DEDICATION

This dissertation is dedicated to my parents: Smt. Rashmi Pathak and Shri. V.B.

Pathak who conceived the noble idea of sending me to school. It is also

dedicated to my In law’s: Late Mangala Bora and Late K.S. Bora, I would also

dedicate this to my husband and beloved partner Mr. Lalit Singh Bora, who

gives me support, love , and encouragement at all times. It is further dedicated

to my lovely son: Atharva Singh Bora.

CERTIFICATE

This is to certify that the research work presented in the Ph.D. thesis entitled “

An analysis of service quality and service performance of the Indian retail

banking industry” has been carried out by Shraddha Pathak, a student of Ph.D

under my supervision and guidance. She has fulfilled all the requirements for

the degree of Philosophy in Applied Economics, of the University of Lucknow,

regarding the nature and prescribed period of work. The work included in the

thesis is all original and done by her.

Date:

Place:

Dr. R.K. Maheshwari

Supervisor,

Professor, Department of Applied Economics

University of Lucknow

i

PREFACE

Purpose of The Study

Although a great number of research studies for service quality take place in the

context of developed countries, similar studies in the context of developing

counties are limited. This descriptive study focuses on the issue of measuring of

service quality in banking sector in a India. In line with the above stated

purpose, this paper attempts to examine the applicability of two popular

measures of service quality in the banking sector in Indian context. The two

popular multi-item scales of measuring service quality are SERVQUAL (

developed and modified by Parasuraman et al.1985, 1988, 1991,1994) and

SERVPERF ( a performanceonly

measure of service quality suggested by Cronin and Taylor, 1992,1994 ). While

measuring service quality through these scales, the dimensionality, reliability

and validity of the said scales are checked in Indian context. Also, the

correlations of service quality with customer satisfaction, positive word-of

mouth and loyalty are examined. From a diagnostic standpoint, SERVPERF

shows Tangibility dimension needs more resources as it is having lowest

performance score (P). However, SERVQUAL shows the greatest gap occurs in

reliability dimension, which requires

ii

According to the US news and world report market research on lost customers

by major companies shows that 14% of the customer left for better product, 9%

for cheaper product, 68% left because of poor service (service provider's

attitude) which can be easily avoided by designing effective customer Service

process, which enables the company to respond. The study clearly demonstrates

the significance of soft service quality in relation to product quality. (Sahil,

M.S.,2005) It is in this context we need to stress on the service quality part as

68% of the customers desert the service provider because of poor service

quality. The behavioral/attitude component of service is major determining

factor on the growth of the company, which complements the performance for

complete customer satisfaction. As such, service quality has become a very

important issue in marketing and has received much attention since the

deregulation of service sector in India, and thus increased competition, of many

service industries (e.g. : banking and telecommunications in the 1980's and

utilities in the 1990's). Service quality has become so important that some

businesses, not only need high levels of service quality for success, but in some

cases, need it for survival (Buzzel nd Gayle, 1987; Chen, Gupta and Rom,

1994; Ford Motor Company, 1990; Germano, 1992; Hauser and Clausing,

1988; Howcroft, 1993; Kearns and Nadler, 1992; Kettingerand Lee, 1995;

Koska, 1990; Lovelock, 1983; Phillips, Chang and Buzzel, 1983; Rudieand

iii

Wansley, 1985; Rust, Zahorik and Keiningham, 1995; Schmenner, 1986;

Thompson, DeSouza and Gale, 1985). Service quality is so important that

companies have gone to great efforts to evaluate and keep records of service

quality levels (Hauser and Clausing, 1988; Phillips, Chang and Buzzell, 1983;

Zeithaml, Parasuraman and Berry, 1990). It is essential to determine how to

achieve high service quality and how to communicate the benefits of service

quality (Howcraft, 1993). Companies such as Federal Express and Xerox are

well aware of the importance and have received rewards for their hard work in

providing quality services (Germano, 1992; Kearns and Nadler, 1992). By

offering high levels of service quality, the Hospital Corporation of America and

Ford Motor Company are another two well known companies that have

benefited in terms of higher returns on investment and higher profits (Ford

Motor Company, 1990; Koska, 1990). Further rewards can come in the form of

increased market share (Buzzel and Gayle, 1987; Phillips, Chang and Buzzel,

1983).

Service quality is defined as how well the service meets or exceeds the

customers'expectations on a consistent basis. The difficulty, however, is that

service quality, unlike product quality, is more abstract and elusive, because of

features unique to services: intangibility, inseparability, heterogeneity and

perishability and is therefore difficult to measure. To remedy this difficulty,

iv

Parasuraman, Zeithaml and Berry (1985) established the “gap model”.

Parasuraman, Zeithaml and Berry (1985) conducted focus groups and

interviewed executives. In doing so, they identified five "gaps" that can cause

quality problems in organizations. The first gap is the consumer expectations-

management perceptions gap. This gap resulted from discrepancies between the

perceptions of executives and the perceptions of consumers on things like

privacy and security issues. Basically, the executives did not understand the

customers' expectations. Service firms also experienced problems in providing

services as quickly as the customers wanted. This created the second gap, which

is called the management perception-service quality specification gap. The third

gap is the service quality specifications-service delivery gap. Executives realize

that this gap includes the vital role of the contact personnel. This is a difficult

aspect of providing services, because of the inconsistency in the behavior of

personnel. The fourth gap is the service delivery-external communications gap.

This gap forms, based on the capability of the firm to deliver what is promised

and to completely inform consumers of all the things the service firm is doing

that benefit customers. Firms should not promise the customer more than the

service firm is capable of delivering. These problems in quality created gap

five. The fifth gap is the difference between the expectations customers have

and the perceptions of service actually received and is pertinent to providing

v

high levels of service quality. That is, gap five is the expected service-perceived

service gap. Parasuraman, Zeithaml and Berry (1988) attempted to measure this

fifth gap by developing the SERVQUAL\ instrument. They performed

exploratory research to examine quality in four service settings (retail banking,

credit cards, securities brokerage, and product repair and maintenance) in order

to understand an area that is under researched and difficult to define. These

researchers found 10 dimensions (reliability, responsiveness, competence,

access, courtesy, communication, credibility, security, understanding/knowing

the customer and tangibles) that customers use across varying service industries

to form expectations and perceptions of services received.

Much of the attention focused on the service quality construct is attributable to

the SERVQUAL instrument developed by Parasuraman, Zeithaml & Berry

(1988) for measuring service quality. Several studies subsequently employed

the SERVQUAL to measure service quality and to assess the validity and

reliability of the scale across a wide range of industries and cultural contexts.

Little is known about service quality perceptions in India (Jain and Gupta,

2004) because research focus has primarily been on developed countries. Given

the relatively mature markets where the service quality scales have been

developed, it seems unlikely that these measures would be applicable to India

without adaptation. Angur, Nataraajan and Jahera (1999) examined the

vi

SERVQUAL in the retail banking industry and reported a poor fit of the scale

to the empirical data. Despite this, several researchers (Sharma and Mehta,

2004; Bhat, 2005) have used the SERVQUAL scale in similar settings with no

assessment of the psychometric soundness of the scale.

Cronin and Taylor (1992) were amongst the researchers who leveled maximum

criticism on the SERVQUAL scale. They provided empirical evidence across

four industries to corroborate the superiority of their 'performance only'

instrument over disconfirmation-based on SERVQUAL Scale

About The Study

The main aim of the research paper is to measure the service quality and service

performance offered by private banks operating in India. Moreover, it tries to

investigate the relationship between service quality, customer satisfaction and

loyalty. The five dimensions of SERVPERF model i.e. reliability, assurance,

tangibility, empathy and responsiveness were used to measure the quality of

service offered by the private banks. In order to achieve the aims, both primary

and secondary sources of data were used. The primary data were collected

through administrating questionnaire. Data from sample of 517 respondents,

who consist of customers of a private and a Government owned bank are

collected using convenience sampling. The past similar research used mail

survey. However, as the likely response rate of mail survey in India is very

vii

poor, personal administration of questionnaire is used in this study.

Respondents are mostly contacted at their homes and offices rather than in

banks. Most of the respondents refuse to fill up a lengthy a questionnaire in

banks when they are in a hurry. In fact, the above sample size is decided based

on time and cost constraints as well as cases-to-variables ratio required for

multi-variate analysis. The results of the regression test showed that offering

quality service have positive impact on overall customer satisfaction. The

research proves that empathy and responsiveness plays the most important role

in customer satisfaction level followed by assurance, reliability and finally

tangibility. The research findings also indicate offering high quality service

increase customer satisfaction, which in turn leads to high level of customer

commitment and loyalty.

viii

ACKNOWLEDGEMENTS

I am greatly indebted to a number of people, without whose assistance, guidance,

support, encouragements, and care, my dream of completing the doctoral program

would have remained a mirage while my hope smoulder in ashes. I am indeed grateful

to my mentor and guide, Dr. R.K Maheshwari, Professor, Dept. Of Applied

Economics, Faculty of Commerce, University Of Lucknow for his invaluable support,

encouragement, and constant constructive feedbacks, which kept me focused, and

Prof. A. Chatterjee, Dean, Faculty of Commerce, University of Lucknow, whose

contributions towards the completion this work is immeasurable. They collectively

brought their experiences, expertise, and in-depth knowledge of research to bear on the

entire process of writing this dissertation. In addition, I am grateful to numerous staff,

management, and customers of banks in Lucknow for their participation and support

for the survey.

I wish to offer special thanks to my Husband, Mr. Lalit Singh Bora for his

encouragement, and support throughout the entire doctoral program. I would like to

thank members of my family and friends, who helped me to complete this program.

ix

TABLE OF CONTENTS

Certificate

Preface i

Acknowledgments viii

List of Tables xii

List of Charts xiii

CHAPTER 1. INTRODUCTION

1.1 Introduction 1

1.2 Definition of Bank 3

1.2 History of banking 4

1.4 History of banking system in India 9

1.5 Economic reforms in banking system 16

1.6 Background of the Study 17

1.7 Origin of the Problem 24

1.8 Purpose of the Study 29

1.9 Focus of the Study 30

1.10 Significance of the Study 30

1.11 Terminology 33

1.12 Assumptions and Limitations 34

1.13 Theoretical/Conceptual Framework 35

1.14 Disposition of thesis 40

CHAPTER 2.REVIEW OF LITERATURE

2.1 Service and Quality 41

x

2.2 Meaning of Service Quality 42

2.2.1 Attributes of Service 45

2.2.2 Measuring Service Quality 49

2.2.3 Models in Service Quality 58

2.2.4 Perception 64

2.3 Concept of Customer Satisfaction 66

2.4 Critical Incident 74

2.5 Concept of Service Performance 77

2.5.1 Service profit chain model 78

2.5.2 Expectation 83

2.5.3 Service Performance gap model 85

2.5.4 Link between service performance and service Quality 96

2.6 Summary 97

CHAPTER 3. METHODOLOGY

3.1 Research Purpose 99

3.2 Hypothesis 100

3.3 Research Design 108

3.4 Measurable Variables 109

3.4.1 Independent Variables 110

3.4.2 Dependent Variables 114

3.5 Sample 116

3.6 Setting 117

3.7 Instrumentation/Measures 117

3.8 Data Collection 119

3.9 Data Analysis 120

xi

3.10 Coding of Data 120

3.11 Summary 123

CHAPTER 4. INTERPRETATION OF DATA

4.1 Introduction 124

4.2 Survey Participation 126

4.3 Demographic Information 127

4.4 Normality of data 138

4.5 Validity and Reliability 140

4.6 Analysis of Hypotheses 144

4.7 Summary of analysis 154

CHAPTER 5. CONCLUSIONS & RECOMMENDATIONS

5.1 Discussions 157

5.2 Implications 164

5.3 Conclusions 167

5.4 Recommendation for Future Research 168

BIBLIOGRAPHY 170

APPENDIX A. LETTER TO RESPONDENTS 185

APPENDIX B. SURVEY INSTRUMENT 187

xii

LIST OF TABLES

Table-1 Antecedents of Service Performance Gap Model 39

Table-2 Coding of Data 121

Table-3 Demographic Information for the Subjects Participating in the Study 128

Table-4 Descriptive Statistics for SERVQUAL variables for expectation dimensions. 129

Table-5 Customer and banker perception for most important and least important

feature

130

Table-6 Descriptive statistics for service quality measurement in terms of

CUSTOMER’s expectations

131

Table-7 Descriptive statistics for service quality measurement in terms of BANKER’s

expectations

132

Table-8 Descriptive statistics for measurement of service Performance variables for

customers

134

Table-9 Descriptive statistics for measurement of service Performance variables for

Bankers

135

Table-10 Data distribution for SERVPERF and SERVQUAL items 138

Table-11 Correlation Perception dimensions 140

Table-12 Reliability Coefficient (cronbach’s alpha) 141

Table-13 Factor Analysis(rotated component Matrix) 143

Table-14 Correlational Analyses for Antecedents of Service Performance and Service

Quality for Customers 146

Table-15 Correlational Analyses for Antecedents of Service Performance and Service

Quality(dependent variables) 148

Table-16 The Means, Standard Deviations, and t-tests for Differences In Antecedents of

Service Performance between Bankers and Customers 149

Table-17 Correlational Analyses for Antecedents of Service Performance and Service

Quality for Customers and Bankers 152

Table-18 The Means, Standard Deviations, and t-tests for Differences in Antecedents of

Service Performance between Government and Private Banks 154

Table-19 . Summary of Hypothesis Test Results 156

xiii

LIST OF CHARTS

Figure 1.1 Performance of bankex over 2002-2012 22

Figure 1.2 Performance of Sensex over 2002-2013 23

Exhibit 1 India’s Share of global banking 27

Figure 1.3 Relationship between service quality and customer satisfaction 36

Figure 1.4 Satisfaction Formation 67

Figure 1.5 Dynamic model of expectations 83

1

CHAPTER 1

INTRODUCTION

The aim of this chapter is to introduce the topic. Further, in this chapter we are discussing

and defining the relevant concepts related to our topic like service quality service performance,

background of the study, origin of the problem, purpose and significance of the study,

terminology, assumptions and limitations of the study are discussed along with an

introduction of the banking industry.

The banking system in India is significantly different from that of other Asian

Nations because of the country‘s unique geographic, social and economic

characteristics. India has a large population and land size, a diverse culture and

extreme disparities in income, which are marked among its regions. There are high

levels of literacy among a large percentage of its population, but at the same time,

the country has a large reservoir of managerial and technologically advanced talents

Between about 30-30% of the population reside in metro and urban cities and the

rest is spread in several semi urban and rural centers.

2

These features are reflected in the structure, size and diversity of the country‘s

banking and financial sector. Until now, banking is generally understood as a place

where financial services are offered viz. checking, savings, and providing credit to the

customers.

