(Luận văn thạc sĩ) determinants of customer satisfaction in retail banking sector

This study examines determinants on customer satisfaction with focus on service quality dimensions of retail banking services in Vietnam commercial banks in Ho Chi Minh City where is the

NGUYỄN THỊ PHƯỢNG KHÁNH

MASTER’S THESIS

In Finance- Banking Ology Code: 60.31.12

Supervisor

Associate Professor Ph.D NGUYỄN MINH KIỀU

Ho Chi Minh City -2010

LIST OF FIGURES i

LIST OF TABLES ii

LIST OF ABBREVIATION iii

ABSTRACT iv

CHAPTER 1 : INTRODUCTION 1

1.1 Rational of the study 1

1.2 Statement of the problem 2

1.3 Research Objective 3

1.4 Research question 3

1.5 Scope and limit of the research 3

1.6 Research methodology 4

1.7 The structure of the research 4

CHAPTER 2 : LITERATURE REVIEW 6

2.1 Vietnam retail banking sector 6

2.2 Customer satisfaction 9

2.2.1 Expectation of customer 9

2.2.2 Definition of customer satisfaction 9

2.2.3 The importance and benefits of customer satisfaction 10

2.3 Customer Service quality 11

2.3.1 Customer service 11

2.3.2 Service characteristics 12

2.3.3 Service quality definition 12

2.3.4 Gap model of service quality 13

2.3.5 Measuring service quality 14

2.4 Customer satisfaction and service quality in banking sector 16

2.4.1 Customer satisfaction in banking sector 16

2.4.2 Service quality dimensions in banking sector 16

CHAPTER 3 : RESEARCH DESIGN 20

3.1 Research model 20

3.1.1 Proposal of research model 20

3.1.2 Initial hypotheses 20

3.2 Research design 22

3.2.1 Research purpose 22

3.2.2 Research approach 22

3.2.3 Research process 23

3.3 Official research 24

3.3.1 Measurement scale 24

3.3.2 The questionaire design 26

3.3.3 Research sample 26

CHAPTER 4 : DATA ANALYSIS AND FINDINGS 28

4.1 Sample Characteristics 28

4.2 Statistical Results 30

4.2.1 Variables for measuring service quality 30

4.2.2 Variables for customer satisfaction 31

4.3 Data Analysis 32

4.3.1 Reliability evaluation through Cronbach’s Alpha 32

4.3.2 Evaluation the measurement scale by using Exploratory Factor Analysis 34

4.3.2.1 Some rules in EFA test 34

4.3.2.2 EFA for service quality 34

4.3.2.3 EFA for customer satisfaction 38

4.3.3 The adjusted research model 38

4.3.4 Modeling Testing 39

4.3.4.1 Correlation coefficient analysis 39

4.3.4.2 Regression Analysis 40

CHAPTER 5 : CONCLUSIONS AND RECOMMENDATIONS 44

5.1 Conclusions 44

5.2 Recommendations 45

5.3 Research limitation 47

REFERENCE 48

APPENDIX 51

APPENDIX 1: Interview Customers 51

APPENDIX 1: Questionaire 52

APPENDIX 2: Vietnamese questionaire 56

APPENDIX 3: Cronbach's alpha analysis result 60

APPENDIX 4: Factor analysis result 62

Figure 2.1 : The Benefits of customer satisfaction 11

Figure 2.2 : Model of service quality gaps (Parasuraman at el., 1985) 14

Figure 3.1 : Suggested research model 20

Figure 3.2 : Research process 23

Figure 4.1 : Adjusted research model 38

LIST OF TABLES

Table 2.1 : Quantity of banks from 1991 to 2009 6

Table 2.2 : Six dimensions of service quality 19

Table 3.1 : Summary of service quality factors and measurement scale 24

Table 3.2 : Overall customer satisfaction and measurement scale 26

Table 4.1 : Sample characteristics 29

Table 4.2 : Descriptive statistics of service quality measurement 30

Table 4.3 : Descriptive statistics of customer satisfaction measurement 31

Table 4.4 : Reliability test of service quality and customer satisfaction 33

Table 4.5 : First EFA analysis result of service quality 35

Table 4.6 : Final EFA analysis result of service quality 37

Table 4.7 : Final EFA analysis result of customer satisfaction 38

Table 4.8 : Pearson correlation matrix 40

Table 4.9 : Model Summaryb 41

Table 4.10 : ANOVAb 41

Table 4.11 : Coefficientsa 42

CHAPTER 1 : INTRODUCTION

1.1 Rational of the study

Financial institutions, particularly banking plays an important role in economic development of almost countries in the world and Vietnam is not an exception Vietnam banking industry has gained a significant growth in recent years a long with the socioeconomic development Many banks have been established or extended their range of activity by setting branches in nationwide and offered new services toward customer’s need Retail banking in Vietnam is one of the sectors getting more attractive from domestic banks or even foreign banks with the potential market has not been exploited full enough so far

A lot of people among 86 million Vietnamese people have demands for retail banking services which are going up following the increasing income and the growth

of the country in recent years especially after Vietnam became a member of WTO This is the chance as well as the challenge period for bankers in Vietnam to attract the new customers and retain the existing one The more customers banks have, the more profits they get

