3rd International SIMR-ASIA Marketing Conference, KJSIMSR Mumbai 6-7 January, 2008
Service Quality Dimensions and Customer Satisfaction: A Case Study on Indian Banks Chirag Jain, Ritu Mehta, & Deepak Saxena
1
Chirag Jain, M. Tech Student, Department of Industrial & Management Engineering, IIT Kanpur. Contact: G-105/Hall 8, IIT Kanpur, Kanpur -208016 U.P., India. Email ID:
[email protected], Tel No: +91- 9889895188 2
Ritu Mehta, Doctoral Candidate, Department of Industrial & Management Engineering, IIT Kanpur Email ID:
[email protected] 3
Deepak Saxena, M. Tech. Student, Department of Industrial & Management Engineering, IIT Kanpur. Contact: D111/Hall 8, IIT Kanpur, Kanpur -208016 U.P., India. Email ID:
[email protected], Tel No: +91- 9935831148
IME Department, IIT Kanpur
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3rd International SIMR-ASIA Marketing Conference, KJSIMSR Mumbai 6-7 January, 2008
Service Quality Dimensions and Customer Satisfaction: A Case Study on Indian Banks
Abstract Marketing is all about understanding and satisfying your customers. Satisfied customers are an asset for any firm. With the phenomenal growth in the number of banking establishments in India during the last decade, customer satisfaction has become a major concern in the retail banking business. Customers have the option to bank with public sector, private sector and foreign banks. In this scenario, it has become extremely important for Indian banks to focus on customer satisfaction to ward off competition and to ensure customer retention. In this paper, we propose that service quality is an indicator of customer satisfaction. Measuring service quality involves objective feedback about clients’ preferences and expectations and evaluating the firms on those parameters. This evaluation throws light on customer satisfaction. A company’s performance may be evaluated with respect to a set of satisfaction parameters that indicate the strengths and weaknesses of an organization. This study identifies four overall dimensions of customer satisfaction with bank services. These are service related considerations, tangible aspects, support facilities, and empathy. The study also compares the banks on these dimensions and draws important conclusions for Indian banks to boost customer satisfaction. Keywords Customer Satisfaction, Service Quality, Banking Services
1. Introduction 1.1. Background The foundation for true loyalty lies in customer satisfaction. Satisfied customers are more likely to become loyal apostles of a firm, consolidate their buying with one supplier, and spread positive word of mouth. In contrast, dissatisfaction drives customers away and is a key factor in switching behavior (Christopher et al, 2006). Modern management sciences philosophy considers customer satisfaction as a baseline standard of performance and a possible standard of excellence for any business organization (Gerson, 1993). The assumption is that, with customer satisfaction in place, loyalty, retention and profitability will automatically follow (Rahman, 2005). It is a common assertion among management and marketing theorists that customer service quality is essential to business success (Kristensen et al., 1992; McColl-Kennedy and Schneider, 2000; Zeithaml et al., 1996). Firms that provide superior service quality as measured by customer satisfaction also experience higher economic returns than competitors that are not so service-oriented (Aaker and Jacobson, 1994; Bolton, 1998). The linkage between customer satisfaction and customer behavior has been well documented in marketing literature. In keeping with this general business imperative,
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3rd International SIMR-ASIA Marketing Conference, KJSIMSR Mumbai 6-7 January, 2008
satisfied customers are essential to the long-term success of banking establishments. As satisfied loyal customers, their continued patronage is assured. On the other hand, those who become dissatisfied customers, may not only go elsewhere, they will likely become active champions to persuade others to go elsewhere, as well. Customer satisfaction often depends on the quality of product or service offering. For this reason, research on customer satisfaction is often closely associated with the measurement of quality (East, 1997). Service quality has been described as a form of attitude that results from the comparison of expectations with performance (Cronin and Taylor, 1992; Parasuraman et al., 1985). Gronroos (1982) argued that customers, while evaluating the quality of a service, compare the service they expect with perceptions of the services they actually receive. It has been argued that the quality of service is not a unidimensional construct. Rather, service quality incorporates various dimensions that relate to both core and augmented service offerings (Bitran and Lojo, 1993; Gronroos, 1984; Lewis, 1993). Parasuraman, et.al. (1985) suggested that the criteria used by consumers that are important in moulding their expectations and perceptions of delivered service fit ten dimensions: tangibility, reliability, responsiveness, communication, credibility, security, competence, courtesy; understanding/knowing the customer and access. Subsequent research, analysis and testing by Parasuraman, et.al. (1988) have condensed these into five dimensions of service quality: Tangibility : physical facilities, equipment, appearance of personnel Reliability : ability to perform the promised service dependably and accurately Responsiveness : willingness to help customers and provide prompt service Assurance : knowledge and courtesy of employees and their ability to convey trust Empathy : caring individualized attention the company provides to its customers Parasuraman, et.al. (1988) developed a twenty-two-item instrument, ecognized as SERVQUAL, which has become widely used as a generic instrument for measuring service quality. Limitations with SERVQUAL are highlighted by the authors themselves (Parasuraman et.al., 1991) and also by others (Babakhus and Boller, 1992; Carman, 1990; Lewis and Mitchell, 1990; Lewis, 1993; and Smith, 1992). They relate to respondent’s difficulties with negatively worded statements using two lists of statements for the same items, the number of dimensions of service being assessed, ease of consumer assessment and timing of measurement – before, during or after a service encounter. 1. 2. 3. 4. 5.
Manrai and Manrai (2006) identified four overall dimensions of customer satisfaction with bank services. These are personnel related considerations, financial considerations (interest earnings and interest payments), environment related considerations (atmospherics), and convenience related considerations (ATM and hours). The study was conducted at Indian Institute of Technology (IIT), Kanpur. In IIT campus, major player is State Bank of India. Its competitors include Union Bank of India, IIT Kanpur branch and the private banks HDFC and ICICI in the city of Kanpur. SBI bank at IIT Kanpur caters largely to the students of IIT Kanpur. These customers should not be neglected because they have low profitability now, or just because they do not have much option to bank elsewhere. If they become loyal to a particular service provider now, then in future when they achieve high positions, the banks can cash in on them, as they will then be a major source of revenue. Also, if the students have a good experience with the bank now, they are more likely to use it in the future. The other major customers of the bank are the staff and faculty at IIT Kanpur.
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3rd International SIMR-ASIA Marketing Conference, KJSIMSR Mumbai 6-7 January, 2008
1.2. Research Objectives/Questions The most important objective of this study was to determine the underlying dimensions that drive customer satisfaction with banking services and to assess the importance of each of these dimensions in the banking industries. Specifically, the research addressed the following questions: What are the dimensions of bank service along which customer satisfaction/ dissatisfaction may be measured? 2. What is the degree of customer satisfaction on various dimensions of different banks? 3. Are the identified dimensions of customer satisfaction related to the overall customer satisfaction? 1.
It was hypothesized that ● HO1: The mean of each dimension of customer satisfaction does not differ across banks ● HO2: The identified dimensions of customer satisfaction are related to the overall customer satisfaction
2. Methodology 2.1. Research Design and Procedure The study was designed in two stages. The first stage of the study was an exploratory research undertaken to define the relevant service attributes for a bank. The technique which was used for this purpose was focus group. In the second stage, a descriptive research design was used to gain an insight into consumers’ perceptions of the importance of each of these attributes and for assessing customers’ perceptions of SBI and other competing banks, and to identify the underlying dimensions of customer satisfaction with banking services. 2.2. Source of data and survey instrument Primary data were collected for both the exploratory and descriptive research. In the first stage, the participants were asked to discuss the key drivers to customer satisfaction in a banking service. An undisguised structured questionnaire was used for stage two of the research. The questionnaire (shown in Appendix-A) provides a list of 17 attributes identified in the first stage. The respondents were asked to provide the belief ratings for SBI, IIT Kanpur and at least one other bank they had an account with, on each of these 17 attributes using a five point rating scale ranging from 1(very dissatisfied) to 5(very satisfied) and also an overall satisfaction score for each bank. The same set of 17 attributes was also used to generate importance scores. The same respondents were asked to indicate the importance of each of the attribute on an importance scale ranging from 1(not important at all) to 5(extremely important). The data on demographic questions were also collected.
