identifying longitudinal changes in

constructs under study (e.g. Bergkvist and Rossiter, 2007; Wanous et al., 1997)

the opponents argue that such an approach is too simplistic in the sense that it fails

to capture all the salient dimensions of an examined construct, and it

simultaneously precludes the calculation of the internal reliability of that

construct.19

3. 16.4 Difficulty in Measuring Service Quality

The common thrust through of all research efforts on the subject is the

conclusion that the criteria customers use to evaluate service quality are complex

and difficult to determine precisely chiefly because of the following reasons:

1. Services are intangible;

2. Services are heterogeneous, implying that their performance often varies

from provider to provider, from customer to customer, and from context to

context;

3. Services cannot be placed in a time capsule and thus be tested and retested

over time; and

4. Production and consumption of services are inseparable.

Furthermore, customers do not assess service quality only on its outcome,

but also on the process of service delivery and the context.

19
Ibid., pp. 294 - 314.
 Customers of services observe and evaluate the production process as they

experience the service they receive service quality attributes of search, experience,

and credence are used by consumers to evaluate service quality. Search attributes,

such as physical facilities, appearance of personnel, and the supplier's image can

be considered before consuming the service. Experience attributes, like responding

quickly to a request and performing a service at the agreed time are assessed on

the basis of the actual service experience. Finally, credence attributes like financial

security of an investment cannot be determined even after repeated use of a

service. In this respect, services are difficult to be evaluated because they contain

many experience and credence attributes and because the actual service varies

from one customer to the other.

3.16.5 Tools for Measuring Customer Satisfaction

The overall satisfaction of the customers can be measured by different

instruments but the SERVQUAL instrument, designed to measure service quality

across a range of businesses and industries is the most important on their regard

it is not free from criticisms attacking on both theoretical as well as operational

issues.

3.17 SERVQUAL Scale

Numerous models exist that measure service quality, including the well-

known SERVQUAL instrument based on the assumption that perceived service

quality drives from the consumer’s comparison of expected service and actual

service performance.20

The SERVQUAL questionnaire includes two batteries of 22 items each,

measuring customer expectations and perceptions of the service actually received.

This model, originally developed and validated among customers of a credit card

company, a long-distance telephone company, an appliance repair- and-

maintenance services firm, and a bank has now been applied to a wide variety of

service industries, including telecommunication, health care, restaurants,

insurance, retail chains, information systems, and libraries. The SERVQUAL

instrument has been used in countries the US, China, Australia, Hong Kong, and

Cyprus. However, despite its widespread use, SERVQUAL is not without its

critics, especially with regard to its reliability and validity (convergent,

discriminate, and predictive), the use of difference scores, and the stability of its

factor structure.21

The validity of the SERVQUAL instrument in the banking sector elicits

mixed results. For example, Lam (2002)22 uses the SERVQUAL instrument in

Macau’s (China) banking sector and finds six (rather than five) dimensions:

(1) Tangibles

(2) Reliability

(3) Responsiveness

20
Riadh Ladhari, Ines Ladhari and Miguel Morales, “Bank Service Quality:
Comparing Canadian and Tunisian Customer Perceptions”, International Journal of Bank
Marketing, Vol. 29, No. 3, 2011, pp. 224-246.
21
Ibid., pp. 224-246.
22
Ibid., pp. 224-246.
 (4) Assurance

(5) Empathy 1 (Tacit understanding of needs) and

(6) Empathy 2 (Convenient operating hours).

Arasli et al., (2005b) apply SERVQUAL in the Cyprus banking sector and

identify only three dimensions:

(1) Tangibles

(2) Reliability, and

(3) Responsiveness–empathy (which includes items from the original

‘responsiveness’ and ‘empathy’ dimensions).

Ladhari (2009b) examines the psychometric properties of the SERVQUAL

scale in the Canadian banking industry. The empirical study supports the

dimensionality that is dimensional structure)

(1) Reliability,

(2) Convergent validity,

(3) Discriminates validity and

(4) Homological validity of the SERVQUAL scale. The author concludes

that SERVQUAL is a suitable scale for measuring bank services in

Canada.
 Bahia and Nantel (2000)23 use the ten dimensions originally proposed by

Parasuraman to develop a six-dimension scale:

(1) Reliability

(2) Tangibles

(3) Access

(4) Effectiveness and Assurance

(5) Range of services (or services portfolio), and

(6) Price

According to Othman and Owen (2001) the six dimensions of perceived

service quality in the context of Islamic banking include the five SERVQUAL

dimensions, namely “tangibles”, “reliability”, “responsiveness”, “assurance”,

“empathy” and an extra dimension, “compliance with Islamic law” which refers

to the ability of the company to operate under the principles of Islamic banking

and economy.

