Assecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh city

Assecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh cityAssecting the sevice quality and customer satifation in retail banking sector from customers perspective AC between state owned commercial banks ang jonit stock commerical banks in hochiminh city

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

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SATISFACTION IN RETAIL BANKING SECTOR FROM CUSTOMERS PERSPECTIVE: A COMPARISON BETWEEN STATE-OWNED COMMERCIAL BANKS AND JOINT-STOCK

MASTER OF BUSINESS (Honours)

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

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SATISFACTION IN RETAIL BANKING SECTOR FROM CUSTOMERS PERSPECTIVE: A COMPARISON BETWEEN STATE-OWNED COMMERCIAL BANKS AND JOINT-STOCK

COMMERCIAL BANKS IN HOCHIMINH CITY

ID: 22110068

MASTER OF BUSINESS (Honours)

SUPERVISOR: Dr DINH CONG KHAI

Ho Chi Minh City – Year 2014

ACKNOWLEDGEMENT

I would like to send my appreciation to Dr Dinh Cong Khai, who has supported me through my thesis

I would like to send my thanks to ISB-UEH staff that have facilitated my thesis

Moreover, I also want to send my thanks to my friends who supported me in discussing initial questionnaire and respond to my survey

Finally, it would be impossible to say enough about my dear parents and my brother for all of their understanding, encouragement, and advice which helped me to complete this research in time

Nguyen Thi Quynh Trang

ABSTRACT

There are many studies recognized that service quality has a strong correlation with customer satisfaction This research aims to assess and compare the service quality between two types of commercial banks: the state-owned banks and joint-stock banks Although the state-owned banks outperform the joint-stock banks in many areas such as capitals, customers, profitability; but many researches showed that the joint-stock banks have higher levels of service quality perceived by the customers

Based on the BSQ scale developed by Bahia and Nantel (2000) which included six dimensions of service quality, survey questionnaires were issued to capture the customers’ perspective about how they satisfy with service offered by these two types of banks

The result shows that there are significant differences between two types of banks in term

of customer satisfaction and the degree of important attached to various dimensions of service quality The result also suggested that the type of banks affect level of customer satisfaction This study has some implications for state-owned banks to recognize their weakness in management system, and HR strategies

Key words: service quality, customer satisfaction, retail banking service

TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION

1.1 Research background and problem statement 1

1.2 Research question 4

1.3 Research scope and significant of the study 4

1.4 Methodology 5

1.5 Structure of the research 6

CHAPTER 2: LITERATURE REVIEW 7

2.1 Retail banking services 7

2.2 Service quality 9

2.2.1 Service quality definition 9

2.2.2 Service quality and customer satisfaction 10

2.2.3 Measuring service quality 12

2.2.3.1 Service quality dimension 12

2.2.3.2 The SERVQUAL model 13

2.2.3.3 The BSQ scale 17

2.2.3.4 The research hypotheses 18

CHAPTER 3: RESEARCH METHODOLOGY 24

3.1 Research design 24

3.1.1 Research method 24

3.1.2 Sampling 25

3.1.2.1 Sample size 25

3.1.2.2 Sampling method 26

3.2 Research scale 27

3.3 Data analysis approaches 31

CHAPTER 4: DATA ANALYSIS 35

4.1 Statistics on sample 35

4.3 Exploratory Factor Analysis (EFA) 37

4.4 Regression analysis 41

4.5 Independent Sample-t Test 46

CHAPTER FIVE: DISCUSSION, RECOMMENDATION AND CONCLUSION 49

5.1 Discussion on research findings 49

5.2 Implication of this study and recommendation 50

5.3 Research limitation and suggestion for further research 52

CONCLUSION 53

REFERENCES i

APPENDIX v

List of tables

Table 1 Total charter capital of Vietnamese banks .1

Table 2 Scale measurement for Effectiveness and Assurance .28

Table 3 Scale measurement of Access 29

Table 4 Scale measurement of Price 29

Table 5 Scale measurement of Tangibles .30

Table 6 Scale measurement of Service portfolio .30

Table 7 Scale measurement of Reliability 31

Table 8 Scale measurement of Customer satisfaction 31

Table 9 Cronbach’s alpha test of items 36

Table 10 EFA result (time 1) 38

Table 11 Final EFA result 40

Table 12 Coefficients model 1 43

Table 13 Coefficients model 2 44

Table 14 Coefficients model 3 45

Table15 Independent Sample-t test 47

Table 16 Summary on testing hypotheses 48

Table 17 Testing Cronbach’s alpha for pilot test viii

Table 18 Frequency statistics ix

Table 19 Cronbach's alpha for Access ix

Table 20 Cronbach’s alpha (after running EFA time 3) x

Table 21 Factor loading for the rotated factors (time 1) xi

Table 22 Independent variable correlation xii

Table 23 Coefficients for moderating variable xii

Table 24 Group statistics for Independent Sample –t test xiii

List of figures

Figure 1 Customer satisfaction measurement method 12

Figure 2 Gap analysis model 14

Figure 3 Research model .22

Figure 4 Research process .26

Figure 5 Scatterplot .42

Figure 6 Regression standardized residual xiv

Figure 7 Normal P-P Plot of Regression standardized residual xv

CHAPTER 1: INTRODUCTION

1.1 Research background and problem statement

After seven years since Vietnam has become a member of World Trade Organization (WTO), the economy has achieved initial successes The environment and activities of the Vietnamese Banking systems has improved in structures, human resources, service quality… Up