Satisfying customers is the priority target in order to get the success of a firm Customer satisfaction is one of the key factors in today’s highly competitive business world and is the most important factor for bankers to keep their current customers as well as appeal the new one

In addition, retail banking industry is facing a stressful competition among domestic banks and foreign banks as the globalization and world integration Therefore, banks should pay more attention to customer satisfaction to survive and grow

1.2 Statement of the problem

Domestic banks have recognized the important to develop retail banking services for some time now They have invested in core banking software, applied new technology, established more branches, provided new services to get more customers

In modern competitive environment, however, the increasing of distribution channels set up from all banks, the products in this market are slightly different and the new services provided are matched very quickly by competitors make banks in difficulty to create the differentiation Customer satisfaction is one of the main tools for banks to make and get competitive advantage

In general, when customer is satisfied with provided services, the probability to use this service again is increased and will lead to the positive advertising through mouth advertising from this customer to others And vice versa, the unsatisfied customer usually switches to use another brand and give out the negative mouth advertising

There are many factors impact on customer satisfaction Customer satisfaction

is influenced by main factors such as price, product quality, service quality, personal factor, situational factor, diversification and the unique of products

According to Lewis (1993), service quality is one of the effective means in building a competitive position in service industry Service quality is an imperative element impact on customer satisfaction in banking industry Thus, bank management tends to differentiate their products from competitors through service quality

This study examines determinants on customer satisfaction with focus on service quality dimensions of retail banking services in Vietnam commercial banks in

Ho Chi Minh City where is the center of developing economy, society and education

in South Vietnam with a large number of population, almost banks and their branches

1.3 Research Objective

The aims of this study as following:

- To identify main factors of customer’s perception on customer service quality

in Vietnam retail banking sector

- To measure the effects of these key factors on the overall customer satisfaction

in Vietnam retail banking sector

- To recommend some solutions to increase customer satisfaction

1.4 Research question

The study is set to answer following questions:

- What are the key factors of customer’s perception on service quality of retail banking services in Vietnam commercial banks?

- How can these factors influence on customer satisfaction?

- What the recommendations should be needed to improve customer satisfaction

in Vietnam commercial banks?

1.5 Scope and limit of the research

Due to the limited time, this research is conducted to the individual customers who are now living in Ho Chi Minh City and using retail banking services of seven Vietnam commercial banks in Ho Chi Minh City only The conclusions will be derived from this research are limited to Vietnam commercial banks and will be based on the information of this result

Quantitative research: This step is researching by delivering questionnaire to individual customers of seven commercial banks in Ho Chi Minh City directly, via email and internet The collected data is used for analyzing the level of customer satisfaction through statistical software SPSS version 16.0

1.7 The structure of the research

This research includes five chapters:

Chapter 1: Introduction

This introduction gives an overall view of the research includes the rational of the research, statement of the problem, research objectives, research questions, scope and limit of the research and research methodology

Chapter 2: Literature review

This chapter gives a brief introduction about Vietnam retail banking industry and general view of theories related to customer satisfaction, five gaps of service quality, service quality and some results of previous studies about dimensions of service quality in banking sector

Chapter 3: Research Design

This chapter develops the research model and hypotheses In addition to, we focus on research process and methodology for data analysis

Chapter 4: Data analysis and findings

This chapter illustrates the process of data analysis and shows the result of this research from that we can explore the result and discussion

Chapter 5: Conclusions and recommendations

This chapter summarizes the most important findings, provides recommendations on how to improve customer satisfaction on retail banking services

of Vietnam commercial banks Lastly, we show the limit of this research and suggest for the further research

CHAPTER 2 : LITERATURE REVIEW

2.1 Vietnam retail banking sector

Vietnam banking system has significant growth during past two decades together with the economic development This system includes one Vietnam bank for social policies, one Vietnam development bank, three commercial state-owned banks, forty commercial joint-stock banks, five joint-venture banks, five 100% foreign banks and 36 branches of foreign banks

Table 2.1: Quantity of banks from 1991 to 2009

Year 1991 1993 1995 1997 1999 2001 2005 2006 2007 2008 2009* Commercial state-owned bank 4 4 4 5 5 5 5 5 5 4 3 Commercial joint-stock bank 4 41 48 51 48 39 37 34 35 39 40

Foreign bank and

branches of foreign bank 0 8 18 24 26 26 29 31 41 41 41

(Source: SBV)

( 2009*: Oct 2009 )

We can see from above table 2.1 that the development primarily concentrates

on commercial joint-stock and foreign banks showing the attractiveness and potential development of Vietnam banking sector to inland investors as well as international financial institutions, in which retail banking sector is considered as promising land appeals all bankers

According to Wikipedia, retail banking refers to banking in which banking institutions execute transactions directly with consumers rather than corporations or other banks Retail banking is usually made available by commercial banks who are financial institutions and geared primarily toward individual consumers through a wide range of personal banking services include: deposit accounts in the form of savings and checking accounts and certificates of deposit of varying maturities; loans in the form of mortgages as well as personal loans; debit cards, credit cards and so forth Today much of retail banking is streamlined electronically via Automated Teller