Jabnoun and Al-Tamimi (2003) propose a modified version of

SERVQUAL comprising three dimensions:

(1) Empathy (consisting mainly of items originally belonging to the

‘reliability’ and ‘assurance’ dimensions of SERVQUAL);

(2) Tangibles (items belonging to the ‘tangibles’ dimension of

SERVQUAL); and

23
Ibid., pp. 224-246
 (3) Human skill (items originally included in the ‘assurance’ and

‘reliability’ dimensions of SERVQUAL).

Karatepe et al. (2005)24 propose a scale of four dimensions for measuring

bank service quality in Northern Cyprus:

(1) Empathy

(2) Service environment (related to the ‘tangibles’ dimension of

SERVQUAL);

(3) Reliability, and

(4) Interaction quality (a combination of the ‘assurance’ and

‘responsiveness’ dimensions of SERVQUAL).

Most of the dimensions in these alternative measurement instruments are

similar to those of SERVQUAL. The few that differ probably reflect the particular

characteristics of bank service quality in specific contexts for example,

“compliance with Islamic law” in the case of Islamic banks. However, most of

these alternative scales have not been replicated and their validity has not been

evaluated.

Since Parasuraman introduced the SERVQUAL instrument many

researchers have used, extended and developed this 22 - item scale to study service

quality in different sectors of the services industry. The original SERVQUAL

instrument identified ten components of service quality which in a late study

24
conducted by Parasuraman et al. (1988), short listed as five Ibid., pp. 224-

246.
dimensions: reliability which is the ability to perform the service in an accurate

and dependable manner; tangibles denoting the appearance of physical factors

such as equipment, facilities and personnel; empathy involving individual

attention and care to customers; and assurance refers to the knowledge and

courtesy of employees and their ability to convey trust and confidence. Four or

five items are used to measure each dimension.25

3.18 DIMENSIONS OF SERVICE QUALITY

3.18.1 Tangibles

The tangibles component measures such factors as the appearance of a

bank’s physical facilities, equipment and employees. Which immediately attract

the attention of the customers on entering the bank. Such visual factors help

consumers form their initial impressions. Since tangible elements have a

significant bearing on consumers’ satisfaction and commitment, banks should take

measures to design a pleasant banking environment. Among others, they should

enhance ambient conditions such as lighting, temperature and spatial layout of

furnishings. The importance of a comfortable banking environment is now

recognized by most of the banks and the theme of ‘a branch as comfortable as

your living room’ is the cornerstone of the bank’s recent advertising campaign.

25
Huseyin Arasli Salime Mehtap-Smadi and Salih Turan Katircioglu, “Customer
Service Quality in the Greek Cypriot Banking Industry”, Managing Service Quality, Vol. 15,
No. 1, 2005, pp. 41-56.
3.18.2 Reliability

Reliability became the prime focus of organizational activity. Getting it

right first time all the time became the target for account accuracy, keeping

promises, meeting deadlines and providing timely and accurate information to

customers. Efforts to improve cash machines' availability and dependability

received unprecedented attention. National operating standards were devised and

a monitoring and measurement system put in place alongside a major programme

of investments in information technology.

3.18.3 Responsiveness

The review of various studies relating to this area shows that

responsiveness is closely linked to consumers’ satisfaction with a bank and their

continued patronage decision that is commitment. In a milieu where customer-

contact personnel long subscribed to “production orientation” as a way of viewing

their customers and where customers still form double horizontal lines in front of

a teller’s window and fight each other to reach the teller, provision of responsive

services become a real challenge. There are nevertheless visible signs that banks

are trying to improve their responsiveness. To enable their customers to do their

transactions outside the branches, banks are also expanding their ATM network

and taking action to standardize procedures (such as setting same withdrawal

limits) and availability of services across their ATM network.