to June 2013, the Vietnamese banking system has five state-owned banks including: Vietcombank, Vietinbank, Agribank, BIDV, MHB Right from the early 2000s, the government has planned to equitize state-owned commercial banks following the main principle that state holds controlling stakes in order to improve management and financial capability, compliant with standards and international practices; create favorable conditions for commercial banks to develop rapidly, improve its competitiveness and hold a large market share, dominates In December 2007, Vietcombank was the first state-owned bank officially listing shares on the HOSE Exchange, marked the first step of the equitization of state-owned commercial banks After that, Vietinbank (December 2008), MHB (July 2011), BIDV (December 2011) were successfully equitized, confirmed the right step of government in the process of equitizing state-owned banks

The Vietnamese banking system also has 35 joint-stock commercial banks, in which have high charter capital such as: Eximbank, Techcombank, ACB, Sacombank, MB,…; five wholly foreign-owned banks, four joint-venture banks and more than fifty branches of foreign banks This figure is not small in compare to a developing country as Vietnam, which has made the competition in banking market very fierce The Financial Magazine No.5 (2013) stated that:

“… The commercial banks in Vietnam, both state-owned banks and joint-stock banks, aim to develop retail banking service, which are shown in the plan to restructure or

huge system of traditional customers for years The joint-stock banks develop mainly based on individual customers, small and medium enterprises…”

(http://www.tapchitaichinh.vn)

Many studies supported the view that public organizations which receive large funding from government are less profitability, productivity and performance efficiency, and so do not better serve than private organizations (Bei and Shang, 2006; Kangis and Kareklis, 2001) Data

of banks in Vietnam showed that the state-owned commercial banks have greater financial resources, size and the major capital contribution from the state, operating primarily in the wholesale sector and then focusing on developing retail services The joint-stock commercial banks are smaller in financial strength, but focus on the retail market from the beginning could also have certain advantages

Table 1 Total charter capital of Vietnamese banks

Group 1 > VND 20 trillion 4 (State-owned banks)

Group 2 VND 5 Trillion - 20 Trillion

11 (including some Joint-stock banks in this research) Group 3 VND 3.5 Trillion - 5 Trillion 7

Berry et al (1988) stated that the services that banks offer to their customers are quite similar in design, and the prices are comparable, but banks were different in the level of service quality When the types of products and services of the banks are similar and there is no significant difference, the quality of services may become a strategic weapon that can help banks overcome rivals in order to capture the market There are no common standards or criteria for evaluating or ranking retail banks In fact, banks in Vietnam have ranked or assessed but only through the vote of some Bank Magazine by particular criteria such as the ability to generate soared retail sales, leading on profits from business operations and customer growth (the Asian Banker); or criteria based on the assessment of innovation and efficiency (the Asian Banking & Finance) However, if based on the criteria above, a number of banks which have the advantages

of size, financial resources (mainly state-owned commercial banks) will have more advantages

In addition, the criterion by consumers voted is not focused

Based on those advantages and literature studies, do Vietnamese banks actually exploit and utilize effective or not, do joint-stock banks better serve than state-owned banks are essential

questions that need to be obtained in the research: “Assessing the Service Quality and Customer Satisfaction in Retail Banking Sector from Customer Perspectives: a Comparison Between State-owned Commercial Banks and Joint-stock Commercial Banks

in Ho Chi Minh city” In recent years, commercial banks in Vietnam have made great strides in

developing banking services Developing retail banking services is a trend for banks to strengthen their current presence, increase market share, and enhance the competitiveness of banks Many banks actively expand retail distribution channels through opening branches and transaction offices to meet the increasing demand of customers Vietnamese commercial banks not only focus on the rapidly expanding distribution channel to access retail market share, but

usability of the service to the customer’s accounts Therefore, banks can improve their operations

as well as consolidate their images in customers’ eyes, and banks can increase sales, market share, and position in the market Besides, knowing what customers need, what they expect and how they feel about the service they have received is important for banks to evaluate their service Searching customers’ satisfaction in the bank is an important task that has to be done regularly and continuously in order to meet their needs Since then, they can serve customers better and make customers always be satisfied when using bank’s products and services

1.2 Research question

The purpose of this research is to assess the service quality that customers perceive and compare the service quality between two types of bank in Vietnam: state-owned commercial banks and joint-stock commercial banks

Doing this research, we can answer these questions:

1 Is there a significant relationship between the perceived service quality and customer satisfaction among retail banking customers in Ho Chi Minh city?

2 Are there significant differences on service quality form customers’ perspective between two types of banks: State-owned commercial banks and joint-stock commercial bank?

3 Do types of banks affect customer satisfaction related to the degree of importance attached to the various dimensions of service quality?

