The Impact of Servicescape on Quality Perception

Research paper

Keywords Servicescape/ Service Quality

Abstract Due to the specific characteristics of services, evaluation of service quality

prior to the purchase decision is very difficult. Therefore customers have to rely on
cues, i.e. search qualities that contain certain signals of the quality offered. This article
shows that the servicescape is an important indicator for assessing service quality.
Although numerous articles emphasize the importance of the servicescape, the effect of
the servicescape on quality perception has been inadequately captured by previous
empirical research. This article explores the reasons for this inadequacy and proposes a
new model for assessing the effects of the servicescape on quality perception. Based on
empirical investigations in two service industries, the results clearly show a greater
significance for the servicescape than was supposed in most previous studies.

Introduction

Since services are mostly intangible and usually produced after purchasing, the
prospective customer faces high uncertainty with regard to service characteristics. He is
consequently highly interested in obtaining information to decrease information
asymmetries. But because of lack of market transparency as well as the high level of
experience and credence qualities, information search is difficult and complex. The
customer who lacks complete information about service attributes is therefore generally
forced to concentrate on certain quality signals, if he cannot depend on personal sources
such as recommendations of friends or experts.

According to cue utilization theory (Cox, 1967; Olson, 1972) products or services
consist of an array of cues that serve as surrogate indicators of the product's quality.
These cues are dichotomized as either intrinsic or extrinsic to the product. Intrinsic cues
are physical attributes of a product such as size or shape, whereas extrinsic cues are
product-related and arise from other marketing instruments. Frequently used extrinsic
cues are brand name and price (e.g., Wolinsky, 1983; Zeithaml, 1988; Rao and Monroe,
1989; Dodds et al., 1991; Lee and Lou, 1996). These indicators can be perceived prior
to the purchase decision and substitute for other information not yet available. Thus,

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more complex information searching processes can be avoided. While for tangible
products many cues are usually available, the service customer is limited to a small
number of cues because of the intangible nature of services. In many cases, the only
cues available are the service's price and the physical facilities (Zeithaml, 1981).

Several authors refer to the physical facilities, i.e. the servicescape, as a quality
indicator (e.g., Ward et al., 1992; Baker et al., 1994, Baker, 1998; Aubert-Gamet and
Cova, 1999, Baker et al., 2002). Servicescape is a widely used term to describe the
physical surroundings of a service company. It includes the exterior and interior design,
ambient conditions such as temperature, noise, odour, etc. as well as tangible parts of
the service such as business cards, brochures, and other communication material (e.g.,
Bitner, 1992; Wakefield and Blodgett, 1996). Ward et al. (1992) compare the
servicescape with a product's packaging. In analogy to packaging it is expected that
tangible surrogates are important in creating expectations about the intangible service
performance and thus can be used for inference making (Levitt, 1981; Rushton and
Carson, 1989; Ward et al., 1992). Since services usually involve simultaneous
production and consumption, in many cases the customer has to enter the service
facilities and has to be within the servicescape before he can make the purchase
decision. Therefore, the servicescape offers a multitude of easily accessible cues to
customers seeking an information searching shortcut (Baker, 1998).

Empirical research on the effect of the servicescape on quality perception is rare,

however. Numerous studies on several aspects of the servicescape such as colour and
light (e.g., Bellizzi et al., 1983; Crowley, 1993; Areni and Kim, 1994), background
music (e.g., Milliman, 1982, 1986; Holbrook and Schindler, 1989; Areni and Kim,
1993; Herrington and Capella, 1994, 1996; Hui et al., 1997; Yalch and Spangenberg,
2000) as well as odours (e.g., Mitchell et al., 1995; Spangenberg et al., 1996) [1] show
behavioural effects, but primarily refer to the retail industry and examine only single
components. Only a few more general studies have sought to consider the servicescape
in its overall effect (e.g., Donovan and Rossiter, 1982; Baker et al., 1994; Donovan et
al., 1994; Wakefield and Blodgett, 1994; Baker et al., 2002). The emphasis of these
studies is on the investigation of a direct connection between servicescape factors and
behavioural variables (e.g., time spent, amount of money spent). Less attention has been
paid to the question of how the servicescape affects the evaluation of service quality.

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Studies that deal with cues for quality evaluation examine mainly brand names, prices
and county-of-origin images and focus on products (e.g. Wolinsky, 1983; Stokes, 1984;
Rao and Monroe, 1988, 1989; Han, 1989; Dodds et al., 1991; Dawar and Parker, 1994;
Lee and Lou, 1996). The servicescape as a cue is considered in only a few, rather
inadequate studies. Crane and Clarke (1988) explored the cues used to evaluate a
service and were able to show that personal referrals as well as physical facilities are the
most frequently used cues. However, the question of which specific aspects are covered
by the term physical facilities remains open. Sweeney et al. (1992) examined only two
single aspects of the servicescape in their capacity as surrogate criteria: the employees'
clothing and the location of restaurants. In Wakefield and Blodgett's study (1996) the
influence of single servicescape aspects was examined only for the perceived quality of
the servicescape, not however for the perceived quality of the service itself. Bitner
(1990) referred to how an organized environment in contrast to a disorganized
environment affected the evaluation of a service failure. Ward et al. (1992) as well as
Sirgy et al. (2000) only examined the importance of the exterior and interior
servicescape as cues for categorizing services and forming impressions about
prototypicality. Only Baker et al. (1994) examined the effect of several aspects of the
servicescape on quality evaluation.

