The impact of bank service quality on customer loyalty a study of banks in ho chi minh city

ii ABSTRACT The purpose of this research is to assess bank service quality in Vietnam based on perceptions and experiences of customers, to find the linkage between bank service quality

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY

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DO CONG BIEN

THE IMPACT OF BANK SERVICE QUALITY ON

CUSTOMER LOYALTY

A STUDY OF BANKS IN HO CHI MINH CITY

MASTER OF BUSINESS ADMINISTRATION THESIS

Ho Chi Minh City – 2011

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY

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DO CONG BIEN

THE IMPACT OF BANK SERVICE QUALITY ON

CUSTOMER LOYALTY

A STUDY OF BANKS IN HO CHI MINH CITY

Major : Business Administration

Major Code : 60.34.05

MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisor: PROF DR NGUYEN DONG PHONG

Ho Chi Minh City – 2011

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ACKNOWLEDGEMENT

First and foremost, I would like to thanks to my supervisor Prof Dr Nguyen Dong Phong for his guidance, encouragement and excellent advice throughout this research study

I would like to express my heartfelt gratitude and deepest appreciation to Dr Tran

Ha Minh Quan for his precious guidance, share of experience, and highly valuable suggestions for this research as well during the MBA course

I would like to especially express my thanks to Lecturer Mr Dang Huu Phuc for his supports and instructions in analyzing data of my thesis

Much appreciation goes to all lecturers at Faculty of Business Administration and Postgraduate Faculty, University of Economics Ho Chi Minh City for their expertise in providing me continuous learning process that greatly enriched my knowledge

I would like to thank to all my classmates, my friends for their supports and encouragement

Last but not least, I would like to take this opportunity to express my profound gratitude to my beloved parents for being patience and never failed giving me continuous supports

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ABSTRACT

The purpose of this research is to assess bank service quality in Vietnam based on perceptions and experiences of customers, to find the linkage between bank service quality attributes, customer satisfaction and customer loyalty in retail banking sector This research sought to identify the most important attributes in banking settings, which may be used to review characteristics of the banks as experienced by customers In Vietnam, no study has yet investigated the above mentioned interrelationship; this research is to fill this gap

Based on the BSQ (bank service quality) model suggested by Bahia and Nantel (2000), six main dimensions (effectiveness and assurance, access, price, tangibles, service portfolio, and reliability) were used to find out the relationship among bank service quality, customer satisfaction, and customer loyalty All the data were collected through questionnaires; the sample size of 246 retail banking customers was drawn from different banks in Ho Chi Minh City Descriptive statistical approach, multiple linear regression, Anova were then used to describe and analyze these six dimensions and take them into the involvement with customer satisfaction and loyalty

The results show that four bank service quality attributes (effectiveness and assurance, access, price, service portfolio) are positively related to customer satisfaction and customer satisfaction is positive related to customer loyalty Access demonstrates the highest positive correlation with customer satisfaction while two remaining attributes (tangibles and reliability) are not positively related to customer satisfaction

This study was one of the first ones using BSQ model to test bank service quality in retail banking section in Vietnam This study also suggests that BSQ (bank service quality) is a suitable instrument for measuring the bank service quality in the Vietnamese context

Keywords: bank service quality, customer satisfaction, customer loyalty, effectiveness