Machines (ATMs); or through virtual retail banking known as internet banking which allows customers to do financial transactions via internet, home banking allows customers do almost transferring transactions (money transfer, funds transfer, bill payment, …) at any where without coming to the bank, and phone banking allows customers do transactions every where at any time through telephone such as checking account information, foreign exchange rate, interest rate,…

In the open economy, retail banking services play an important role in bringing stable source of revenue, enhancing competitive capacity, reducing risk and expanding market share to commercial banks In the economic aspect, retail banking sector still bring benefits in reducing transaction cost; changing to non-cash using economy; boosting business activities and enhancing people’s life through exploiting and taking full advantage of potential capital Moreover, it offers the diversified services to people conveniently and safely Therefore, developing retail banking services is an unavoidable trend of international banks as well as Vietnam banks

Vietnam is considered as an attractive retail banking market as the whole market potential, it is clear that there is a huge opportunity for new entrants

Firstly, it has a strong reputation for both political stability and a prosperous business environment among Asian nations and became a member of WTO in Jan

2007, under which Vietnam committed to integrate into the world market resulted in the five 100% foreign banks currently established in Vietnam

Secondly, Vietnam has a large number of population with the income become higher every passing day but the amount of people who have bank transaction and bank account are not much, even some more people in rural areas don’t know about retail banking services For instance, Ho Chi Minh City where have a large population and high bank density is one of the strategic and potential market of retail banking services gets only 17% of population has bank account and non-cash transaction

Thirdly, the country’s population around 86 million people, of which young people aged less than 33 who often change their shopping behaviors account for over 60% This is the basic for foreign banks as well as domestic banks focus on developing credit services In reality, Vietnam commercial banks have offered around 10% of total

retail services supplied by international banks to their customers and get back from 6%

to 12% at average turnover from this sector while this rate in developed country is around 50% Therefore, there is still available market which attracts more competitors

The competition among domestic banks, the effort to keep and grow market share, especially the participant of more foreign banks put retail banking sector under tremendous competition With the current capital at thousand million VND, domestic banks are judged as very small banks compare with others in the region The State bank has recognized the situation and required domestic banks must increase their chartered capital to at least 3 million VND till the end of 2010 Following this, market will form a trend as amalgamation of business in which small banks will find and associate with large banks based on mutual benefit to meet the State bank requirement and confront with market’s challenges Moreover, the poor of services offered, the weak of competitive competence make retail banking sector be hard to scope with the challenges in the market In the mean time, foreign banks and branches of foreign banks in Vietnam mostly come from top 1000 large banks in the world who have big resources, long time experiences, more services with high quality and advanced technology compare to domestic banks In the fight against competitors to gain market share recent years, domestic banks have gone through significant improvement such as investing modern technology, changing management structure, speeding up advertising, diversifying distributing channel and expanding networking They have specially concerned about diversifying and creating new services which mainly focus

on integrated technology services as cards services, home banking, internet banking, savings accounts, consuming loans in order to meet the demand of sophisticated customers In terms of the numbers of branches, Agribank is the largest organization with 115 locations, BIDV has 103, VBSP has 65, VDB has 62 and MHB has 32 For the joint stock commercial banks, the organizations have over 25 branches include Maritime commercial joint-stock bank (26 branches), Techcombank (38 branches), VIB (42 branches), Sacombank (59 branches), Eximbank (35 branches), ACB (54 branches) and EAB (28 branches) None of the joint venture banks have more than five branches (Commercial bank report, 2010)

The retail banking market is continuing to evolve and undergo significant market change Increasing competition, product and service diversification and greater online channel usage have resulted in a need for Vietnam commercial banks to deepen relationships with existing clients as well as attract and convert prospects

2.2Customer satisfaction

2.2.1 Expectation of customer

Customer expectation is the ideals or feelings that a customer has about the product or service provided by a company based on what they need and expect from it This explain why two customers use the same product or service but each of them has the different opinions about it depends on what he or she expected

Customer expectation is influenced by customer’s perception of products or services and may be shaped from previous experience, advertising, hearsay (what other people say about it), awareness of competitors and brand image in the marketplace Customers usually have a certain standards and expectations in mind before consumption, they then compare the product or service performance with their prior expectations to form the satisfaction judgement So, understanding customer expectations is very important to a service oriented organization as it protects against dissatisfied customers If customer expectations are met, the customer satisfaction is increasing