1.3 Research scope and significant of the study

There are many banks in Ho Chi Minh city which vary from sizes, capital resources…Besides, retail banking services aim to serve individual and small – medium enterprises In this study I just conduct survey on individual customers who used services from two types of banks Vietcombank, Vietinbank and BIDV were chosen from state-owned

commercial banks since they were equitized For joint-stock commercial banks, some banks that have high chartered capital such as Techcombank, Sacombank, ACB, Eximbank, were chosen They are all located in Ho Chi Minh city

The study planned to impact the success of the growing retail banking sector in a transition economy through analyzing customer reactions to the service quality by examining their levels of satisfaction with specific service quality dimensions Analyzing the level of service quality from customers’ perception, the banks will better understand customers’ needs and quality of services that they provide, know strengthens - weaknesses and the position of banks

1.4 Methodology

A survey instrument using a 7-point Likert-type format was designed to collect

participant perceptions to conduct statistical comparison The study includes two stages: (1) the

pilot study used both qualitative and quantitative method In the pilot study, based on the original BSQ scale, a preliminary questionnaire was developed 10 people were interviewed in order to edit and confirm that all the questions are well-understood The result of this step is to build a questionnaire used in formal study The formatted questionnaire was sent to 52 customers to test the reliability of scale by using quantitative method (2) The formal study used quantitative method to collect and analyze survey data, as well as to test the hypotheses In the formal study, the reliability of the data was tested by Cronbach’s alpha technique Then the study tested scales measurement validity: factor analysis - EFA (Exploratory Factor Analysis) and apply some technique such as Independent samples t-Test to identify if there are significant difference from service quality between two type of banks Multiple regression analysis was used in an attempt to

demonstrate the impact of service quality dimensions in explaining overall satisfaction of customers in retail banking sector

1.5 Structure of the research

The structure of this study includes five chapters Chapter One introduced the research background and problem statement, research question and scope of the study The methodology was also briefly introduced in this chapter

Chapter Two reviewed the concept of retail banking service, service quality definition and assessment Hypotheses and research model were then given based on literature review

Chapter Three introduced the research methodology with sample selection; scale development was presented in detail in this chapter

Data collected was then calculated and discussed in Chapter Four By using the SPSS software, statistics on respondents geographic was presented firstly, then the study tested the reliability and validity of variables through Cronbach’s alpha and EFA technique The linear regression and Independent Sample-t test were used to test hypotheses Some discussions were given based on results

In Chapter Five, recommendation, limitation and suggestion for future research were also presented

CHAPTER 2: LITERATURE REVIEW

Many studies showed that excellent service has become a competitive weapon for firms Organizations in service industry such as banks should consider service quality as a key strategy for the success of business (Lewis, B R and Mitchell, V W., 1990; Spathis et al., 2004) Therefore, banks have improved on service quality scale development, capital resources, human resources and technology to create competitive advantages

This chapter presents the literature on the concept of service quality, retail banking service, service quality assessment and measuring service quality in the banking context Hypotheses will also be given within literature

2.1 Retail banking services

“Retail banking is the cluster of products and services that banks provide to consumers and small businesses through branches, the Internet and other channels” (Timothy et.al, 2007, p.40) According to this definition, retail banking includes three dimensions: customer served products and services offered, and the delivery channels linking customers to products and services

Retail banking aims to serve individuals and small businesses With the huge number of people, banks must identify the right customers segment suitable with banks’ strength This is crucial to the success or failure of banks in such a competitive market About products and services, Orlow et al (2007) mentioned some activities in both assets and liabilities side of the balance sheet For liabilities’ side, deposit taking – which includes transaction deposits such as current accounts or checking accounts, non-transaction deposits saving accounts and time deposits – as the core retail banking activities Many banks emphasized the importance of

accounts, banks can take advantages from customers’ idle money; take fees from many transactions such as bills payments, money transfer, annual fees…

From the assets’ side, the key retail banking activities are consumers’ credits and small business loans They include credit cards, mortgages, home equity lending, auto loans, education loans and other loans Aside from loans and deposits, there are a wide range of other financial services that banks can offer their customers: mutual funds, insurance brokerage, retirement planning, payroll…

The third dimension of retail banking which links customers to products and services is delivery channels It is easy to see that branches network is the main and important channel that links directly customers to their services According to Shah and Clarke (2009), the traditional banking business model is based on physical distribution channel, with numbers of branch allocated around populated areas to provide a wide range of services This could help banks to move closer to customers, encourage them to use banks’ service since there are many activities required customers to go directly to the banks in order to make transactions such as open new account, change information, withdrawal or deposit huge amount of money… Beside, banks recently develop their remote delivery channels such as ATMs, call centers, the Internet The appearance of ATMs network brings convenience of cash using to customer Fraering and Minor (2006) argued that current account play a fundamental role between banks and customers Through this type of account, people could do many transactions such as money transfer, electric/ phone payment, credit… Another distribution channel suggested by Shah and Clarke (2009) is telephone banking and e-banking, which create more convenience to customers By providing those utilities, banks could take advantages of the money from the very large number

of customers with low cost, charge collection; and customers gain the convenience Those channels provide more convenience to customers; therefore attract more and more customers to

use banks services Based on those structure and benefits, many banks nowadays aim to develop the branches system, ATM network, e-banking services in order to take advantages in such a competitive market