and assurance, access, price, tangibles, service portfolio, and reliability

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CONTENTS

Acknowledgement ……… i

Abstract ……… ii

Contents ……… iii

Lists of Tables ……… vi

Lists of Figures ……… vii

CHAPTER 1: INTRODUCTION ……… 1

1.1 Research background ……… 1

1.2 Problem statement and research questions……… 2

1.3 Research purposes ……… 4

1.4 Research scope ……… 4

1.5 Conceptual framework ……… 5

1.6 Significance of the study ……… 5

1.7 Thesis structure ……… 6

1.8 Summary ……… 6

CHAPTER 2: LITERATURE REVIEW ……… 7

2.1 Introduction ……… 7

2.2 Bank service quality ……… 7

2.2.1 Service quality concept ……… 7

2 2.2 Service quality attributes ……… 11

2.2.3 Critique of SERVQUAL ……… 14

2.2.4 Service quality attributes of retail banking ……… 16

2.3 Customer satisfaction ……… 20

2.4 Customer loyalty ……… 22

2.5 Relationships between service quality, customer satisfaction and loyalty 25

2.6 The research model and hypotheses……… 29

2.6.1 The research model ……… 29

2.6.2 Hypotheses ……… 29

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2.7 Summary ……… 31

CHAPTER 3: RESEARCH METHODOLOGY ……… 32

3.1 Introduction ……… 32

3.2 Research design ……… 32

3.3 Research process ……… 32

3.4 Measurement scales……… ……… 33

3.5 Sample size and data collection procedures ……… 35

3.6 Data analysis method ……… 36

3.7 Summary ……… 37

CHAPTER 4: DATA ANALYSIS AND RESULTS ……… 38

4.1 Introduction ……… 38

4.2 General characteristics of the sample ……… 38

4.3 Cronbach alpha reliability analysis ……… 39

4.4 Exploratory factor analysis ……… 40

4.4.1 Factor analysis for bank service quality attributes ……… 40

4.4.2 Factor analysis for customer loyalty variable ……… 43

4.5 Multiple linear regression ……… 44

4.5.1 Customer satisfaction and bank service quality ……… 44

4.5.2 Customer loyalty and customer satisfaction ……… 46

4.6 Hypotheses assessment and discussion ……… 48

4.7 ANOVA analysis ……… 51

4.7.1 In the aspect of age with customer satisfaction ……… 51

4.7.2 In the aspect of income with customer satisfaction ……… 52

4.8 Summary ……… 53

CHAPTER 5: CONCLUSIONS AND IMPLICATIONS ……… 54

5.1 Introduction ……… 54

5.2 Conclusions ……… 54

5.3 Managerial implications ……… 55

5.3.1 Customer satisfaction… ……… 56

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5.3.2 Access ……… 56

5.3.3 Effectiveness and assurance ……… 56

5.3.4 Price ……… 57

5.3.5 Service portfolio ……… 58

5.4 Limitations ……… 59

5.5 Recommendations for future research ……… 59

5.6 Summary ……… 59

REFERENCES ……… 61

APPENDIX 1: Overview of retail banking sector in Vietnam ……… 65

APPENDIX 2: Data analysis ……… 66

APPENDIX 3: Questionnaires ……… 74

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LISTS OF TABLES

Table 2.1 The definition of five services quality attributes ……… 14

Table 2.2 The definition of five services quality attributes ……… 19

Table 3.1 The main measurement scales of the research……… 34

Table 4.1 Personal Profile of Respondents ……… 38

Table 4.2 Cronbach’s Alpha results for main survey ……… 39

Table 4.3 KMO and Bartlett’s Test (Bank service quality) ……… 41

Table 4.4 Total variance explained (Bank service quality) ……… 41

Table 4.5 EFA rotated component matrix (Bank service quality) ……… 42

Table 4.6 KMO and Bartlett’s Test (Customer loyalty) ……… 43

Table 4.7 Total variance explained (Customer loyalty) ……… 44

Table 4.8 Component matrix (Customer loyalty) ……… 44

Table 4.9 Model summary (Customer satisfaction) ……… 45

Table 4.10 ANOVA (Customer satisfaction) ……… 45

Table 4.11 Coefficients (Customer satisfaction) ……… 46

Table 4.12 Model summary (Customer loyalty) ……… 47

Table 4.13 ANOVA (Customer loyalty) ……… 47

Table 4.14 Coefficients (Customer loyalty) ……… 47

Table 4.15 Results of hypotheses test ……… 50

Table 4.16 Descriptive of age on customer satisfaction ……… 51

Table 4.17 ANOVA (Age and customer satisfaction) ……… 51

Table 4.18 Descriptive of income (Customer satisfaction) ……… 52

Table 4.19 ANOVA (Income and Customer satisfaction) ……… 52

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LISTS OF FIGURES

Figure 1.1 The conceptual model of the performance of service quality

attributes, customer satisfaction and customer loyalty adopted from Caruana (2002) and Cronin et al (2000)……… 5 Figure 2.1 The conceptual model of service quality by Parasunaman et

Figure 2.2 The research model of service quality, customer satisfaction

of service firms, including the banking firms in terms of retaining customer’s continuation to do business

Many empirical researches in various sectors of service industry such as banking, hotel, telecommunication, insurance, finance leasing, workshops, car rental and leasing, and other financial companies have been conducted to find out the main factors that determine service quality Service quality has always been the main study for retail banking in a very competitive environment today in which a lot of banks are available for customers to choose from However, we need to learn further the important factors that enable banks to attract and retain their customers Banks seeking strong competition in the future need to develop new ideas to improve good relationships with their customers

The retail banking sector of Vietnam is expected to have one of the highest growth rates in Asia area market during the next few years because the country’s continues economic expansion, increasingly household incomes, abundant resources and relatively low penetration of existing banking services Over the past two decades, the Vietnamese government has undertaken a series of reforms to strengthen and modernize the banking system as part of the country’s trend of moving towards a more open and market-oriented economy Many of these reforms have also been motivated by Vietnam’s growing participation in international agreements and ongoing efforts to adopt international standards Some important reforms include a

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restructuring of the banking system, a gradual opening to foreign investment to foreign partners, the partial privatization of state-owned banking institutions, mergers and acquisitions (M&A), and measures to strengthen the capitalization of some big Vietnamese banks Furthermore, Vietnam’s rapid economic growth has contributed to rising household and an increasing demand for retail banking service Credit and debit card use has become more common, with the number of cards issued doubling between 2008 and 2010 to 28.5 million (Yao and Carroll, 2011) The number of automated teller machines (ATMs) has also climbed dramatically The banking sector in Vietnam is divided into four primary types of institutions These include six state-owned commercial banks (SOCBs), 37 joint-stock commercial banks (JSCBs), five joint-venture banks, and five wholly foreign-owned banks (Yao and Carroll, 2011) Services offered by the bank may include deposit services, consumer loans, credit facilities (credit cards and debit card), electronic banking, and even convenient location, convenient time, pleasant ambience, financial products’ assortment, service information, accessible services, and friendly and helpful assistance The emergence of new forms of banking channels such as internet banking, ATMs, phone banking and also maturing market and global competitiveness have forced bankers to explore the high importance of customer loyalty The banking industry is widely affected by the movement towards globalization and internationalization, and so it is characterized by very strong competition In Vietnam, banks increasingly play more and more important role in the economic structure, which leads to a demand of measuring and improving service quality in banking as a main point of fact Therefore, the conceptualization

of service quality and measuring bank service quality has emerged as major challenges for financial services and banks in Vietnam now and in the future

1.2 Problem statement and research questions

Although study in the service quality of retail banking based on customer perception has conducted widely, no recent researches have been conducted which

This study attempts to examine the effect of service dimensions on perceived service quality, customer satisfaction, and customer loyalty based on the estimated research questions which presented as follows:

1 What are the key service quality dimensions of bank that determine satisfaction of customers in the retail banking sector in Ho Chi Minh City?

By addressing this question, managers who are working in banking sector can identify their strength and weakness to drive their investment in a right direction

2 What are the specific predictors that affect the customer loyalty in retail banking sector in Ho Chi Minh City?

By addressing this question, managers who are working in banking sector can identify their strength and weakness to drive their investment in a right direction to retain customer retention

3 How important each bank service quality dimension placing on general customer satisfaction, customer loyalty in the retail banking sector in Ho Chi Minh City?

