Customers' Service Quality Perceptions in Service ...

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Service Quality Perceptions of Customers in Banks and Insurance Companies Divya Malhan* Assistant Professor, Institute of Management Studies and Research Maharshi Dayanand University, Rohtak, Haryana Subhash C. Kundu Professor and Director, Haryana School of Business Guru Jambheshwar University of Science and Technology, Hisar, Haryana ABSTRACT Customer service is a business priority today and is a key to future growth and success. The customers‟ perceptions about service quality greatly influence their loyalty towards an organization and ultimately the success of an organization depends on the satisfied customers. The present study is based on primary data gathered with the help of questionnaire comprising of two sections. The first section contained background questions and second section contained 21 statements about the customers‟ perception of service quality in banks and insurance companies operating in India. Primary data based on 469 respondents (customers) from six banks (four private/multinational-16 branches and two government-13 branches) and four insurance companies (two private/multinational-7 branches and two government-7 branches) was analyzed to assess customers‟ perception of service quality in banks and insurance companies in India. Further, the data was subjected to correlation and factor analysis. Correlations were used to assess the relationships of service quality variables in banks and insurance companies, and standard deviations were calculated to understand the variations in data collected through responses. Factor analysis was basically used to reduce the data for further analysis. All the 21 variables were almost significantly correlated. Factor analysis brought out 4 factors in all namely „reliability‟, „empathy‟, „tangibles‟, „responsiveness and assurance‟. These factors were further subjected to statistical tools like inter-factor correlations, ANOVA, means, and grand means. INTRODUCTION

IFRSA Business Review|Vol2|issue 3|Sep 2012

Competition is the most common word in management parlance. Service companies of all kinds believe that service quality is a must for combating competition. Customers want the best and deserve it too as they are vital to business success. The customers‟ perceptions about service quality greatly influence their loyalty towards an organization and ultimately the success of an organization depends on the satisfied customers. One satisfied customer gets two more, whereas one dissatisfied customer will let go four more. Customer service is a business priority today and is a key to future growth and success. Everybody is in service, including manufacturers. Providing exceptional service is an exception. In the competitive world the expectations of customers continue to increase. Service organizations are playing an increasingly important role in the overall development of any economy. In today‟s world of global competition, rendering quality service is a key for success and many experts concur that the most powerful competitive trend currently shaping marketing and business strategy is service quality (Abdullah, 2005). LITERATURE REVIEW The following paragraphs present the review of literature. Contemporary service sector firms are compelled by their nature to provide excellent service in order to prosper in increasingly competitive domestic and global marketplaces (Sultan and Simpson, 2000). The issue of service quality has received considerable attention in marketing literature (Berry et al., 1985; Bolton and Drew, 1991; Brown and Swartz, 1989; Carman, 1990; Cronin and Taylor, 1992; Parasuraman et al., 1985, 1988; Bahia and Nantel, 2000; Sureshchandar et al., 2002; Gounaris et al., 2003; Ozer et al., 2006). Researchers have been studying service