2.2.2 Definition of customer satisfaction

Customer satisfaction is an important theoretical as well as practical issue for most marketers and consumers researches (Dabholkar et al., 1996; Fournier and Mick, 1999; Meuter et al., 2000) A customer’s overall satisfaction means the customer reaction to the state of fulfillment, and customer judgement of fulfilled state (Oliver, 1997) According to Hansemark and Anbinsson (2004) “satisfaction is an overall customer attitude towards a service provider, or an emotional reaction to the different between what customers anticipate and what they receive, regarding the fulfillment of

some need, goal or desire” Customer satisfaction is considered as the essence of success in today’s highly competitive worth of business Zeithaml and Bitner (2000) defined satisfaction as “the customer’s evaluation of a product or service in term of whether that product or service has met their needs and expectations” Kotler (2000) said that “satisfaction as a person’s feelings of pleasure or disappointment resulting from comparing a product’s perceived performance (or outcome) in relation to his or her expectations” It means that customer satisfaction is a respond to a discrepancy between prior expectation and perceived performance towards a good or service after

it has been used

2.2.3 The importance and benefits of customer satisfaction

In the beginning of the 1960s, customers have been considered as a focal point

of all marketing activities when marketing shifted to customer orientation instead of product orientation Zairi (2000) said that “Customers are the purpose of what we do and rather than them depend on us, we very much depend on them The customer is not the source of a problem, we shouldn’t perhaps make a wish that customer “should

go away” because our future and our security will be put in jeopardy“ To be successful, therefore, organizations must look into the needs and wants of their customers, especially in a competitive marketplace where businesses compete for customers, customer satisfaction is seen as a mean of achieving business goal as well

as being a source of sustainable competitive advantage

Evans and Berman (1997) said that “Companies with satisfied customers have a good opportunity to convert them into loyal customers- who purchase from those firms over an extended period” Customer loyalty is a major contributor to sustainable profit growth According to Hoyer and Maclnnis (2001) “satisfied customers form the foundation of any successful business” The satisfied customers are also pay less attention to prices and other competitive brands, willing to pay more for a new product

or service provided by the company and spread positive word-of-mouth by taking advertisement of the company to his / her families, colleagues, friends, etc Hence the company with highly satisfied customers costs less to serve than new customers, saves

the costs for marketing and promotion to attract new customers and increase its reputation The benefits of customer satisfaction are recapped as Figure 2.1 below

Figure 2.1: The Benefits of customer satisfaction

(Sure Vista Solutions – 2007)

2.3 Customer Service quality

2.3.1 Customer service

Customer service is often seen as necessary activities to meet or even exceed what customers need or want in the way they want to be served in order to keep their loyalty It is the provision of service to customer before, during and after a purchase Customer service is a series of activities designed to enhance the level of customer satisfaction – that is, the feeling that a product or service has met the customer expectation (Turban et al., 2002) This is one of important parts constitutes competitive advantage and adding benefits to maximize the total value to customers

of service can help service organizations to better understanding customer experience

in order to improve their performance and provide better services to customers

- Intangibility: service can not be seen, touched, or tasted making consumers feel difficult to measure service value and quality

- Inseparability: service is produced and consumed at the same time, unlike the goods can be manufactured then stored for later distribution So the service provider is a part of services For instance, the teller in bank is an inseparable part of services offering and can effect to the outcome of the services

- Variability: as service is produced and consumed simultaneously and provider becomes a part of service offering so the service is never exactly repeated

- Perishability: it is impossible to store services in inventory as production and consumption are at the same time

2.3.3 Service quality definition

These days all organizations are realizing the importance of customer philosophies One of the key challenges they concern that how to manage service quality which holds a great important to customer satisfaction

centered-Service quality is considered as a prerequisite and determinant of

customers According to Spreng and Machoy (1996), service quality is an important indicator of customer satisfaction Attention to service quality can lead an organization different from other organization and gain a lasting competitive advantage (Morre, 1987)

Gefan (2002) defined service quality as the subjective comparison that customers make between the quality of the service that they want to receive and what they actually get Parasuraman et al., (1985,1988) also defined service quality is determined by the gaps or the differences between customer’s expectations of services provider’s performance and their evaluation of services they received

2.3.4 Gap model of service quality

There are many researched models done to adjust the quality of services However, the work of Parasuraman, Zeitham and Berry (1985) is the most popular with the using of 5 major gaps:

Gap 1: difference between customer expectations and management perceptions of customer expectations This is the gap between what customers want and what managers think they want

Gap 2: difference between management perceptions of customer expectations and

quality specifications set for service delivery

Gap 3: difference between the quality specifications set for service delivery and the

service actually delivered

Gap 4: difference between the actual quality of service delivery and the quality of

service delivery described in the firm's external communications

Gap 5: difference between customer expectations and perceptions For instance, the firm promises to deliver in its communication with customer, then if a promise is broken by the organization (what it is actually delivered to the customer), the customer will perceive service quality to be lower than expected

Firms pay more attention to seeking the ways to minimize these five gaps in order to meet customer expectations Figure 2.2 illustrates the five gaps model of service quality built by Parasuraman and his colleagues (1985)

Figure 2.2: Model of service quality gaps (Parasuraman at el., 1985)

2.3.5 Measuring service quality

It is necessary to measure service quality because you can be able to indentify where services need improving in the view of your users, provide services that are more closely aligned with the expectation of the users and compare your service