Resolving this question will assist banks to prioritize their investment for a marketing communication program Moreover, new banks or banks with limited budget can find it useful to firstly spend money for some important factors in a short-term development

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4 How the proposed model contributes in the retail banking sector in Vietnam? Resolving this question will assist banks to use a suitable instrument for measuring the bank service quality in Vietnam context

1.3 Research purposes

Based on the research questions, this study was implemented to identify the bank service quality drivers of customer loyalty to achieve the following objectives: (1) Explore the impact of bank service quality dimensions such as bank convenience, physical facilities, perceived price, employee service, service portfolio, reliability, access, effectiveness and assurance on customer satisfaction

(2) Explore the impact of customer satisfaction on customer loyalty

(3) Qualify the importance level of each independent factor (bank service quality) in the relationship with customer satisfaction and linkage between customer satisfaction and customer loyalty

(4) Find a suitable instrument for testing the bank service quality in Vietnam banking context

The study focuses on famous banks in Ho Chi Minh City such as Vietcombank, Vietinbank, BIDV, Techcombank, HSBC bank, ANZ bank, Eximbank, Dong A Bank, and ACB

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1.5 Conceptual framework

The conceptual framework of this study is mainly based on definitions and theories

of the BSQ [Bank Service Quality] instrument (Bahia and Nantel, 2000) which is relied on the SERVQUAL approach (Parasuraman et al., 1988)

Cronin et al (2000) both synthesized and built on the efforts to conceptualize the effects of quality, satisfaction, and value on customers’ behavioral intentions Caruana (2002) developed a model of how service quality affects service loyalty, mediated by customer satisfaction This study used these hypothesized relationship presented in Figure 1.1 to develop the model of this research

Figure 1.1: The conceptual model of the performance of service quality attributes, customer satisfaction and customer loyalty adopted from Caruana (2002) and

Cronin et al (2000)

1.6 Significance of the study

In Vietnam context, the empirical studies of the relationship among service quality, customer satisfaction and customer loyalty for banking system are limited, the existing studies on banks also do not account for the changing roles of bank setting system in Vietnam’s economic structure Service quality is one of the highest important factors in analyzing the performance of banks, since their survival depends on their service quality levels they provide for their customers (Poretla and Thanassoulis, 2005) Having a good way in supplying high quality services is a key

to achieve customer loyalty which is the primary goal of business organizations, due

to the advantages of customer retention (Ehigie, 2006) Today, the increasing awareness among bank customers of their rights, changing demands and highly

Performance of

Service Quality

Attributes

Customer Satisfaction

Customer Loyalty

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competition requires constant progress in service quality from the bank for their customers to stay loyal The present research intends to test whether the bank customers are happy with the services provided to them, which will eventually lead customer loyalty or not

1.7 Thesis structure

The content of this thesis is as follow:

Chapter 1 – Introduction: briefly introduces about research background, problem definition, research questions, research objectives, scope of research, significance of the research, theoretical framework, and study structure

Chapter 2 – Literature Review: provides an overview of the previous literature on bank service quality in order to understand the key service quality drivers of customer satisfaction and customer loyalty; the different impacts of each bank service quality dimension on customer satisfaction and overall loyalty outcomes The chapter also reviewed various preceding studies about service quality, bank service quality, customer satisfaction and customer loyalty before releasing the theoretical model and research hypotheses

Chapter 3 – Research Methodology: explains the methodology used to assess the research model and the hypotheses Sampling method, sample size, target respondents and data analysis method are also covered in this chapter

Chapter 4 – Data Analysis and Results: represents the key findings of the sample characteristics This chapter also comprises statistical procedures that were undertaken to test hypotheses and reveals the applicable model

Chapter 5 – Conclusion and Implications: includes conclusions, managerial implications, research limitations and future research

1.8 Summary

This chapter provides the background of the study, statement of the problem, , research questions, purposes of the study, and previous theoretical framework It also represents the scope and the structure of this study

on relationship between service quality, customer satisfaction, and customer loyalty The development of a research proposal and hypotheses that result for the critical review of previous studies is the last section of this chapter

2.2 Bank service quality

2.2.1 Service quality concept

A service is a complicated phenomenon It has many meanings, ranging from personal service to service as a product During four decades, there are variety definitions of services Gronross (1990) proposed the definition of service as follows:

“A service is an activity or series of activities of more or less intangible nature that normally, but not necessarily, take place in interactions between the customer and service employees and/or physical resources or goods and/or systems of the services provider, which are provided as solutions to customer problems.”

In line with Gronross, many writers described that for most services, there are four basic characteristics that differentiate them from manufacturing as follow:

1) Services are more or less intangible

2) Services are activities or series of activities than things

3) Services are at least to some extent produced and consumed simultaneously 4) The consumer participates in the production process at least to some extent

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For a full understanding of service quality, these characteristics of services such as intangibility, heterogeneity, and customer participation in the production process must be acknowledged

Before discussing service quality concept, it is important to discuss service encounters, because within the service encounters, the interactive and interpersonal participation of customer and service providers becomes critical when judging service quality

Shostack (1985) defined the service encounter as “a period of time during which a customer directly interact with a service” This definition contains all aspects of the service company with which the customer may interact, including it personnel, its physical facilities, and other visible elements It means that the definition does not only limit the encounter to the interpersonal interactions between the customer and the firm, but the service encounters can also without any human interaction element There are three types of service encounters: remote encounters, phone encounters, and face to face encounters (Shostack, 1985) Remote encounters occur when a customer interacts with the service firm without any direct human contact, such as when customer interacts with a bank through the ATMs or internet system Phone encounters occur when the interaction between the end customer and the service firm occurs over the telephone, such as when customer interacts with a bank through the phone banking system Face to face encounters are ones that occurs between a customer and an employee in direct contact, such as when bank customer interacts with the teller or customer service in a branch