Cut throat competition and highly stressed profits have introduced the new marketing

practices in the Indian banking sector and has also brought the customer satisfaction to

the center of the focus. It has become very important for the banks to retain their

existing customer base as well as to enlarge the same. As the numbers of banks are

increasing; customers‘ expectations of service quality is growing. It has become

imperative to measure the service quality of the bank so that the service providers can

assess their level of service quality and identify the quality gaps for improvements.

Service Quality is seen to be one of the main determinants of customer satisfaction.

Product differentiation is impossible in a competitive environment like the banking

industry. Banks everywhere are delivering the same products. Thus, bank

management tends to differentiate their firm from competitors through service quality.

Service quality is an imperative element impacting customers‘ satisfaction level in the

banking industry. In banking, quality is a multi-variable concept, which includes

differing types of convenience, reliability, services portfolio, and critically, the staff

delivering the service. Process of service purchase and delivery is very complex for

both customer and seller. Over the last few decades, researchers have been coming up

3

with different structure in regard to various dimensions of service quality. Technical -

functional quality and image model by Gronroos (1984); GAP model by Parasuraman

et al (1985); The P-C-P attributes (Pivotal that is output, core and peripheral) model

by Philip and Hazlett (1997); Internal service quality involving internal customer and

internal suppliers model by Frost and Kumar (2000) have been developed in order to

find the determinants of the concept of service quality as well as appropriate quality

measurement techniques. But Servqual and Servperf remain widely used scales of

service quality. This study proposes to test dimensionality of a widely used scale

service quality and service performance and their significant dimensions in Indian

context.

1.2 Definition of a Bank

Indian Banking Regulation act 1949 section 5 (1) (b) of the banking Regulation

act 1949 Banking is defined as.

“Accepting for the purpose of the landing of investment of deposits of money from public

repayable on demand or other wise and withdraw able by cheques, draft, order or o

therwise.”

4

“Bank is an establishment for custody of money received from or on Behalf of its

customers. Its essential duty is to pay their drafts unit. Its profits arise from the use of the

money left employed them.”

-Oxford Dictionary

According to Prof. Kinley:

“A bank is an establishment which makes to individuals such advances of money

or other means of payment as may be required and safely made and to which

individuals entrust money or means of payment when not required by them for

use”

1.3 History of Banking

Could you imagine a world without banks? At first, this might sound like a great

thought! But banks (and financial institutions) have become cornerstones of our

economy for several reasons. They transfer risk, provide liquidity, facilitate both

major and minor transactions and provide financial information for both individuals

and businesses.The first banks were probably the religious temples of the ancient

world, and were probably established sometime during the third millennium B.C.

Banks probably predated the invention of money. Deposits initially consisted of

grain and later other goods including cattle, agricultural implements, and eventually

Precious metals such as gold, in the form of easy-to-carry compressed plates.

5

Temples and palaces were the safest places to store gold as they were constantly

attended and well built. As sacred places, temples presented an extra deterrent to

would-be thieves. There are extant records of loans from the 18th century BC in

Babylon that were made by temple priests/monks to merchants. By the time of

Hammurabi`s Code, banking was well enough developed to justify the promulgation

of laws governing banking operations.

Ancient Greece holds further evidence of banking. Greek temples, as well as private

and civic entities, conducted financial transactions such as loans, deposits, currency

exchange, and validation of coinage. There is evidence too of credit, whereby in

return for a payment from a client, a moneylender in one Greek port would write a

credit note for the client who could "cash" the note in another city, saving the client

the danger of carting coinage with him on his journey. Pythius, who operated as a

merchant banker throughout Asia Minor at the beginning of the 5th century B.C., is

the first individual banker of whom we have records. Many of the early bankers in

Greek city-states were ―metics‖ or foreign residents.

The fourth century B.C. saw increased use of credit-based banking in the

Mediterranean world. In Egypt, from early times, grain had been used as a form

money in addition to precious metals, and state granaries functioned as banks. When

Egypt fell under the rule of a Greek dynasty, the Ptolemies (332-30 B.C.), the

numerous scattered government granaries were transformed into a network of grain

6

banks, centralized in Alexandria where the main accounts from all the state granary

banks were recorded. This banking network functioned as a trade credit system in

which payments were affected by transfer from one account to another without

money passing.

In the late third century B.C., the barren Aegean island of Delos, known for its

magnificent harbor and famous temple of Apollo, became a prominent banking

center. As in Egypt, cash transactions were replaced by real credit receipts and

payments were made based on simple instructions with accounts kept for each client.

With the defeat of its main rivals, Carthage and Corinth, by the Romans, the

importance of Delos increased. Consequently it was natural that the bank of Delos

should become the model most closely imitated by the banks of Rome.

Ancient Rome perfected the administrative aspect of banking and saw greater

regulation of financial institutions and financial practices. Charging interest on loans

and paying interest on deposits became more highly developed and competitive. The

development of Roman banks was limited, however, by the Roman preference for

cash transactions. During the reign of the Roman emperor, Gallienus (260-268 AD),

there was a temporary breakdown of the Roman banking system after the banks

rejected the flakes of copper produced by his mints. With the ascent of Christianity,

banking became subject to additional restrictions, as the charging of interest was seen

7

as immoral. After the fall of Rome, banking was abandoned in Western Europe and

did not revive until the time of the causal.

Ironically, the Papal bankers were the most successful of the Western world, though

often goods taken in pawn were substituted for interest in the institution termed the

Monte di Pieta When Pope John XXII (born Jacques d'Euse (1249 - 1334) was

crowned in Lyon in 1316, he set up residency in Avignon. Civil war in Florence

between the rival Guelph and Ghibelline factions resulted in victory for a group of

Guelph merchant families in the city. They took over papal banking monopolies from

rivals in nearby Siena and Became tax collectors for the Pope throughout Europe. In

1306, Philip IV expelled Jews from France. In 1307 Philips had the Knights Templar

arrested and had gotten hold of their wealth, which had become to serve as the

unofficial treasury of France. In 1311 he expelled Italian bankers and collected their

outstanding credit. In 1327, Avignon had 43 branches of Italian banking houses. In

1347, Edward III of England defaulted on loans. Later there was the bankruptcy of

the Peruzzi (1374) and Bardi (1353). The accompanying growth of Italian banking in

France was the start of the Lombard money changers in Europe, who moved from

city to city along the busy pilgrim routes important for trade. Key cities in this period

were Cahors, the birthplace of Pope John XXII, and Figeac. Perhaps it was because of

these origins that the term Lombard is synonymous with Cahorsin in medieval

Europe, and means 'pawnbroker'. Banca Monte dei Paschi di Siena SPA (MPS) Italy

8

is the oldest surviving bank in the world. After 1400, political forces turned against

the methods of the Italian free enterprise bankers. In 1401, King Martin I of Aragon

expelled them. In 1403, Henry IV of England prohibited them from taking profits in

any way in his kingdom. In 1409, Flanders imprisoned and then expelled Genoese

bankers. In 1410, all Italian merchants were expelled from Paris. In 1401, the Bank of

Barcelona was founded. In 1407, the Bank of Saint George was founded in Genoa.

This bank dominated business in the Mediterranean. In 1403 charging interest on

loans was ruled legal in Florence despite the traditional Christian prohibition of

usury. Italian banks such as the Lombards, who had agents in the main economic

centres of Europe, had been making charges for loans. The lawyer and theologian

Lorenzo di Antonio Ridolfi won a case which legalized interest payments by the

Florentine government. In 1413, Giovanni di Bicci de‘Medici appointed banker to

the pope. In 1440, Gutenberg invents the modern printing press although Europe

already knew of the use of paper money in China. The printing press design was

subsequently modified, by Leonardo da Vinci among others, for use in minting coins

nearly two centuries before printed banknotes were produced in the West by the

1390s silver was short all over Europe, except in Venice. The silver mines at Kutná

Hora had begun to decline in the 1370s, and finally closed down after being sacked

by King Sigismund in 1422. By 1450 almost all of the mints of northwest Europe

had closed down for lack of silver. The last money-changer in the major French port

9

of Dieppe went out of business in 1446. In 1455 the Turks overran the Serbian silver

mines, and in 1460 captured the last Bosnian mine. The last Venetian silver grosso

was minted in 1462. Several Venetian Banks failed, and so did the Strozzi bank of

Florence, the second largest in the city. Even the smallest of small change became

scarce. Modern Western economic and financial history is usually traced back to the

coffee houses of London. The London Royal Exchange was established in 1565. At

that time moneychangers were already called bankers, though the term "bank" usually

referred to their offices, and did not carry the meaning it does today. There was also a

hierarchical order among professionals; at the top were the bankers who did business

with heads of state, next were the city exchanges, and at the bottom were the pawn

shops or "Lombard‘s. Some European cities today have a Lombard street where the

pawn shop was located.

1.4 History Of Banking System In India

Banking system plays an important role in growth of economy. The banking sector is

the lifeline of any modern economy. It is one of the important pillars of financial

system, which plays a vital role in the success or failure of an economy. It is a well

known fact that banks are one of the oldest financial intermediaries in the financial

system. The origin of banking in dates back to the Vedic period. There are repeated

references in the Vedic literature to money lending which was quite common as a

10

side business. Later, during the time of the Smritis, which followed the Vedic Period

and the Epic age, banking become a full-time business and got diversified

with bankers performing most of the functions of the present day. The Vaish

community, who conducted banking business during this period. As far back as the

second or third century A.D. Manu the great Hindu Jurist, devoted a section of his

work to deposits and advances and laid down rules relating to rates of interest to be

charged. Still later, that is during the Buddhist period, banking business was

decentralized and become a matter of volition. Consequently, Brahmins and

Kshatriyas, who were earlier not permitted to take to banking as their profession

except under exceptionally rare circumstances, also took to it as their business.

During this period banking became more specific and systematic and bills of

exchange came in wide use. ―Shresthis‖ or bankers influential in society and very

often acted as royal treasurers. Coming to Mughal period, Mughal dynasty started

with Babur ascending the throne of Agra in 1526 A.D. During Mughal period the

indigenous bankers played a very important role in lending money and financing of

foreign trade and commerce. They were also engaged in the profitable business of

money changing. Banking business was, however particularly during the secular and

settled reign of Emperor Akbar was gave the much needed political stability to the

country. Every city, big or small had a ‗Sheth‘ also known as a ‗Shah‘ or ‗Shroff‘,

who performed a number of banking functions. He was respected by all parts of

11

people as an important citizen. In Principal cities, besides shroffs, there was a ‗Nagar

Sheth‘ or ‗Town Banker‘. They were instrumental in changing funds from place to

place and doing collection business mainly through Hundis. The Hundis were

accepted mode of change of money for commercial transactions.

Then, the seventeenth century witnessed coming into India of the English traders.

The English traders established their own agency houses at the port towns of

Bombay, Calcutta and Madras. These agency houses, apart from engaging in trade

and commerce, also carried on the banking business. The development of the means

of transport and communication causing deflection of trade and commerce along new

routes, changing the nature of trade activities in the country were the other factor

which also contributed to the downfall of the indigenous bankers. Partly to fill the

void caused by their downfall and partly to finance the growing financial

requirements of English trade. The East India Company now came to favor the

establishment of the banking institutions patterned after the Western style. The first

Joint Stock Bank established in the country was the Bank of Hindustan founded in

1770 by the famous English agency house of M/s. Alexander and Company. The

Bengal Bank and The Central Bank of India were established in 1785. The Bank of

Bengal, the first of the three Presidency Banks was established in Calcutta in 1806

under the name of bank of Calcutta. It was renamed in 1809 on the grant of the

charter as a Bank of Bengal. The two other presidency banks, namely the bank of

12

Bombay and the Bank of Madras, were established in 1840 and 1843 respectively.

After the Paper Currency Act of 1862, however the right of the note issue was taken

away from them. The Presidency Banks had branches in important towns of the

country. The banking crisis of 1913 to 1917 however brought out the serious

deficiencies in the existing banking system in the country showing the need for

effective co-ordination through the establishment of the Central Bank. After repeated

efforts, the three presidency bank was fused into a single bank under the name of the

Imperial Bank of India in 1921.

The bank was authorized to hold Government balances and manage public debt. It

was not, however, given power to issue notes. The issuing of the currency continued

to be close preserving of the Government of India. The branches of the bank were to

work as clearing houses. It was mainly a commercial bank competing with other

banks. The Imperial Bank of India was nationalized in 1955 by the SBI act.

In the wake of the Swadeshi Movement, a number of banks with Indian management

were established in the country. The Punjab National Bank Ltd. Was founded in

1895, The Bank of India Ltd in 1906, The Canara Bank Ltd. in 1906. The Indian

Bank Ltd. in 1907, the Bank of Baroda Ltd. in 1908, and the Central Bank of India

Ltd. In 1911.

There have been a number of checks to progress to the Banking Industry in the

13

form of bank failures during the last over 100 years. The series of bank crisis

particularly during the time 1913–17, 1939–45 and 1948–53 wiped out many weak

units. Loss in trade or industry affected their credit and solvency. It may however, be

stated that one of the important reasons for the last banking crisis of 1948–53 was the

partition of the country into India and Pakistan. Most of the depositors who were

Hindus migrated from Pakistan to India while a major portion of the assets of the

banks, which failed remained in Pakistan.

Although, Suggestions have been made from time to time that India ought to have a

Central Bank. The Royal Commission on Indian currency and finance recommended

that a Central Bank should be started in India so as to perfect her credit and currency

organization. From 1927 to 1933, there was a proposal and constitutional reforms

law process has been made. It was enacted in due course and became law on the 6th

march 1934 and the Reserve Bank of India started functioning with effect from 1st

April 1935. Banking regulation act was passed in 1949.

The country inherited a banking system that was patterned on the British Banking

System. There were many joint stock companies doing banking business and they

were concentrating mostly in major cities. Even the financing activities of these banks

were confined to the exports of Jute, Tea etc and traditional industries like textile and

sugar. There was no uniform law governing banking activity. An immediate concern

after the partition of the country was about bank branches located in Pakistan and

14

steps were taken to close some of them as desire by that country. In 1949, as many as

55 banks either went into liquidation or went out of banking business. Banking did

not receive much attention of the policy makers and disjointed efforts were made

towards the regulation of the banking industry.

After independence, India adopted a socialist pattern of society as its goal. This

means in non technical language a society with wealth distributed as equitably as

possible without making the country a totalitarian state. In 1955, the Imperial

Bank of India was nationalized and its undertaking was taken over by State Bank

of India. Its transformation into SBI has been effective from July 1, 1955.20 there

were 7 subsidiaries Banks. Their Associate Bank was 5960. The State Bank group

including State Bank of Hyderabad, State Bank of Mysore, State Bank of

Travancore, State Bank of Bikaner and Jaipur, State Bank of Indore, State Bank

of Patiala and State Bank of Saurashtra.