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D Malhan , S.C. Kundu | Service Quality Perceptions of Customers in Banks and Insurance Companies quality and its relationship to critical business outcomes. A number of studies have addressed the relationship between service quality and customer satisfaction and it is generally believed that higher levels of service quality lead to higher levels of customer satisfaction (Gotlieb et al., 1994; Kang and James, 2004; Oliver, 1997; Parasuraman et al., 1994; Teas, 1994; and Zeithaml et al., 1996). Service quality and customer satisfaction are distinct but related constructs (Spreng and Mackoy, 1996). The consumer‟s fulfillment response or a post consumption judgment by the consumer that a service provides a pleasing level of consumption-related fulfillment is satisfaction (Oliver, 1997). Service quality is an antecedent of the broader concept of customer satisfaction (Gotlieb et al., 1994; Buttle, 1996; Zeithaml and Bitner, 1996; Lee et al., 2000). The relationship between service quality and loyalty is mediated by satisfaction (Caruana, 2002; Fullerton and Taylor, 2002). As compared to manufacturing quality, concepts and practices of service quality are not well developed (Douglas and Fredendall, 2004, Ghobadian et al., 1994). The literature reveals that service organizations are lagging behind their manufacturing counterparts in terms of the effective use of TQM practices aimed at achieving organizational objectives (Yasin et al., 2004). Research has identified four main components that influence consumers‟ service experiences, they are contact personnel/service providers, other consumers, the servicescape (inanimate environment), and the invisible organization and systems (Langeard et al., 1981). It is required to deliver services with an adequate level of functional and technical quality, adequate price, and fast response times, while allowing the firm to realize targeted short and long term profits, growth, and competitive advantage (Zineldin, 2000). In an increasingly competitive and complex business environment, service firms should examine their service delivery processes critically to ensure customer satisfaction with flawless services. This is true for both private sector and public sector. Public sector firms are trying to make administration more efficient and more citizen-oriented (Scharitzer and Korunka, 2000). Scholars in marketing and human resource management are giving increasing attention to the personal interaction between the customer and the employee on the frontline of service businesses (Mattson, 1994). Research studies have attempted to address the relationship between human resource management and service quality (Schneider and Bowen, 1995; Bowen et al., 1999). Financial service institutions with direct competitors who offer similar products find that service quality enhancements are critical to their business success (Allred and Addams, 2000). In today‟s competitive


banking environment, where same or similar products are offered by institutions, differentiation can be achieved only with service quality (Seonmee and Brian, 1996; Barnes and Howlett, 1998; Naser et al., 1999; Wang et al., 2003). Customers perceive retail banks as similar (Lopez et al., 2007), hence to be successful, retail banks must provide service to their customers that meets or exceeds their expectations. Recent innovations in technology have opened up new avenues for both the retail banking industry and its consumers, with this have emerged issues of security and integrity (Keeton, 2001). OBJECTIVES The main objective of the study was to assess the customers‟ perceptions of service quality in banks and insurance companies (service industry) operating in India. To achieve the main objective, the following subobjectives were set: 1. To assess the customers‟ perceptions of reliability of the services offered by banks and insurance companies. 2. To assess perceptions of customers of banks and insurance companies regarding empathy in the services they receive. 3. To know about the customers‟ perceptions of tangibility offered by banks and insurance companies. 4. To know about the perceptions of customers regarding responsiveness and assurance offered by banks and insurance companies while delivering services. 5. To assess the differences of perceptions of customers regarding service quality between Indian government and private/multinational banks and insurance companies operating in India. 6. To assess the differences of perceptions of customers regarding service quality in banks and insurance companies. RESEARCH METHODOLOGY The present study is based on primary data gathered with the help of questionnaire comprising of two sections. The first section contained background questions and second section contained 21 statements about the customers‟ perception of service quality in banks and insurance companies operating in India. The respondents (customers) were asked to rate statements on a five point rating scale where one indicated that respondents strongly disagree, two meant for disagree, three for neutral, four indicated agreeing and five meant strongly agree about what was described in the statement. These 21 statements can be seen through exhibit 1.