The interactive and interpersonal participation of customer and service providers become critical when judging service quality Other elements that are also critical for judging service quality include: physical surroundings and tangible cues, participant’s involvement and process of service delivery

Parasuraman et al (1985) stated that service quality is more difficult for the customer to evaluate than goods quality When customers purchase goods, they engage many tangible cues to judge quality such as style, hardness, color, label, and

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package When they purchase services, fewer tangible cues exist, such as service provider’s physical facilities, equipment and personnel In the absence of tangible cues customers must depend on other cues to judge quality, such as price, service portfolio

Gronross (1984) defined service quality as the fulfillment of customers’ satisfaction

He explained that service quality as it is perceived by customers consists of technical quality, functional quality, and corporate image Technical quality involves what the customer is actually receiving from the service Functional quality involves the manner in which the service is delivered Technical quality focuses on “what”, while functional quality focuses on “how” and involves consideration of issues such as the behavior of staff contacting customers, and the speed of services Corporate image is a reflection of service organization Furthermore, Gronross (1990) stated that corporate image can impact the perception

of quality in various ways If the provider is good in minds of the customers, minor mistakes will probably be forgiven Otherwise, if the provider is not good in the minds of the customers, the impact of any mistake will probably not be forgiven Parasuraman et al (1985) undertook an exploratory qualitative study to investigate the concept of service quality The focus group interviews with consumers and in-depth interviews with executives Based on their research, they proposed the service quality model as displayed in Figure 2.1

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Figure 2.1: The conceptual model of service quality by Parasunaman et al (1985) The gaps revealed by the executive interviews are shown in the lower portion of Figure 2.1 (the marketer side), and the gaps revealed by the customer interviews are shown in the upper portion of Figure 2.1 (the customer side) According to the proposed model, there are five gaps including: (1) customers’ expectations and

Gap 5

External Communications to Customers

Management Perceptions of Customer Expectations

Gap 3

Gap 2 Gap 1

Gap 4

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managements’ perceptions gap, (2) managements’ perceptions of customer expectations and service quality specifications gap, (3) service quality specifications and service delivery gap, (4) service delivery and external communications gap, (5) customer’s expected service and customer’s perceived service performance gap The above gap model in Figure 2.1 shows that four gaps on marketer’s side affect the level of service quality as perceived by customers Parasuraman et al (1985) showed that customers used criteria in evaluating service quality These criteria are labeled as “service quality determinants” including: reliability, responsiveness, competence, communication, access, courtesy, credibility, security, understanding

or knowing the customers, and tangibles

After they established a conceptual definition of service quality and the ten dimensions from their exploratory research, Parasuraman et al (1988) embarked on

a quantitative research phase to develop an instrument for measuring consumers’ perception of service quality, later the instrument became known as SERVQUAL They defined service quality as the difference between a customers’s expected service with the perception of service received The position of customer’s perception of service quality depends on the nature of the discrepancy between the expected service and perceived service including: (i) expectations of service quality are not met: service quality is unacceptable or less than satisfactory, (ii) expectations of service quality are met: service quality is acceptable or satisfactory, (iii) Expectations of service quality are exceeded: performance exceeds expectations

2.2.2 Service quality attributes

Olson (1977) has distinguished service quality into intrinsic and extrinsic cues Intrinsic cues are attributes that are part of the physical composition of the product, for example flavor, color, freshness, size, fit, and style They cannot be changed without changing the nature of the product and are consumed along with the product Extrinsic cues are attributes relating to the product, but actually they are not product They can serve as general indicators of quality across all types of

(1) During consumption of the product;

(2) In pre-purchase situations when customers are actively search for intrinsic attributes;

(3) When the intrinsic attributes have high predictive value to judge quality

In the contrasting way, extrinsic attributes can be more important than intrinsic attributes when we consider:

(1) Customer is in initial purchase situation, in which intrinsic attributes are not available;

(2) Customer has insufficient time or interest to evaluate the intrinsic attributes; (3) Quality is difficult to evaluate

Whereas previous study that examined attributes used by customers to infer quality

of tangible goods have been studied extensively, very little research has examined cues within service environment (Hartline and Jones, 1996) Because services are intangible, customers are more likely to use intrinsic cues to infer service quality prior to the actual purchase and consumption of the service As a result, attributes such as price, brand name, advertising, word-of-mouth, and certain tangible service elements are important to customers as they attempt to judge the quality of a service prior to consumption (Parasuraman et al., 1985; Hartline and Jones, 1996)

Parasuraman et al (1988) found consistent attributes of perceived service quality across the four service industries with five dimension including reliability, responsiveness, assurance, empathy, and tangibles

In a period during the service delivery process, the customer is directly interacting with the personnel, physical facilities and other elements such as communication materials Because services are intangible, consumers use tangible clues as proxies

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in evaluating the quality of services If customer perceives that the appearance of physical facilities, equipment, personnel, and communication materials are good, then his or her judgment will be positively affected Parasuraman et al (1988) refer

to this as “tangibles”

The attribute termed “reliability” is associated to the ability of the service provider

to perform the promised services dependably and accurately Reliability is closely related to the concept of technical quality of service The other attributes such as tangibles, responsiveness, assurance, and empathy are related to the concept of functional quality (Gronross, 1984)

The “responsiveness” attribute of service quality refers to whether the service provider has the willingness to help customers and provide prompt service (Parasuraman et al., 1988) When the service provider provides prompt service to its customers, the customer perceives that he or she is receiving good quality

Customers frequently find difficult to evaluate the quality of the service if they have not experienced yet the particular service It is believed that the level of customer’s trust play important role in assessing the quality of the service provided by the service provider The more the customer trusts the service provider, the better the customer’s perception on the service quality The attribute termed “assurance” is associated with the ability of the service provider to convey trust and confidence to the customers (Parasuraman et al., 1988)