All three dimensions above are interrelated, they must be viewed together to understand retail banking completely, as suggested by Timothy (2007)

2.2 Service quality

2.2.1 Service quality definitions

Service quality concept has become more popular and important nowadays, not only on service industries There were many definitions of the term “service quality” given by different authors by sharing one or more elements, and based on these definitions, different approaches were developed to measure service quality in specific context Many researchers agreed that service is intangibles activities because unlike goods and products, service has no physical presence Gummesson (1987) stated that “services are something that can be bought and sold but which you cannot drop on your foot” (p.22) Parasuraman (1985) defined services as the benefit that one party can offer to another

Although service is intangible, but it has some characteristics that can be evaluated such as: delivery, consistency, customization, speed, trust That are benefits that customers receive from the service provider, and base on them, customers will evaluate the quality of service In addition, service cannot be assessed prior to its use; customers will rely on his or her experience

of the service to have their judgments

Definitions using the comparison between expectation and delivered service (or

Zeithaml and Berry (1990) gave an opinion that “service quality, as perceived by customers, can

be defined as the extent of discrepancy between customers’ expectations or desires and their perceptions” (p.19) Lewis (1991) also used the concepts “consumers’ expectations and perception of actual service performance” (p.53) to define service quality Gronroos (1991) stated that “consumers compare their expectations with service they perceive” (p.38) to evaluate service quality And it can be understood that if performance is higher than expectation, the level

of service quality is high and vice versa

Having the same attitude but different approach with the above researchers, Cronin and Taylor (1992) suggested a performance-only measurement for service quality, they stated that

“perceived service quality is best conceptualized as an attitude” (p.58)

Different researchers have different definitions about service quality So understanding many definitions and relationships among these main aspects above is useful for firms to set appropriate structure

2.2.2 Service quality and customer satisfaction

There are many definitions of customer satisfaction that are accepted Westbrook (1981) considered satisfaction as the customer’s evaluation of service provided from their experiences Churchill and Suprenant (1982) stated the concept that satisfaction is the outcome of purchase and use of consumer in compare with their anticipated costs of purchase Literature also showed that there is a relationship between customer satisfaction and service quality Some researchers mentioned that customer satisfaction is an antecedent of service quality (Parasuraman et al, 1988; Bitner, 1990; Carman, 1990) In contrast, Cronin and Taylor (1992), Anderson and Sullivan (1993) argued service quality is an antecedent of customer satisfaction They indicated that service quality has positive impact on customer satisfaction In banking sector, there were studies

that also indicated that service quality is positively related to customer satisfaction (Amin and Isa, 2008; Othman and Owen, 2001) Cronin et al (2000) used some definitions to describe the relationship between customer satisfaction and service quality, which were: customer satisfaction

is the result of customer’s perception of value perceived, and value equals to perceived service quality, or the determinant of customer satisfaction is perceived quality Cronin and Taylor (1992) suggested that service quality should be viewed as the determinant of customer satisfaction Although service quality and customer satisfaction are conceptually distinct, these two concepts are closely relate constructs The following figure illustrates customer satisfaction measurement:

Figure 3 Customer satisfaction measurement method

Source: FeclikovaA Ingrid (2004)

This figure showed that there is a relationship between service quality and customer satisfaction Customers’ expectation and quality perceived are the components of service quality definition; while “service quality has strong influence on overall satisfaction” (Culiberg and Rojsek, 2010, p.152) Many research indicated a positive and significant association also existed

between customers’ satisfaction and service quality (Jamal and Nasser, 2002, Amin and Isa,

2008, Bei and Shang, 2006)

2.2.3 Measuring service quality

2.2.3.1 Service quality dimension

Quality is seemed to be one of the most important things in organization’ success and this

is not an exception for banking sector As many researchers defined, the common characteristics

of service is intangible that it cannot be seen directly and not easy to measure (Parasuraman et al., 1988; Stanton, 1986;…)

Parasuraman (1985) defined service as the benefit that one party can offer to another that are essentially intangible Service has no physical presence, so how to measure service quality? Even service is intangible, it has some characteristics that can be assessed, for example, the delivery channels, the consistency, the speed or accuracy of service offered (Palmer, 2008)

Along with definitions of service quality and service characteristics, many researchers proposed some models and criteria to assess the quality of services Because customers nowadays with high requirement, they do not just buy products and services, they buy value - the total package of product performance, access, experience, and cost (Jelena et al, 2012) So to measure service quality, most researchers focused on those dimensions Parasuraman (1985) based on their studies with customers and service providers, gave ten determinants of service quality, they are: reliability, competence, responsiveness, tangibles, credibility, access, security, communication, courtesy and knowing and understanding customer Then in 1988, ten dimensions were consolidated into five dimensions, which were: assurance, responsiveness, tangibles, empathy and reliability The SERVQUAL model was then developed base on those dimensions