Transition of Perceptions into Service Quality Specs

External Communications

to Customer

Perceived Service

CONSUMER

Management Perceptions of Consumer Expectations

PROVIDER

Expected Service

Service Delivery (Including pre- and post-contacts)

model of Parasuraman at el., (1985) is considered as the most used-approach to measure service quality in comparing customers’ expectations and their perceptions based on the actual service delivered They evolved a set of ten dimensions including:

- Reliability: Ability to perform the promised service dependably and accurately

- Responsiveness: Willingness to help and respond to customer needs

- Competence: having the required skill and knowledge to provide the service

- Access: the ease and convenience of accessing the services such as opening time, location, alternative methods to access services, etc

- Courtesy: politeness, respect, consideration, and friendliness of staff at all level

- Communication: keeping customers informed, understanding well service and listening to them

- Credibility: trustworthiness, believability, reputation and image of the service provider

- Security: physical safety, financial security and information confidentiality

- Understanding customers: knowing customers and their needs

- Tangibles: appearance of physical facilities, equipment, individual and communication materials

These 10 dimensions comprise all aspects of the service but it is so complex in measurement, then Parasuraman at el., (1988) reduced the ten dimensions to five specific dimensions after finding out the correlation among the original ten dimensions

- Tangibles: appearance of physical facilities, equipment, individual and communication materials

- Reliability: Ability to perform the promised service dependably and accurately

- Responsiveness: Willingness to help and respond to customer needs

- Assurance: knowledge and courtesy of employees and their ability to convey the trust and confidence the firm provides to its customers

- Empathy: Caring, individualized attention the firm provides its customers

2.4 Customer satisfaction and service quality in banking sector

2.4.1 Customer satisfaction in banking sector

Customer satisfaction is an outstanding research topic of different areas and banking industry is not an exception Banking is one of numerous services in which customer satisfaction has had an ever-increasing importance as they are becoming more and more competitive Retail banking sector are especially pursuing this strategy toward increasing customer satisfaction and loyalty through improving service quality

It is essential because of the difficulty in distinguishing services offered among bankers and the promptness in matching a new offering by competitors Rust and Zahorik (1993) applied a mathematical framework enables manager to determine the greatest influencing factor to customer satisfaction in banking industry Athanassopoulos (2000) conducted a complete survey on customer satisfaction in retail banking in Greece and suggested an instrument of customer satisfaction containing service quality and other attributes In general, the research in this area suggests that service quality is an important indicator of customer satisfaction Service quality is also attractive to retail banks as a competitive differentiator (Newman, 2001)

2.4.2 Service quality dimensions in banking sector

There is no unique approach to service quality dimensions applied for banking industry Parasuraman et al., (1988) found five attributes including reliability, responsiveness, assurance, empathy and tangibles as mentioned above

Lewis (1993) gave out dimensions of service quality applied in other service sectors along with banking sector include:

- Technical dimensions: the outcome of the service process comprising systems and technology

- Functional dimensions: the way the service is delivered includes inter-personal interactions between staffs and customers; appearance, personality and approachability of staffs

- The corporate image dimensions: how customers perceive the firm, technical and functional quality of services

Sureshchander et al., (2002) suggested that service quality is based on five dimensions which are relevant to banking sector:

- Core service or service product

- Human element of service delivery: providing bank services as promised by the bank staff, effectiveness the bank staff’s skill and ability for action whenever a critical incident takes place, willingness of bank staff to help customers and the readiness to respond to customer’s requests, making customers feel safe and secure in their transaction, giving caring and individual attention to bank customers by having customers’ best interest at heart

- Systematization of service delivery (non-human element): having a highly standardized and simplified delivery process so that banking services are delivered within a minimum time without any hassles or excessive bureaucracy, enhancement of technological capacity to provide superior quality service to customers more effectively

- Servicescapes (the environment in which the service is delivered and where the firm and the customer interact): refers to the tangibles of services ambient conditions, physical equipment, neat and professional appearance of bank’s staffs, etc

- Social responsibility: includes equal treatment toward customers, convenient branch location to all sections

Avkiran (1999) identified the following four service quality factors in banking:

- Staff conduct: responsiveness, civilized conduct and presentation of branch staff that will project a professional image to customers

- Credibility: maintaining customer trust to bank staff by rectifying mistakes and keeping customer informed

- Communication: fulfilling customers’ needs by successfully communicating financial advice and serving notices timely

- Access to Teller services: the adequacy of number of branch staff serving customers throughout business hours and during peak hours

It is indicated that different authors have proposed diverse dimensions of service quality in banking industry All authors mentioned above do not have the same opinion with every specific element of quality dimensions but most of them were used

in banking industry previously to measure service quality Therefore, review of these various suggests that the dimensions of service quality can be generally classified into six groups (see Table 2.2) in which some elements are adjusted (added in or deleted out) in conformity with the Vietnam culture and market

Table 2.2: Six dimensions of service quality

Tangibles

Modern equipment Visually appealing facilities Employees who have a neat, professional appearance Visually appealing materials associated with the services

Reliability

Providing service as promised Dependability in handling customers’ service problem Performing service right first time

Providing service at the promised time Maintaining error-free records

Assurance

Employees who instill confidence in customers Making customers feel safe in their transaction Employees who are consistently courteous Employees who have the knowledge to answer customers’