Finally, if customers perceive that they are not receiving concerned, personal, or individual attention from the service provider, then their quality judgment will be negatively affected Parasuraman et al (1988) refer to this as “empathy” A brief description of each attribute is presented in Table 2.1:

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Table 2.1: The definition of five services quality attributes

Attributes Definition The number

Assurance Knowledge and courtesy of employees and their

ability to convey trust and confidence 5 Empathy Caring, individualized attention the firm provides its

well-al (1988) later reduced these ten dimensions into five by using a factor analysis Based on the five dimensions, a 22-item survey instrument for measuring service quality has been developed These five dimensions are: tangibles, reliability, responsiveness, assurance, and empathy

There has been criticism from some other researchers to SERVQUAL instrument Firstly, many researches and papers have used SERVQUAL scale to verify and to adjust in conformity with many different market situations and conditions Secondly, SERVQUAL approach covers every specific matter involving into service quality rather completely

Carman (1990) suggested that the five dimensions of SERVQUAL are not consistent when subjected to cross sectional analysis He found that some of the items did not load on the same component when compared across different type of service providers, but the validity of the 22 items that make up the SERVQUAL scale appears to be well-supported both by the procedures used to develop the items

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and the subsequent use as reported in the literature Further, Carman noted that there

is an operational problem with the difference of expectations and perceptions concept (gap concept) He suggested an alternative format combining both expectations and perceptions to a single item The items with this format would be presented with anchors “greatly exceeds of my expectations” and “greatly falls short

of my expectations” This format would be simpler for respondents and prevent potential problems with the gap scores

The five dimensions of SERVQUAL are not sufficiently generic Carman (1990) found that it is often necessary to incorporate additional items to dimensions because they are particularly important for some service categories A further critique addressed to SERVQUAL concerns its emphasis on service or product dimension and its neglect of the other dimensions of the marketing mix In other words, indeed, academics and practitioners in both services and physical goods marketing have focused on the first P (service and/or product) of the marketing mix

to improve quality, but neglected other dimensions of the marketing mix, especially price Therefore, it means that this is not sufficient to cover all the facets of quality

As suggested by Carman (1990), Babakus and Boller (1992) maintained that the dimensionality of service quality might depend on the type of services under study

In addition, they found that a number of methodological problems likely exist with SERVQUAL, due to the wording of the items and defining a construct on the basic

of the gap scores The agreed with Carman’s suggestion that an alternative format combining both expectations and perceptions to a single item may prove a viable approach

Cronin and Taylor (1992) criticized SERVQUAL for the conceptualization and measurement of service quality They argued that theoretically, if service quality was to be considered “similar in many ways to attitude”, as proposed by Parasuraman et al (1985, 1988), its operationalization could be better represented

by an attitude-based conceptualization Therefore, they suggested discarding the

2.2.4 Service quality attributes of retail banking

In order to develop marketing strategy, service providers, especially bank managers need to understand the service attributes that used by customers in selecting bank For example, customers would use bank reputation, bank reliability, bank assurance, price, kind of services, and physical facilities of the bank in selecting bank services If bank managers can understand which attributes are used to evaluate a service, they will be better able to manage and influence the customer’s evaluation and perception of the offering (Crane and Clarke, 1988)

Perceived service quality is a customer judgment and results from comparisons customers make between their expectation and their perception of the actual service performance (Lewis, 1989) Thus, in the banking sector, perceived service quality results from the difference between customers’ perceptions for the services offered

by the bank and their expectation visa the banks that offer such service (Bahia and Nantel, 2000) Perceived quality of service tends to play an important role in high involvement industries like banking services In the continuous development of technology in banking industry today, such as the advent of automatic teller machines (ATMs), service quality may well be measured in terms of both personal support and technical support

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Within the banking sector, there are several service quality models that consist of various dimensions Mersha and Adlaka (1992) suggest twelve dimensions: knowledge of the service, thoroughness and accuracy, consistency and reliability, reasonable cost, willingness to correct errors, timely and prompt service, lack of knowledge of the service, employees’ indifference, reluctance to correct errors, service inconsistency, sloppiness, and high cost Ennew et al (1993) suggest eleven dimensions: knows business, knows industries, knows market, gives helpful advice, wide range of services, competitive interest rates, competitive charges, speed of decision, tailors finance, deal with one person, and easy access to loan officer Aldlaigan and Buttle (2002) suggest four dimensions: service system quality, behavioral service quality, service transactional accuracy, and machine service quality Allred and Addams (2000) suggest five dimensions: reliability, responsiveness, competence, access, communication A variety of instruments exist for measuring service quality, the most widely-used being SERVQUAL Most others are based on SERVQUAL, thereby, making SERVQUAL the appropriate benchmark for comparison of instruments and service quality measurement models Previous research suggested that the dimensionality of service quality might depend

on the type of services under study (Cronin and Taylor, 1992; Babakus and Boller, 1992) Based on this background, some studies have investigated various attributes, which determine customers’ perception of service quality of retail banking industry

A study of service quality in banking setting by Avkiran (1994) was conducted to develop an instrument for measuring customer service quality as perceived by bank branch customers He designed and examined six-dimension model for service quality in banking industry (responsiveness, empathy, staff conduct, access, communication, and reliability) with 27 items The six dimensions conceptualized

at the start with 27 items were empirically reduced to 17 items across four discriminating factors The dimensions which emerged were staff conduct, credibility, communication, and access to teller services

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The exploratory study conducted by Stanfford (1996) reported the distinct elements

of bank service quality as perceived by customers Seven attributes were found in assessing bank service quality The first attribute, named “bank atmosphere”, included cleanliness, as well as an overall positive and courteous attitude by employees (kindness, friendliness, and pleasantness) The second attribute, names

“relationship”, indicates the importance of a personal relationship with the bank employees, where customers are recognized easily by long-term employee The third attributes, named “rates and charges”, indicates that low costs and high interest rates can affect an individual’s perception of bank service quality The fourth attributes, named “available and convenient services”, indicates a full array of services that available, easily accessible and convenient The fifth attribute, named