2.3. The Sample The sample size used was 10 for exploratory stage and 100 for descriptive stage of research. The respondents were selected on the basis of convenience sampling. The sampling units were the students, faculty, staff of IIT Kanpur; and other customers that comprise the bank’s retail segment.
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3rd International SIMR-ASIA Marketing Conference, KJSIMSR Mumbai 6-7 January, 2008
3. Results 3.1. Dimensions of bank service The customer satisfaction data on the 17 attributes was factor analyzed to obtain dimensions of bank service. Principal components and varimax rotational procedures were used. All factors with eigenvalues of 1.0 or greater are reported. The results are given in Table 1. Four dimensions of customer satisfaction were identified. The naming of the factor has been determined by the variables that are most highly loaded on each factor. These are service related considerations, tangibles, extended support services and empathy.
Factor Factor 1
Factor 2
Factor 3
Factor 4
Factor 5
Attributes Speed Professionalism Error handling Cleanliness Offer Information No. of branches No. of ATMs Interest on Loans Service Charge Credibility i-banking Tele-banking Investment Schemes Courtesy Operating Hours Easy help Interest on Savings
Rotated loadings 0.76 0.88 0.76 0.70 0.69 0.85 0.90 0.74 0.60 0.69 0.84 0.68 0.76 0.66 0.51 0.67 0.89
Variance explained (%) 25.67
18.10
11.74
8.29
5.97
Table 1- Result of Factor Analysis 3.2. Customers’ satisfaction score for various banks The scores shown in table -2 were calculated as follows: 1. 2. 3.
Finding out the weighted means for relative importance of each attribute (say wtmean_imp) Calculating the means of respondents’ ratings on each of the attributes (say mean_rating) separately for all banks Sat_Factor Scorej = ∑(wtmean_imp * mean_ratingi), for all attributes ‘i’ in factor ‘j’for all
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3rd International SIMR-ASIA Marketing Conference, KJSIMSR Mumbai 6-7 January, 2008
banks 4.
Sat_Overall Score= ∑ Factor Scorej, for j=1, 2,…,5
Factor 1 Factor 2 Factor 3 Factor 4 Factor 5 Overall Score
SBI 2.89 3.87 2.77 3.17 3.24 3.19
UBI 3.37 3.12 1.59 3.70 3.14 2.98
ICIC I 3.96 2.75 3.92 3.92 3.06 3.52
HDFC 3.09 3.35 2.97 3.54 2.85 3.16
Table-2. Customers’ Satisfaction Score Figure-1 shows the customers’ scores on each of the factors and total satisfaction score for each of the banks, where a score of 5 represents the most satisfied customers and a score of 1 represents the least satisfied customers. Mean score for each attributes in these dimensions are shown in appendixB.
Figure-1. Mean Scores on Dimensions From Table-2 and Figure-1 it is evident that ICICI bank ranks first on the basis of overall score on customer satisfaction, a total score of 3.522; SBI ranks second; followed by HDFC and UBI in that order. However, HDFC scores very close to SBI.