Gronroos (1984) built a service quality model with two dimensions (in some case are three, including image) Technical quality (outcome) refers to what customers receive by interacting with the service provider Functional quality (process) refers to how service provider performs or delivers a service Image refers to company’s image and how customers perceive the firm (Gronroos, 2007) In some cases, Gronroos considered image as a dimension, some case image were considered as a factor that affect technical quality and functional quality This model placed an important on customers’ perception of the way the service was delivered

Guo et al (2008) developed a new measurement of service quality in banking sector in China based on SERVQUAL and gave four dimensions: reliability, human capital, communication, technology Another study in banking sector done by Othman and Owen (2001) modified SERVQUAL to measure the service quality by six dimensions: compliance with Islamic law, assurance, reliability, tangibles, empathy and responsiveness

The important thing in developing service quality model is that service quality must be measured from customers’ perspective Within the literature review, the most popular service quality model was given by the North American school

2.2.3.2 The SERVQUAL model

The most widely known service quality model is the Gap Analysis model, which was developed by Parasuraman, Zeithaml and Berry (1985, 1988) from the North American school This model is based on five gaps with gap 1 – 4 were called provider gap and swere internal gaps caused by organization (Parasuraman et al., 1988; Wilson et al., 2008) Gap 5 was called consumer gap, which was the most important gap that need to be closed The SERVQUAL model derived from gap 5 is used popularly by many researchers in service sector

Figure 1 Gap analysis model

Source: Parasuraman, Zeithaml and Berry, 1985

Gap 1: Consumer expectation – management perception gap

This gap is the result of the difference between consumer expectation and management perception Lacks of proper market/ customer focus, lack of communication between managers

… are some reasons that cause gap 1 To close or reduce this gap, adequate marketing research, improve communication to know customers’ expectation should be done

Gap 2: Service quality specifications gap

This gap is the result of the difference between management perception of customers’ expectation and the organization’s service quality specifications This means the management is unable to translate customers’ expectation into organization’s specifications Factors that

contribute this gap can be: inadequate management commitment, perception of infeasibility, inadequate standardization, absence of goal setting (Jame, B B., 2005)

Gap 3: Service delivery gap

This gap is the result of the difference between service quality specifications and actual service delivery This gap may be caused by lack of guidelines for service delivery, front-line staff who are responsible for service delivery are not well supported and trained, poor technology – job fit… Knowing this is necessary for reducing this gap by provide proper training and supervision to the staff

Gap 4: External communication gap

This gap is the result of the difference between actual service delivery and external communication about service External communications such as marketing, advertising, promotion… create the consumers’ image and expectation about the service If the real service offered to customers is not as good as what were advertised, customers can become frustrated

To reduce this gap, communication between advertising and operating department; between sales personnel, marketing and operating department should be adequate in order to ensure that employees do not promise more than what can be delivered

Gap 5: Expected – perceived service gap

This gap is the difference between the expectation of service and the service perceived by customer This is the most important gap that needs to be closed to improve the service quality Because the size of gap 5 is affected by gap 1 to 4, so reduce gap 1 to 4 is necessary for close gap

5 in turn

By defining service quality as the differences between expectation and performance, Parasuraman (1985) gave the “gap analysis” measurement and applied components scale to assess service quality (SERVQUAL) This is the most well-known and popular scale which was used by many researchers in assessing quality service in a wide range of service sector SERVQUAL model is built based on the evaluation of quality of services, which is the comparison between the expected value, expectation, and the value customers perceived SERVQUAL model includes five criteria – reliability, responsiveness, tangibles, assurance, and the empathy with 22 items to develop both expectation and perceived performance (Parasuraman, 1988)

Tangibles focus on the elements that represent the service physically Tangibles are the images of the facilities, equipment, machines, attitude of staffs, materials, manuals, and information systems of the bank General speaking, anything that customers can see by eyes and feel by senses can impact on tangible

Reliability refers the ability to deliver the promised service dependably and accurately Reliability shows the ability to provide services accurately, on time, and credibly This requires consistency in the implementation of services and respects commitments as well as keeps promises to customers

Responsiveness is the willingness to help customers and provide prompt service This criteria measures the ability to solve the problem fast, deal with customers’ complaint effectively and the willing to help customers as well as meet the customers’ requirements In other words, responsiveness is the feedback from banks to what customers want

Assurance relates the ability to inspire trust and confidence This element creates credibility and trust for customers, which is considered through professional services, excellent

technical knowledge, attitude courtesy, and good communication skills, so that customers can believe in the quality of bank’s services

Empathy relates to emotional aspect of service Empathy is the caring, consideration, and the best preparation for customers, so that they can feel as “guests” of the bank and are always welcome at any times, anywhere Human factors are the core of this success and the more caring the bank gives to customers, the more customer understanding increases