“ATMs”, indicates available, convenient, and working automatic teller machines The sixth attribute, named “reliability/honesty”, indicates the importance of a solid bank rating and honest, reliable employee The seventh attribute, named “teller”, indicates adequate and accessible teller

Bahia and Nantel (2000) conducted a study to develop a reliable and valid scale for the measurement of the perceived service quality of retail banking in Canada They argued that the universality of the five dimensions of SERVQUAL across different types of services had been questioned in a number of subsequent studies and these five dimensions are not fully generic (Carman, 1990; Babakus and Boller, 1992) As found by Carman (1990), it is necessary to incorporate additional items to dimensions because they are particularly important for some service categories Bahia and Nantel (2000) developed a specific new scale for perceived service quality in retail banking called as BSQ [Bank Service Quality] This BSQ model is

an extension of the original 10 dimensions of the model of Parasuraman et al (1985) In addition, Bahia and Nantel (2000) incorporated additional items such as courtesy and access as proposed by Carman (1990), and items representing the marketing mix of the “7Ps” (product/service, place, process, participants, physical surroundings, price, and promotion) from the Boom and Bitner (1981) framework

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After purification, the BSQ was left with 31 items of service quality relevant to the banking sector These 31 items were distributed across six dimensions presented in Table 2.2:

Table 2.2: The definition of six dimensions of bank service quality

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

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Access Assesses the speed of service delivery 5

Tangibles Assess the appearance and cleanliness of a bank’s

Reliability Measures the bank’s ability to deliver the service you

have been promised accurately and without error 2

Source: cited from Lee et al., 2009

Glaveli et al (2006) examine the differences in perceptions of service quality and in the ranking of quality dimension between the bank customers of five Balkan countries (Greece, Bulgaria, Albania, FYROM, and Serbia) by using BSQ instrument to collect data in the context of banking services The results suggest that Greek customers perceived receiving the highest level of service quality; differences and similarities between the countries were also reported related to the degree of importance attached to the BSQ dimensions of service quality The results also have significant implications for banks in developing operational, marketing and human resource strategies in the Balkan context

Petridou et al (2007) assess and compare the level of bank service quality provided

in Greece and Bulgaria and to identify the dimensions of service quality in the two countries The BSQ instrument was used for measuring quality perceptions in the two Balkan countries to help banks assess and improve their bank service quality

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The results suggest that the Greek customers’ perception was that they received higher quality services compared to the perception of the Bulgarian clients Differences between the countries were also reported regarding the dimensionality

of quality service

Lee et al (2009) assess banking service quality in Vietnam and make a comparison

of customers’ and bank staff’s perceptions of this based on six dimensions of the BSQ model All the data were collected through questionnaires which were delivered to two groups: customers and bank staff in some large banks in Vietnam The results of this study showed two important conclusions: firstly, there are three significant differences in customers’ and bank staff’s perceptions about the price, service portfolio, and general banking service quality; secondly, both customers and bank staff had the same opinions and evaluations about the important levels of six dimensions, with effectiveness and assurance as the most important factors and service portfolio as the least important one This study was one of the first concerning banking service quality in Vietnam, based on the BSQ model Useful insights were obtained into the importance of banking service quality perceived by customers and bank staff, which can stimulate debates and discussions on building a quality standard system, strengthening service quality in banks’ operations in Vietnam, as well as improving customers’ and bank staff’s satisfaction and loyalty

In Vietnam, there are still very few researched models of service quality and measurement in each kind of service, especially in banking It is for this reason that the BSQ was chosen for use in the present study

2.3 Customer satisfaction

The model of the customer satisfaction explains that feelings of satisfaction arise when customers compare their perception of actual product’s performance or service’s performance to their prior expectations While satisfaction is one of the most fundamental notions in marketing, until now there is a little agreement regarding its underlying in nature The traditional paradigm considers satisfaction as

a cognitive evaluation (rational), comparing expectations versus perceived

In recent years, there has been increased interest in the role of affect in satisfaction Some researchers have argued that customer emotions serve as an independent variable, whereas cognitive satisfaction judgments represent as a dependent variable (Jun et al., 2001; Vanhamme and Snelders, 2001) In contrast, other researchers have treated such emotions as dependent variables affected by the customer’s cognitive assessment of satisfaction In addition, some researchers emphasized on one seemingly important customer emotion, delight, investigated primarily as a dependent variable (William and Anderson, 1999; Kumar et al., 2001)

Fournier and Mick (1999) proposed a contingency paradigm to guide future thinking and research on satisfaction These authors suggested that the satisfaction experience is best thought of a blend of cognition and emotion, depending on the consumption context This paradigm has found empirical support by Carrol (2004) She/he suggested that the satisfaction experience as a blend of cognition and emotion, and it can be operationalized as a continuum from “purely rational” to

“purely emotional”

A review of the existing literature indicates a wide variance in the definition of satisfaction While the literature contains significant differences in the definition of satisfaction, all the definitions share some common elements as follows (Giese and Cote, 2000):

(1) Customer satisfaction has been typically conceptualized as either an emotional or a cognitive response to an evaluative process;

(2) The response pertains to a particular focus (expectation, consumption, experience, product, etc…);

Customer satisfaction has frequently been suggested to be leading determinant of loyalty (Lam and Burton, 2006) Ehigie (2006) suggests that there is a significant positive relationship between customer satisfaction and customer loyalty As such, customer satisfaction in this research is acting a mediator between bank service quality and customer loyalty

2.4 Customer loyalty

The focus of this research is on the relationship between bank service quality attributes and customer loyalty where customer satisfaction serving as mediating variables Before reviewing the previous research on the effect of bank service quality attributes on customer satisfaction and customer loyalty, the construct customer loyalty needs to be further explored