The meaning of servicescape as a surrogate indicator has been considered in particular

by Parasuraman, Zeithaml, and Berry (Parasuraman et al., 1988, 1991; Zeithaml et al.,
1990) as well as by subsequent studies (e.g., Babakus and Boller, 1992; Dabholkar et
al., 1996). Parasuraman et al. must be credited with including the main aspects of
servicescape in their research and studying the influence of servicescape in conjunction
with other determining factors of service quality. In their empirical work, Parasuraman
et al. found five dimensions of quality perception. Four of these, reliability,
responsiveness, assurance and empathy, are basically intangible in nature. The fifth,
designated as tangibles, consists of the appearance of the physical facilities, equipment,
personnel and communication material (Zeithaml et al., 1990) and thereby comprises
some of the most important aspects of servicescape. It should be noted however, that
ambient conditions, such as temperature, noise or odour, which are not explicitly
considered by Parasuraman et al. (1988; 1991) are also interpreted as tangible
dimensions of the service, since they can be directly perceived with the human senses
(Wakefield and Blodgett, 1999). To avoid ambiguity, in what follows the term tangibles

3
will be used in connection with Parasuraman et al. and the term servicescape if a more
comprehensive view including ambient conditions is used.

The results of Parasuraman et al.'s studies show that compared with the other four
factors, the tangibles have a minor influence on service quality perceptions (Zeithaml et
al., 1990). This contradicts the great importance attached to the servicescape by
numerous authors. Therefore it can be assumed that the tangibles' meaning was
insufficiently captured in these studies.

To sum up, numerous studies have highlighted various aspects of the servicescape, but
could not sufficiently determine its meaning for the perceived service quality. Only the
studies done by Parasuraman et al. examined the relative meaning of five indicators and
reported that the tangibles had limited effect on customers' overall quality perceptions.
However, these studies indicate some problems, which imply an underestimation of the
tangibles' meaning.

The objective of this article is to examine the impact of the servicescape on perceived
service quality in a more comprehensive way. First, specific research hypotheses are
proposed by analyzing the problems of previous studies. Next, the method used to test
these hypotheses, is described, before the results are presented. Finally, implications and
limitations of the study are discussed and directions for further research provided.

Hypotheses and a New Proposed Model

A first problem of past investigations lies in the insufficient operationalization of the

servicescape. The servicescape has been inadequately captured because several
dimensions of the physical surroundings have not been integrated (Wakefield and
Blodgett, 1999). The original tangibles scale of Parasuraman et al. (1988) covers the
technical equipment, the appearance of the physical facilities and of the employees, as
well as the fit of the physical facilities with the type of service offered. In the revised
version of the scale the last redundant aspect was replaced by materials associated with
the service (Parasuraman et al., 1991). As the term "tangibles" already indicates, only
the more tangible aspects of the physical surroundings were included. Other, rather
intangible dimensions, so-called atmospherics (Kotler, 1973)[2] or ambient factors
(Bitner, 1992; Wakefield and Blodgett, 1999) were not included. In the present article
the servicescape is therefore described by an extended number of items (see Appendix
1). These items were theoretically derived from existing frameworks and scales (see

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Appendix 2). Apart from tangible components of the physical environment atmospheric
elements are also considered. The proposed scale covers aspects of the servicescape that
are similar to those used by other researchers (e.g., Baker et al., 1988; Baker et al.,
1994; Wakefield and Baker, 1998; Wakefield and Blodgett, 1999; Zeithaml and Bitner,
2000; Turley and Milliman, 2000). A more detailed definition, such as the one used by
Turley and Milliman (2000), is not very helpful for analyses covering different types of
services. Although other people in the environment may have an important impact on
how the servicescape is perceived, it is suggested that they should not be included as
part of the servicescape itself, because they cannot be controlled to any great extent by
management.

It is one objective of this article to obtain preliminary insights into the relative meaning
of the different servicescape elements. In the absence of either comprehensive findings
from previous research or theoretical concepts, no hypotheses can be formulated.

A second problem results from the underlying factor structure of the model proposed by
Parasuraman et al. (1988, 1991). The authors assume the five factors of service quality
to be independent of each other (Figure 1)[3].

Figure 1
The Five Dimensions of Service Quality According to Parasuraman, Zeithaml, and
Berry

take in Figure 1

This independence can be questioned. Even Parasuraman et al. in their later remarks
point out that relations between the five dimensions have to be considered:

"Though the SERVQUAL dimensions represent five conceptually distinct facets of

service quality, they are also interrelated, as evidenced by the need for oblique rotations
of factor solutions in the various studies to obtain the most interpretable factor
patterns. One fruitful area for future research is to explore the nature and causes of
these interrelationships." (Parasuraman et al., 1994, p. 113)

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Although interrelationships between all five factors can be assumed, there is specific
theoretical evidence for an interrelationship between the tangibles and the four other
factors. Since the four factors with the highest importance values (reliability,
responsiveness, assurance and empathy) are not observable factors, it can be assumed
that the tangibles, as the only directly observable variable, have an influence on the
other four. This can be explained by the fact that tangible aspects act as search qualities,
while the other four dimensions represent experience or credence qualities. Since only
the tangibles can be judged prior to the purchase, they work as cues, i.e. surrogate
indicators, for evaluating the service quality. Besides, the tangibles allow inference
making about the other four dimensions, which can only be evaluated after consuming
the service. Thus, for example, a disorganized law office might not only suggest bad
service quality, but also poor reliability on the part of the lawyer himself. On the other
hand, a modern-looking office can imply positive quality criteria such as reliability,
seriousness or competence. Therefore, it may be supposed that the tangibles not only
affect the perceived service quality directly, but also indirectly via the four other factors,
as Figure 2 shows. As a consequence the total effect might be much higher than
estimated so far. Therefore it can be hypothesized that:

H1: The tangibles have a significant influence on the intangible dimensions of the
service quality.