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D Malhan , S.C. Kundu | Service Quality Perceptions of Customers in Banks and Insurance Companies The questionnaire was administered to 800 customers of six banks (four private/multinational-16 branches and two government-13 branches) and four insurance companies (two private/multinational-7 branches and two government-7 branches). Out of the six banks, two public banks i.e. State Bank of India (SBI) and Punjab National Bank (PNB), two private banks i.e. The Industrial Credit and Investment Corporation of India Limited (ICICI) and Housing Development Finance Corporation Bank Ltd (HDFC Bank Ltd), and two foreign banks i.e. Citi Bank and Standard Chartered Bank, became the part of the study. Out of the four insurance companies two companies were from the public sector and two were from private sector. Public companies were Life Insurance Corporation (LIC) and Oriental Insurance Corporation (OIC). Private/multinational companies were TATA-AIG and AVIVA Life insurance. Only 469 (58.6%) of the returned questionnaires were found suitable for final analysis and without discrepancies. Out of the sample of 469 respondents, 166 respondents were from Indian government banks and insurance companies and 303 from private/multinational banks and insurance companies. Table 1 explains the distribution of the sample. The data gathered was analyzed with the help of statistical tools like actual counts, percentages, correlations, standard deviations, factor analysis and mean, and grand mean scores. Actual counts and percentages, means were used to assess the frequency and percentage extent of certain variables related to general and background information. Correlations were used to assess the relationships of service quality variables in banks and insurance companies. Standard deviations were calculated to understand the variations in data collected through responses. Factor analysis was basically used to reduce the data for further analysis. Mean and grand means were helpful in explaining the extent and direction of prevalence of service quality and related factors. Means were also used to see the differences between Indian government and private/multinational banks and insurance companies. Reliability of the data collected was also calculated by applying Cronbach Alpha. Cronbach‟s coefficient alpha is commonly used to measure the reliability for a set of two or more construct indicators. Alpha value of the scale of 21 variables was calculated that was as high as 0.899. Factor wise alpha values were also calculated that were above required level i.e. between 0.84 and 0.60 (see Table 4). All alpha values met the minimum criterion (α > 0.60) (Nunnally, 1978). RESULTS AND DISCUSSION Primary data based on 469 respondents (customers) from six banks (four private/multinational-16 branches and two government-13 branches) and four insurance


companies (two private/multinational-7 branches and two government-7 branches) was analyzed to assess customers‟ perception of service quality in banks and insurance companies in India. The distribution of sample can be seen in Table 1. Table 2 explains the characteristics of the sample. This sample included both male (74.2%) and female (25.8%) customers of banks and insurance companies. Out of the entire sample 71% customers were married. Average age of the respondent customers was 33.599 years (SD=±11.096). Further, the data was subjected to correlation and factor analysis. Correlations were used to assess the relationships of service quality variables in banks and insurance companies, and standard deviations were calculated to understand the variations in data collected through responses. Factor analysis was basically used to reduce the data for further analysis. All the 21 variables were almost significantly correlated. Factor analysis brought out 4 factors in all explaining 55.942% of total variance (see Table 3). The derived four factors were named as „reliability‟, „empathy‟, „tangibles‟, „responsiveness and assurance‟. These factors were further subjected to statistical tools like inter-factor correlations, ANOVA, means, and grand means. For further analysis we divided the factor 4 into two sub factors. This did not in any way impact the significance of the results, but it made the study more clear and related to the source from where we had adopted the questionnaire (Zeithaml and Bitner, 2004). Thus, the fourth factor „responsiveness and assurance‟ was divided into two sub-factors i.e. „responsiveness‟ and „assurance‟. Further results have been explained taking five factors into consideration. Table 4 explained the inter-factor correlations, overall means, standard deviations, and alpha values. All factors were found highly correlated (r ≤ 0.01). Standard deviations were found varying between ±0.64 and ±0.80. The factors mean scores were found between 3.56 and 3.89. All the factors „reliability‟, „empathy‟, „tangibles‟, „responsiveness‟ and „assurance‟ were perceived highly in practice by the customers of banks and insurance companies in India ( x =3.65, x =3.65, x =3.88, x =3.56, x =3.79 respectively). Dimensions of service quality have also been conceptualized and developed by researchers. Berry (1980) and Booms and Bitner (1981) argued that due to intangible nature of services, customers used elements associated with physical environment for evaluating service quality. Lehitnen and Lehitnen (1982) proposed three major determinants of service quality which are institutional quality, physical quality, and interactive quality. Parasuraman et al. (1985) and Zeithaml et al. (1985) offered the most widely reported set of service quality dimensions. Parasuraman et al. (1985) suggested that the criteria used by consumers fit ten dimensions: tangibility; reliability; responsiveness; communication; credibility;