Customer loyalty expresses the behavioral intention related to the product and service High customer loyalty is central to successful customer retention, and companies who compete on the basis of loyalty will win over the competition (Dawes and Swailes, 1999)

The conceptualization of the customer loyalty construct has been developed gradually over the years In the earlier years, the focus of loyalty was brand loyalty with regarding to tangible goods It was defined as the proportion of purchases of a household devoted to the brand it purchase most often (Cunningham, 1956)

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A review of the literature indicates that much of the initial research has emphasized the behavioral dimension of loyalty, as stated by Tucker (1964) as follows:

“No consideration should be given to what the subject thinks nor does what goes on

in his central nervous system, his behavior represent the full statement of what brand loyalty is”

Based on a review of the literature conducted by Jacoby (1971), it can be confirmed that previous studies have focused primarily on behavioral outcomes and ignored consideration of what went on in customers’ minds Brand loyalty was simply measured in terms of its outcome characteristics (Jacoby and Chesnut, 1978) This involved determining the sequence of purchase (Tucker, 1964), proportion of a given brand purchase, and probability of purchase (Frank, 1962)

Day (1969) argued there is more to brand loyalty than just consistent buying of the same brand Building this work, Jacoby (1971) provided a conceptualization of brand loyalty that incorporates both a behavioral and an attitudinal component The behavioral and attitudinal aspects of loyalty are reflected in the conceptual definition of brand loyalty offered by Jacoby and Chesnut (1978) They stated that brand loyalty is (i) biased, (ii) behavioral response, (iii) expressed over time, (iv) by some decision making unit, (v) with respect to one or more brands out of a set of such brands, and (vi) is a function of psychological processes

Engel et al (1982) defined brand loyalty as the preferential, attitudinal, and behavioral response toward one or more brands in a product category expressed over a period of time by a customer Other researchers defined loyalty as a favorable attitude toward a brand resulting in consistent purchase of brand over time (Keller, 1993), suggesting that loyalty is present when favorable attitudes for the brand are manifested in repeat buying behavior Dick and Basu (1994) argued that loyalty is determined by the strength of the relationship between relative attitude and repeat patronage

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Prior studies on customer loyalty have focused primarily on product-related or brand loyalty, whereas research on customer loyalty to service organization has remained limited (Gremler and Brown, 1996) The finding in the field of product loyalty cannot be generalized to service loyalty because of the following reasons: 1) Service loyalty is more dependent on the development of interpersonal relationships as opposed to loyalty of tangible products, as person-to-person interactions form an essential element in the marketing of services (Crosby et al., 1990);

2) The influence of perceived risk is greater in the case of services, as customer loyalty may act as a barrier to customer switching behavior (Klemperer, 1987);

3) In the service context, intangible attributes such as reliability and confidence may play a major role in building or maintaining loyalty (Dick and Basu, 1994)

In more recent year, Gremler and Brown (1996) extend the concept of loyalty to intangible products, and their definition of service loyalty includes the three specific components of loyalty, namely the purchase, attitudes, and cognition They defined service loyalty as the degree to which a customer exhibits repeat purchasing behavior from a service provider, possesses a positive attitudinal disposition toward the provider, and considers using only this provider when a need for this service exist Loyalty is developed over a period of time from a consistent record of meeting, and sometimes even exceeding customer expectation Kotler et al (1999) states the cost of attracting a new customer may be five times the cost of keeping a current customer loyalty

In conclusion, customers become loyal to the service provider because they have prior knowledge or belief on it Then, after they have service experience with the service provider, a favorable attitude toward it would be developed, and finally the customers are willing to use the service again, and tell positive things to other

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people about the service provided by the provider In addition, the customers are willing to continue to get service at the service provider even if the price of service charge is getting increased, customers will also have strong preference on this service provider in the sense that the service provider is the first choice in their mind when they need service

2.5 Relationships between service quality, customer satisfaction and loyalty

Several researchers attempt to find the interrelationships between service quality, customer satisfaction and customer loyalty Researchers argue that service quality and customer satisfaction are the predictors of customer loyalty When criticized the conceptualization and measurement of service quality, Cronin and Taylor (1992) developed a model to examine: (i) the significance of the relationships between service quality and consumer satisfaction, and (ii) the impact of service quality and customer satisfaction on purchase intentions Regarding to the relationship between service quality, satisfaction and purchase intention, they suggested that: (a) service quality is an antecedent of consumer satisfaction, (b) consumer satisfaction has a significant effect on purchase intentions, and (c) service quality has less effect on purchase intentions than does consumer satisfaction

Cronin et al (2000) conducted a study to assess whether their model yields a significantly better fit to the data and accounts for a greater share of the variance in behavioral intentions than the competing models Besides, they also examined the indirect influence of consumers’ service quality and value on behavioral intentions They included sacrifice, service quality, value, customer satisfaction, and behavioral intention constructs in their study The findings of their study can be presented as follows:

(1) Their research model fits well and outperforms the competing models;

(2) An unexpected finding concerned the antecedents of service value The result indicated that sacrifice has no significant effect on service value, whereas service quality has a positive effect on service value;

(5) There are indirect effect of service quality on behavioral intentions through service value and consumer satisfaction, and indirect effect of service value

on behavioral intentions through consumer satisfaction

Based on their study, they suggested considering the similar composite model and including additional decision-making variables such as the physical or tangible quality of service product and expectation

There have been a large number of studies that focused on service quality and satisfaction issues, but studies on the relationship between service quality, customer satisfaction and loyalty in retail banking has been remained limited

A study of service quality in bank setting by Johnston (1997) was conducted to indentify the service quality factors, which are important to customers, and to examine the effect of service quality on customer satisfaction He reported that responsiveness was shown to be an important factor to customer satisfaction This would suggest that efforts to increase speed of processing information and customers are likely to have an important and positive effect on customer satisfaction The study has also indentified other important factors such as functionality of machines, reliability of transactions, integrity of staff and confidentiality of service Another finding of the study is that other areas which would have a positive, though not as great impact on customer satisfaction, were flexibility, friendliness, courtesy, communication, and competence