H2: The total effect of the tangibles (direct and indirect) on perceived service quality is
significantly higher than the direct effect.

Figure 2
Conceptual Model Including Direct and Indirect Effects of the Tangibles
on the Perceived Service Quality

take in Figure 2

Furthermore, an underestimation of the tangibles also has to be assumed, because recent

studies have mainly focused upon industries where relatively little time is spent in the
service environment (if at all) and where the customer is primarily interested in the
service result (see also Wakefield and Blodgett, 1999). Examples are: appliance repair

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and maintenance, long-distance telephone, telephone repair, insurance, retail banking,
dental school patient clinic, acute care hospital, tire store, business school placement
centre, pest control as well as dry-cleaning (Parasuraman et al., 1988, 1991; Carman,
1990; Cronin and Taylor, 1992). Customers use these services mainly for utilitarian
reasons and the service result is of far greater importance than the service process.
Therefore the customers only spend as much time in the service provider's environment
as necessary. In these cases, the tangibles might be less important than in services
mainly used for hedonic reasons, where customers usually spend more time in the
service provider's environment and the process of service delivery is of greater
importance. Typical examples are concert halls, theatres, restaurants and other leisure
services (see also Wakefield and Blodgett, 1999). Thus it can be hypothesized that:

H3: The tangibles are of significantly greater importance in services used for mainly
utilitarian reasons than in services mainly used for hedonic ones.

Method

Measurement

For testing the hypotheses, the SERVQUAL scale developed by Parasuraman et al. was
used, since it captures the tangible parts of the servicescape as one dimension of the
service quality, and the five quality dimensions are operationally defined and examined
regarding reliability and validity (Parasuraman et al., 1988, 1991, 1993; Asubonteng et
al., 1996). Parasuraman et al. followed Churchill's (1979) recommendations for
developing measures of marketing constructs. The five quality dimensions reliability,
responsiveness, assurance and empathy as well as tangibles are measured with a
multiple-item scale including 22 items. Parasuraman et al. suggest surveying
expectations as well as perceptions of the quality dimensions (Parasuraman et al., 1988,
1991).

In spite of the empirical verification of the model and its fundamental suitability for
measuring service quality, some problems and points of criticism exist. These primarily
refer to the general applicability of the 22 items. Thus, Parasuraman et al. themselves
(1988, 1991) as well as different other authors (e.g., Carman, 1990; Buttle, 1996)
recommend a specific adjustment of the scale to the service being examined. For the

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present study, though, individual items had to be adapted to industry characteristics. [4]
Besides, a new servicescape scale was included as an alternative to the tangibles scale to
overcome the aforementioned deficiencies. Two items of the servicescape scale overlap
with items of the tangibles scale (T3/T4) and were therefore specified in the
questionnaire only once (see Appendix). Overall service quality was measured with a
two-item-scale following Wakefield and Barnes (1996).

A second problem lies in the operational definition of the expectation term. Due to
increasing requirements customers' expectations are frequently very high, so that a
comparison between expectations and perceived quality often entails unsatisfactory
quality. If customer expectations refer to fictitious ideal service, a service provider must
be better than ideal to have the quality evaluated as satisfying. This is a logical
contradiction. Even Parasuraman et al. faced difficulties with the expectation term in
their revision of the SERVQUAL scale, which led to intensive discussions of the
suitability of the expectation scale (Parasuraman et al., 1991; Cronin and Taylor, 1992,
1994; Parasuraman et al., 1993; Teas, 1993; Brown et al., 1993; Peter et al., 1993;
Parasuraman et al., 1994; Buttle, 1996). Therefore the literature suggests using
performance-only measurement. This method not only is the simplest but also the one
with the highest construct validity. Besides, the number of items can be reduced by
50%, which affects the questionnaire favourably (Cronin and Taylor, 1992, 1994; Brady
et al., 2002).

To determine the relative impact of the five dimensions on overall service quality,
regression of the overall quality perception scores on the scores for the individual
dimensions is recommended. The resulting beta values reflect the meaning of the
individual dimensions (Parasuraman et al., 1988, 1991). However, regression analysis
has the disadvantage that only direct, but not indirect, effects can be captured. Since it
can be assumed that indirect effects exist, the total effects are insufficiently measured
and an underestimation of the influence of individual dimensions (e.g. the tangibles)
results. It therefore was necessary to use a method that considers all possible causal
relations between the variables, and in particular the indirect influence of the
servicescape on perceived quality. Structural equation modelling was used because this
method allows hypotheses testing in causal models with unobserved constructs
(Baumgartner and Homburg, 1996).