IME Department, IIT Kanpur
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3rd International SIMR-ASIA Marketing Conference, KJSIMSR Mumbai 6-7 January, 2008
3.3 Linkage between overall customer satisfaction and the five dimensions Regression analysis was used for linking overall customer satisfaction as a dependent variable and the five factors of customer satisfaction as independent variables. For all banks, service aspects, tangibles and extended support facilities were significant with R-square equal to 0.651. This shows that these three factors are the most critical dimensions of customer satisfaction and they are directly related to customer satisfaction. The regression equation is 3.3+0.364F1+0.215F2+0.081F3. The service dimension is most important in determining customer satisfaction
4. Discussion on Results The factors extracted through factor analysis reveal the four underlying dimensions of customer satisfaction that are service considerations (speed, promptness in error handling, cleanliness, professionalism and offers latest information), tangible aspects (number of branches, number of ATMs, interest on loans and service charges), support facilities (i-banking, tele-banking, different investment schemes) and empathy (courtesy of staff, helping staff). Some interesting insights about the dimensions of bank service are provided by the results of factor analysis. The results show that product and convenience aspects did stand out separately compared to the service aspects like speed, promptness in error handling and offering information. The variance explained by different factors is an indication of the extent of variability that existed in the surveyed population in their satisfaction with the bank service along the different service dimensions. Thus the variance describes the range of responses, i.e., how scattered the customer responses were along each of the five service dimensions. The tangibles dimension explained 18.1% of the variance as against the service aspects that explained 25.67% of the variance. This finding suggests that greater variability exists in customer satisfaction on account of intangible aspects than on account of tangible aspects. This supports the empirical evidence collected by Yavas et al. (2004) as mentioned in Section 1. The critical dimensions of customer satisfaction as reflected in the regression analysis are the service aspects (factor 1), financial aspects and convenience (factor 2) and extended support facilities (factor 3). The significance of these factors supports HO2 that states that the identified dimensions of customer satisfaction are related to the overall customer satisfaction. These findings support the study by Colgate and Hedge (2001) which classified reasons for switching banks into three major problem areas, namely, service failure, pricing and denied services. Table 2 was used to see the differences of dimensions of customer satisfaction across the banks. We can see that ICICI scores high on all the dimensions except dimension 2 that includes interest on loans, service charges and number of ATMs and branches. However a high score on other dimensions suggests that it is a customer-friendly bank. SBI, on the other hand, significantly scores on dimension 2 which suggests that customers rate it high on convenience and financial aspects. This could be because of its large network of ATMs and customer branches and perceived low service charges and interest on loans. However, SBI scores the lowest on service dimension. This is a matter of concern and the management needs to focus on this. UBI rates significantly low on extended support dimension that includes internet-banking, tele-banking and investment schemes. Thus HO1 which states that mean of each dimension of customer satisfaction does not differ across banks, is not accepted.
IME Department, IIT Kanpur
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3rd International SIMR-ASIA Marketing Conference, KJSIMSR Mumbai 6-7 January, 2008
5. Conclusions On the basis of above analysis, it can be concluded that a large majority of the customers are satisfied with the way the bank is presently functioning, but it would be beneficial to bank to concentrate on service dimensions in which it is having poor performance. One of the major findings of this study is to highlight the poor performance of SBI, IIT Kanpur branch on the service dimension as compared to the other banks considered in this study. These results should be useful Indian banks and should provide them a basis for analyzing the reasons for poor service levels. The four dimensional structure could serve as framework for monitoring a bank’s customer satisfaction performance and comparing it with the competitors’ performance. Learning to understand customer needs will enable banks to enhance customer services and lowering the customers’ banking costs. A customer perception survey based on these dimensions should be carried out regularly to gauge the current level of satisfaction for customers and to know what are the pluses and minuses of the bank so as to improve those factors on which it is loosing out.
6. Limitations and Future Research It was quite difficult to convince people to take time to complete the questionnaire. Most of the respondents did not fill up the entire questionnaire properly, which created some problem in data analysis. The sample size of used in the study may be too small to make statistical inferences. One needs to determine the optimal sample size for such kind of a study. Since convenience sampling scheme (residents of IIT Kanpur) was used to survey the sample population, there could be some bias in the response. ANOVA test could have been carried out to test the hypothesis that mean of each dimension of customer satisfaction does not differ across banks. Some of the variables could not be categorized appropriately in the factor analysis and were counter-intuitive in their behavior. Detailed analysis of this can improve the quality of results.