The SERVQUAL focuses on gap 5 of the Gap Analysis model which was defined as the difference between expected service and service perceived by customer Accordingly, service quality is measured by the equation: “Q = P – E, (Q: quality, P: perception, E: Expectation)” (Parasuraman, p19) This model measures expectation and perception separately, and this causes some criticism Using equation Q = P – E with the concept of “subtraction” has no equivalent theories of psychological function Additionally, when using SERVQUAL to interview customers, it may take long time and inaccurate answer because they have to separate and answer two times for expectation and perception Cronin and Taylor (1994) developed a performance-based measure of service quality labeled SERVPERF They thought that

‘performance’ rather than ‘perception-expectation’ determines service quality and provides substantial evidence to show: expectations have little or no impact on the evaluation of consumers, particularly in relation to service quality (Cronin and Taylor, 1992) This model followed SERVQUAL scale with the same 22 items defined five dimensions, just excluded the

expectation component from measuring service quality

2.2.3.3 The BSQ scale

SERVQUAL has been known as the universal model in measuring service quality in a

confirmed the reliability and validity of this model However, as Jabnoun and Khalifa (2005) stated that: “the concern of service quality may differ from one country to another” (p.374), those researchers applied SERVQUAL model in their study but by a modified version to fit the banking environment in Islamic This modified version included four dimensions which were personal skills, reliability, values and image

It can be seen that, service quality measurement scale need to be customized to the specific service sector in which they are applied Bahia and Nantel (2000) developed a scale to specifically measure of perceived quality in banking services, named Banking Service Quality (BSQ) Some dimensions of SERVQUAL such as: tangible, assurance, and reliability were used

in BSQ scale Besides, based on framework of marketing mix with the seven Ps: (1) product/service; (2) place; (3) process; (4) participants; (5) physical surroundings; (6) price; and (7) promotion (Booms and Bitner, 1981); Bahia and Nantel (2000) gave the BSQ scale with 6 dimensions which were: effectiveness & assurance, access, price, tangibles, service portfolio and reliability According to Bahia and Nantel, there are no standard scales for measuring service quality in banking sector, and the scale they developed may different among countries Under literature that service quality and customer satisfaction have positive relation, this section also gave hypothesis to test whether those dimensions of BSQ scale are factors that have positive impact on customer satisfaction

2.2.3.4 The research hypotheses

This study aims to measuring service quality levels in banking sector using the BSQ scale, and those scales were tested the reliability by many researchers By inherited and modified SERVQUAL model, the BSQ was reliable and more details, it included service portfolio and price dimensions which were absent from SERVQUAL Glaveli et al (2006), Petridou et al

(2007) used BSQ to measure the perceived service quality in retail banks and confirmed the validity and reliability of the scale In Vietnam, Yu et al (2009) also applied this BSQ scale in measuring service quality in banking service Therefore, in this research, hypotheses can be developed base on the BSQ scale to measure the service quality of banking sector based on how customer satisfaction with services they perceived

Effectiveness and assurance: According to Bahia and Nantel (2000), effectiveness

refers to the effective delivery of service (particularly the friendliness and courtesy of employees) and the ability of staff to inspire a feeling of security Assurance concerns the staff’s ability to exhibit their communication skills and to deal confidentially with clients’ requests Because Bahia and Nantel (2000) added up two concepts into one dimensions so this dimension includes many aspects, some examples such as: no delay, no interruption, delivering when promised… Tsoukatos and Mastrojianni (2010) indicated that retailed customers need special attention and care from bank employees in order to trust the bank services Glaveli et al (2006) suggested that customers are strongly influenced by their face to face interactions with bank personnel in developing quality perception According to Parasuraman (1988), doing what is promised accuracy and doing this at a promised time could lead to customer satisfaction, so the higher the effectiveness and assurance, the higher customers’ satisfaction

H1: Effectiveness and Assurance has positive impact on customer satisfaction

Access: access referred to the speed of service delivery, in other word, customers don’t

want to take long time for finishing a transaction In this dimension, the item “the equipment is modern” is existed, which is different from SERVQUAL where the modern equipment refers to tangible dimension) As Bahia and Nantel (2000) explained, modern equipment plays an

example, a modern ATM system can provide quick transaction for customers Furthermore, the mail concern of banks nowadays are to ensure a high quality of their electronic services, and e-banking has become “one of the most profitable e-commerce applications” (Lee, 2009, p.130) Banks adopted more e-banking service for the purpose of providing more convenience and satisfaction to their customers Le and Pham (2008) suggested that banks do not just concentrate

in banks’ staffs, price…, they should also focus on distributed channels and technologies in order

to improve their service quality (p.26) So hypothesis would be given as follow

H2: Access has positive impact on customer satisfaction

Price: the third dimension of service quality suggested by Bahia and Nantel is price,

which measures the cost of service delivery Customer satisfaction is considered to be based on value which is closely related to price, but service quality is not related to price (Anderson et al, 1994; Athnassopoulos, 2000) This dimension is also not existed in SERVQUAL According to Bahia and Nantel, price is specific for service quality of banking sector High interest rates, reasonable fees…can lead to higher satisfaction level Le and Pham (2008) also gave the idea that interest rate is also a factor that raise the competitive level for banks