8
Study

The study was conducted in Switzerland in the form of a written questionnaire

interview, in order to exploit cost and time advantages. It was limited to the population
of the German-speaking part of Switzerland. Regions where other languages (French,
Italian) are spoken were excluded for the sake of efficiency. The developed
questionnaire was first submitted to a pretest in which 60 questionnaires were
distributed to respondents of different age and education levels. Of these, 49
respondents filled out the questionnaire. After some refinements, 5000 questionnaires
were dispatched in order to obtain the necessary number of questionnaires to meet the
requirements of the statistical methods used.[5] The subjects were randomly selected
from a database[6] and randomly allocated to two industries. Retail banking was chosen
as a service that is used for utilitarian reasons, and restaurants as a service that is mainly
used for hedonic reasons. Both services are used by a broad section of the population, so
that meaningful results can be obtained in the context of a population survey.

Altogether 1267 questionnaires were returned, yielding a return rate of 25.3%. Of these
questionnaires, 603 belong to the bank sample and 664 to the restaurant sample. Since
several respondents indicated they had not been to a bank or restaurants within the last
three months and thus could not fill out the questionnaire, these questionnaires could
not be included in the analysis. Thus, 580 questionnaires remained for the bank sample
and 565 for the restaurant sample. This corresponds to a net return ratio of 23.2% for the
bank sample and 22.6% for the restaurant sample, which is more than satisfactory for a
written consumer survey.

To estimate nonresponse bias, first, socio-demographic sample characteristics were

compared to the Swiss population. No significant differences were found for education
level. Men are slightly overrepresented in the sample. Age differences can be attributed
to the fact that persons under 18 and over 70 years were explicitly excluded from the
study.

Potential nonresponse bias was further assessed by using an extrapolation method.

Extrapolation methods are based on the assumption that subjects who respond less
readily are more like nonrespondents (Armstrong and Overton, 1977; Babakus and
Boller, 1992). It therefore was examined whether the response behaviour of early

9
respondents (first 100 respondents) significantly differed from late respondents (last 100
respondents). The t-test performed showed no significant differences.

Analysis and Results

Reliability and Validity Assessment

First, scale reliabilities measured by coefficient alpha and corrected item-to-total

correlations were examined. As specified in Table 1, with the exception of the tangibles
scale, alpha values between .80 and .91 are obtained, whereby the values for the
restaurant sample are consistently somewhat smaller than those for the bank sample.
These results are consistent with those reported by other authors (e.g., Parasuraman et
al., 1991; Richard and Allaway, 1993; Wakefield and Blodgett, 1999). Further, corrected
item-total-correlations are very high for each item and clearly exceed the required value
of .30. With the exception of a few items, values higher than .60 are obtained. Therefore
internal consistency and homogeneity of the scales are both very good.

Table I
Reliability Analysis

take in Table 1

It is noticeable that the lowest number of responses occurs for the servicescape scale.
The reason for this is item T11, which corresponds to background music. This item
embodies a servicescape component which might not always be present in a service
environment, especially not in banks. Only 366 of 580 respondents answered this item.
In the restaurant sample the number of missing answers is somewhat smaller, probably,
because background music is actually used more frequently in restaurants. The item also
has the lowest item-total-correlation and was therefore eliminated from further
evaluations. This hardly affects the scale reliability, but leads to an increased number of
evaluable questionnaires, as can be seen in Table II.

Table II
Reliability Analysis for the Modified Servicescape Scale

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 take in Table II

In a next step scale validity was examined. Numerous authors have referred to the
validity of the SERVQUAL scale, in particular to face validity, convergent and
discriminant validity (e.g., Parasuraman et al., 1988; 1991; 1993; Asubonteng et al.,
1996; Buttle, 1996 etc.). Several authors have attested face validity, as the items appear
appropriate for assessing service quality in a variety of settings (e.g., Parasuraman et al.,
1991; Asubonteng et al., 1996). Problems, though, have arisen regarding convergent and
discriminant validity. Findings from different studies imply greater overlap among the
SERVQUAL dimensions than implied in the original study (Babakus and Boller, 1992;
Asubonteng et al., 1996). Therefore, convergent and discriminant validity were
examined in the present study.

The reliability of a scale measured by coefficient alpha reflects the degree of

cohesiveness among the scale items and is therefore an indirect indicator of convergent
validity (Parasuraman et al., 1991). Since the alpha values and the item-total-
correlations are very high in most previous studies, as they are in the present study, they
can be regarded as a reference for high convergent validity.

To assess discriminant validity, the correlations between the factors should first be
considered. Theoretically independent dimensions (i.e. the individual factors) should not
correlate too highly with one another (Brown et al., 1993; Buttle, 1996). Tables III and
IV indicate a certain lack of discriminant validity. Although the correlations between the
servicescape and the other four dimensions are fairly low, the correlations among these
four dimensions are relatively high. In particular the bank sample shows values between
.72 and .85. Similar values result if Parasuraman et al.'s (1991) tangibles scale is used
instead of the servicescape scale.

Table III
Correlation Matrix (Bank Sample)

take in Table III

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 Table IV
Correlation Matrix (Restaurant Sample)

take in Table IV

For a more stringent test of convergent and discriminant validity it is recommended to

conduct an exploratory factor analysis to examine whether the postulated factor
structure is recognized (Asubonteng et al., 1996). Scale items expected to load together
should do so, while they should not load on all other factors (Buttle, 1996). Tables V
and VI show the exploratory factor analysis results. According to Parasuraman et al.
(1991) as well as Babakus and Boller (1992) principal components factor analysis with
varimax rotation was used for better interpretation of the factor loadings matrix. For
better clarity, factor loadings < .4 are not listed.

