Service Quality Dimensions and Members' Satisfaction

Service Quality Dimensions and Members’ Satisfaction: A Mixed-Methods Approach Yusman Yacob* Faculty of Business Management, Universiti Teknologi MARA (UiTM) Hiram Ting Institute of Borneo Studies, Universiti Malaysia Sarawak (UNIMAS) Jati Kasuma Ali Faculty of Business Management, Universiti Teknologi MARA (UiTM) *Corresponding author ABSTRACT This study attempts to investigate the relationship between service quality dimensions and satisfaction of credit cooperative members in Sarawak. This study used mixed method approach that involves two phases. The first phase employed a focus group interview to explore the experiences concerning service quality. The result in the first phase is used in the second phase of the study. The second phase of this study uses a quantitative methodology which employs a selfadministered and a cross sectional survey design. 500 copies of questionnaires were distributed to credit cooperative members and 367 usable copies were subsequently collected. Partial least squares structural equation modelling (PLS-SEM) was utilized to assess the effect of service quality dimensions on members’ satisfaction. From the first phase of this study, the researcher has found a new dimension named Personal Interaction in the Service Quality Model. The findings show that assurance, tangibility, reliability, responsiveness and personal interaction have positive effect on members’ satisfaction whereas empathy does not. This study has important implications for policy makers, government and stakeholders of cooperatives for devising appropriate interventions that could enhance the satisfaction of members in credits cooperatives. Keywords: Service Quality Dimensions; Members’ Satisfaction; Cooperatives INTRODUCTION The debate on the relationship between service quality and satisfaction is still ongoing in literature. Other researchers stress that the quality of services can lead to customer satisfaction and behavioral intention (Chia et.al, 2008; Ott, 2008; Molinari et. al, 2008). It creates competitive advantage and has gained a lot of recognition, as a service delivery effort and receive high attention in the literature review (Boshoff, 1997; Swanson & Kelley, 2001; Hocutt et. al., 2006; Morrisson & Huppertz, 2010). Past study has shown there is a positive relationship between service quality and business performance (Parasuraman et al., 1988). Ngadi (2010) highlights some of the challenges faced by credit cooperative are when most of their members have resigned and this has bringing an impact for the cooperative to provide loans. Therefore, efforts should be taken by the cooperative to recover this situation by gaining the confidence among the members, especially in providing the best service. According to Hayati et.al (2008), credit cooperatives are currently receiving vast competition from the financial institutions. There are various credit products in the market with different features. As various credit products grow in the market, this has given a challenge to the credit cooperatives which are still operated in a small scale operation. In the National Cooperative Policy Plan 20112020, financial services cooperatives are encouraged to offer various financial products such as ArRahnu and credit financing and also other financing services as to support the business development

in the country. Unfortunately, present trend shows that cooperatives in Malaysia are still not able to stand and compete with other business operators who can offer various products and services competitively. Even though with a wide range of business and size of the membership, cooperatives are still far behind in terms of business volume, growth and diversification compared to private businesses and small firms (Azmah & Fatimah, 2008). The rapid growth and increasingly complex market in the service sector has provided an opportunity for researchers to study on behaviour and the importance of issues related to service quality. Most experts agree service quality is the most effective form of market and competitive business strategy nowadays. This study examines the relationship between service quality dimensions and members’ satisfaction of Sarawak credit cooperative. Members are the main client who are responsible to subscribe on the products and services which their cooperative offered. LITERATURE REVIEW Levesque and McDougall (1996) states that good service quality results in customer satisfaction and loyalty, greater willingness to recommend to someone else, reduction in complaints, and improves customer retention rates. Service quality, customer satisfaction and customer loyalty are important factors to the success of the competition for service-based business (Rust, Zahorik & Keiningham, 1995). The relationship between service quality and customer satisfaction will lead to customer loyalty. Therefore, the relationship between service quality and loyalty is greatly influenced by customer satisfaction (Lei & Jolibert, 2012). Satisfaction refers to the feeling or attitude towards a product or service after they have been used. Satisfaction and service quality are often connected together because they act as perceptions and expectations. Customer satisfaction is determined by defining the perception of quality, expectations and preferences. Kotler (2000), Hoyer & Maclnnis (2001), Hansemark & Albinson (2004) refer satisfaction as an overall attitude of the customer behavior to the suppliers of products and services. Shpettim (2012) refers satisfaction of a necessity in the context of business is worldwide. Satisfaction actually encourages customers to buy more goods or services. A customer who achieves a maximum level of satisfaction will revisit the store to retrieve the goods or services. In addition, a satisfied customer will also provide positive feedback on products or services to existing customers and also consider other potential customers to buy the same goods or services. Members’ satisfaction in the cooperative is recognized as an important measure to ensure the business success. The goal is to meet the objectives through services offered. Harris & Harrington (2000) also underline that customer satisfaction can be achieved by understanding the needs of their customers and continuously to provide goods and services. Therefore, service quality of the organization is closely related to members’ satisfaction; whether members of the cooperative are satisfied with the quality of services offered. The role of cooperatives in promoting business is not only focused on the profit alone, but also on the priority need of their clients. Customers who are satisfied with the quality of services offered will form a basis of cooperative business success. This will lead to customer loyalty towards brand products. The customers will always come back to buy and disseminate the information positively. RESEARCH FRAMEWORK AND HYPOTHESES Service quality model adapted in this study was developed by Parasuraman (1988) which is divided into five (5) components, namely (i) Assurance (ii) Empathy, (iii) Tangibility, (iv) Reliability and (v) Responsiveness. The Personal Interaction dimension was developed from the qualitative phase of this study.