H3: Price has positive impact on customer satisfaction

Tangibles: according to Bahia and Nantel (2000), tangibles refer to the atmosphere, the

effective environment and the precise service representations Aspects of this dimension represent the appearance level of the bank’s physical facilities such as cleanliness, decoration of buildings, facilities… As many studies proved that the physical appearance might influent the customers’ level of satisfaction (Parasuraman et al, 1988; Bitner, 1990, Le and Pham, 2008)

H4: Tangibles has positive impact on customer satisfaction

Services portfolio: assesses the range, consistency, and innovation of the bank’s

products This is another factor that specific to retail banking sector since products and services

is one of three dimensions that made up retail banking sector within literature review The variety of service portfolio can also lead to high customers’ satisfaction since they meet all the needs of people This dimension seemed to be new in evaluating service quality in Vietnam since most of the studies in this sector used SERVQUAL or Gronroos’ model, and those models do not include this component When the types of products and services of the banks are similar and there is no significant difference, so it should be considered whether this dimension has any positive impact on customer satisfaction

H5: Services portfolio has positive impact on customer satisfaction

Reliability: this dimension measures the bank’s ability to deliver the service you have

been promised accurately and without error It’s similar to Parasuraman et al (1988) that reliabilities related to how accurate the service delivered to customers Parasuraman also indicated that reliability is considered the most important factor that customer require in service sector Without making errors in service delivered, customer would highly evaluate the quality

Le and Pham (2008) also confirmed that reliability is one of the most important factor that has great influence on customer satisfaction

H6: Reliability has positive impact on customer satisfaction

- State-owned banks versus Joint-stock banks

There have been many studies in comparing service quality among types of banks (private banks, public banks, foreign banks…) The terms public banks and private banks were defined by Kangis and Kareklis (2001) as: “the term public banks denotes banks under control of

that public banks are likely to be under political control, more bureaucratic and less concerned with the profits; while private banks are highly concerned with profit and have high level of effort, so those types of banks have different behavior with their customers in the way that private banks outperform to public banks

Megginson (2005) also did research in comparing service quality between banks and showed that privately-owned banks are more efficient than state-owned banks Another study of Bei and Shang (2006) found that the customer satisfaction of public banks is less than that of private banks

In Vietnam, there is a trend that many state-owned banks are equitized and invest more in technologies and services in order to increase competition in banking sector So whether service quality of joint-stock banks is better than that of state-owned banks, a hypothesis was developed

to obtain this question

H7a: Service quality of joint-stock commercial banks is better than that of owned commercial banks

state-H7b: The types of banks change the effect of the service quality to customer satisfaction

Research model was suggested as below

Figure 3 Research model

Summary

This chapter reviewed some studies of service quality dimensions and definitions of retail banking sector Literature showed that there have been many models that are developed to measure service quality in a variety of businesses, and the mostly known models are the SERVQUAL and the Gronroos model This study applied the BSQ scale to measure service quality in specific banking sector To connect the literature review with research questions, hypotheses were given and guided for developing research methodology in the next chapter

CHAPTER 3: RESEARCH METHODOLOGY

Based on the research objectives, research methods mentioned in chapter 1, and the literature review as well as a research model was mentioned in Chapter 2, this chapter presents more detailed about research design, research process, the scale to measure concepts and data analysis approaches to test the research hypotheses

3.1 Research design

3.1.1 Research method

The study was conducted through two stages: (1) pilot studies to build questionnaires, (2) formal study to collect and analyze survey data, as well as to estimate and test the hypothesis A mixed method was used which were quantitative method and qualitative method Quantitative method relies on numbers and figures, while qualitative method bases on words, sentences (Blumberg et al., 2008)

(1) The pilot study was based on qualitative method to edit and confirm that all the statements are well-understood and also applied quantitative method to test the reliability of all items in the questionnaire Based on the 31 items of BSQ scale developed by Bahia and Nantel (2000), a questionnaire was firstly developed and was checked by ten banking employees who well understand the banking idioms and customers’ perspective Through discussion, most of interviewees suggested and agreed that that item “queues move rapidly” is not necessary because

in banks, customers just care about how long they have to wait for turn, and this idea was already stated in another statement Additionally, item “knowledge of the client on a personal basis” is not suitable since customers could feel difficult to appraise this idea It’s suggested that this item should change to the way bank staff serve customers, and this item changed to “serve customer

as they are important client” By doing this stage, any errors in wording, translating can be

discovered and corrected; some statements also be deleted The formatted questionnaire was sent

to 52 customers to test the reliability of scale By using SPSS software to calculate the Cronbach’s alpha, scales that are not reliable (Cronbach’s alpha <.6 and Correct item-correlation

<.3) would be deleted The result in this stage was the formal questionnaire used in formal study (Appendix Table 1)

(2) In the formal study, main data was collected by taking survey in customer who used banking services Quantitative method was used in this study to explore the relationship between variables and to test the hypothesis developed in literature review In this step, the final questionnaire after testing scales’ reliability was sent to customers directly or via mail to collect data used for analysis Data collected from all responses was used to re-check the reliability and validity, hypothesis were also be tested by applied some methodologies which mentioned later in this chapter