As regards the scheduled banks, there were complaints that Indian Commercial banks

were directing their advances to the large and medium scale industries and big

business houses and that the sectors demanding priority such as agriculture, small

scale industries and exports were not receiving their due share. This was one of the

chief reasons for imposition of social control by amending the banking regulation

act, with effect from 1st February 1969. On 19th July 1969, 14 major banks were

nationalized and taken over they were as under:

15

1. The Central Bank of India Ltd.

2. The Bank of India Ltd.

3. The Punjab National Bank Ltd.

4. The Bank of Baroda Ltd.

5. The United Commercial Bank Ltd.

6. The Canara Bank Ltd.

7. The United Bank of India Ltd.

8. The Dena Bank Ltd.

9. Syndicate Bank Ltd.

10. The Union Bank of India Ltd.

11. The Allahabad Bank Ltd.

12. The Indian Bank Ltd.

13. The Bank of Maharashtra Ltd.

14. The Indian Overseas Bank Ltd.

Each bank was having deposits of more than Rs. 50 crore and having among

themselves aggregate deposits of Rs. 2632 crore with 4130 branches. On 15th

April 1980, six more banks were nationalized. These banks were:

1. The Andhra Bank Ltd.

2. The Corporation Bank Ltd.

3. The New Bank of India Ltd.

16

4. The Oriental Bank of Commerce Ltd.

5. The Punjab & Sind Bank Ltd.

6. The Vijya Bank Ltd.

There were some effects and achievements of nationalized banks. However, there are

some problems relating to NPAs, competition, competency, overstaffing, inefficiency

etc. for the nationalized bank.

1.5 Economic reforms in banking system

The banking system reflects the economic health of the country. The strength of the

economy of any country basically hinges on the strength and efficiency of its

financial system, which in turn depends on a sound and solvent banking system.

Banking Sector reforms were initiated to upgrade the operating standard health and

financial soundness of the banks. The Government of India setup the Narasimham

Committee in 1991, to examine all aspects relating to structure, organization and

functioning of the Indian banking system the recommendations of the committee

aimed at creating at competitive and efficient banking system. Another committee

which is Khan Committee was instituted by RBI in December, 1997 to examine the

harmonization of the role and operations of development financial institutions and

banks. It submitted its report in 1998. The major recommendations were a gradual

17

more towards universal banking, exploring the possibility of gain full merger as

between banks, banks and financial institutions.

Then the Verma Committee was established this committee recommended the need

for greater use of IT even in the weak public sector banks, restructuring of weak

banks but not merging them with strong banks, VRS for at least 25% of the staff. The

Banking Sector reforms aimed at improving the policy frame work, financial health

and institutional infrastructure, there two phase of the banking reforms. Narasimham

Committee provided the blue print for the initial reforms in banking sector following

the balance of payment crisis in 1991.

1.6 Background of the Study

In the last two decades, the Indian retail banking industry has gone through major

transformations and has become competitive as a result of deregulation,

macroeconomic stability, privatization, and the entry of foreign banks, in a

competitive business environment, delivery of service quality has been identified as

a cornerstone for acquiring and sustaining competitive advantages. In a highly

service-oriented industry like retail banking, customers expect organizations to

deliver service quality to their satisfaction. Therefore, to meet the growing service

quality expectations of their customers, retail banks have spent huge proportion of

their budgets on service performance related expenditures. Since customer

18

satisfaction is a function of service performance, it is often envisaged that when

customers‘ expectations are met or exceeded, they become satisfied. Once customers

are satisfied, they become loyal to the service provider. Customer loyalty is

conceived to have a positive correlation with market shares and profitability.

Customer loyalty is founded on the trust and commitment service providers build

with their customers during service encounters.

In the retail banking industry, as the demand for shareholder value grows, pressure

has mounted on managers to seek ways to increase profitability. As Porter noted, a

firm that seeks a competitive lead and profitability must either adopt product

differentiation or cost management measures as a way of creating superior customer

value. In a wide range of service industries, superior customer value creation is

considered an effective strategy for differentiation and increasing profitability. Faced

with competitive pressures, retail banks are challenged to increase not only their share

of market, but also their share of the customers. However, the process of acquiring

new customers appears a yeoman and cumbersome task for many retail banks. Since

the cost of acquisition of new customers continues to increase, Ennew and Binks

(1996) suggested managers should build and maintain long-term relationships with

existing customers as a way of gaining competitive advantages and profitability. In an

era of availability of variety and diversified retail banking services, it is usual for the

media to be inundated with discussions on the service quality of retail banks. In some

19

cases, the discourse in the media has enriched customers‘ knowledge of the poor

service quality of one retail bank or the other. Customer awareness of poor service

quality may cause a service provider to lose the valuable customer base needed to be

competitive. According to previous marketing research, dissatisfied customers are

likely to relay their negative experience to over ten friends or potential customers.

However, providing satisfaction to customers is a daunting task, but one that can

be surmounted if managers understand customers‘ expectations and specifications of

service. Armed with knowledge of customers‘ expectations and specifications,

strategies can then be formulated to ensure service performance is improved to meet

the needs of customers. To enhance the formulation of strategic marketing plans,

information on customers‘ perceptions is highly sought by retail bank management

within the last two decades, several attempts have been made to study consumer

behavior-related issues in several industries, including retail banking, to improve

information on customers‘ expectations of service performance. The research effort

resulted in the formulation of models for the conceptualization of customers‘

perceptions of service quality delivery.

The service performance gap model is one such model, and this explains the

difference between customer expectation and actual service delivered. The model has

been applied and tested in many service industries, including that of banking,

insurance, and health service. However, given the vagaries of customers‘ experiences

20

of service-increased ambiguity and the uncertainty of customer expectation and

perceptions, the need for research in this area has been inexhaustive. Moreover, the

service performance expectation of customers is dynamic, changing from time to

time. In this regard, periodic research is necessary for management to know what

level of service performance will meet the current expectation of customers.

In the last two decades, there has been a growing need for service performance and

service quality research and plentiful investigations have been conducted on the link

of service performance gaps to service quality in the retail banking industry.

Unfortunately, there is no comprehensive study on the relation of service performance

and service quality in the Indian retail banking industry. In addition, there has been no

attempt to test the applicability of the service performance gap model in the Indian

retail banking industry.

Additionally, despite the existence of a many studies on service performance and

service quality constructs, they have mainly focused on the service industries of

developed and a few Asian markets to the neglect of less sophisticated retail banking

markets like that of India. Therefore, one of the questions left unanswered, which

motivated further research, is how the service performance gap model applies in

developing and less sophisticated markets, bearing in mind the effect of culture on

customers‘ behavior. This dissertation harnessed the opportunity of the paucity and

21

gaps in research to investigate the relation of service performance and service quality

in the Indian retail banking industry in anticipation that:

i) it will add a new dimension to the current research attempting to link service

performance to service quality; and

ii) it will assist managers of retail banks with information on customers‘

perceptions of service performance and service quality for strategic marketing

planning.

The banking industry has increasingly become crucial to the development of the

global economy. For this reason, over the last two decades, the governments of

developing economies have deregulated their banking sectors to incentivize the entry

of foreign banks in anticipation it will ignite accelerated economic development by

enhancing local competition, reducing interest rates, and bringing a variety of quality

services to customers. In addition, in developing economies where there is normally

less developed financial intermediation, banks serve as crucial financial agents. In the

1980s, many developing countries embarked on financial sector reforms to promote

savings, investments, and the development of the private sector as a vehicle for

economic growth

The liberalization in the early 1990s has resulted in the conception of various private

sector banks. This has sparked a boom in the country‘s banking sector in the past two

decades. The revenue of Indian banks grew four-fold from US$ 11.8 billion to US$

22

46.9 billion, whereas the profit after tax rose nearly nine-fold from US$ 1.4 billion to

US$ 12 billion over 2001-10. This growth was driven primarily by two factors. First,

the influx of Foreign Direct Investment (FDI) of up to 74 per cent with certain

restrictions. Second, the conservative policies of the Reserve Bank of India (RBI),

which have shielded Indian banks from recession and global economic turmoil.

Figure 1.1 and 1.2 compares the country‘s Banking Index (Bankex) with the Sensex.

The Bankex is an index tracking the performance of important banking sector stocks,

and has grown at a compounded annual growth rate (CAGR) of approximately 20 per

cent over 2003-12. The Figure below shows that the Bankex and the Sensex have had

similar growth trends over the past decade.

4Dr. Krishna Goyal and Vijay Joshi – Indian Banking Industry: Challenges and Opportunities, International

Journal of Business Research and Management, Volume 3, Issue 1, 2012 5 McKinsey Report – Transform to Outperform

6Bombay Stock Exchange

23

The challenges the Indian banking system faced were reflected in the poor service

quality they offered. For example, there were instances where customers spent up to

two hours doing a single transaction. In other instances, banks run out of cash to serve

customers. According to the World Bank study in summary, the Indian banking sector

was characterized by inefficiency and high operating costs, distorted and inflated

profit declarations, insolvencies, capital inadequacy, and high bad debts.

24

1.6 Origin of The Problem

It is often believed that improving service performance is a precursor for gaining a

competitive advantage and increasing both the short- and long-term profitability of

banks. In an ever-growing competitive retail banking industry, winning competition is

predicated on the provision of unique products and services to meet customers‘

expectations. Customers whose expectations are met are considered satisfied and are

potential loyal customers. However, dissatisfied customers are candidates for

defection. Therefore, retail banks are striving to increase their service performance to

meet customer service quality expectation.

In addition, to increase the customer base in a competitive business environment,

it is suggested that managerial efforts should be directed strategically at recruiting

and retaining customers to ensure increased competitive advantages. Competitive

advantages are achieved when the desires of customers are discovered and responded

to more efficiently and effectively than competitors. How successful banks are in this

regard is contingent on the availability of information on customers‘ perceptions of

service quality and service specifications. Since service performance is an antecedent

of service quality, scholarly efforts have been devoted to understanding customers‘

needs and the factors influence service performance.

25

Service performance is considered important in service delivery because it is an

organizational weapon for differentiation and winning competition. In a service

encounter, when the customers‘ expectation of service performance is unequal to the

actual service performance, gaps are created. This postulation is the foundation of the

service performance gap model proposed by Parasuraman et al. (1988, 1990) to

explain the lack of equilibrium of customer expectation and actual service delivered.

This model has been applied in many industries, including retail banking in

developed economies to the neglect of service industries in developing economies. In

a competitive banking environment, managers are not just concerned about service

performance, but about how customers perceive such performance and whether it

meets specifications. Therefore, it is important for management to know the level of

service performance customers expect and the customer‘s perception of the actual

service performance in order to understand the level of customer satisfaction and

retention. Interestingly, according to an American Customer Satisfaction Index

(ACSI) report, the retail banking industry continued to witness a decline in customer

retention due to switching. Provision of poor service quality to customers by banks

has been found to result in declining deposits. The concern over information on a

customer‘s perception of service performance and service quality has motivated

various researchers to attempt investigations on service quality, service performance,

and customer satisfaction. Given the intangibility and heterogeneous nature of

26

service, some previous studies sought to identify how service quality and customer

satisfaction are correlated or measured in various service organizations, especially in

retail banking industry. However, research on the perceptions of bankers and

customers on how the service performance variables are linked to service quality

variables in the retail banking industry has not been given the utmost attention. This

has created a research vacuum that needs to be filled. In addition, the few prior

studies on service quality and performance were conducted in a Western business

environment setting to the neglect of that of developing countries, especially in India.

However, the service industries of emerging and developing countries‘ markets

continue to witness tremendous growth.

According to Bancon report ‗ Transform to outperform‘, In the last decade there has

been a remarkable shift in India‘s position from an emerging market to a major driver

of the global economy. The Indian banking sector mirrors this story in several ways.

Indian banks grew dramatically between 2000 and 2010- revenues have grown more

than four fold from USD 11.8 billion in 2001 to USD 46.9 billion in 2010. Indian

banking is expected to continue growing robustly, at 18 to 20 per cent a year, with

superior profitability— and over 16 per cent return on equity. As a result of this, India

is expected to Increase its share in the global banking revenue pools from 1.5 percent

in 2009 to 2.5 percent in 2015 on the back of underlying assets of approximately USD

3 trillion and deposits of around USD 2.3 trillion( Exhibit 1)

27

Moreover, it is believed that at least five to six Indian banks will reach the top 100

global league over the next decade and the sector will remain the mainstay of India‘s

economic transformation. While the last decade provided a ‗platform for growth‘, the

next decade in Indian banking will Involve the ‗hunt for profitable expansion‘.

Customers are becoming more sophisticated, competition is increasing as the

potential of Indian banking has been discovered. Markets.

With the liberalized banking regime in India and with the continuous implementation

of prudent macroeconomic policies, it is anticipated that foreign banks will continue

to enter the Indian banking market and that banks will continue to invest in

technology and expansion drives. Since the competitive structure of the market is

28

influence by a number of banks, the continuous entry of banks is expected to escalate

the existing competition in the industry. How to increase competitiveness, therefore,

has become one the key challenges of banks in india. Moreover, technological

advancement has led to increases in standards in banking operations and the

empowerment of customers due to the availability of choices. The emerging

competition has resulted in the replacement of the banking bureaucracy and

inefficiency that adversely affected customer service in the past. Customers are also

more educated and demanding improved services now than ever. For these reasons

among others, retail banks in India are compelled to seek better ways to satisfy

customers to ensure loyalty and profitability.

However, retail banks cannot satisfy customers without information on customers‘

perceptions of service quality and on what amount of performance is needed to satisfy

customers. In this regard, research is needed to make such information available.

Parasuraman at al., 1985 proposed a model for evaluating customers‘ perception of

service quality, and Zeithaml et al. (1990) identified factors influencing service

performance gaps. This model has been largely tested in the service industries of

Western countries to the neglect of service industries of developing countries.

The growth and heightened competitiveness of the Indian banking industry provides a

case for further investigation of the link of service performance to service quality.

Previous research on the relationship between the two marketing concepts focused on

29

service organizations in developed and emerging markets‘ settings to the neglect of

countries like India. Further exploration, focusing on the relationship between

service performance and service quality in the Indian banking industry is necessary,

as it will go a long way to assist banks in making improvements to their service

delivery to satisfy consumers

1.8 Purpose Of The Study

This study was primarily purported to investigate the interlink of service performance

and service quality using the service performance gap model proposed by

Parasuraman et al. (1990). Secondly, it was purported to investigate the perception of

customers and bankers of the relation of antecedents or factors of service performance

gaps and dimensions of service quality in the Indian retail banking industry. Thirdly,

the study investigated the difference in the perceptions of bankers and customers of

the link between service performance and service quality. Finally, the study

investigated the differences of the service performance of retail banks within the

category of government owned, private-ownedn banks operating in India. The aim of

this study was to apply the service performance gap model in the Indian retail

banking industry. Based on the result of this research, the best ways to improve the

service performance in the Indian retail banking industry are recommended.