Table V Table VI
Exploratory Factor Analysis Results Exploratory Factor Analysis Results
Bank Sample Restaurant Sample

take in Table V take in Table VI

For the bank sample three factors were extracted, among which one factor is described
by the servicescape items, and a further one by the intangible items. The third factor
contains both servicescape and intangible items which do not clearly load to a factor.
The three factors had eigenvalues greater than 1 and accounted for 66% of the variance.
For the restaurant sample five factors were extracted, which, however, do not
correspond to the factor structure postulated by Parasuraman et al. (1988; 1991). Two
factors were extracted for the servicescape components and three factors for the
intangible items. The five factors accounted for 68% of the variance. Again, it should be

12
noted that numerous items do not clearly load to one factor, but to different factors, so
that convergent and discriminant validity must be judged as extremely critical.

The exploratory factor analysis was not able to replicate the five-factor structure
postulated by Parasuraman et al. (1988; 1991). This corresponds to numerous earlier
studies, which arrived at different factor solutions and thereby expressed justified
doubts about the five-factor structure (e.g. Babakus and Boller, 1992; Cronin and
Taylor, 1992; Brown et al., 1993; Buttle, 1996). Even Parasuraman et al. could not
confirm the factor structure in their revision of the SERVQUAL scale because of high
intercorrelations among the intangible dimensions and factor loadings of items of
different dimensions on the same factor (Parasuraman et al., 1991). In view of this it
appears quite reasonable to use a two-factor model, with one factor representing the
servicescape and one the intangibles, as suggested by Wakefield and Blodgett (1999). If
a priori a two-factor solution is required, exploratory factor analysis clearly extracts the
two factors for both industries (see Tables VII and VIII). The two factors explain 56%
of the variance for the bank sample, and 63% for the restaurant sample.

Table VII Table VIII

Exploratory Factor Analysis Results Exploratory Factor Analysis Results
Two-Factor-Structure Two-Factor-Structure
Bank Sample Restaurant Sample

take in Table VII take in Table VIII

Merging the factors reliability, assurance, responsiveness, and empathy to one factor of
intangibles, the model depicted on the left in Figure 3 shows the structure suggested by
Parasuraman et al., and the model depicted on the right, the proposed new structure. The
term tangibles refers to the tangible scale of Parasuraman et al. (1988; 1991), the term
servicescape to the newly developed scale.

Figure 3
Two-Factor-Models

13
 take in Figure 3

For further assessment of the proposed factor structure confirmatory factor analysis was
conducted. Since exploratory factor analysis already indicated problems with the factor
structure, it is not surprising that the confirmatory factor analysis was also not able to
confirm the five-factor structure suggested by Parasuraman et al. (1988; 1991). This
again corresponds to results obtained by different authors (e.g., Babakus and Boller,
1992). The chi-square-values were strongly significant for both data sets (retail banking:
Chi2=1256.45, p=0.00; restaurants: Chi2=1302.25, p=0.00) Since the chi-square-values
are sensitive to sample size and model complexity, additional criteria that are
independent of sample size, such as GFI (goodness of fit index) and AGFI (adjusted
goodness of fit index), are more appropriate for assessing model fit (Bearden et al.
1982; Baumgartner and Homburg 1996). The recommended minimum standards (GFI/
AGFI ≥ .9) proposed by Bagozzi and Yi (1988) were not reached in either sample (retail
banking: GFI= .826; AGFI= .792; restaurants: GFI= .824; AGFI= .790). Thus, all
criteria point to a bad fit for the model.

Attempts at model modification did not arrive at an acceptable solution due to the
numerous modification indices. Even the two-factor solution could not be confirmed
(retail banking: Chi2=1684.92, p=0.00; GFI= .762; AGFI= .723; restaurants: Chi 2=
1782.70, p=0.00; GFI= .761; AGFI= .722). A possible reason for this may be the large
number of items for the intangible factor, which to a considerable extent cover the same
content and thus correlate highly (Baumgartner and Homburg, 1996).

In addition, the servicescape scale probably also contained too many inter-correlated
items. Although the items cover different aspects of the physical environment, they are
perceived in a holistic manner (Bitner, 1992; Wakefield and Baker, 1998). It would
probably be useful to develop secondary factors for the various elements as suggested
by Wakefield and Baker (1998) and Wakefield and Blodgett (1999). However, in the
present study neither inter-item-correlations nor exploratory factor analysis yielded
clear references for a meaningful formation of secondary factors.

Testing the Hypotheses

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The hypothesized relationships were tested using analysis of moment structures
(AMOS). Because of the problems with the measurement models, each latent construct
was transferred into a manifest variable using scale means. Both the suggested model of
Parasuraman et al. (1988; 1991) and the newly developed model (see Figure 3) were
tested for both samples. In addition, the original tangibles scale of Parasuraman et al.
(1991) and the servicescape scale were compared.

Despite the findings from factor analysis, which showed serious problems with the five-
factor structure, the original five-factor model suggested by Parasuraman et al. (1991)
was tested in a first step. The results show that the two intangible factors responsiveness
and assurance had no significant effect on the service quality (C.R.<2; p>.05). Therefore
both variables had to be removed from the model. Even Parasuraman et al. (1991)
mentioned problems with these two factors in their revision of the SERVQUAL scale.
Therefore, the structural models were re-estimated for the two-factor solution (see
Figure 4).