3.1.2 Sampling

3.1.2.1 Sample size

Sample size has an important impact on how the sample represents the population (Burns and Bush, 2010) Sample size of more than 100 and should be five times the numbers of variables (Hair, 2003) In addition, Tabachnick and Fidell (2011) suggested that for regression analysis, the sample N with N>= 52+8*k, k is the numbers of independent variables is necessary

In this study, there are 34 items and 6 independent variables; the sample size therefor was at 170

as minimum (min {(5*34), (52+8*6)}) The sample N=214 in this study was satisfied these two condition above

as they were equitized; Techcombank, Eximbank, ACB, Sacombank were chosen represented joint-stock commercial banks because they have high charter capitals Respondents were customers who have used services of any banks that mentioned above Furthermore, to assess service quality accurately, customers chosen must have high frequency doing transaction with banks All customers and banks are located in Ho Chi Minh city So non-probability sampling was chosen and convenience sampling type was adopted to generate the respondents in survey

Figure 4 Research process

3.2 Research scale

To date, banks have tended to use more general instruments that measure service quality across a broad range of services, or scales contextually developed by a particular bank to cope with a specific problem (Bahia and Nantel, 2000) Although SERVQUAL is the most popular model that measures the quality in a wide range of services, this model is not specific for banking sector As mentioned above, the BSQ was designed for the context of banking sector, so

it can help researchers to measure deeply in banking environment To measure service quality levels from the customers’ perception, the questionnaire was developed base on the original 31 items related to 6 dimensions of BSQ All these questions were modified to be best understood and suitable for Vietnamese customers As Malhorta (1996) argued that there is a positive relationship between number of scale points and scale reliability Suggested by Bahia and Nantel (2000), a seven-point Likert scale with a signed value of 1 = strongly disagree to 7 = strongly agree was used to indicate the level in which customers satisfied which each statements in the questionnaire Six dimensions and 31 items were coded below

3.2.1 Scale measurement of Effectiveness and Assurance

Variable of Effectiveness and Assurance was signed as EA According to Bahia and Nantel (2000), there are 13 items to measure this variable After discussing with some bank employees, item “knowledge of the client on a personal basis” is not suitable since customers could feel difficult to appraise this idea It’s suggested that this item should change to the way bank staff serve customers, and this item changed to “serve customer as they are important client” The other items were not changed and stated below

Table 2: Scale measurement for Effectiveness and Assurance

AE Effectiveness & Assurance

AE1 The behaviors of the employees in the bank are confident

AE2 Bank employees serve you in the way to make you feel like a very important

customer

AE3 The bank places great importance on customers’ confidentiality

AE4 Bank personnel have valorization

AE5 There are less interruptions due to technical problems

AE6 The bank has well-trained personnel

AE7 Bank personnel have the knowledge to answer your questions

AE8 The bank provides its services at the time it promises to do

AE9 No contradictions in decision between personnel and management in this bank AE10 The bank has a good reputation

AE11 You feel secured and safe in your transactions with bank’s employees

AE12 The transactions procedures and process are simple and quick

AE13 The bank shows high quality indications

3.2.2 Scale measurement of Access

Variable of Access was signed as AC Access refers to the speed of service delivery In this scale, most interviewees agreed that item “queues move rapidly” is not necessary because in banks, customers just care about how long they have to wait for turn, and this idea was already stated in statement “customers do not have to wait long for turn” So the item “queues move rapidly” was eliminated from this scale The remaining four items were stated below

Table 3 Scale measurement of Access

AC1 The bank has sufficient numbers of ATMs

AC2 The bank has the latest technology and the modern-looking equipment

AC3 The bank has sufficient numbers of tellers

AC4 Customers do not have to wait long for turn

3.2.3 Scale measurement of Price

This variable was signed as PR According to Bahia and Nantel (2000), price includes three items related to specific monetary form such as: interest, fees… and two items related to broader concept of price The latter idea is difficult for customers to understand how it related to price

Item “Bank contact to customer whenever needed” is not suitable and was deleted from this scale This variable included four items:

Table 4 Scale measurement of Price

PR1 The bank provides good explanations of service fees

PR2 The bank provides competitive interest rate

PR3 Account management fee/ maintaining balance account is reasonable

PR4 The bank informs and advices customer as soon as there are new service with

preferable interest rate or fees

3.2.4 Scale measurement of Tangibles

Tangibles was signed as TA Four items in this scale were appraised to be easy to understand and remained unchanged

Table 5 Scale measurement of Tangibles

TA1 The bank provides accurate account balances for customer

TA2 Bank buildings, counters have a good level of cleanness

TA3 The bank facilities are well-decorated

TA4 The bank creates effective working environment

3.2.5 Scale measurement of Service portfolio

Service portfolio was signed as SP It includes 2 items and stated as below

Table 6 Scale measurement of Service portfolio

SP Service portfolio

SP1 The services of bank are diverse, fully meet customers’ needs

SP2 The bank offers services that are consistent with the latest innovation

3.2.6 Scale measurement of Reliability

Reliability was signed as RE It includes 2 items and stated as below