30

1.9 Focus Of The Study

The questions addressed in this study are:

1. In the Indian retail banking industry, what is the perception of customers towards

service performance and service quality?

2. In the Indian retail banking industry, what is the perception of bankers towards

service performance and service quality?

3. In the Indian retail banking industry, is the perception of customers of service

Performance different from that of bankers?

4. What are the significant antecedents of service performance gaps influencing

service quality attributes in the Indian retail banking industry?

5. In the Indian retail banking industry, what is the difference in perception of service

performance of private and government-owned?

1.10 Significance of the Study

A paradigm shift has occurred in marketing, leading to a change in focus from the

traditional exchange of the service marketing model to a customer-centered exchange

marketing or relationship marketing model. The relationship marketing model

requires the service provider to deliver excellent service quality for customer

satisfaction, which leads to repeat purchase and loyalty. Customer loyalty leads to an

31

increased share of market and profitability. To promote long-term relationship with

customers, efforts must be made to understand the key factors influencing the

delivery of service quality . In addition, according to Grandzol and Gershon (1997),

over half of all corporate training dollars are spent on enhancing quality. For this

reason, corporate managers are increasingly becoming interested in understanding

how investment in quality impacts performance outcomes, such as return on

investment, sales, market shares, net revenue, and competitive advantages. Research

on how performance is linked to quality is significant in providing answers to this

management question. The success of a retail bank in a competitive environment

hinges on knowledge of customers‘ expectations and how service performance can be

improved to meet such expectations. Knowledge of how service performance factors

impact service quality dimensions is also needed for strategic planning. This study

was conducted to provide information on Indian retail banking customers and the

nature of the markets to assist management in the decision-making process.

With the liberalization of the banking industry and the government‘s continuous

pursuit of prudential macroeconomic and growth-oriented policies, the competition in

the Indian banking industry is expected to escalate. The growing competition in the

Indian retail banking market requires banks to adopt new ideas to provide customer

satisfaction. Moreover, for banks to succeed in the competitive Indian retail banking

industry, they must understand the expectation of their customers of service quality.

32

Banks must also understand how changes in performance can impact a bank‘s ability

to provide a quality service to meet the expectations of their customers. Therefore,

this study is significant in providing retail banks with information for dealing with

competitive challenges. From a managerial perspective, the results of this study were

expected to:

i) assist the management of retail banks in designing promotional programs to

compete more favorably in the Indian banking industry in the short- and long-term;

ii) provide information on how retail banks‘ service performance and service quality

is perceived in the Indian retailing banking industry;

iii) assist the management of retail banks in strategic planning for recruiting new

ones; and

iv) Provide information to enhance managerial efforts in the improvement of the

performance, skills, and efficiency of employees.

From an academic research perspective, this dissertation is significant because it

comprehensively investigated the link of service providers‘ performance to the

perceptions of customers of the service quality in the Indian retail banking industry. It

also tested the extended relationship marketing model developed by Parasuraman in

the Indian retail banking industry. Furthermore, this research is useful because it

contributed to the body of literature attempting to investigate the link between service

performance and service quality. This study was conducted with the belief and

33

anticipation that it would provide valuable information needed by retail banks in India

to focus on key areas of customers concerns. The results of this research were

anticipated to provide knowledge on which areas of performance management of

banks needed to pay attention to to ensure that more efficiency is injected to ensure

that customers‘ expectations are met. It was further anticipated that with such

knowledge, banks would increase the efficiency and competitive edge crucial for

increasing profitability, which could consequently lead to the development of the

Indian banking sector

1.11 Terminology

Customer Satisfaction

Satisfaction is a relative concept encompassing the customer‘s expectation as well as

the performance of the product (Phillip Kotler)

An affective state or feeling, which is a function of the discrepancies between a

customer‘s expectation and perception on purchase

Perception

It refers to the process of receipt, selection, and interpretation of stimuli to form a

meaningful and coherent picture of the world

34

Retail Banking

Retail banking is when a bank executes transactions directly with consumers, rather

than corporations or other banks. Services offered include savings and transactional

accounts, mortgages, personal loans, debit cards, and credit cards

Service Performance Gap

It refers to the difference between service specifications and actual service delivered

by service providers to customers (Parasuraman).

Service Quality

It represents the difference between customer expectations and the perception of the

service offered.

1.12 Assumptions and Limitations

This research was conducted on the following assumptions.

1. The survey participants will respond honestly to the questions contained in the

questionnaires.

2. The respondents will understand the survey questions being asked.

3. Customers and bankers experiences with services providers will be brought to

bear on their answers.

4. Customers and bankers can speak either English language or Hindi .

5. Bankers and customers of all retail banks will be proportionally represented.

35

The limitations of this research are.

1. The questionnaires were distributed to customers and bankers of banks‘ branches

in HDFC Bank and SBI in Lucknow City Therefore, the research results may not

have captured the cases of all the customers and bankers in the country.

2. The study did not included all the other banks and regional rural banks. However,

rural banks play important role in financial inclusion in India.

3. The questionnaires were prepared in English language .However, there are

customers who cannot speak this language. Therefore, customers who could not

speak English may not have been able to participate properly in this research.

1.13 Theoretical/Conceptual Framework

This study investigated the connection of service performance and service quality and

it application to the Indian retail banking market setting. The conceptual framework

of the study was based on a review of the literature on relationship marketing and the

service performance gaps models of Parasuraman and Zeithaml. Baesd on the

narrowed down scope of literature review above, the relationship between service

quality variable and customer satisfaction can be shown as following. The five score

service quality dimension have been selected by the studies done by Zethaml

(2000:2002).

36

Figure 1.3 : Relationship between service quality and customer satisfaction derived from

the studies done by Zethaml( 2000: 2002). Five service quality dimensions have been

selected from the studies done by (Van Iwaarden, 2003)

The empirical investigation involved testing and applying the service performance

gap model and the seven associated antecedents using a correlation and regression

analysis of the data collected from the survey of the bankers and customers of the 2

37

selected retail banks operating in Lucknow. Other marketing concepts and theories

and models of conceptual importance include the disconfirmation paradigm, role

theory, service encounter, exchange theory, and trust-commitment theory. The 1990s

witnessed a paradigm shift in marketing due to technological advancements, shifting

focus from traditional marketing to relationship marketing. Relationship marketing

can be described as involving: effort to identify, maintain, and build up a network

with individual customers and to continuously strengthen the network for the mutual

benefit of both sides, through interactive, individualized and value-added contacts

over a long period of time. According to Berry (1983), relationship marketing

involves a process of strengthening bonds and building relationships, as well as

providing service to customers, and it compliments a firm‘s efforts at keeping new

customers. Berry indicated that fulfilling promises made to customers is the

cornerstone for maintaining service relationship. To keep relationships with

customers, management should make realistic promises, keep such promises, and

enable employees and systems to fulfill those promises by delivering quality service.

When service providers undertake these three essential activities effectively, service

performance gaps are prevented.

Parasuraman developed a model based on a study of service quality of four

organizations, including that of credit card service. The model defined service quality

as the gap or a set of discrepancies between customers‘ expectations and their

38

perception of quality of service provided. The model postulates that the perception of

a customer is shaped by the size and direction of the gaps between a customer‘s

expectation of service quality and what has actually been served. It is conceptualized

in service marketing literature that customers predict and conceive the outcome of

impending service exchange. Then when the actual delivery takes place, they evaluate

quality by comparing expectation to what is actually delivered. Parasuraman

identified five gaps likely to occur during service encounters. These gaps impact the

relationship between customers and bankers in the banking industry.

He identified five dimensions of service quality comprising reliability,

responsiveness, assurance, empathy, and tangible. Based on these dimensions they

introduced the SERVQUAL. The SERVQUAL is a multiple-itemed instrument for

the evaluation of service quality. It contains 5 dimensions of service quality and

indicators of all the dimensions. The SERVQUAL, both in its original form and

modified version, has been widely used to measure, service performance, service

quality and customer satisfaction constructs in various industries setting .

Parasuraman found that the service performance gap has relationship with service

quality dimensions. Zeithaml shared this view. They identified seven antecedents or

variables influencing service performance gaps and these are briefly

presented in Table 2.

39

Table 2

Antecedents of Service Performance Gap Model

Antecedent of Service Performance

Gap

Description

1,TEAMWORK

This antecedent relates to how the group works and

communicates together. Also the commitment and

willingness of individual members to participate actively

and collectively in the decision making process is central to

bridging service delivery gaps.

2.EMPLOYEE-JOB FIT

This construct relates to employees‘ capabilities in

undertaking job related responsibilities necessary for

closing service performance gaps.

3.TECHNOLOGY-JOB FIT

This refers to the availability and suitability of the

technology required by employee to perform assigned job.

4. ROLE CONFLICT

This is the discrepancies between the expectations of

managers and customers and employees‘ expectation of

their inability to meet the expectation.

5.PERCEIVED CONTROL

This antecedent refers to the how employees react and

handle stress, as well as relates to the culture and procedure

of an organization.

6.SUPERVISORY CONTROL

This antecedent relates to the process of measuring

employees‘ performance.

7.ROLE AMBIGUITY

Role ambiguity occurs when employees lack critical

information in order to perform effectively.

40

1.14 Disposition of thesis

This dissertation contains five chapters.

Chapter 1 presented the introduction, the background of the study, the statement of

problem, the purpose of the study, the rational, the research questions, the

significance of the study, a definition of terms, the assumptions and limitations, and

the theoretical framework of the research.

Chapter 2 presents a comprehensive review of the literature on concepts and

theories associated with the study.

Chapter 3 presents the research methodology, Hypothesis, research design,

measurable independent and dependent variables, sample frame, research setting,

description of the instrument, data collection procedure, data analysis, validity, and

reliability. This chapter presents the ethical consideration of the research.

Chapter 4 provides the detailed outcome of the survey results and detailed analysis.

Chapter 5 focuses on the discussion of the findings, and the implications,

conclusions, and recommendations for further studies.

41

CHAPTER 2

REVIEW OF LITERATURE

This chapter presents a comprehensive review of past and existing literature relevant to the

theoretical and conceptual frameworks for understanding the relation of service performance

and service quality constructs. The objective of the review is mainly to deepen the

understanding of the relationship of the two constructs of this research’s interest. The research

is further anticipated to provide a conceptual basis for testing the service performance gaps

model in the Indian retail banking setting.

2.1 Service and Quality

Service is an elusive construct, which defies a consensual definition, triggering

tremendous academic interest. The word service is derived from the Latin word,

Servitum, which means served by slaves.

According to Kolter (1991) defined service as an intangible benefit whose

ownership cannot be claimed, provided from one entity to another.

42

The term quality stands for the standard of something as measured against other

things of a similar kind; the degree of excellence of something:Quality is defined as

the discrepancy between customers‘ service and expectations. Berry described it as

what actually conforms to customers‘ specifications. In this definition, the customers

are emphasized because they are the focus of modern marketing. Therefore,

customers‘ conceptions of quality are what counts, not that of management.

In this regard, quality is also described as the overall impression created by customers

pertaining to the superiority or inferiority of service rendered. Quality is one of the

three important indexes of companies‘ performance; the others are costs and

productivity. Among the three indicators, quality has been given prominence in the

literature because it is peculiar to both service providers and customers. In a

competitive environment, organizations normally produce the same type of service.

The level of service quality distinguishes one firm from the other.

2.2 Meaning of Service Quality

service quality is an achievement in customer service. It reflects at each service

encounter. Customers form service expectations from past experiences, word of

mouth and advertisement. In general, Customers compare perceived service with

expected service in which if the former falls short of the latter the customers are

disappointed. Service quality has been studied in business management for several

43

years. However, the growth of service marketing as a result of the continuous

dominance of the service sub sector of the global economy has fuelled more academic

interest in service quality theory. To understand fully the concept of service quality, it

is important to attempt a definition and to evaluate various scholarly perspectives.

Although, service quality is an abstract and a complicated concept, researchers have

made many attempts to define it.

From system-thinking paradigm dimension, Service quality has been defined as:

According to Lakhe and Mohanty: a production system where various inputs are

processed transformed and value added to produce some outputs which have utility to

the service seekers, not merely in an economic sense but from supporting the life of

the human system in general, even maybe for the sake of pleasure

Bolton & Drew, Carman, Parasuraman described service quality variously and

contended that it is multidimensional and difficult to measure, test, or verify with a

definitive metric . Reeves and Bednar (1994) reviewed service quality literature and

concluded there was a lack of universal, parsimonious, or all-encompassing definition

of model of quality. According to Sureshchandar , service quality is difficult for

service providers to explain and for customers to evaluate.

44

Bennington and Cummane (1998) found service quality has been defined as

excellence; value conformance to specifications; conformance to requirements;

fitness for use; loss avoidance; and meeting expectation.

Wisniewski observed that the debate on service quality is not only limited to the

definition, but it is extended to the way it is measured. While some authors

conceptualized service quality in the context of performance paradigm like Brown,

Churchill, & Peter, Boulding, Cronin & Taylor, others described it in a

SERVQUAL paradigm Parasuraman supporting the view of its multidimensional

nature

The SERVQUAL model has been widely used by previous researchers in the banking

industry. Some researchers attempted to compare the SERQUAL model to other

metrics. For example, Angur tested both the SERVQUAL and SERVPERF models in

the retail banking. Yet others Avkiran, 1994 modified the SERVQUAL to suit a

specific setting. Avkiran 1994 adopted the SERVQUAL and developed the

BANKSERV instrument to suit his research on the Australian banking industry

specifically. Parasuraman 1990 endorsed modification of the instrument to suit a

particular research circumstance or the other.

Along the SERVQUAL paradigm, Zeithaml defined service quality as the overall

impression of the superiority or inferiority of an organization or its service and

45

product. Customers perceive service quality as the value customers actually receive at

a given price. Customer value is the emotional bond created between a service

provider and a customer after a service or a product is. A number of scholars

Anderson & Narus, Higgins: have attempted linking customer value and customer

perceived service quality. To enhance understanding of service quality and its

correlation to price in predicting purchase decision-making by comsumer some

scharlars.

Bolton & Drew, Zeithaml introduced the value construct into service quality

studies. Perceived value has been conceptualized as tradeoff to perceived quality,

perceived monetary and psychological sacrifice. It is conceptualized that the

interaction between service providers and customers presents an opportunity for

critical judgment to be made on service quality.

2.2.1 Attributes of Service

Much attention has been devoted in the service literature Cronin to identify and

describe attributes of service. As a complex phenomenon, service has different

meanings to different people depending on the prism through which it is

conceptualized.

46

As stated by Lu, it is generally agreed that service is characterized by intangibility; it

involves activities rather than things; it is simultaneously produced and consumed;

and customers are part of the productive process. In an attempt to measure service

quality.