Figure 4
Structural Models for the Two-Factor Structure

take in Figure 4

Since the number of model parameters that can be estimated is just as large as the
number of the empirical variances and covariances, the model has no degrees of
freedom (χ2=0). The model is exactly identified. A model estimation is unnecessary,
because the correlations of the estimated parameters correspond exactly to the empirical
correlations. Accordingly, a model evaluation on the basis of global adjustment
variables is unnecessary. Instead, an evaluation of the adjustment quality is made by
examining the variance extracted (squared multiple correlation for each endogenous
variable), as a high figure here indicates validity of the measuring instrument (Fornell
and Larcker, 1981; Parasuraman et al., 1991; Buttle, 1996). In the literature a minimum
value of ≥ .5 is frequently required (Bagozzi and Yi, 1988). As can be seen in Figure 4,
for the bank sample the amount of explained variance is .5; for the restaurant sample it
is .45 in both models examined. Thus, the required minimum value is scarcely achieved.

15
This leads to the conclusion that the perceived service quality is also affected by other
factors. Several authors have criticized the fact that the scale items refer to the service
delivery process only, and leave result-oriented factors unconsidered (e.g. Cronin and
Taylor, 1992; Richard and Allaway, 1993; Buttle, 1996; Brady and Cronin, 2001). In
particular Grönroos (1984) pointed out that the perceived service quality covers not only
a functional component (how the service is produced), but also a technical component
(what the customer receives). Thus, for service quality evaluation not only the service
process, but also the result is decisive. It seems quite clear that a restaurant's quality is
affected by the quality of the meal. Richard and Allaway (1993) therefore developed an
extended SERVQUAL scale, which additionally contains result-oriented items. By
comparing the original with the extended scale, the original scale was able to explain
45% of the variance, while the scale with integrated result-oriented components was
able to explain 71.5%.

In all four models all indicated paths are significant (C.R.>2; p<.05). It can further be
seen that the effect of the tangibles and the servicescape alternatively is clearly higher in
the restaurant sample. To determine whether the differences between the correlations
(r1=.11 and r2=.29 as well as r3=.12 and r4=.34) are significant, a significance test was
performed. This showed significant differences between the correlations (z 1,2 = -3.056;
z3,4 = -3.768), and indicated that the direct effect of the tangibles on the perceived
service quality is significantly higher in the restaurant sample than in the bank sample.
In addition, a marginally higher effect results, if the new servicescape scale is used.
Since the explained variance is equally high, the new scale is technically at least as good
as the tangibles scale, and the underestimation in the studies of Parasuraman et al.
(1991) appear to result to some extent from an insufficient definition of the
servicescape.

Furthermore it is evident that highly significant covariances exist between the tangibles
and the intangibles. This is a central finding, since Parasuraman et al. had implied
independence of the tangible and intangible factors. In their studies, covariances
between the factors remained unconsidered, and only in later remarks did the authors
recognized that the factors were not independent. However, they left the nature of this
connection open (Parasuraman et al., 1994). As already mentioned, it can be assumed
that the tangibles as search qualities influence the intangibles (see H1). Therefore, the
mediating models were examined (see Figure 5).

16
 Figure 5
Proposed Mediating Models

take in Figure 5

In all four models a significant influence of the tangibles (and the servicescape
alternatively) on the intangibles is given. This is a new theoretical explanation for the
covariances between the tangibles and intangibles. The tangibles explain 29% of the
variance of the intangibles in the bank sample and 20% in the restaurant sample. The
servicescape scale even explains 39% of the variance in the bank sample and 35% in the
restaurant sample. These are surprisingly high figures when one considers that the
factors were up to now assumed to be independent. Therefore the tangibles can be said
to have a significant effect on the intangible factors. H1 is thus supported.

In addition to the statistically significant direct effect, an indirect effect of the tangibles
(and the servicescape alternatively) on the service quality can be confirmed. The
indirect effect results from the product of the paths 'tangib/ sscapeintangib' and
'intangibsqual'. The total effect is defined by the sum of direct and indirect effects.
Because of the presence of an indirect effect the total effect is clearly higher than the
direct effect, which means that H2 is supported as well.

Regarding H3 a more differentiated approach is necessary. The direct effect of the

tangibles/ servicescape is significantly higher in the restaurant sample, which would
lead to a confirmation of H3. The indirect effect, however, is clearly lower in this
sample, because of the significantly lower effect of the intangibles on the perceived
service quality (z=3.800 for the tangibles scale; z=4.931 for the servicescape scale).
This means that the total effect determined by the direct and the indirect effects is only
marginally higher in the restaurant sample. Thus, H3 can only partly be confirmed.

Conclusions

The aim of the present article was to examine the impact of the servicescape on the
perceived service quality. The results of the empirical study clearly show a higher
significance for the servicescape than was supposed in most previous studies.

The findings show that the servicescape is not only an indicator for the expected service
quality, but also influences the evaluation of the intangible dimensions. Thus the

17
servicescape has not only a direct, but also an indirect effect on the perceived service
quality, which leads to a higher overall effect of the servicescape. In addition, previous
studies mainly focused upon types of services that are used for utilitarian reasons, while
services used for hedonic reasons were not considered. The results of the present study
reveal that the servicescape is of greater importance in determining customers'
evaluations of the expected service quality in hedonically motivated services.

Hence, service providers should give careful consideration to their servicescape. In

accordance with findings from environmental psychology the servicescape may not
remain limited to tangible elements, but must also consider ambient components such as
odours and background music. However, as with all marketing instruments no concrete
recommendations can be given. Instead, every service provider needs to develop a
unique servicescape that best represents and visualizes its intangible competencies and
quality.