3.18.4 Assurance

Assurance requires staff to have the knowledge to answer customers’

questions and the ability to provide competent, confidential, trustworthy,

courteous and friendly service. In banking studies by Anderson, et al (1976), it

was determined that a substantial level of trust in the bank and its abilities was

necessary to make the consumer comfortable enough to establish a banking

relationship. Parasuraman, et al (1991) included actions by employees such as

always courteous behavior instills confidence and knowledge as prime elements

of assurance. Assurance replaces competence, courtesy, credibility, and security

in the original ten dimensions for evaluating service quality (Zeithaml, et al,

1988)26.

3.18.5 Empathy

The empathy questions in the SERVQUAL betterly deal with whether or

not the bank gives individual attention to customers, has their best interest at heart,

and understands the specific needs of customers. The degree to which the customer

feels the empathy will cause the customer to either accept or reject the service

encounter. Empathy replaces access, communication, and understanding the

customer in the original ten dimensions for evaluating service quality (Zeithaml,

et al, 1988). When the customers feel that bank does care about their individual

needs, they will come forward to dissolve their needs, requirements and

complaints to the banks. This kind of relationships

26
Sabrina Tazreen, “An Empirical Study of SERVQUAL as a Tool for Service Quality
Measurement”, IOSR Journal of Business and Management (IOSRJBM), Vol. 1, No. 5,
July-August 2012, pp 09-19.
between the bankers and their customers would result in the maximization of the

satisfaction levels of the customers.27

3.19 SERVPERF Scale

SERVQUAL scale has been criticized for its validity and reliability. In the

empirical work, Cronin and Taylor (1992 and 1994) demonstrated that the measure

of SERVPERF performs better than SERVQUAL.28

3.20 Criticisms on SERVQUAL Scale

It must be noted, however, that in these early studies the dimensions of

service quality had quite often included dimensions beyond service quality but

which are closer to customer satisfaction. Despite its shortcomings, SERVQUAL

proves to be a useful scale to use in measuring service quality by making

appropriate adjustments for industry and country contextual effects.

Later research, however, raises doubts about the utility and appropriateness

of the disconfirmation paradigm advocated by Parasuraman as to whether or not

customers routinely assess service quality in terms of expectations and

perceptions. Rather, they put forward notion that service quality is directly

influenced only by perceptions of service performance. Accordingly they

developed an instrument of service performance

27
Ugur Yavas Zeynep Bilgin and Donald J. Shemwell, “Service Quality in the
Banking Sector in an Emerging Economy: A Consumer Survey”, International Journal of
Bank Marketing, Vol. 15, No. 6, 1997, pp 217–223.
28
Pooja Mengi “Customer Satisfaction with Service Quality: An Empirical Study of
Public and Private Sector Banks”, The Icfai Journal of Management Research, Vol. VIII,
No. 9, 2009, pp. 7-15.
(SERVPERF) that seems to produce better results than SERVQUAL29

(Asubonteng et al., 1996). Apart from the debate among the above researchers for

the merits of SERVQUAL over SERVPERF and vice versa. However, it seems

that, on balance, the emerging literature supports the performance-based paradigm

over the disconfirmation-based paradigm.

The assumption that service quality is determined by the difference

between expectations and perception has been extensively debated in the

literature. The relevance of using different scores (gap scores) to represent service

quality has been questioned on both conceptual and empirical grounds. Brown et

al. (1993) question the validity of the difference scores, claiming that they are not

distinct from perception and expectation scores.30 Babakus and Boller (1992)

observe that the perception scores are the principal contributor to the perception-

minus-expectation scores.31 Peter et al (1993) opine that difference scores have

poor reliability. Other researchers find that SERVPERF (i.e. performance scores)

outperforms SERVQUAL (i.e. perception-minus- expectation scores) in

predicting overall service quality and satisfaction. Cronin and Taylor (1992)

claim that SERVPERF is a more appropriate approach for measuring service

quality, noting that using the SERVPERF scale reduces the required number of

statements in the questionnaire from 44 to 22.32

29
Andreas Soteriou and Stavros A. Zenios, “Operations, Quality and Profitability in
the Provision of Banking Services”, Management Sciences, Vol.45, No. 9, September 1999,
pp. 1221-1238.
30
Riadh Ladhari, Ines Ladhari and Miguel Morales, “Bank Service Quality:
Comparing Canadian and Tunisian Customer Perceptions”, International Journal of Bank
Marketing, Vol. 29, No. 3, 2011 pp. 224-246.
31
Ibid., pp. 224-246.
32
Ibid., pp. 224-246.
 Although there have been many studies using the SERVQUAL model as a