ASSURANCE EMPATHY TANGIBILITY

MEMBERS’ SATISFACTION

RELIABILITY RESPONSIVENESS PERSONAL INTERACTION

Figure 1 Research Framework (Parasuraman et.al, (1988) and Qualitative Phase

Tangibility refers to the state of the physical assets of the firm such as buildings, vehicles, property and staff. Reliability refers to the ability of the firm to provide services guaranteed to be accurate and reliable. While Responsiveness refers to the willingness of the firm to help their customers by providing quick service and to provide ultimate satisfaction to their customers. Assurance refers to the knowledge and attention of the firm in providing the services and their ability to convey trust and confidence towards customers. Empathy refers to the level of attention given to every individual customers dealing with the firm. According to Mainela & Ulkuniemi (2013), personal interaction refers to part of the business plan in relations within three (3) levels of interaction. In the 'Person-to-Person' level, it focuses on the exchange of personal interactions science of 'tacit' knowledge that is tacit, social value and development value. In the 'Contact' level, the personal interaction means the intention to conduct sales activities, the establishment and supervision of the communication on 'sleeping phase'. In the third phase of 'Community' level, representatives of the firm using personal interaction within the network to get information apart from socializing. Accordingly, six hypotheses are formulated to address the research problems and objectives:H1 H2 H3 H4 H5 H6

Assurance has a positive effect on satisfaction of members at credit cooperatives Empathy has a positive effect on satisfaction of members at credit cooperatives Tangibility has a positive effect on satisfaction of members at credit cooperatives Reliability has a positive effect on satisfaction of members at credit cooperatives Responsiveness has a positive effect on satisfaction of members at credit cooperatives Personal Interaction has a positive effect on satisfaction of members at credit cooperatives (Note: this hypothesis is added after qualitative study) METHODOLOGY

Research Setting and Subjects In line with the National Cooperative Policy Plan 2011-2020, financial service cooperatives are encouraged to emphasize on retaining members who are their major client. The target population for this study involves members who have been using credit facilities from the credit cooperative. There were 18 credit cooperatives actively running credit business in Sarawak. To collect the respondents’ data, we contacted and visited each of the selected cooperative. Since the sampling frame was not available, the sample of this study consists of randomly selected customers who came to the cooperative at the time the survey was conducted. This study involves mixed method approach in two phases. The first phase is to explore their experiences concerning service quality of their cooperative. For this purpose, face to face

interviews with six Board of Directors and seven ordinary members of the cooperative has been carried out. The questions asked are related to the service quality dimensions available in the model Parasuraman (1985, 1988), Zeithmal (2000) and Grönroos (1982). The results of these interviews were used to complement the existing service quality model to be used in this study. The second phase of this study uses a quantitative methodology, which employs a self-administered and a cross sectional survey design. Sample Size Although qualitative study concerns with data quality rather than sample size, determination of the sample size takes into consideration the statistical techniques that will be deployed in the quantitative study. G-Power analysis software 3.1.9.2 will be used to determine the sample size of this study. As the study will use purposive sampling, by using G-Power analysis software 3.1.9.2, effect size of f square 0.15, α error prob 0.05, power of 0.8 with number of 6 tested predictors, therefore 98 respondents is the minimum sampling for this study. Data Collection Method After conducted the first qualitative phase, a new service quality dimension was found which refers to personal interaction theme. This dimension was tested in the existing model of service quality (Parasuraman, 1985). Data was collected using a structured questionnaire. As there was no sampling frame available, samples could not be obtained via probability sampling. 500 questionnaires were distributed to the members who are the customer of cooperative. Members at the cooperative were given the questionnaires while they were waiting to be served at the counter. At the end of the data collection period, a total of 389 questionnaires were collected. However, only 367 completed questionnaires were used for data analysis. Measurement of Variables The questionnaire was developed by adopting measurements from few studies. Measures for service quality were adopted from Parasuraman (1988) consists of 32 items. The new dimension which consists of six items were developed based on the interview and adapted from Caro and Roemer (2006), Dagger et al. (2007) and Caro and Garcia (2007, 2008), comprising the elements of staff service, attitude, expertise and problem-solving. The satisfaction construct consists of six items (Jamal and Naser, 2002; Mittal and Kamakura, 2001 and Cronin and Taylor, 1992). Data Analysis The researcher used a Partial Least Squares (PLS) approach to test the hypotheses using Smart PLS Version 3.0 to analyze the data. The bootstrapping technique was used to determine the significance level for loadings, and path coefficients (Chin, 1998). FINDINGS Qualitative Findings The findings of personal interviews with six Board of Directors and seven ordinary members of the cooperative has shown that in addition to service quality dimensions stated in the works of Parasuraman (1985, 1988), Zeithmal (2000) and Grönroos (1982), personal interaction is found to be the additional dimension. It suggest that the service purveyed by the cooperatives is not only evaluated by the dimension in existing literature, it is also assessed by personal interaction. On the basis of data saturation, it is evident that personal interaction is crucial in applying loans and carrying out various credit services among members in cooperatives. As such, this additional