Limitations and Research Implications

Several limitations should be mentioned with regard to the present study. First, only one
utilitarian and one hedonic industry were examined. Since the results only refer to these
two specific industries, it is problematic to draw general conclusions. The generalization
of an inevitably selective result can, through processes of induction, lead to false
conclusions. Accordingly the empirical results should be used with care. Thus, it would
be conceivable that the influence of the servicescape might be larger even in utilitarian
services if the customer spends an extended period in a facility (e.g. in hospitals or
schools) (Wakefield and Blodgett, 1999). The more time spent in the facility, the greater
the opportunity one has to evaluate and be affected by the environment. Thus, bad
ventilation and cramped seating may be particularly uncomfortable on a long-distance-
flight in comparison with a short-distance-flight.

It is also worthwhile to consider the price paid for the service and consumer perceptions
of quality relative to the price paid in future research. In restaurants patrons will expect
a well designed servicescape if they enter a high price restaurant. On the other hand,
they will expect less in the case of a cheap restaurant. Here the servicescape will
probably impact less on consumer perceptions of the service quality than in an
expensive restaurant where a significant part of the price relates to the environment
provided.

18
However, it seems likely that the findings obtained allow some inferences about other
service industries. Although the study was conducted in Switzerland the findings are
extendable to other western countries as there is no evidence that cultural distinctions
are crucial for the results.

Further shortcomings of the study resulted from problems in examining the

measurement models. Confirmatory factor analysis could not confirm the five-factor
structure of the easily modified SERVQUAL scale. Since numerous other authors (e.g.
Babakus and Boller, 1992; Cronin and Taylor, 1992; Brown et al., 1993) have also
encountered problems with the SERVQUAL factor structure in the past, use of a two-
factor structure is recommended, whereby one factor represents the tangibles and a
second, the intangibles. Since the 18 items representing the intangibles partially overlap
and correlate highly, future research efforts should be aligned to describe the factor of
intangibles by a meaningful number of items. The use of four items is conceivable,
representing the four factors reliability, assurance, responsiveness and empathy
developed by Parasuraman et al. A scale with only a few items would even have a
positive effect on response behaviour. A large number of similar items can lead to
fatigue, boredom, and inattention of respondents which can, in turn, lead to
inappropriate response behaviour and less reliable data (Drolet and Morrison, 2001).

Despite the more than ten-year intensive discussion of SERVQUAL and several scale
improvement efforts there is still no satisfactory and generally accepted solution
available. It therefore remains questionable whether it is at all possible to reduce the
complex reality of the diverse service sector on the basis of a comprehensive method.

Additionally, the impact of the several servicescape elements on the perceived service
quality could not be determined. Although the servicescape scale exhibits high
reliability and can explain a greater amount of the variance of the intangible factors, it
was not possible to obtain relative meanings with confirmatory factor analysis. The
scale apparently contains too many different, inter-correlated items. It would probably
be meaningful to build in secondary factors as recommended by Wakefield and Baker
(1998) and Wakefield and Blodgett (1999). However, in the present study clear
references for a meaningful definition of servicescape factors resulted neither from
inter-item correlations nor from exploratory factor analysis.

19
Therefore more research is needed to develop a valid measurement tool to assess the
servicescape. The present study was only a further attempt to theoretically derive the
important aspects of the servicescape that might be applicable to most service
industries. Clearly, more effort is needed to develop a comprehensive measurement tool.
However, here again one must ask whether it is at all possible to capture the numerous
aspects of the spatial environment in a scale valid for all service industries. A very
extensive scale would have the disadvantage that the respondents would be forced to
cognitively evaluate numerous aspects they might never have noticed before. Thus,
some respondents are asked to rate features of the servicescape that were never salient
to them, while others may be frustrated that attributes salient to them are not part of the
scale (Ward et al., 1992).

Since the present study was primarily aligned with the general question about the
meaning of the servicescape, the results obtained do not allow concrete managerial
implications for the use of different servicescape elements. There is a need for further
research examining the effect of single aspects as well as the entire servicescape. While
numerous studies have focused on background music or odours, other servicescape
elements such as architecture or tangibles have received little attention (Turley and
Milliman, 2000). In such studies it is also advisable to use methods other than multiple-
item scales. The fundamental problem of multiple-item scales lies in rationalizing
effects and a higher cognitive consciousness, with which the mainly emotional effects of
servicescape aspects can be captured only insufficiently. Experimental methods can
therefore make a valuable contribution (Baker, 1998; Wakefield and Blodgett, 1999).

A further issue that could be addressed is how customers will weigh various cues in the
choice process and thus, how important servicescape cues are in relation to others cues
prospective customers may use in the decision process (e.g., price, advertising).

In conclusion, the present study is a contribution to a better assessment of the meaning

of the servicescape. The servicescape was shown to be of greater importance for the
perceived service quality than so far assumed. Although it was not possible to clarify all
questions concerning the servicescape, implications could be drawn both for
management of the servicescape as well as for further research.

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Appendix 1

Overall Service Quality

SQ1. The overall quality of your bank/ your preferred restaurant is…? ("poor"-"excellent")
SQ2. To what extent does your bank/ your preferred restaurant meet your expectations? ("not at
all"-"completely")

Tangibles
T1. The equipment is modern looking.
T2. The physical facilities are visually appealing.
T3. The employees are neat-appearing.
T4. Brochures and other communication materials/ menus are visually appealing.