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D Malhan , S.C. Kundu | Service Quality Perceptions of Customers in Banks and Insurance Companies security; competence; courtesy; understanding/ knowing the customer; and access. If we are offering services it has to be with whole heart i.e. services have to stand tested well on all aspects of reliability, empathy, tangibility, responsiveness and assurance. A half hearted attempt cannot be a quality attempt. Table 5 and Table 6 explained the analysis of variance, means, and grand means across nature and type of companies. A perusal of table 5 showed that factors „reliability‟, „tangibles‟, and „assurance‟ differed significantly according to type of organizations (Indian government and private/multinational). „Reliability‟ was found stronger in Indian government companies ( x = 3.78) as compared to private/multinational banks and insurance companies ( x = 3.58). Whereas, „tangibles‟ were found stronger in private/multinational banks and insurance companies ( x = 3.94) than Indian government banks and insurance companies ( x = 3.78). On the factor „assurance‟ Indian government companies emerged stronger ( x = 3.90) as compared to private/multinational banks and insurance companies ( x = 3.74). For the factors „empathy‟ and „responsiveness‟, there was no significant difference between Indian government and private/multinational banks and insurance companies. It meant that both type of companies emphasized on „empathy‟ and „responsiveness‟ almost equally. According to nature effect i.e. between banks and insurance companies four factor were found significantly differing i.e. „reliability‟, „tangibles‟, „responsiveness‟ and „assurance‟. All these four factors were found more in practice in banks ( x = 3.80, x = 4.12, x = 3.70, x = 3.96 respectively) than insurance companies ( x = 3.53, x = 3.69, x = 3.44, x = 3.66 respectively). It means that customers perceived banks to perform better on the criteria of „reliability‟, „tangibles‟, „responsiveness‟ and „assurance‟. However, both banks and insurance companies faired almost equally on the factor „empathy‟. Gounaris et al. (2003) investigated the influence of customers‟ perceptions of service quality in the banking sector. The findings revealed that the greater the degree of market orientation adoption by banks the higher the perceived quality of its offerings by its customers. Sureshchanderan et al. (2002) gave a model to measure the perceptions of customers towards service quality in banks. Bahia and Nantel (2000) developed an alternative six dimensional service quality scale for retail banking which covered a broader range of marketing variables than the original SERVQUAL dimensions. Interaction effects were found significantly different on all factors. LIMITATIONS AND FUTURE RESEARCH DIRECTIONS


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Exhibit 1: Description of variables Variables V1 V2 V3 V4 V5 V6 V7 V8 V9 V10 V11 V12 V13 V14 V15 V16 V17 V18 V19 V20 V21

Description When organization promises to do something by a certain time, it does so. When I have a problem, organization shows sincere interest in solving it Organization performs the service right the first time Organization provides services at the time it promises to do so Organization keeps customers informed about when services will be performed Customer service staff / employees in organization give me prompt service Customer service staff / employees are always willing to help me Customer service staff / employees are never too busy to respond to my requests The behavior of Customer service staff / employees in the organization makes me confident I feel safe in my transactions with the organization Customer service staff / employees in the organization are consistently courteous with me Customer service staff / employees in the organization have the knowledge to answer my questions The organization gives me individual attention The organization has Customer service staff / employees who give me individual attention Customer service staff / employees of the organization understand my specific needs Organization understands my specific needs The organization has modern-looking equipment The organization‟s physical facilities are visually appealing The organization‟s Customer service staff / employees appear neat Materials associated with services ( like pamphlets or statements) are visually appealing at the organization The organization has convenient business hours Table 1 Distribution of sample Org. nature Org. type Bank Insurance 42 124 Indian 170 133 Multinational 212 257 Total

Variables 1. Gender

Table 2 Characteristics of the sample Categories Average Male


Total 166 303 469

Number 348

% 74.2

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2. Marital status

Female Total Married Unmarried Total

3. Age

121 469 333 136 469

25.8 100 71.0 29.0 100

33.599 ( SD = 11.096)