Lassar et al (2000) conducted a study to examine the effect of service quality on customer satisfaction of retail banking from two distinct methodological perspectives Specially, a study utilizing a sample of international private banking

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customers was conducted wherein service quality is operationalized via two distinct and well-known measures: SERQUAL and Technical/ Functional Quality These two service quality measures are subsequently compared and contrasted as to their ability to predict customer satisfaction The results show that from using five service quality dimensions of SERVQUAL as independent variables, empathy was only variable that was related to customer satisfaction, while using Technical/ Functional Quality as an independent variable; both technical and functional quality dimensions were significantly related to customer satisfaction

Athanassopoulos (2000) conducted research to assess the antecedents of customer satisfaction and the effect of customer satisfaction on the customer switching behavior To test the model he drew sample of bank customers from the general area of Athens The results indicated that customer satisfaction is a function of service quality, price, innovativeness, and convenience Customer satisfaction was also found to affect switching behavior

Caruana (2002) proposed a meditational model that links the service quality to the service loyalty via service satisfaction He mentioned that service quality, customer satisfaction and service loyalty are related to each other The proposed model is as follows:

Figure 2.2: The research model of service quality, customer satisfaction and service

loyalty by Caruana (2002)

Customer Satisfaction

Service Quality

Service Loyalty

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He applied this model to the customers of retail banking in Malta The results proof the hypothesized relationships in the above research model Service quality affects service loyalty via customer satisfaction This research contributes to the body of knowledge by providing support for the contention that customer satisfaction performs a mediating role in the link between service quality and service loyalty Based on his study, he suggested that there are other elements such as value and company image that could be contributing to customer satisfaction, and service loyalty or behavioral intentions

Based on the underlying model of SERQUAL (Parasuraman et al., 1988) with five dimensions and the above-mentioned meditational model of relationship between service quality, customer satisfaction and service loyalty (Caruana, 2002), Kheng et

al (2010) conducted a research to evaluate the impact of service quality on customer loyalty among customers in Penang, Malaysia with customer satisfaction mediating these variables The findings show that improvement in service quality can enhance customer loyalty The overall respondents evaluate the bank positively, but still there are rooms for improvements

Also based on the meditational model adapted by Caruana (2002), Siddiqi (2011) conducted a research to find the interrelationships between service quality attributes, customer satisfaction and customer loyalty in the retail banking sector in Bangladesh The results show that all the service quality attributes are positively related to customer satisfaction and customer satisfaction is positively related to customer loyalty in the retail banking settings in Bangladesh

In Vietnam context, Nguyen (2006) conducted a research to explore the relationships between the quality service of the supermarkets, and the customer satisfaction and loyalty and indicated that the quality of the service is an important factor that makes customers satisfied and loyal to a supermarket Basically, there are still very few researches of building models of service quality and measuring it

in each kind of services and no study has yet investigated the service quality,

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customer satisfaction and customer loyalty interrelationship, especially in banking sector The purpose of this study is to fill this gap by using BSQ instrument

2.6 The research model and hypotheses

2.6.1 The research model

A research model is developed to find out the relationships between bank service quality, customer satisfaction and customer loyalty in retailing banking sector in Ho Chi Minh City The research model is as follow:

Figure 2.3: Research Model

2.6.2 Hypotheses

Figure 2.3 demonstrates that the hypothesized relationships between the constructs are bank service quality, customer satisfaction and customer loyalty The hypothesized relationships are as follows:

The first dimension of BSQ measurement scale is referred to as “Effectiveness and assurance” Bahia and Nantel (2000) put two aspects (competence and responsiveness) in what could be called “effectiveness”, four aspects (credibility, security, empathy, and communication) in what could be named “assurance” Thus, the following hypothesis is proposed:

H1.1: Effectiveness & assurance will have positive effect on customer satisfaction

in the retail banking sector in Ho Chi Minh City

According to Bahia and Nantel (2000), access may reflect the customer perceptual tendency to consider the modern equipment as an important element to guarantee

Bank Service Quality (BSQ)

a) Effectiveness and Assurance

Customer Loyalty

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good access and not simply as a tangible element This kind of association is specific to the banking service quality domain such as automatic teller machines Therefore, the following is hypothesized:

H1.2: Access will have positive effect on customer satisfaction in the retail banking sector in Ho Chi Minh City

Bahia and Nantel (2000) purified the third dimension which essentially relates to price, includes three items which deal with price in its specific monetary form and two items which relate to a deeper conception of price As such, the following is hypothesized:

H1.3: Price will have positive effect on customer satisfaction in retail banking sector in Ho Chi Minh City

In the fourth dimension, tangibles refer to the atmosphere, to an effective service environment and to precise service representations (pamphlets, reports…) Therefore, the following hypothesis is proposed:

H1.4: Tangibles will have positive effect on customer satisfaction in retail banking sector in Ho Chi Minh City

The fifth dimension, services portfolio focuses on the range of services offered Thus, the following is hypothesized:

H1.5: Service portfolio will have positive effect on customer satisfaction in retail banking sector in Ho Chi Minh City

The final dimension of BSQ deals with accuracy and reliability Therefore, the following hypothesis is proposed:

H1.6: Reliability will have positive effect on customer satisfaction in retail banking sector in Ho Chi Minh City

Customer satisfaction is measured by the gap between expectations and perceptions

of the service quality (Parasuraman et al., 1988) and it is positively related to customer loyalty (Ehigie, 2006) Caruana (2002) found that service quality is positively related to loyalty mediated by customer satisfaction Pont and McQuilken

in Vietnam retailing banking setting

Based on this literature review, it can be concluded the need to examine and evaluate the effect of bank service attributes performance on customer satisfaction, and customer loyalty