dimension is incorporated into the quantitative study so as to determine its effect on member satisfaction. Quantitative Findings Respondent Profile Table 1 shows the demographic profile of 367 clients of Credit Cooperatives in Sarawak. A response rate of 70% suggests there is no major issue with response error. Of the 367 respondents, a total of 234 (63.8 percent) were male while 133 (36.2 percent) were female. The income level group of RM1501-RM2500 (33.5 percent) and RM2500 above (44.4 percent) account for the biggest of the sample. For the education level, only 21.8 percent of them possessed tertiary level education. Majority 46.6 percent of the respondents have obtained loan service for more than 3 times.

Variable Gender Income Level

Education Level

Frequency Getting Loans

Table 1: Demographic Profiles Count Male 234 Female 133 Below RM500 16 RM501 – RM1500 65 RM1501 – RM2500 123 RM2500 and above 163 Primary level 41 Secondary level 236 Tertiary level 80 Others/Not stated 10 1 time 108 2 times 43 3 times 45 More than 3 times 171

Percentage 63.8 36.2 4.4 17.7 33.5 44.4 11.1 64.3 21.8 2.7 29.4 11.7 12.3 46.6

Research Model The research model of the study is illustrated as shown in Figure 2. Given the addition of qualitative findings on personal interaction, all six dimensions pertaining to service quality (assurance, empathy, reliability, responsiveness, tangibility and personal interaction) are constructed as independent variables pointing directly at satisfaction as dependent variable. Such specification allows prediction of personal interaction on satisfaction in a structural model.

Figure 2: Research Model of the Study

Measurement Model All constructs in the model satisfy the requirements for data internal consistency as their composite reliability (CR) and Cronbach alpha values are greater than 0.70 (Gefen et al., 2000; Nunnally, 1978). Convergent validity is assured when each loading is greater than 0.50 and average variance extracted (AVE) is also greater than 0.50 as shown in Table 2a.

Construct Assurance (ASS)

Empathy (EMP)

Personal Interaction (PI)

Reliability (REL)

Responsiveness (RES)

Table 2a: Convergent Validity Items Loadings AVEa ASS1 0.831 0.748 ASS2 0.828 ASS3 0.900 ASS4 0.881 ASS5 0.880 EMP1 0.818 0.760 EMP2 0.886 EMP3 0.901 EMP4 0.874 EMP5 0.875 EMP6 0.874 PI1 0.829 0.767 PI2 0.848 PI3 0.903 PI4 0.904 PI5 0.902 PI6 0.865 REL1 0.833 0.733 REL2 0.859 REL3 0.874 REL4 0.820 REL5 0.884 REL6 0.887 REL7 0.834 RES1 0.865 0.718 RES2 0.889 RES3 0.867 RES4 0.846

CRb 0.937

Alpha 0.915

0.950

0.937

0.952

0.939

0.951

0.939

0.939

0.921

Items Loadings AVEa CRb Alpha RES5 Removed RES6 0.793 RES7 0.821 Satisfaction (SAT) SAT1 0.887 0.741 0.945 0.930 SAT2 0.873 SAT3 0.894 SAT4 0.848 SAT5 0.850 SAT6 0.809 Tangibility (TAN) TAN1 0.842 0.699 0.949 0.938 TAN2 0.856 TAN3 0.875 TAN4 0.871 TAN5 0.863 TAN6 0.816 TAN7 0.806 TAN8 0.752 a Average variance extracted (AVE) = (summation of the square of the factor loadings)/(summation of the square of the factor loadings) + (summation of the error variances) b Composite reliability (CR) = (square of the summation of the factor loadings)/(square of the summation of the factor loadings) + (square of the summation of the error variances) Construct