Table 3 Factor loadings of varimax rotated principal components Factors

Loadings

F1 Reliability When organization promises to do something by a certain time, it does so. Organization shows sincere interest in solving a problem Organization performs the service right the first time Organization provides services at the time it promises to do so Organization keeps customers informed about when services will be performed Employees in organization give me prompt service F2 Empathy Employees have the knowledge to answer my questions The organization gives me individual attention The organization has employees who give individual attention Employees of the organization understand my specific needs Organization understands my specific needs F3 Tangibles The organization has modern-looking equipment The organization‟s physical facilities are visually appealing The organization‟s employees appear neat Materials associated with services ( like pamphlets or statements) are visually appealing at the organization The organization has convenient business hours F4 Responsiveness and Assurance Employees are always willing to help me Employees are never too busy to respond to my requests Behavior of employees makes me confident I feel safe in my transactions with the organization Employees are consistently courteous with me Sub-factor of F4--F4a Responsiveness Employees are always willing to help me Employees are never too busy to respond to my requests Sub-factor of F4--F4b Assurance The behavior of employees makes me confident I feel safe in my transactions with the organization Employees are consistently courteous with me

Eigen Value 7.050

% of Variance 33.572

1.829

8.710

1.752

8.341

1.117

5.319

0.731 0.642 0.688 0.650 0.660 0.544 0.590 0.783 0.829 0.757 0.665 0.750 0.752 0.696 0.701 0.470 0.690 0.594 0.567 0.580 0.619

Cronbach Alpha (Scale Reliability of 21 Variables) = 0.899 Kaiser-Meyer-Olkin Measure of Sampling Adequacy = 0.905 Barlett‟s test of Sphericity Approx. Chi-Square = 3758.529 df = 210 Significance = 0.000 Table 4 Inter factor correlations, means, SDs and Alpha values


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Factors F1 F2 F3 F4 SF-F4a SF-F4b No. of Variables Mean SD Alpha values

F1 0.463** 0.436** 0.617** 0.532** 0.557** 6 3.653 0.688 0.825

F2

F3

F4

SF-F4a

SF-F4b

0.426** 0.494** 0.414** 0.457** 5 3.655 0.702 0.836

0.455** 0.307** 0.480** 5 3.886 0.642 0.772

0.857** 0.909** 5 3.700 0.640 0.745

0.564** 2 3.559 0.807 0.600

3 3.795 0.666 0.655

** Correlation is significant at the 0.01 level. SF means Sub-factor of Factor 4. Table 5 Analysis of variance of main scales across nature and type of companies

Type Effect (F-Value) 9.822 (0.002) 0.037 (0.848) 4.921 (0.027) 7.240 (0.007) 2.098 (0.148) 9.730 (0.002)

Factors/ Variables F1 Reliability F2 Empathy F3 Tangibles F4 Responsiveness and Assurance F5 Responsiveness F6 Assurance

Effects Nature Effect (F-Value) 11.740 (0.001) 2.462 (0.117) 18.617 (0.000) 16.745 (0.000) 7.592 (0.006) 18.357 (0.000)

2-way interactions 20.551 (0.000) 14.565 (0.000) 31.451 (0.000) 9.504 (0.002) 5.305 (0.022) 9.235 (0.003)

Note: Significance levels are indicated in parentheses Table 6 Summary of means and grand means for main scales (factors)

Factors/ Variable F1 Reliability

F2 Empathy

F3 Tangibles

F4 Responsiveness and Assurance F4a Responsiveness

F4b Assurance

I P/M GM I P/M GM I P/M GM I P/M GM I P/M GM I P/M GM

Bank 3.73 3.82 3.80 3.55 3.82 3.76 3.72 4.21 4.12 3.83 3.86 3.85 3.64 3.71 3.70 3.96 3.95 3.96

Organization Nature Insurance 3.80 3.27 3.53 3.72 3.42 3.56 3.80 3.59 3.69 3.77 3.39 3.57 3.60 3.29 3.44 3.88 3.46 3.66

Grand Mean 3.78 3.58 3.65 3.67 3.64 3.66 3.78 3.94 3.89 3.78 3.65 3.70 3.61 3.53 3.56 3.90 3.74 3.79

Notes: I=Indian government, P/M=Private/Multinational, GM=Grand Mean


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