Sasser, Olsen, and Wyckoff listed seven attributes associated with the concept:

confidence and physical security; consistency in transactions; availability of after

service assistance; nature of facilities; customer accessibility to service; and training

provided customers on usage. Other researchers identified attributes of service quality

to encapsulate the attitude of service providers; service providers‘ consideration;

service content; empathy; service speed; sincerity with which problems are handled;

and listening skills and responsibility.

According to Cronin and Taylor (1992), customers in seeking satisfaction do not

just concern themselves with the highest service quality. Other factors like

convenience, availability, and price are also considered. Generally, high service

quality provision involves predicting and delivering service that meets the needs and

expectations of customers. However, due to the multi-dimensional nature of service,

customers may vary in their perception, depending on social demographics like age,

education, gender, quality of life, income, and other status.

47

Khatibi described service as intangible and not easily duplicable. However, service

is differentiable from the perspective of customers on their service performance

expectation. Customers‘ expectations and requirement of service quality must be

understood in order to enhance improvement in service delivery.

Gronross (1984) explained that service quality involves the fulfillment of customer

satisfaction. He elaborated that customers‘ perception of service quality comprises

technical quality, functional quality, and corporate image. While technical quality

relates to the actual service customers received from service providers, functional

quality is manifested in the process of service delivery. Corporate image is associated

with the perception of the organization offering the service. Similarly,

Lehtinen and Lehtinen identified three dimensions associated with service quality:

physical qualities, qualities associated with corporate image, and qualities that

manifest during interaction with customers.

For Rust and Oliver (1994), three factors associated with service quality are :

1. Interaction between customers and service providers

2. Quality of the environment where the service is provided

3. Customers‘ assessment on the results of services

48

Parasuraman identified ten service quality determinants, which can be generalized

in all types of service as:

Tangibles - These comprise physical facilities, the appearance of staff, and the

appearance of equipments and tools used in service provision

Reliability - Receiving consistent treatment at every service encounter or

consistence of service performance

Responsiveness - Preparedness of service personnel to provide service at every

encounter

Competence - the knowledge, skills, and abilities of service personnel and staff

involved in the production of services

Access - The ease with which services can be researched

Courtesy - The respect, friendliness, affability, and politeness of service staff

Communication - Providing comprehensive information to customers in the

appropriate language and through the appropriate channels

Credibility - The trustworthiness, honesty, and validity demonstrated to

customers

Security - The sense of freedom, safety, and confidentiality

Understanding - Promotion of dialogue with customers that leads to an

understanding of the needs of customers

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These ten dimensions were later condensed into five: tangible, reliability,

responsiveness, assurance, and empathy.

Sureschchandar also proposed five critical factors of customers‘ conception of

service quality. These are as: ―1) core service or service product, 2) human element

of service delivery, 3) systemization of service delivery: non-human element, 4)

tangibles of service-servicescapes, and 5) social responsibility‖.

Szmigin (1993) sub-divided service into actual, perpetual, and results service. Actual

service is the service customers really receive from organizations. Perpetual service

represents the way service is delivered, while result service involves an assessment of

whether the service delivered meets the expectations of customers. Despite the fact

that many characteristics of service quality have been identified, tangible, reliability,

responsiveness, assurance and empathy are commonly used in service research. This

study similarly used these dimensions.

2.2.2Measuring Service Quality

Since service quality is an abstract and multidimensional construct

According to Sureshchandar, it does not lend itself for easy measurement. In

addition, consumers do not easily indicate what level of service meets their

expectations and requirements. However, measuring service quality is important for

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knowing the level service performance should be improved to. Sound measurement of

service quality also enhances managerial decision-making on marketing strategies.

Schorlarly interest in measuring service quality has resulted in an ever-growing

literature. However, the unique characteristics of service quality, such as

inseparability, intangibility, and heterogeneity, make objective measurement difficult.

Despite this, service quality needs to conceptualized and operationalized.

Service marketing literature identified two school of thoughts associated with service

quality: the Nordic school of thought, formulated based on the two-dimensional

model of Gronross , and the North American school of thought based on the

SERVQUAL model of Parasuraman . The second seems to have gained prominence

in the service marketing research. Prior to the emergence of the SERVQUAL model,

there were several attempts to development models for measuring service quality.

Martilia and James (1977) developed one of the early instruments for measuring

service quality. Their instrument uses the mean importance/performance result

illustrated on a grid with multi dimensions to measure service quality. With this

technique, the four quadrants in the grid provide valuable information on the

attributes to be tested. With their technique, it is suggested that qualitative research

should be first conducted to determine the most important attributes to be measured.

They also proposed separating important measures from performance measure to

51

avoid biases. Other techniques were developed subsequently where service quality

was identified to be multi-dimensional. It was also recognized that any attempt to use

a one-dimension scale failed or yielded ambiguous results.

SERVQUAL‘s framework was founded on the gap theory developed by

Parasuraman. He conceptually designed and modified this instrument use for gap

analysis,, and who operationalized service quality as:

Q=P-E

where Q=service quality, P= customers‘ perception of service, and E=Service

expectation.

The SERVQUAL instrument is designed along two set of metrics. The first set

measures the level of customers‘ expectations of perceived service in a specific

industry.The other metric is purported to measure the level of perceived service

quality of a particular firm . The SERVQUAL, which has five dimensions

of service quality, was initially presented to have ten dimensions, as previously

listed.After scale purification and factor analysis were undertaken, they were later

modified and refined to only five dimensions. Parasuraman defined the five

dimensions as:

Tangible: Physical facilities, equipment, and appearance of personnel

Reliability: Ability to perform promised service dependably and accurately

Responsiveness: Willingness to assist customers and promptly provide service

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Assurance: Employees‘ knowledge, courtesy, and ability to inspire trust and

confidence.

Empathy: Caring, individualized attention the firm provide its customers

While tangibles, reliability, and responsiveness remained unchanged in the scale

purification process, the other seven dimensions were fused into assurance and

empathy. These five dimensions or attributes have been extensively used to measure

the perceptions of customers of service quality at service encounters. With this

approach, customers are surveyed to measure their service experiences, perception,

and expectation of service quality.

Parasuraman model conceptualized service quality as being influenced by a series of

gaps related to service performance. This model defined service quality as the

difference between customers‘ expected service quality and the perception of quality

of service received. Under the SERVQUAL model, Parasuraman proposed a 22-item

instrument used for measuring performance expectation gaps. The instrument uses

keyconcepts, decisions, and strategies in service quality delivery involving

organizational tasks necessary for closing performance-expectation gaps (Zeithaml &

Parasuraman). Under the SERVQUAL instrument, customers are requested to

provide a rating on their service performance expectations and the perception of the

actual service performance from service providers (Zeithaml & Bitner).

Parasuraman‘s (1985) model developed along with Oliver‘s disconfirmation model

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(1980) has been criticized for lack of clarity in definition of expectation and how it is

applied in various service industries. Despite its wide usage, some scholars (Babakus

& Boller,Carman,; Cronin & Taylor, Teas,) have criticized the SERQUAL model by

questioning its reliability.

Carman (1990) argued that the five dimensions associated with the SERQUAL

model lack consistency when subjected to cross sectional analysis. Another lapse

identified with the model was that its accuracy is contingent on expectation remaining

constant. However, expectation is not always constant. Carman (1990) criticized the

model for not considering the importance of service attributes. In the course of further

investigation, he found some operational lapses with the gap concept. Based on his

findings, Carman (1990) suggested an alternative method that combined expectation

and perceptions into a single item.

Babakus and Boller (1992) supported Carman‘s (1990) idea of combining

expectation and perception into a single item. Cronin and Taylor (1992) also

criticized the SERQUAL on the grounds that Parasuraman proposition that

theoretically if there were similarities between service quality and attitude, then its

operationalization could be better represented by an attitude-based conceptualization.

They suggested discarding the expectation element of SERQUAL and then proposed

54

the SERVPERF, focusing on performance measure. In this regard, service quality is

not measured as the gap between the customers‘ expectation of service and what is

actually provided, but is measured as a customer‘s perception of the service

provider‘s performance. Other conceptions of the best ways to measure either

assessment of the degree of difference between customers‘ perceptions of service

quality and the actual service provided or the best way to measure service quality

have emerged in the last two decades.

Despite the criticism of the SERQUAL model.

Carman, Cronin & Taylor Observed that it is conceived as effective in service

quality research. It has contributed significantly to the introduction of improvements

in service delivery initiatives in service organizations. For example, a major initiative

was undertaken successfully to improve quality at a United Kingdon bank using the

SERVQUAL Newman found many firms in the UK financial service industry to have

used

SERVQUAL in their quality improvement initiatives. In the era of growing

competition in the retail banking industry, management continue to be interested in

customers‘ perceptions of service quality in order to formulate and implement

marketing programs. Parasuraman model has proven very useful in marketing

55

research and been widely used. It has often been reliably used in international

settings.

Cronin and Taylor recommended it for research in the banking industry. The

SERVQUAL has also been recommended as highly reliable and valid for use in

various service industries‘ research without adoption.In the retail banking industry,

attempts have been made either to apply the SERVQUAL model or to modify it for

specific study.

Avkiran (1994) conducted a study to identify an effective instrument for measuring

the perception of banks‘ branch customers of service quality. He developed a six-

dimensional model for measuring service quality, responsiveness, empathy, staff

conduct, access, communication, and reliability, with 27 items, which was later

reduced to 17 items. Avkiran (1994) found that staff conduct, credibility,

communication, and access to teller service are the most important qualities. The

research framework involved the use of perception to the exclusion of the expectation

construct, which is central to determining gaps in service delivery.

Chang (2007) conducated a study on customer expectations in the Taiwan

banking industry to determine how best service performance of banks could be

enhanced. He adopted the modified version of the SERVPERF instrument designed

56

by Wang in 2003 to collect data from 100 customers of three banks in the Taiwan

banking industry. To ascertain validity and reliability, a 7-point Likert scale was used

to evaluate the participants‘ responses. The result showed that customers expect a

high level of performance from the banking industry and that individual banks need

to improve service quality by examining their internal practices. Although this

research identified customers‘ expectations and the process of improving service

delivery to meet the expectations, sample size limited its validity. The sample size for

the survey was only 100 customers, which may not truly represent the customers in

the entire banking industry. Considering this limitation, Chang (2007) recommended

that further research be conducted on customer expectations and service delivery with

a larger population. The survey did not cover employees, who are important players

in the banking industry. Further research in this area is necessary as different

populations may offer more insight to enrich the marketing research. Another study

similar to Chang‘s is a dissertation by Toelle . He surveyed 200 retail-banking

customers drawn from four banks in the Indonesian banking industry to identify the

link between service attributes, customer value, customer satisfaction, and customer

loyalty. The results indicated that service performance has significant effects on

customer value, customer satisfaction, and loyalty. One limitations of his study is that

it focused on only four banks – two government-owned and two private banks – but

neglected other foreign and regional banks in the Indonesian banking industry. Based

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on this shortfall, he recommended further studies to evaluate the linkage of the

concepts in different industry or with a different population. One limitations

identified with this study is the sample size. Only 2 banks were selected for this study

for comparison between private and a public bank, but RBI data says that there are

171 different banks that operate in India, as on June 08, 2013. Together, these banks

have 76,003 reporting offices across the country. Therefore, the results cannot be

generalized, creating an opportunity for further studies with larger samples.

The level of service quality has been identified to be influenced by service

performance in the banking industry by Huang. Her study, focused on evaluation of

the level of influence of service performance on service quality, surveyed 20 banks –

government-controlled and 10 privately owned banks in Taiwan. The main objective

was to test a new model of service performance gap on service performance and

quality. In this regard, independent variables, including teamwork, employee-job fits,

perceived control, technology-job fit, supervisor control systems, role ambiguity, and

role conflict, were measured against dependent variables, customers specification,

bankers specification, and service performance gap, using regression analysis and an

instrument proposed by Parasuraman et al. (1990) and used by Chenet. The results

showed that service performance affects all banks. One limitations of her study was

that the data used to test the hypothesis were collected from selected banks in Taiwan.

Therefore, the finding could not be used to generalize the case for all banks. In this

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regard, she recommended further investigation of how the two constructs, service

performance and service quality, are related under different settings and with different

populations. In line with this recommendation, this study investigates how service

performance is linked to service quality

2.2.3 Models in Service Quality

In the 21st century, the increasingly competitive nature of the retail banking

industry has challenged individual retail banks to differentiate their services in order

to stand out among community of banks. In this regard, banks are striving to use

delivery of service quality to increase competitive advantages. What has become

apparent from the service marketing literature is that products alone cannot procure a

firm competitive advantage. Therefore, it is suggested that for a retail bank to survive

in a competitive business environment, management must focus on service quality

delivery to ensure customer satisfaction.

Customer satisfaction, explained as the feeling of satisfaction emanating from

comparison of perceptions of actual products/services performance against prior

service performance expectation, plays significant role in increasing a firm‘s

competitive advantages. Due to the significance of customer satisfaction, service

marketing literature has also increasingly given it attention. Over the last two

decades, two perspectives have emerged and evolved in service marketing literature:

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the service profit chain proposed by Heskett and the SERVQUAL model proposed

by Parasuraman.

The service profit chain model conceptualized the positive relationship between

employee satisfaction, service quality, and customer satisfaction, which ultimately

leads to profitability. Various researchers like Anderson & Mittal, Loveman, largely

support the proposition of the service profit chain model. On the other hand, the

SERVQUAL model conceptually identifies similar correlation between employee

satisfaction, service quality, and customer satisfaction, where employee satisfaction

and service quality constructs drive the customer satisfaction construct. However, the

SERVQUAL model identifies service quality as comprising functional and technical

dimensions. From the functional dimension, quality is perceived as complex and is

characterized by heterogeneity, intangibility, inseparability, and uniqueness .

Lovelock contended that the uniqueness of service is manifested in the fact that it is

delivered as performance; customers are part of the production process; quality is

assessed during delivery; it cannot be counted; delivery is prompt; and delivery

channels are not visible or compressed. Past literature largely extended, evaluated,

and tested the two perspectives.

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Maddern et al. (2007) evaluated the drivers of customer satisfaction and a found

positive link between employee satisfaction and service quality constructs. Since

service quality is an antecedent of customer satisfaction, it is anticipated that

improving service performance positively impacts service quality, leading to

satisfaction.

Emerging literature also challenged the two perspectives. For example, while the

attention given functional quality proposed under the SERVQUAL model is disputed,

the adequacy of a simple linear relationship between profits drivers under the service

profit chain is challenged . In an attempt to conceptualize service quality, researchers

have proposed other models.

Gronross (1988) proposed the Perceived Service Quality model. Under this model,

two types of service quality from the customers‘ perspectives have been identified:

expected quality and experienced quality. In the service delivery process, when the

expected quality matches experienced quality, high perceived service quality is said

to be attained. On the contrary, where there is a mismatch, low perceived quality is

said to be attained. In extending the perceived service quality model, Gummesson

and Gronross (1988) identified four sources of quality: design, production, delivery,

and relation.