CHAPTER 3 : RESEARCH DESIGN

3.1Research model

3.1.1 Proposal of research model

According to the review of selected dimensions in the literature, quality of retail banking services comprises six (06) dimensions considered as dimensions in proposal model which is appropriated for Vietnam commercial banks (see Figure 3.1)

Figure 3.1: Suggested research model

3.1.2 Initial hypotheses

 Reliability refers to the ability of the service provider to perform the promised services dependably and accurately If customers perceive that the provided services are as good as they were promised, they feel satisfied as receiving the good quality Therefore, the first hypothesis is:

Reliability Responsiveness Assurance Empathy Tangibles

Customer Satisfaction

Social Responsibility

- H1: Reliability has a positive impact on customer satisfaction in retail banking sector in case of Vietnam commercial banks

 Responsiveness refers to the willingness of the service provider to help customer and provide prompt service From customer perspective, if they get helping willingness and prompt service from the provider, they are satisfied as receiving the good quality Therefore, the second hypothesis is:

- H2: Responsiveness has a positive impact on customer satisfaction in retail banking sector in case of Vietnam commercial banks

 Assurance refers to the ability of the service provider to convey trust and confidence to the customers Customers frequently find difficult to evaluate the quality of service if they have not experienced It is believed that the level of the customer’s trust plays an important role in assessing the quality of the service The more customers’ trust the service provider, the better the customers’ perception on the service quality then the higher satisfaction customers get Therefore, the third hypothesis is:

- H3: Assurance has a positive impact on customer satisfaction in retail banking sector in case of Vietnam commercial banks

 If customers perceive that they are receiving concerned, personal, or individual attention from service provider, convenient opening time and location of bank’s branches, ATM machines then their satisfaction will be positive affected Therefore, the fourth hypothesis is:

- H4: Empathy has a positive impact on customer satisfaction in retail banking sector in case of Vietnam commercial banks

 During the service delivery process, client is directly interacting with bank’s staff, physical facilities and other elements such as communication materials Because services are intangible, customer evaluate the quality of services based

on the tangible clues If customer perceives that the appearance of physical facilities, equipment, individual and communication materials are good, then his

or her satisfaction will be positively affected Therefore, the fifth hypothesis is:

- H5: Tangibles has a positive impact on customer satisfaction in retail banking sector in case of Vietnam commercial banks

 If customers realize that the service provider charges reasonable or even lower cost or pay reasonable/higher interest, the higher the customers appreciate the cost/interest, the higher level of customer satisfaction Therefore, the sixth hypothesis is:

- H6: Social responsibility has a positive impact on customer satisfaction in retail banking sector in case of Vietnam commercial banks

3.2 Research design

3.2.1 Research purpose

This study aims at finding out the main factors of service quality impact on customer satisfaction then validates the proposed model in retail banking sector in Vietnam commercial banks locate in Ho Chi Minh City area The six determinants of service quality in the suggested model which are mentioned in the literature review are overall customer satisfaction They are then evaluated the effects themselves to customer satisfaction in Vietnam commercial banks Finally, some recommendations will be given out for banks to get customer satisfaction and then loyalty based on the analysis and evaluation

be a little different when applied in Vietnam retail banking sector

- Quantitative research: the quantitative method is applied for official research which is carried out by delivering the questionnaire to seven Vietnam commercial banks’ customers directly, through email and internet to collect data

3.2.3 Research process

Figure 3.2: Research process

- Service quality dimensions

Regression Analysis

Conclusion &

Recommendations Factor Analysis (EFA)

Research Objectives

Research design:

- Initial model (based on previous study and deep interview)

- Hypotheses

The research is implemented in the above steps From the research problems,

the research objectives are given out and based on that the research questions are set

up The next step is to build the literature review which showing concepts related to

service quality and customer satisfaction and service quality dimensions of

SERVQUAL model which is the famous and popular model applied in service

industry Through the in-deep interview with banking customers combines with the

literature review, the initial model is suggested with six (6) hypotheses The offical

study is conducted by delivering 200 questionnaires to customers in order to collect

the data for analaysis The next step is analyzing the data through the two main tools

including Cronback’s Alpha and EFA in order to eliminate some factors and variables

which are not suitable for the model Then the regression analysis is applied to

determine the relationship between independent and dependent variables of the model

The result of the research is found out and we can give out some conclusions and

recommendations based on that result

3.3 Official research

3.3.1 Measurement scale

Through the qualitative research and previous theories, the variables of retail

banking service quality are defined to test in Vietnam commercial banks as following:

Table 3.1: Summary of service quality factors and measurement scale

Dimensions Factors Codes

The bank provide service as promised Rel.1 When you have a problem, the bank shows a sincere

The bank provides the service right at the first time Rel.3 The bank promises to do something in a certain time

(card delivery time, problem solving time, etc) Rel.4 Reliability

The bank’s documents maintains error-free records Rel.5

will be performed The bank’s staffs promptly give you the services Res.7 The bank’s staffs are always willing to help you Res.8 Responsiveness