IME Department, IIT Kanpur
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3rd International SIMR-ASIA Marketing Conference, KJSIMSR Mumbai 6-7 January, 2008
Appendix-A. Questionnaire of the survey We are M.Tech/Phd student of IIT Kanpur in the department of Industrial & Management Engineering. We are conducting a survey to measure satisfaction of the customers of various banks. It would be highly appreciated if you could spare your valuable time and fill up the questionnaire. The process should not take more than 5 minutes. Please rate the following attributes on the basis of their importance in driving satisfaction in banking service (1-least important, 5-most important). And then rate your banks on the following attributes on a scale of 1(very dissatisfied) to 5(very satisfied). No. Attribute
Rate importance Name of bank (1) of the attribute ____________
Name of bank (2) _____________
Rate the bank on the Rate the bank on the attribute attribute 1
Courtesy of the employees
2
Speed of service
3
Professionalism of employees
4
Convenient operating hours
5
Easy to get help
6
Errors corrected promptly
7
Convenience of branches
8
Convenience of ATMs
9
Cleanliness of the place
10
Rates on savings
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Rates on loans
12
Internet banking
13
Telephone banking
14
Investment schemes
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3rd International SIMR-ASIA Marketing Conference, KJSIMSR Mumbai 6-7 January, 2008
15 16
Information on latest offers Fees and service charges
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Credibility of the bank
Please rate the following on the basis of your likeliness (5-maximum, 1-minimum) Bank 1
Bank2
_______ _______ _______
_______ _______ _______
1. 2. 3.
Likeliness to continue availing services Likeliness to provide referrals/ recommendations Overall satisfaction
●
What do you like about SBI, IITK branch the most? _____________________________________________________________________
●
What is it that you dislike about SBI, IITK branch the most? _____________________________________________________________________
●
What can SBI bank do to improve your satisfaction level with the bank? _____________________________________________________________________
Tell us about yourself 1. Name
________________________
2.
Age (tick against the number) (i) Under 25 (ii) 25-34 (iii) 35-44 (iv) 45-54 (v) 55-64 (vi) 65+
3.
Education/ Occupational profile Student: UG ______ PG ______ PhD/Project ______ Services: Teaching ______ Staff ______ Other services ______
4.
Which of the following banks do you deal with (tick whichever applicable) (i) SBI, IIT K (ii) ICICI (iii) HDFC (iv) UBI, IITK (v) Any other _________ (Specify)
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3rd International SIMR-ASIA Marketing Conference, KJSIMSR Mumbai 6-7 January, 2008
Appendix-B. Mean Scores for attributes in each dimension for each bank
Dimension 1: Service
Dimension 2: Tangibles
Dimension 3: Extended support
Dimension 4: Empathy
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3rd International SIMR-ASIA Marketing Conference, KJSIMSR Mumbai 6-7 January, 2008
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3rd International SIMR-ASIA Marketing Conference, KJSIMSR Mumbai 6-7 January, 2008
Manrai L. A. and Manrai A. K. (2007) A field study of customers’ switching behavior for bankservices, Journal of Retailing and Consumer Services, 14(May), 208-215 Parasuraman, A.. V.A. Zeithaml and L.L. Berry, (1985). A conceptual model of service quality and its implications for future research. Journal of Marketing 49, 41-50. Parasuraman, A., Zeithaml, V. and Berry, L. (1988), SERVQUAL: a multi-item scale for measuring consumer perceptions of service quality, Journal of Retailing, Vol. 64 No. 1, 12-40. Parasuraman, A., Zeithaml, V. and Berry, L. (1985), A conceptual model of service quality and its implications for future research, Journal of Marketing, 49 (Fall), 41-50. Parasuraman, A., Zeithaml, V. and Berry, L. (1991), Understanding customer expectations of service, Sloan Management Review, 39 (spring), 39-48. Rahman, Z. (2005) Customer experience management — A case study of an Indian bank, Database Marketing & Customer Strategy Management , Vol. 13 No. 3, 203–221 Smith, A.M. (1992) The Consumer's Evaluation of Service Quality: Some Methodological Issues” in Glynn, W.J. and Barnes, J.G. (1995) Understanding Services Management, New York, John Willey & Sons, 57-88 Yavas, U., and D. J. Shemwell 1997. “Meeting the service quality challenge: Structural problems and solutions”, Managing Service Quality Vol. 7 No. 4, 198-203. Zeithaml, V.A. and Bitner, M.J. (1996), Services Marketing, international edition, McGraw Hill, New York, NY and London.
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