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Boulding similarly developed a behavioral process model of perceived service

quality based on a longitudinal and quantitative survey. Under this model, the

perception of the dimensions of service quality is conceptualized as a function of

prior expectations of service performance during impending encounter. In this regard,

they posit that customers‘ expectations influence the perception of service quality.

Zeithaml et al. (1990) proposed one of the most popular and widely used models in

the service industry: the gaps model. Under the gaps model, service quality is

described as the outcome of the comparison of what customers expect against the

perception of actual service performance. These discrepancies are considered gaps.

Parasuram et al. (1988) identified four internal gaps likely to occur as customers

evaluate service quality: information-related gaps; design-related gaps;

implementation-related gaps; communication gaps; and customers‘ perceptions and

expectations gaps. A fifth gap represents the aggregate of gaps 1–4. The gaps model

prescribed that the marketing goals of service providers should be the focus on

closing these gaps to ensure customer satisfaction. To close the gaps, there is the need

to understand the underlying causes of the gaps.

To understand customer perception of service quality

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Pieters, Bottschen, and Thelen introduced a model of customer expectation of

service quality that encapsulates three components: the process, the outcome, and

aspects related to the

process. According to Bearden and Teel (1983) to assess these components

practically, variables, including customers‘ complaints, customers‘ attitudes and

expectations, and customers‘ evaluation of the service delivered, must be considered.

Lewis and Broom (1983) described service quality as customer satisfaction. In linking

service quality to service performance, they contended that service quality is

defined by how well actual services delivered matches customers‘ expectations..

As attempts are made to conceptualize service and quality, Gabbott and Hogg

explained that customers have the tendency to evaluating service in two ways:

i)―is it of good quality?‖ and ii) ―Am I satisfied?‖ . These two evaluative

perspectives formed the basis of debate in the service literature. However, there is

consensus on the use of perception and expectation in assessing both service quality

and satisfaction. The possibilities of negative or positive events‘ occurrence during

customers‘ encounters with service providers shape and define the expectations. Prior

experience influences customer expectation, conceptualized as the wants or desire of

customers. With expectation being constant, high levels of performance receive high

quality evaluation from customers.

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In support to this perspective, Olson and Dover contended that customers‘

expectations encapsulate pretrial beliefs of service quality. Some scholars contend

that customers may exhibit performance expectations in aggregates, such as ideal,

expected, minimal, and desirable. On the contrary, other scholars conceptualized

performance expectation as emanating from experience norm. In most cases, the

studies employed expectations and perceptions as key antecedent constructs. It is also

recognized that how customers perceive their banks‘ services performance

significantly impacts their success

Sureshchander found customers to be more educated now than ever, and therefore,

they expect more value and quality, which they are willing to pay for. The levels of

assistance and courtesies customers expect from their banks have actually heightened.

The heightened expectation can only be met when service performance is improved.

With improved performance, customers will develop a positive perception of service

quality, resulting in loyalty, repurchase, increased market share, and profitability. In

addition, when customers become loyal, firms‘ profits increase as customer

recruitment costs are also eliminated.

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2.2.4 Perception

A perception construct has been employed to study customers‘ opinions of service

in high involvement and service-oriented industries like banking. Developing an

understanding of the perception of customers is identified as vital in aiding

managerial efforts toward managing excellent service delivery.

Schiffman defined perception as the process through which persons make decisions

regarding selection and interpretation of stimuli to ―form a meaningful and coherent

picture of the world‖. Perception, which entails selection, organization, and

interpretation processes, is unique to individual consumer.

Boulding - perception is developed any time consumers use a service. They believe

that consumers‘ perceptions of service quality are driven by both recency of service

encounter and expectation. This means that customer expectation has a causal

relationship with perception. So that any time the expectations of consumers change,

it could result in change in perception of reality.

Kothari & Sharma- The perception of service quality can be either perception

before contact or perception after contact . With the former, perceived quality is the

combination of prior expectation during service encounter and service delivered

during service encounter. Conversely, perceptions after contact make expectations

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more practical and realistic after an actual service encounter. Similarly, service

quality has been described as ―subjective perception of customers‖ emanating from

comparison of before service expectation with after service perception.

Cronin and Taylor and Boulding- stated that service quality could be best

conceptualized as an attitude based on customers‘ perceptions of service

performance. The performance construct has also been well researched because of

the critical role it plays in service delivery. Service performance is manifested along

three factors, identified as human element, consistency of service delivery, and

tangibles, the human element of service delivery, which encapsulates staff/customer

interaction, plays an important role in shaping customer perception of service quality.

According to Crane and Lynch (1988), customers may rely upon employees‘

performance cues, including competence, courtesy, and interpersonal skills exhibited

during service delivery, to determine the level of service quality.

Hartline and Jones (1996) also found the performance cues of employees to play a

significant role in the determination of service quality. Globalization and

technological advancement among other macroeconomic factors has resulted in a

transformation of the Indian banking industry, thus, heightening competition . The

banks in the industry are striving to understand their customers in order to establish

66

and maintain high value relationships. In retail banking, customer satisfaction is

considered the ultimate predicator of service performance. In this regard, retail banks

have focused on improving performance as way of recruiting new customers, dealing

with price competition, preventing the loss of customers, and minimizing mistakes.

The rapid evolving nature of the retail banking industry‘s market, where customers

continue to increase standards, has resulted in numerous studies on service

performance, service quality, and customer satisfaction among many important

marketing relations variables

2.3 Concept of Customer Satisfaction

In the competitive banking industry, customers are highly sought because an increase

in customer base is a function of competitive advantages. Customer expectation and

perception of service quality influences satisfaction. The importance of customer

satisfaction has been the source of the growing academic and practitioner interest in

the service industry. For this reason, it has also been well researched in marketing

practice and scholarship in the service industry.

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Figure 1.4: Satisfaction Formation

The figure 1.4 explains arrow drawn from expectations to perceive quality that

indicated that perceived quality may increase or decrease directly with expectations.

Perceived quality may either confirm or disconfirm pre-purchase expectation. The

determination of the extent to which perceived quality expectation are disconfirmed

in figure by arrow drawn from expectation to perceived quality to disconfirmation.

Satisfaction is positively affected by the expectation and the perceived level of

disconfirmation that is also shown by the arrow in the figure. Disconfirmation and

perceived quality have a stronger impact on satisfaction( Oliver 1980)

In an attempt to define customer satisfaction, various perspectives have emerged.

Churchill & Surprenant, Riordan, Oliver, & Donnelly: Customer satisfaction

represents the feeling of satisfaction emanating from the perception of service

68

performance that meet customers‘ expectations. In other words, it is the discrepancies

between prior customers‘ expectations and their perception of what is actually

received. Similarly,

Kotler (1999) described customer satisfaction as the outcome of customers‘

comparisons of pre-purchase expectations and post-purchase perception. Baker and

Crompton (2000) conceptualized customer satisfaction as a personal experience and

mentality associated with personal expectation and service actually delivered.

Anderson, Fornell, and Lehmann (1994) viewed customer satisfaction as the

experience customers acquire through purchasing and using a product or service.

The increasingly importance of the concept of customer satisfaction in the retail

banking industry has led to a continuous growth of research in the area of customer

satisfaction, especially in its measurement. Contends satisfaction can both be

conceptualized from an affective and cognitive prism. Customer satisfaction is often

conceived to have direct impact on cognitive evaluation of consumers and affective

responses. Some researchers often employ behavioral responses like repeat purchase,

word-of-mouth, and complaint behavior to study customer satisfaction or feelings

regarding products or services. In an attempt to explain the nature and

operationalization of customer satisfaction

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Oliver (1980) introduced the disconfirmation of expectation model. This model

explains the causal relationship between expectation and service performance, where

customer satisfaction is the function of the causality. Customer satisfaction is

identified to be directly linked to service quality. In this regard, some scholars

consider it as leading to service quality. On the contrary, some have argued that

service quality leads to customer satisfaction. While service quality is considered a

cognitive state, customer satisfaction is conceptualized as an affective state.

Customers‘ willingness to repurchase a service or product is contingent on their

perception of service quality and the continuous flow of value.

Weiner (1986) stated that customers‘ judgments on value have a profound effect on

their perception of satisfaction.He believed that customer satisfaction could be

conceptualized as either an outcome or a process. With customer satisfaction as an

outcome,

Oliver (1997) suggested that customer satisfaction denotes a cognitive and affective

state of being or responses to current consumption experience. With customer

satisfaction as a process, it is believed that customer satisfaction is a function of the

whole consumption process or a specific element of the consumption process,

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resulting in satisfaction. Researchers with an orientation towards aligning of customer

satisfaction with process, focused on perceptual, evaluative, and psychological

aspects of processes that result in satisfaction

In 2000, Lassar, Manolis, and Winsor set out to investigate the effect of service

quality on customer satisfaction using a 22-item SERVPERF instrument designed by

Cronin and Taylor and a 16-item Technical/Functional instrument proposed by

Gronross . The results showed that as the number of service failure encounters

decrease, functional quality impacts on customer satisfaction intensified.

Disconfirmation Theory

One of the most important theories linking customer satisfaction to perceived

service quality is the disconfirmation of the expectation paradigm proposed by

Oliver(1980). He identified the concept of disconfirmation of expectation as the key

to influencing customer satisfaction. In explaining the effect of customer satisfaction

on attitude changes toward pre-purchase intention, Oliver (1982) argued that

customer satisfaction is a dynamic concept and that its dynamism is expressed in the

expectancy disconfirmation model. According to expectancy-disconfirmation model,

consumers usually engage in comparing the expectation they had before purchase to

service performance after purchase. In this regard, expectations of consumers are

conceptualized as at the adaption level and the starting point of consumer evaluation.

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Consumers form expectations, and during consumption, they perceive quality,

resulting in either confirmation or disconfirmation. In describing the effect of

satisfaction on attitude change leading to purchase intention, Oliver stated that

Attitude is the consumer‘s relatively enduring affective orientation for a product,

store, or process (e.g. customer service), while satisfaction is the emotional reaction

following a disconfirmation experience which act on the base attitude level and is

consumption specific. An attitude is therefore measured terms more general to

product or store and is less situationally oriented. The concept of

confirmation/disconfirmation paradigm has been the basis of many quality

management studies in the last decade.

Parasuraman (1994) conceptualized customer satisfaction judgment as the

customers‘ perception of the gap between service performance and customer

expectation. The theory of disconfirmation, which focused on explaining how

customer satisfaction evolves, is based on Helson (1948) adaption theory. Adaption

theory states that two consumers may develop different perceptions of the same

service or product based on experience that changed from neutral point of reference.

This means that a customer who experienced good service may perceive subsequent

performances as mediocre, and a customer who experienced bad service may perceive

subsequent performance as above average. The disconfirmation theory states three

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possibilities: positive, negative, and zero states of disconfirmation. When the service

performance is greater than expectation, positive disconfirmation is said to take place.

On the contrary, where service performance is less than expectation, the situation is

described as negative disconfirmation. Zero disconfirmation is said to occur where

service performance is equal to customer expectation. Therefore, customer

satisfaction is a function of both disconfirmation and expectation. In the same light,

disconfirmation/expectation and disconfirmation theory posit that judgment on

satisfaction is made by the evaluation of the actual service performance

against prior-to-purchase expectation. Expectancy disconfirmation/expectation and

disconfirmation models are explained under two disciplines: organizational behavior.

This theory identifies two states in consumption process. In the first state, consumers

anticipate satisfaction during pre-purchase, and in the second, the satification occurs

after consumption. When the service provided meets the expected satisfaction, it

results in positive disconfirmation. When the service provided is equal to expectation,

it leads to zero disconfirmation, and when it is less than expectation, it results in

negative disconfirmation. The concept of expectation is cardinal to the

operationalization of the disconfirmation model.

Olson and Dover (1979) stated that expectation is the pre-trial beliefs a customer

holds about a service or a product. Therefore, Churchill and Suprenant (1982)

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contended that expectation represents anticipated performance and that performance

in this context represents ―the perceived amount of product or service attribute

outcomes received‖.

In 1997, Oliver, drawing on the disconfirmation paradigm, identified two underlying

forces that drive the expectancy and disconfirmation process in a market:

assimilation and contrast effect. Assimilation theory states that one reduces the

psychological discomfort caused by an unconfirmed expectancy by changing one‘s

perceptions to bring it more in line with expectations. The theory thrives on the

assumption that consumers are not willing to accept and show discrepancies from

positions held previously, and then assimilate judgment towards their initial feelings

for a product, service, or an event.

Swan and Trawick (1981) classified disconfirmation as inferred and perceived.

Inferred disconfirmation describes the difference in customers‘ prior ratings and the

after rating of a service or product consumed. Perceived disconfirmation, on the

contrary, denotes the perception that service performance is greater or less than

anticipated.

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2.4 Critical Incident

Another concept discussed in customer satisfaction literature is critical incident

service encounters. Critical incident takes place when there is an interaction between

a customer and service provider, which leads to either achievement of the aim of the

activity/meeting or creates detraction.

Bitner (1990):- all incidents associated with customer satisfaction and dissatisfaction

can be grouped into three: employees‘ responses to failure of serve delivery; response

by employees to the needs and requirement of customers; and unprompted action(s)

of employees that are not requested by customers. Bitner gathered customers‘

information that affects dissatisfaction and satisfaction under three major critical

incidents and explained these as follows:

1. Employees‘ response to failure of serve delivery: This pertains to the availability

and effectiveness of employees in responding to a failure in a service delivery

situation. Out of the customers studied, 23.3% stated that employees‘ responses

contributed to customer satisfaction, while 42.9% asserted that employee responses

contributed to dissatisfaction.

2. Response by employees to the needs and requirement of customers is identified

as the employees‘ responses to the special request, including errors and disruptive

behaviors. In the study, under this category of critical incident, 32.9% of customers

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believed that employee response influenced satisfaction, while 15.6% believed that

it impacted the level of dissatisfaction.

3. The unprompted action(s) of employees not requested by customers‘ category

means attention paid by employees to customers that is not within the norm. In the

study, 43.8% of customers indicated that they believed employees‘ actions under this

category engendered customer satisfaction, while 41.5% believed it resulted in

dissatisfaction.

From Bitner (1990) study, one gathers that employees must have knowledge as to

how best to deal with critical incidents in order to ensure customer satisfaction.

Employees‘ performances in this regard are seen as having consequential effects on

customer satisfaction. Under the disconfirmation-expectation model, when customer

expectation is lower than the actual service performance, positive disconfirmation

occurs, which may lead to customers staying with service providers. On the contrary,

when expectation is higher than the actual service performance, negative

disconfirmation occurs, leading to customers switching to alternative providers.

Customer switching has also been the subject of academic interest in service

marketing. Switching behaviors have been examined under grounded theory.

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According to Strauss and Corbin (1990), this involves a detailed analysis of

information gathered on variables associated with customer behaviors to determine

how they are interrelated.