The bank’s staffs are willing to meet your demand Res.9 The behaviors of bank’s staffs instill confidence in

You feel safe in your transaction with the bank Ass.11 The bank’s staffs are consistently courteous with you Ass.12 Assurance

The bank’s staffs have the knowledge to answer your

Empathy

The bank has ATM and branch locations convenient to

The bank has modern looking equipment Tan.19 External and internal physical features are convenient

and professional ( counter location, waiting-seat, etc) Tan.20 The bank’s reception desk employees are appealing

Tangibles

The bank’s website and brochures are visually

Social

Responsibility

The bank always offers good services at reasonable

Overall items of customer satisfaction involved in the retail banking service

quality of Vietnam commercial bank and Vietnam commercial bank in general are

suggested as Table 3.2

Table 3.2 : Overall customer satisfaction and measurement scale

Overall, you are satisfied with the bank’s service

3.3.2 The questionaire design

The questionnaire is divided into two parts Part 1 includes personal customer’s

information for statistical purpose Part 2 includes 26 items involving data collected

for testing the research model in which 23 service quality items were transformed into

Likert scales and the respondents were asked to indicated their perceptions of their

bank on each item using a five point scale ranging from “1=Strongly disagree to 5=

Strongly agree”, the rest 3 items relating to overall customer satisfaction were also

used a five-point scale ranging from “1= extremely dissatisfy to 5= extremely satisfy”

The questionnaire can be found out at appendix of this research

3.3.3 Research sample

Due to the limitation about space and time, the population for this research are

commercial bank customers using retail banking services at seven (07) Vietnam

commercial banks in Ho Chi Minh City including Vietnam Commercial Joint Stock

Bank (Vietcombank), Sai Gon Thuong Tin Commercial Joint Stock Bank

(Sacombank), Asia Commercial Joint Stock Bank (ACB), Vietnam Technological and

Commercial Joint Stock Bank (Techcombank), Eastern Asia Commercial Joint Stock

Bank (EAB), Bank for Investment and Development of Vietnam (BIDV) and Vietnam

commercial banks in Vietnam as well as in Ho Chi Minh City

3.3.4 Sampling

Sample was selected by both random and convenient method The data was collected by delivering questionnaire directly to some customers, via email and sending web link survey

3.3.5 Size of sample

The sampling size depends on the measurement method Hoetler (1983) defined that the size is at least 200 Bollen (1989) proved that the sample size had to base on the number of variables, minimum 5 samples for each variable According to Hatcher (1994), the sample size should be five times more than variables In this study, we use the regression method with 133 respondents for sample size The questionnaire of this research includes 23 tentative questions, therefore, at least sample size of 115 are acceptable for analysis The survey forms were collected by delivering directly 100 questionaires to customers and sending email as well as giving the web linked survey

to 100 friends The completed questionnaires were returned 57% and 76% of each respectively

In this chapter, the initial research model is suggested based on the theories in the literature review This chapter describes the research methodology used in the study in which introduces the methodology to collect data, research process, how the measurement scale is verified, how the questionnaire is designed and analysis method

CHAPTER 4 : DATA ANALYSIS AND FINDINGS

4.1 Sample Characteristics

In all, 200 questionaires were delivered to customers who have used retail banking services of seven commercial banks in Ho Chi Minh includes: Sacombank, Vietcombank, ACB, EAB, Techcombank, BIDV and Agribank Finally, 133 questionaires were used for data analysis Data was analyzed by using SPSS 16.0 software

Table 4.1 refers some characteristics of the sample such as percentage of age, gender, marital status, average income per month, profession, bank and service they are using From 133 surveyed observations, rates of male and female are almost same

at 51.9% and 48.1% respectively Most of them aging from 25-40 (69.2%), lower 25 account for 26.3% and more than 40 account for 4.5% There are 58.6% single and the rest 41.4% are married And their average incomes are not high at 42.1% from 6 to 10 VND million, 38.3% under 5 VND million

Regarding to the occupation, office staffs who almost have the average income from 6 to 10 VND million are the most using retail banking services account for 54.9%, 15% are managers, 12% are students, 5.3% are workers, 1.5% are home-makers, only one retiree accounts for 0.8% and 10.5% customers belong to other jobs The times of using services each month are evaluated quite regularly, about 48.9% customers have transaction with the bank from 1 to 2 times, 28.6% from 3-4 times and 20.3% more than 4 times Vietcombank and EAB are the two commercial banks having the high number of customers using services at 57 and 56 clients respectively

In Vietnam, the Government encourages all organizations to pay the salary through ATM card, then there are 121 of total 133 surveyed customers using card services at the bank, following is 61 customers have deposit accounts