Discriminant validity is also secured using Fornell and Larcker’s (1981) criterion when the square root of AVE is greater than each correlation coefficient (Bagozzi & Yi, 1988; Chin, 1998; Hair et al., 2011). Hence, it indicates multi-collinearity is not an issue between constructs in the model. The findings are presented as follows in Table 2b. Table 2b: Discriminant Validity ASS EMP PI REL RES SAT TAN ASS 0.865 EMP 0.794 0.872 PI 0.779 0.792 0.876 REL 0.847 0.804 0.817 0.856 RES 0.777 0.841 0.764 0.789 0.847 SAT 0.765 0.770 0.841 0.832 0.760 0.861 TAN 0.687 0.691 0.801 0.721 0.657 0.752 0.836 Note: Diagonals represent the square root of the AVE while the off-diagonals represent the correlations

Structural Model Bootstrapping procedure is utilized to determine whether the all path relationships in the models are significant or not. Bootstrap sub-samples with 1,000 cases were thus created to estimate the model for each subsample (Hair et al., 2011). The t-values for each path relationship and decision to hypothetical testing are shown in Table 3. The findings show that all constructs, except for empathy, are found to have positive effect on satisfaction. In particular, the relationship between personal interaction and satisfaction is significant at 99 percent confidence level. Hence, aside from H2, all postulated hypotheses are supported. Hypo H1 H2 H3 H4

Path Relationship ASS > SAT EMP > SAT TAN > SAT REL > SAT

Table 3: Path Coefficients Beta Value Std Error 0.011 0.073 0.050 0.064 0.133 0.051 0.326 0.067

t-value 0.152* 0.772 2.605*** 4.856***

Decision Supported Not supported Supported Supported

H5 RES > SAT H6 PI > SAT *p < 0.1, **p < 0.05, ***p < 0.01

0.106 0.339

0.056 0.069

1.874** 4.916***

Supported Supported

Given the parameters of PLS-SEM, blindfolding procedure is used to assess the predictive relevance of the model (Chin, 1998). Since cross-validated redundancy (Q2) is for estimating latent construct, it is therefore looked into in the study. The result of Q2 being 0.571, which is greater than 0, indicates there is predictive relevance in the model (Fornell & Cha, 1994). R squared (R2) value of 0.784 for satisfaction is found to be strong (Cohen, 1988). Despite the significance effect of personal interaction on satisfaction, the effect size is small (R2 being 0.760 when personal interaction is excluded). Findings for the models are shown in Table 4.

Constructs ATT

Table 4: R2 and Cross-validated Redundancy R2 CV-Comm (H2) CV-Red (Q2) 0.784 0.623 0.571

DISCUSSION This study has proposed a Service Quality model for cooperative which is adapted from SQ Model (Parasuraman, 1988). This model examines the relationship between service quality dimensions and satisfaction by introducing a new dimension of Personal Interaction which is found from the qualitative stage. The results of this study support the findings in the literature that service quality has a positive effect on customer satisfaction (Caruana, 2002). However, empathy dimension is found not supported in the relationship of the model. This study also provided empirical evidence that personal interaction has a positive effect on members’ satisfaction. Therefore, managers should give more emphasis on the quality of personal interactions if they want their customer to continuously satisfy and loyal to their service (Allameh et. al, 2012). CONCLUSION Credit Cooperatives should focus on building more attention to satisfy their members. Therefore, Cooperatives need to play an important role to enhance their relationship between members as been emphasized in the empathy dimension (the level of attention given to every individual customers dealing with the firm). Financial service is an engine growth of the country. Credit cooperative should develop sustainable strategies to deliver their services efficiently and continuously communicate their services among members. In conclusion, this study can be extended further by involving credit cooperatives in Peninsular Malaysia. This would lead to a better generalization of the credit cooperative sector. We also suggested that further study to explore factors contributing to their satisfaction need to be carried in order to help the development of cooperative sector in Malaysia. REFERENCES Allameh, S. H. et. al. (2012). Analyzing the Impact of Personal Interactions Quality on Customer's Satisfaction and Loyalty with Mediator Role of Communications Quality: Case Study: Isfahan's Retail Stores. Journal of Basic and Applied Science Research, 2 (6), 5743-5749. Azmah Othman & Fatimah Kari 2008, Enhancing Co-operative Movement to Achieve Malaysia s Development Goals. Conference proceeding. EURISE & ICA Research Conference: The Role of Co-operatives in Sustaining Development and Fostering Social Responsibility ,Riva del Garda ,Trento, Italy. Bagozzi, R.P., Yi, Y. (1988). On the Evaluation of Structural Equation Model. Journal of Academy of Marketing Science, 16, 74-94.

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