Keaveney (1995) identified eight causes of customers‘ dissatisfaction: pricing;

convenience; core service failures; failure in service encounters; service failure

response; competition; ethical issue; and involuntary switching.

Previous studies have linked customer satisfaction to performance. In 1999, a study of

800 Sears Rebok stores revealed that as employee satisfaction increased by 5%,

customer satisfaction rose by 1.3% and revenue increased by 5% (Treytl, 2002).

Brown and Mitchell (1993) studied 52 branches of large saving banks in the US and

found a significant correlation of customer satisfaction and employee satisfaction

variables, such as work environment, teamwork, atmosphere, and access to

information on timely basis. Improvement in service performance because of

employee satisfaction may lead to a provision of quality service, which then leads to

customer satisfaction. Some researchers have attempted to measure customer

satisfaction using the service quality gaps model.

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2.5 Concept of Service Performance

Retail banks are increasingly challenged to deliver service quality to meet the ever-

growing and ever-evolving customer expectations. Prior service marketing literature

has shown that customers evaluate service quality by comparing their perception of

actual service performance with their expectation of the service performance formed

from their service experience. There is no universal definition of service performance

despite the growing need for research in this area. Nevertheless, in service literature,

the importance of service performance has been emphasized. Performance construct

has been found to be a critical driver of success of any service-oriented and human

encounter organization, such as a retail bank.

Bloemer, Ruyter, & Kar, 2000: customers base their choice of bank on the potential

of a bank to deliver service quality to meet their expectations. Therefore, service

quality delivery has become the differentiator of one bank from the others. Delivery

of high quality service results in repeat purchase, customer retention, an increased

market share, a competitive advantage and ultimately an increase in profitability.

Poor or low performance, on the other hand, results in a loss of market share as a

result of customer defection. Bloemer, Ruyter, and Kar (2000) identified a correlation

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between service quality, customer satisfaction, and loyalty. In this regard,

organizations are focused on increasing their performance to harness the benefits that

come with it, that is, competitive advantages and profitability

Leonard & Sasser and Rabin : The growing demand on retail banks by customers

to deliver high quality service has been on the ascendancy since the 1980s,

heightening both academic and practitionerinterest in service marketing scholarship.

With sophisticated customers and increased bank disloyalty, service performance is

increasingly becoming important, but it is also a complex issue. To conceptualize

service performance, many models have been proposed, including service profit chain

model. The service profit chain is one such model to conceptualize service

performance and to align it to constructs, such as service quality, customer

satisfaction, customer loyalty, and profitability. The service profit chain model

emphasizes the role of the employee component of the service performance construct

in any service organization

2.5.1 Service Profit Chain Model

The service profit chain provides the conceptual framework for understanding the

link between the service performance of employees and profitability, customer

loyalty, employee satisfaction, loyalty, and productivity. It also offered an

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explanation of the quantitative link of employees‘ perceptions of service

performance, customer, satisfaction, and profitability. Under the service profit chain

model, profit and growth are conceived to be influenced primarily by loyalty of

customers. Customer loyalty is also driven by customer satisfaction resulting from

customers‘ perceived values emanating from employees performance.

In supporting the concept of the service profit chain model,

Anderson (2006) identified employees to be critical drivers of organizational

performance, customer loyalty, and increased market share. Customer satisfaction is

said to emanate from interactions between service employees and customers.

Therefore, favorable interaction influences repeat purchase, loyalty, and profitability.

Gelade and Young (2005): customers play a mediation role between employees and

the financial performance of a service organization. Employee attitude toward

customers also plays important role in shaping customers‘ perceptions of service

quality. Positive employee attitudes and behaviors are found to result in high quality

perception, and negative employee attitudes are a source of low quality perception.

Heskett identified the perception of organizational policies, practices, and culture as

driving employees‘ behavior during service interaction. Mixed results have emanated

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from testing the service profit chain model. In a study of six hotels using the service

profit chain model.

Spinelli and Canavos found a link between employee satisfaction and guest

satisfaction. They indicated that employees responded favorably to teamwork,

decision-making processed, and guest appreciations, but were not satisfied with

money related issues, emphasizing the important role of employee morale in

satisfaction. For guests, they favored courtesies, competence, and timeliness.

Contrary to the proposition of the service profit chain model, in an exploratory study

in the UK.

Abbot (2003): found employees still worked hard to ensure customer loyalty and to

increase profits, even with low morale. This suggested that employee satisfaction is

not the only factor influencing service quality delivery.

In order to help businesses deal with employee productivity, in the 1980s

Gronroos (1983) and Berry (1983) developed the internal marketing concept as a

way of promoting a customer-centric workplace culture in service organizations. This

concept posits that to promote a customer-centric work place environment, senior

management,supervisors, and team members must first treat employees as internal

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customers of the organization. In this regard, employees‘ needs must be provided

before considering those of the external customers.

Piecy and Morgan (1991) identified some of the needs of employees to include

information, training, support systems, and educational opportunities.

Foreman and Money (1995) identified the primary possible transactions between an

organization and employees as employee development, reward, and provision

of a clear vision aligned to organizational objectives.

The internal marketing concept proposed that to ensure service quality and

customer satisfaction, strategically banks must first strive to deliver service

performance that meets the needs of its employees (internal customers) in order to

position itself for meeting the expectations of external customers. When internal and

external customers are satisfied then the firm can generate new business. In support of

this proposition.

Berry (1991) stated that an organization should first be an internal supplier to its

employees.

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According to Heskett (1994), service quality is employee-driven and directly

impacted by the human resource practice of organizations. Employee attitudes shape

customers‘ impressions about an organization. Since service is delivered through

frontline employees, who serve as the link between a firm and customers, any

increase in the performance of employees impacts service quality.

As the service quality literature grows, service performance is consistently found

to be an important factor in determining customer satisfaction. In lending support to

the proposition that employees are critical instruments for ensuring customer

satisfaction.

Bowen, Gilliland, and Folger (1999) contended that employees have the tendency

of treating customers similar to the way managers and supervisors treat them. Despite

the fact that many studies exist in service marketing attempting to explain

the importance of the employee construct to service quality, service performance,

customer satisfaction, and profitability, little have focused on linking performance to

quality using both banker and customer perceptions in developing economies. This

has created a vacuum that needs to be filled. The gap model of service quality and the

service performance gap model used in this study relied on customers‘ expectations

and actual service performance to define quality. Therefore, to understand the

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extended relationship model, there is the need to understand the concept of

expectation.

2.5.2 Expectation

Zeithaml(1993): Expectation is the perimeter or standard by which future

performance is evaluated. Therefore, with expectation being constant, actual service

performance is compared to determine service quality.

Figure 1.5 Dynamic model of expectations

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The following model is presented for dynamics of expectations:

Fuzzy expectations exist when customers expect a service provider to solve a

problem but do not have a clear understanding of what should be done

Explicit expectation are clear in the customers‘ minds in advance of the

service processes. They can be divided into realistic and unrealistic expectations:

Implicit expectation refer to elements of a service which are so obvious to

customers that they do not consciously think about them but take them for granted(

Gronroos, 2000, 89 f )

In the case of services:

1. Fuzzy expectation may easily prevail and run a high risk of being

disappointed. Customers with fuzzy expectations must be helped by the provider to

make their expectations explicit. This may also happen without the provider‘s

intervention, as a result of user‘s learning process, but this may lead the user to quit

the relationship or to substitute unrealistic for fuzzy expectations.

2. Explicit expectations are likely to be unrealistic, due to their innovative or

experimental character. These expectations must be rapidly brought to realism.

3. Implicit expectations may become relevant when they are not fulfilled: e.g.

the user may incorrectly expect that the support service is free of charge. Implicit

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expectations should therefore made explicit and it must be clarified whether they are

realistic or not

According to Montfort (2000): customers‘ expectations are formed based on

internal or external cues. With the internal cue based expectation, experiences with a

service provider shape expectation. External cue base expectation, on the other hand,

is shaped by other factors like word-of mouth and communication from a market. As

a standard of comparison, expectation could take the form of a normative or

predictive desire or want. The concept of expectation plays significant role in the

operationalization of service quality and the service performance gap model.

2.5.3 Service Performance Gap Model

The service performance gap model has its antecedent in the original work of

Parasuraman focused on the gaps between customers‘ perception of actual service

delivered and expectations (expectations-perceptions service gap). The service

performance gap model is built on the assumption that customers know what service

providers must provide from prior service experience. This knowledge shapes their

expectations. When service is delivered, then customers compare the quality of the

service delivered to their expectations. If the actual service is below expectations then

there is service gap. People-intensive, interactive organizations like retail banks are

pruned to the threat of the service performance gap. Therefore, in retail banking,

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employees are considered key to their service quality delivery. In service encounters

with customers, frontline employees mannerisms, behaviors, moods, appearance, and

even language influence customers‘ perceptions of service quality. As part of their

service quality studies since 1983, Parasuraman identified five gaps likely to occur

during service encounters.

The first gap relates to the discrepancy between customer expectations and

bankers‘ perceptions of customers‘ expectations.

Zeitaml et al. (1988) found that often management does not understand what level of

service quality meets the expectations of consumers. Management may also lack

knowledge of what attributes a service must have to meet the expectation of

customers. Moreover, management questions may focus on what level of

performance is needed to provide quality service to customers. Marketing research is

advocated to fill this gap between management‘s perceptions of customer

expectations and consumers‘ expectations. In most cases, service oriented

organizations like banks put more emphasis on improving the efficiency of the

productive process to the detriment of meeting customer expectation. To reverse this

trend, there is the need for market research.

The second gap relates to management‘s perception of service quality and its

inability to set proper service specifications. Management‘s focus on

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profitability and the quest for cost reduction in the short-term may be the

source of this gap. To fill this gap, it is expedient for managers emphasize

standards and specifications. This also involves a managerial strive to develop

the ability to meet standard and specifications.

The third gap emanates from employees‘ inability to perform up to the set

standards. Therefore, this gap is the discrepancy between employees‘ performance

and the specification or standards set by management in a given productive

circumstance.

To fill this gap, Parasuraman (1985) identified seven theoretic constructs responsible

for the third gap: teamwork, employee-job fit, technology-job fit, perceived control,

supervisory control systems, role conflict, and ambiguity.

The fourth gap is the discrepancy between service and external

communication. This gap emanates from promising performances that are not

realistic, especially through advertisements. This gap also results from a lack of

a functional communication link between departments that need to liaise to

offer services to consumers. In order to remedy this situation in retail banking,

front and back offices needs to have effective communication links both

internally and externally.

The gaps model is important because it enable banks to make a determination as

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to how to fill the four gaps to balance customer expectation with the perception of

service performance. While the four gaps are mainly related to internal factors, the

fifth gap is mainly external.

The fifth gap is created as a result of occurrence of all the four internal gaps

due to lack of functional communication link. The focus of this study was an

investigation of the factors responsible for the size of the third gap. The

outcome of the study is anticipated to contribute to literature attempting to

explain the correlation of employee performance and service quality.

It is often conceptualized that customers evaluate service quality by comparing

their expectation of service performance with the actual service delivered to them.

When there is discrepancy between customers‘ expectations and service performance,

gaps are created. This is the foundation of the service performance gap model, which

explains the performance gaps between customers and the frontline employees of an

organization ( Parasuraman, 1988). The third gap, as the service performance gap is

often called, emanates from employees‘ inability to perform up to standard. When the

service performance gap occurs, it means that there is discrepancy between

employees‘ performances and the specification or standards set by management in a

given productive circumstance.

To fill this gap, Parasuraman identified seven theoretic constructs responsible for the

size of the third gap, and these are explained as:

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1. Teamwork. This antecedent related to group cohesiveness, commitment, and

willingness to participate in the decision-making process.

2. Employee-job fit. This construct relates to employees‘ capabilities in undertaking

job related responsibilities.

3. Technology-job fit. This refers to the appropriateness and availability of the

technology required by an employee to perform the assigned job.

4. Role conflict. This is the discrepancy between the expectation of managers and

customers and the employees‘ expectation of their inability to meet the expectation.

5. Perceived control. This antecedent refers to the how employees react to and

handle stress in an organization.

6. Supervisory control systems. This antecedent relates to the process of measuring

employees‘ performances.

7. Role ambiguity. This occurs when employees lack critical information in order to

perform effectively.

Zeithaml (1990) further contended that service quality is highly dependent on the

efficiency of the antecedents of service performance. On the contrary, Parasuraman

identified only teamwork as being correlated to service quality. In addition, in

general, performance is conceptualized as a driver of organizational objectives.

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In the 21st century, organizations in various industries, including hotel and education,

have focused on increasing performance as a way of providing service quality,

satisfying customers, and increasing profits. The need to use service quality as a

vehicle to increase competitiveness has been considered prudent, propelling

managerial interest in the drivers of performance. Marketing researchers‘ quests to

study the link of service performance factors to service quality related variables have

resulted in mixed conclusions.

Schlesinger and Heskett (1991) employed the service profit chain framework to

explain the effect of human resource factors on service marketing and organizational

profits. They reported that the Forum Corporation‘s study revealed that only 14% of

customers discontinued their loyalty after dissatisfaction with service performance.

This finding confirmed Parasuraman et al. (1984) observation that customers exercise

judgment of service quality based on a comparison of expectation and actual service

performance. Along the lines of this observation.

Parasuraman (1984) defined a set of gaps between executive or management

perceptions of service delivered and that of customers. They rated the customer

perception of service quality from ideal to unacceptable, and suggested that the rating

depended on whether customers‘ expectations were being shorted or exceeded.

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Based on Parasuraman findings, Zeithaml identified five dimensions of service

quality: tangibles, reliability, responsiveness, assurance, and empathy. These

dimensions have been incorporated into the SERVQUAL model, which is widely

used in service research. Schlesinger and Heskett found the tangibles dimension to be

the least important to customers, while reliability rated the highest. Other researchers

(Fornell; Ittner and Larcker) linked the service quality construct to customer

satisfaction and financial performance.

On the contrary, some researchers hold the view that financial performance, service

quality, and customer satisfaction are not always correlated, and even in some cases,

may have a negative correlation. The contradictory positions held on the effect of

these constructs led to an attempt to offer a mediating perspective. This centrist view

identifies customer satisfaction as the fulcrum that links performance to service

quality.

The different perspectives on the relationship of performance, quality, and

satisfaction can be attributed to the fact that unlike manufacturing and distribution of

physical products, service delivery is unstructured and non-routine. The difference in

delivery processes emanates from the fact that service embodies characteristics, such

as intangibility, simultaneous production, and delivery, as well as customer

participation. In some business environments, service quality delivery has been found

to be less important to customers than other issues. To provide service quality, it is

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important to understand the level of performance that meets the customer‘s

expectation of service quality. Therefore, research on performance just like quality

has become necessary to achieve this goal.