Table 4.1: Sample characteristics

18-25 25-40 40-60

35

92

6

26.369.24.5Age

16277320114

12.01.55.354.915.0.810.5Profession

<=5,000,000 6,000,000-10,000,000 11,000,000-15,000,000 16,000,000-20,000,000

>=20,000,000

51561187

38.342.18.36.05.3

3653827

2.348.928.620.3

Internet banking Yes 39 29.3

4.2 Statistical Results

4.2.1 Variables for measuring service quality

Table 4.2 : Descriptive statistics of service quality measurement

N Mean Std Deviation Minimum Maximum

From Table 4.2, we can see that the value of one measurement related to bank’s reliability – Rel.1 is rarely high (mean = 4.02) That means customers satisfy and believe in the promised services from the bank There are five variables that are mostly close to four (04) relating to Reliability (Rel.3, Rel.4, Rel.5), Assurance (Ass.11) and Tangibles (Tan.21) This is because the demands of customers are higher and higher together with the increasing income and living standards, bankers have equipped modern and convenient physical equipments as well as trained their employees to instill confidence to customers and reduce the risks during transactions The rest variables have mean score come from 3.04 to 3.69 which means that customers have valuated the quality of retail banking services of Vietnam commercial banks at medium level Among the lowest mean scores, the majority of items relating to the bank’s Empathy and Social Responsibility This reflects that customers perceived that their benefits have not been concerned

The above descriptive statistical result of service quality measurement shows that customers have different evaluation toward retail banking services of Vietnam commercial banks There are variables which are highly appreciated by customers However, some are under customer expectations Most of the mean scores which are lower than four, a level of “agree” with each statement, mean the majority of customers still have not satisfied with the services of the banks

4.2.2 Variables for customer satisfaction

Table 4.3 : Descriptive statistics of customer satisfaction measurement

Mean score of overall customer satisfaction showed in Table 4.3 are also at medium level to up, all are lower than four of the five-point Likert scale It means that customers dissatisfy with Vietnam commercial banks in overall

4.3 Data Analysis

As presented in chapter 3, there are 6 independent variables are measured by 23 items to indicate how agreed or disagreed customers were with current services of banks and 1 dependent variable, customer satisfaction, has 3 items to indicate how satisfied or dissatisfied customers were with current banks All the measurement would be evaluated and adjusted by two main tools which are Cronbach’s Alpha reliability and EFA (Exploratory Factor Analysis)

4.3.1 Reliability evaluation through Cronbach’s Alpha

The reliability of scale variables needs to be tested through Cronbach’s Alpha This tool is used to eliminate the unsuitable items The standard to choose the measurement is that the overall reliability must have the corrected item-total correlation more than 0.3 and the value of Cronbach’s Alpha above 0.6 (Nunnally & Burnstein, 1994) Beside that, if item has the value of the Cronbach’s Alpha if item deleted which is higher than the Cronbach’s Alpha coefficient may have to be dropped After this test, we would have better groups of variables to measure retail banking service quality in Vietnam commercial banks

The testing result has been illustrated in the Table 4.4 in which Cronbach’ Alpha of each scale Rel, Res, Ass, Emp, Tan and Gen are high and fulfilled the requirement for further analysis at 0.771, 0.816, 0.829, 0.811, 0.819 and 0.862 respectively Therefore, all their items are successfully chosen for the next step However, the variable of Emp.18 with the Cronbach’s Alpha if item deleted (0.823) is higher than the Cronbach’s Alpha coefficient (0.811), so we eliminate item Emp.18 from analysis

Table 4.4 : Reliability test of service quality and customer satisfaction

Item Deleted

Scale Variance if Item Deleted

Corrected Total Correlation

4.3.2 Evaluation the measurement scale by using Exploratory Factor Analysis 4.3.2.1 Some rules in EFA test

- Kaiser-Meyer-Olkin (KMO) measure indicates whether or not the variables are able to be grouped into a smaller set of underlying factors The acceptable value

of KMO comes from 0.5 to 1 KMO have high values (close to 1) indicate that a factor analysis may be useful with data According to Hutcheson and Sofroniou (1999), KMO values between 0.5 - 0.7 are mediocre, values between 0.7 - 0.8 are good, values between 0.8 – 0.9 are great and values above 0.9 are superb

- Eigenvalue: The eigenvalue for a given factor measures the variance in all the variables counted by that factor If a factor has eigenvalue under 1.0, it should be eliminated as it will contribute a little to the explanation of variances in the variables

- Communality is the proportion of variance explained by the underlying factors The method is applied in this research for extracting factors, the communalities after extraction should probably be above 0.5 (Field, 2005)

- Factor loading is not lower than 0.5 in a factor (Jun et al., 2002)

- The differences between factor loadings in each observed variables not lower than 0.3 (Jabnoun et al., 2003)

4.3.2.2 EFA for service quality

This step is to evaluate and adjust the measurement scale by using the EFA (Exploratory Factor Analysis) to test the inter-correlation between variables After deleting Emp.18, the remaining variables of service quality include 22 items We will take out any variables that don’t correlate with any other variables based on the requirement mentioned above

Step 1: Factor analysis is applied for twenty-two items, the result of the first analysis is shown in Table 4.5 The value of KMO is 0.903 with sig 0.000 These variables are extracted into four components which have eigenvalues more than 1 and

the cumulative variance extracted 52.954% (>50%), fulfill the requirement However, Rel.4 is deleted because its factor loading is lower than 0.5 and be the lowest

Table 4.5: First EFA analysis result of service quality