framework in measuring service quality, there have also been theoretical and

operational criticisms directed towards this model in the service marketing

literature. These criticisms have mainly revolved around the interpretation and

implementation of the instrument. A major problem with the SERVQUAL

instrument is related to its dimensional structure. A number of researchers point

out different dimensions for expectations, perceptions and gap scores. Thus, the

universality of SERVQUAL’s five dimensions has been questioned33 (Carman,

1990; Cronin and Taylor, 1992; Buttle, 1996). Shortcomings regarding

convergent and discriminant validity have also been noted. Nevertheless, despite

the criticisms, SERVQUAL has been widely used in various contexts throughout

other studies simply because it “provides a basic skeleton which can be adapted

or supplemented to fit the characteristics or specific research needs of a particular

organization”.34 Yet, despite the concerns over the validity of the instrument,

Buttle (1996) argues that it is still a useful tool for the measurement of service

quality and still the mostly widely used and probably the best available. It has

also been argued that the use of gap scores to measure service quality is more

appropriate because service quality is a multidimensional concept. It can also give

an indication of the relative importance of the service quality dimensions, which

influence customers’ overall quality perceptions.

33
Huseyin Arasli Salime Mehtap-Smadi and Salih Turan Katircioglu, “Customer
Service Quality in the Greek Cypriot Banking Industry”, Managing Service Quality, Vol. 15,
No.1, 2005, pp. 41-56.
34
Ibid., pp. 41-56.
 Since SERVQUAL is so widely used in other studies, the use of this

instrument facilitates comparability to other studies that have been conducted in

the past. Angur et al., (1999) compared SERVQUAL with SERVPERF which is

an alternative measure of service quality that uses customer perceptions rather

than gap scores. They found that while SERVPERF appears to explain more

variance in overall service quality than SERVQUAL, the average difference in

variance explained was so small to the extent that it was negligible. They also

found from a practical point that the SERVQUAL scale appeared to provide more

helpful information to managers in addressing specific areas of service deficiency

than SERVPERF.35

3.21 Limitations of SERVQUAL Survey

There have been a number of studies that doubt the validity of the 5

dimensions and of the uniform applicability of the method for all service sectors.

Though Parasuraman et al., (1988) claim that their five service quality dimensions

are generic, it is generally agreed that this is not the case, and that the number and

definition of the dimensions vary depending on the context. When measuring the

quality of accounting firms, Freeman and Dart (1993) conclude that service quality

is a seven-dimensional construct. Robinson and Pidd (1998) propose 19

dimensions of service quality in the context of management science projects.

35
Ibid., pp. 41-56.
 According to Stauss and Weinlich (1997), a closer look, however, reveals

some defects of attribute based quality measurement (like SERVQUAL). First,

the data collected by these methods cannot completely reflect the customer's

quality perception. Second, the respondents are forced to aggregate their quality

experiences in a problematic way. For example, a customer of a bank asked to

evaluate the friendliness of customer contact employees of a bank is forced to tick

a single point on a scale even if he/she had contacts with three employees whose

behavior and friendliness differed considerably.

Teas (1994) noted that SERVQUAL expectations have been variously

defined as desires, wants, what a service provider should possess, normative

expectations, ideal standards, desired service, and the level of service a customer

hopes to receive. These multiple definitions and corresponding operationalizations

of “expectations” in the SERVQUAL literature result in a concept that is loosely

defined and open to multiple interpretations (Teas, 1994). Different

interpretations of “expectations” include a forecast or prediction, a measure of

attribute importance, classic ideal point, and vector attribute (Teas, 1993;

Parasuraman et al., 1994b). These various interpretations can result in potentially

serious measurement validity problems36.

36
Sabrina Tazreen, “An Empirical Study of SERVQUAL as a Tool for Service Quality
Measurement”, IOSR Journal of Business and Management (IOSRJBM), Vol. 1, No. 5,
July-August 2012, pp 09-19.