Servicescape
T3. The employees are neat-appearing.

25
T4. Brochures and other communication materials/ menus are visually appealing.
T5. The building's architecture is visually appealing.
T6. The interior design is visually appealing
T7. The odour is pleasant.
T8. The noise level is acceptable.
T9. The physical facilities are clean.
T10. Room temperature is pleasant.
T11. Background music is pleasant.
T12. The colours of the physical facilities and the interior are pleasant.
T13. The lighting is comfortable.

Reliability
I1. Time-related promises (e.g. for reservations) are kept.
I2. There is a sincere interest in solving customer problems.
I3. The service/ the order is carried out correctly the first time.
I4. Services are provided/ the meal is served at the promised time.
I5. Error-free records/ checks are insisted on.

Responsiveness
I6. Employees say exactly when the service will be performed./ On request the waiters say how long it
will take before the meal is served.
I7. Employees give prompt service.
I8. Employees are always willing to help.
I9. Employees are never too busy to respond to requests.

Assurance
I10. The behaviour of the employees instills confidence.
I11. Transactions with the employees elicit feelings of security.
I12. Employees are consistently courteous.
I13. Employees have the knowledge to answer questions.

Empathy
I14. Employees give individual attention to the customers.
I15. The operating hours are convenient to all customers.
I16. There are employees who give personal attention/ personally welcome the customers.
I17. The bank/ the restaurant has the customers' best interests at heart.
I18. Employees understand specific customer needs.

Notes: The words in italics show the restaurant-specific adjustments of item formulation. The
tangibles scale and the servicescape scale are alternative scales. Two items of the servicescape
scale overlap with items of the tangibles scale (T3/T4) and therefore in the questionnaire were
specified only once.

Appendix 2
Development of servicescape items according to the following authors:

26
Servicescape Items Authors
T3. The employees are neat in appearance. Baker et al., 1988; Parasuraman et al., 1991;
Wakefield and Blodgett, 1999; Baker et al., 2002
T4. Brochures and other communication Parasuraman et al., 1991
materials/ menus are visually appealing.
T5. The building's architecture is visually Wakefield and Baker, 1998; Turley and Milliman,
appealing. 2000
T6. The interior design is visually appealing Wakefield and Baker, 1998; Wakefield and
Blodgett, 1999; Turley and Milliman, 2000
T7. The odour is pleasant. Baker et al., 1988; Bitner, 1992; Turley and
Milliman, 2000
T8. The noise level is acceptable. Baker et al., 1988; Bitner, 1992
T9. The physical facilities are clean. Wakefield and Blodgett, 1996; Wakefield and
Blodgett, 1999; Turley and Milliman, 2000
T10. Room temperature is pleasant. Baker et al., 1988; Bitner, 1992; Wakefield and
Baker, 1998; Wakefield and Blodgett, 1999; Turley
and Milliman, 2000
T11. Background music is pleasant. Baker et al., 1988; Bitner, 1992; Wakefield and
Baker, 1998; Turley and Milliman, 2000; Baker et
al. 2002
T12. The colours of the physical facilities and the Baker et al., 1988; Wakefield and Baker, 1998;
interior are pleasant. Turley and Milliman, 2000; Baker et al., 2002
T13. The lighting is comfortable. Baker et al., 1988; Wakefield and Baker, 1998;
Turley and Milliman, 2000

27
1
Endnotes
[]
For comprehensive summaries of research on the effect of background music see Bruner (1990) and Oakes
(2000); on the effect of odour see Bone and Ellen (1999). It should be mentioned that a great number of
studies come from psychological research and are thus of general interest and not focused on marketing
questions.
2 []
Kotler (1973)
used the term atmospherics for the description of different visual, acoustic, olfactoric as well as tactile
dimensions of a service environment and was the first author to introduce considerations of the spatial
environment into marketing.
3 []
While the five
dimensions tangibles, reliabilty, responsiveness, assurance, and empathy were once developed as a
measurement tool to assess service quality, it is now widely accepted that these factors influence the
perception of the overall service quality and thus the overall service quality should be measured separately.
Parasuraman et al. themselves recommend regression of the overall quality perception scores on the scores
for the individual dimensions to determine the relative impact of the five dimensions on overall service
quality (Parasuraman et al., 1988, p. 31).
4 []
Since the
study was conducted in German, the questionnaire, i.e. the SERVQUAL items, were translated from English
into German. It was possible to refer to earlier translations and validated research (Hentschel, 1990, p. 231).
The additional servicescape items were formulated in German. However, these items refer to items used by
English speaking authors (Baker et al., 1988; Parasuraman et al., 1991; Bitner, 1992; Wakefield and Blodgett,
1999; Turley and Milliman, 2000). For this article all items were retranslated into English.
5 []
In particular,
structural equation models require a certain sample size. It is recommended that the relationship between
sample size and number of estimating parameters should be at least five (Bagozzi and Yi, 1988; Baumgartner
and Homburg, 1996). A further rule of thumb requires at least ten questionnaires per item included in the
structural equation model. Generally, samples of less than 200 should not be used (Bearden et al., 1982).
6 []
Addresses of
respondents were bought from a specialized address broker whose database covers the entire Swiss
population. Restrictions were made to region (German speaking part of Switzerland) and age of respondents
(18 to 70 years).