Marketing literature‘s attempts to measure service quality in terms of performance

Which has been given attention because of its correlation. Some scholars have

identified employees‘ attitudes towards internal dynamics as an important metric of

customer perception of service quality in a marketplace. Other scholars like Berry,

Chase & Garvin, also found teamwork among employees to be instrumental in

providing a quality service for customer satisfaction. Therefore, employee attitude

and teamwork have casual effects on performance.

To define service quality, both Gronross (1982) and Parasuraman (1988) referred

to it as the difference between what customers expect from service providers (i.e.,

expectations) and the perception of service performed. Where there is discrepancy

between the perception of service providers of service quality and perception of

customers of service quality, a service performance gap is said to be created

The performance and quality gaps concept has formed the theoretic basis of many

researches in service marketing scholarship within the last two decades.

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Parasuraman: pioneering work conceived the discrepancies between service

performance and service expectations to manifest in five gaps or service quality gaps

related to: information and feedback; design; implementation; communication; and

customers‘ perception and expectation. This concept explains the link of performance

to service quality as it postulates that the provision of service quality is contingent on

service performance, employees, and delivery systems. Performance is a yardstick

that can be used to measure the level of quality of service of an organization.

Knowledge of the relationship between service performance gap, service quality, and

customer satisfaction constructs has been crucial for strategic marketing planning in

retail banking. Therefore, it is prudent for retail bankers to understand what level of

service performance may meet the expectation customers to engender satisfaction and

repeat purchase.

The use of the gaps model in measuring service quality and performance has become

popular among scholars and practitioners. Thinking similarly,

Gronroos (1982) contended that normally in evaluating service, quality consumers

compare their expectation of service to the perception of the service they received in

an interaction, and he recommended that management pays attention to the gaps in

measuring quality.

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Sasser, Olson, and Wyckoff (1978) perceived service quality as involving more than

an outcome and identified three dimensions of service performance: level of

materials, resources and facilities, and employees. On this basis, they further

contended that service quality depends on the way it is delivered, bringing the idea of

performance to the fore.

In the marketing literature, the concept of service performance has been identified

as a component of disconfirmation, which is modeled as a predictor of satisfaction. In

this regard, disconfirmation has been found to relate to service performance construct

in a significant way. One concept that links service performance to service quality is

the value-percept diversity. This means that customers are more satisfied when the

quality of the service provided to them meets their expectation.

According to Johnson (1998): when customers are satisfied with the quality of

service, they may require more, propelling the need for bankers to increase

performance to meet their expectation.

This has led some scholars to anticipate and conclude that service performance and

customer satisfaction are positively correlated. Therefore, measurement of the

performance of an organization with regard to service quality and customer

satisfaction enables management to formulate and implement strategic marketing

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programs. In research on service performance, research methodologies differ

significantly.

Measuring service performance has gained prominence because it has been identified

as vital in ensuring customer service and gaining competitive advantages. Also, since

service performance is significantly correlated to customer satisfaction, measuring

performance allow banks to deal with complaints from customers about services they

receive.

Tucker (1994) summarized methodologies and findings of past major studies on

service performance and one of the major metrics related to customer service and

performance are the data envelopment analysis. This is a nonparametric quantitative

analytical index for estimating and evaluating productive efficiency to understand

performance.

In the service industry, comparing expectation to actual service performance provides

the best measure of satisfaction.

Chen and Yang (2000) proposed the service performance index, which involved

observation of the number of complaints a firm receives from its customers in order

to generate a reliable index value.

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2.5.4 The Link between Service Performance and Service Quality

The relationship between service providers and customers thrives and is enhanced

by the perception of service quality in the banking industry. Customers expect banks

to provide a quality service for their satisfaction. In the retail banking industry, it is

important for banks to know their customers‘ perceptions of service quality in order

to influence their purchasing behavior. People normally deliver retail banking

services, even if electronically. Therefore, service quality delivery depends on

employees‘ capabilities and performance. Poor employee performance impacts

negatively on customers‘ perception of service quality. On the other hand, excellent

performance positively impacts service quality.

Employees‘ performance varies, even for the same employee on different

encounters of service to customers. According to role theory, an important

determinant of service delivery process is the congruence of employee and consumer

role behaviours.

The attempts to conceptualize and operationalize service performance have resulted

in the availability of models of performance measures. Some of the models including

the service profit chain and service performance gaps model adopted and

incorporated customer outcomes like customer perception of service quality,

customer satisfaction, and customer perception of organizational performance. In

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modern retail banking, there is high-level interaction between customers and the

bank‘s staff, which makes customers‘ perceptions of service quality an important

metric of performance.

The disconfirmation paradigm links service quality to service performance.

According to Oliver (1980), the concept of disconfirmation holds that customers

have the tendency to compare their expectation to performance to determine

satisfaction. Performance that meets customer expectations is confirmed, while

performance that exceeds expectation is positively confirmed. On the other hand,

performance that is below expectation is negatively confirmed.

2.6 Summary

Prior literature continues to emphasis the need for research to be conducted into

the effect of service performance on service quality for strategic planning. It is also

obvious that the competition prevailing in the retail banking industry will continue to

grow. To meet the expectations of customers by delivering excellent service,

managers need to know the perception of their customers of service performance.

Research also demonstrated the real need for retail banks to adopt the relationship

marketing model, which is less costly and profitable. Literature showed that there is a

link between service performance, service quality, customer loyalty, competitive

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advantages, and profitability. However, the relationship is conceptualized and thrives

on information on the customers‘ perceptions of service performance and service

quality. Service organizations continue to search for ways to understand customers

and to promote long-term relationships.

The service performance gap model has been applied in many industries and

settings, but it has not been widely applied in non-Western countries. Therefore, there

is the need to extend its application to less sophisticated market outside the West,

such as the Indian banking industry. The following chapter explains the methodlogy

adopted for this study.

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CHAPTER 3

METHODOLOGY

This part will provide the conceptual framework based on Literature review. This chapter will

explain the key factors, variables and relationships among theories and models and provides a

theoretical overview; also this chapter will present detailed idea about how the research will be

conducted. This includes research questions, hypotheses, sample selection methods,

measurable variables, data collection methods and data analysis methods.

3.1 Research Purpose

This dissertation investigated the Service Quality in the Indian retail banking

industry. The research questions addressed in this study were:

1. In the Indian retail banking industry, what is the perception of customers of the

relation of service performance and service quality?

2. In the Indian retail banking industry, what is the perception of bankers of the

relation of service performance and service quality?

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3. In the Indian retail banking industry, is the perception of customers of service

performance different from that of bankers?

4. What are the significant antecedents of service performance gaps influencing

service quality attributes in the Indian retail banking industry?

5. In the Indian retail banking industry, what is the difference in perception of

service performance of private and government-owed?

3.2 Hypothesis

Customers normally have expectations of service, which are developed from

experiences of previous service performance acquired during encounters. Based on

the conception of customers‘ expectations, Zeithaml (1988) defined service quality as

the difference between service expectation and actual service performance. Where

there is lack of equilibrium between customers‘ performance expectations and the

perception of the actual performance of a service provider, service performance gaps

are said to be created. Service quality under this model is considered a function of the

gaps, implying that the wider the gaps, the lower the quality of service and vice versa.

Berry (1988) attributed the service expectation performance gap to a

misunderstanding between what management think are customers expectations and

what customers actually expect.In some cases, management may understand customer

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expectations and specifications,but the actual service can still fall below expectations,

creating service performance gaps. This situation may emanate from employee-

related factors in service delivery. Drawing on the conception of employees as a

critical factor in meeting service quality expectations, Zeithaml identified seven

constructs or factors influencing service performance gaps in an organization:

teamwork, employee job-fit, technology job-fit, perceived control, supervisory

control systems, role conflict, and role ambiguity.

In the retail banking industry, customers normally expect service to have certain

attributes in order to meet their specifications. The services bankers deliver to

customers may or may not meet customer specifications, resulting in disconfirmation.

To understand the relation of service performance and service quality, this research

involved testing dependent variables of customers‘ perceived specifications, bankers‘

perceived specifications, and the resultant service performance gaps against the

independent variables of antecedents of the service performance gaps of teamwork,

employee job-fit, technology job-fit, perceived control, supervisory control systems,

role conflict, and role ambiguity.

Huang (2004) tested the relationship between these antecedents (independent

variables) against dependent variables of customers‘ perceived specifications,

bankers‘ perceived specifications, and the service performance gap using data from

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the Taiwan banking industry. The result was mixed and inconclusive as she identified

a number of limitations and suggested further testing of the service performance gap

model in different businesses or cultural settings.

Since this research similarly investigated the relation of service performance and

service quality using data from Indian retail banking industry, the independent

variables of teamwork, employee job-fit, technology job-fit, perceived control,

supervisory control systems, role conflict, and role ambiguity can be tested against

the dependable variable of service specification (as in Huang, 2004). This test was

conducted under the assumption that where there is or is not a service performance

gap, it can be explained by trust and commitment or lack of them in the service

delivery process

Trust is an antecedent of commitment, which is important in relationship marketing.

Based on commitment/trust, exchange and role theories, the influence of the

independent variable on dependent variables and vice versa suggested the below

Hypothesis for this study:

Ho1. In the Indian retail banking industry, customers do not perceive or negatively

perceive a link between the antecedents of service performance gaps and service

quality.

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Ha1. In the Indian retail banking industry, customers perceive or positively perceive a

significant link between the antecedents of service performance gaps and service

quality.

Ho2. In the Indian retail banking industry, bankers do not perceive or negatively

perceive a link between the antecedents of service performance gap and service

quality.

Ha2. In the Indian retail banking industry, bankers perceive or positively perceive a

significant link between the antecedents of service performance gaps and service

quality.

Ho3.The perception of bankers of service performance is not different from the

perception of customers of service performance in Indian banking industry.

Ha3.The perception of bankers of service performance is different from the

perception of customers of service performance in Indian banking industry.

Ho4. In the Indian retail banking industry, there is no link or negative link of the

antecedents of service performance and perception of bankers and customers of

service quality.

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Ha4. In the Indian retail banking industry, there is significant link or positive link of

the antecedents of service performance and perception of bankers and customers

of service quality.

Ho5. In the Indian retail banking industry, there is no significant difference in

perceptions of service performance of private and government-owned banks.

Ha5. In the Indian retail banking industry, there is significant difference in

perceptions of service performance of private and government-owned banks.

To test the five Hypothesis and to answer the research questions, the service

performance gaps model developed by Parasuraman, with certain changes was

employed.

The service performance gap model explains the discrepancies between what

customers‘ expect and what they actually receive from service providers. Therefore,

the methodology of this research was conceived along the postulations of the model.

Owing to the uniqueness of the research and the unavailability of empirical data

on the Indian retail banking industry, a quantitative methodology was considered

suitable for data collection. Considering the postulations of the service performance

gap model, as reflected in the literature review, a quantitative survey was considered

an appropriate design. The choice of quantitative method was motivated by the fact

that it allows generalization and provides a lens for presenting a broader picture of a

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given population. A quantitative method was chosen because it has the potential of

yielding the most relevant and reliable data for testing correlations of the scalable

dependent and scalable independent variables in a study. Moreover, a quantitative

survey allows the use of statistical tools, such as SPSS, for analyzing the relationship

between independent and dependents variables in order to test the Hypothesis and

answer the research questions.

An instrument proposed by Parasuraman et al. (1990) and widely used in many

service quality and service performance researches was adopted for data collection.

The demographic section of the instrument was slightly modified to include questions

on whether a bank was private or public. This change was to allow the collection of

data to match the broad scope proposed in this research. For clarity, the questions on

the five service quality dimensions were highlighted.

The adoption of the instrument was considered appropriate as the research model

and the questions of interest required collection of data along the five dimensions of

service quality – tangibles, reliability, responsiveness, assurance, and empathy by

Parasuraman– and the seven antecedents of service performance gaps – teamwork,

employee-job fit, technology-job fit, role conflict, perceived control, supervisory

control systems, and role ambiguity.

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Huang (2004) determined the effect of service performance on service quality by

testing the relationship between independent and dependent variables associated with

the two constructs. This study used a similar approach by testing the relationship

between the dependent variables of customers‘ specifications, bankers‘ specifications,

and the service performance gap against the independent variables of the seven

antecedents of service performance gap using quantitative data. The results of the

analysis of the quantitative data helped in testing the Hypothesis and answering the

research questions. The validity and reliability of the adopted instrument has already

been assessed in many service industries, cultures, and settings; therefore, a pretest

was not conducted to test validity and reliability of the instrument.

One of the reasons given by Huang (2004) for the focus on the Taiwanese banking

industry was the growing competition within the industry. Similarly, the Indian

banking industry has witnessed heightened competition, rationalizing extension of her

study. It was envisaged that the result of the test of the two categories of variables

would provide useful insights into how factors associated with service performance

gaps influence service performance and the perception of service quality in the Indian

retail banking industry.

The choice of constructs for this research was informed by the fact that a bank is a

service-oriented organization that relies on the performance of its employees and

management to provide service quality for its customers‘ satisfaction. In a bank,

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employees are the most valuable instruments for ensuring the provision of a quality

service for its customers‘ satisfaction. Also, in a competitive banking environment,

employees‘ performances play significant role in firms‘ efforts at gaining competitive

advantages. When service oriented organizations put their employees and customers

first, a radical shift is likely to occur in the way success is measured in the marketing

process. They believe that employees‘ loyalties drive performance and that

employees‘ satisfaction drives loyalty. Where there is increased competition,

employees are relied upon to improve service quality through performance for a firm

to gain competitive advantages. The service profit chain

model represents the framework, which links service performance and employees, as

well as customers‘ assessments of quality to a firm‘s profitability.

The service performance gaps model proposed that service performance should be

measured against customers‘ expectations in order to determine service quality.

Customers‘ expectations encapsulate specifications of wants or needs that are

compared to actual service delivery.

The rest of this chapter discusses the research design, measurable variables, the

sample, survey instrument, validity and reliability, data collection procedure, and

analysis associated with this study.

108

3.3 Research Design

Research design can be likened to a kaleidoscope meant to unearth a ‗different

reality‘ based on the way it is used. Any change in the way a methodology is applied

impacts the outcome. As depicted in the literature review, customers are the most

important source of attestation of the service quality of their banks. Bankers can also

attest to service performance of their banks. However, perceptions between bankers

and customers may differ on variety of grounds. To align the perceptions of

customers and bankers on services, it is expedient to link service performance and

service quality using customers‘ and bankers‘ opinions. Therefore, data for this

research was collected through a survey of both bankers and customers.

To test the Hypothesis and answer the research questions, the study was designed

to measure the relation of the independent variables or antecedents of service

performance gaps and the dependent variables or service specifications from

customers‘ and bankers‘ perspectives. To measure service performance and its

relation to service quality, it is expedient to collect information from both customers

and bank employees. For this reason, two sets of self-administered survey

questionnaires were used for collecting the opinions of both customers and bankers

on the services of their banks. Through conducting qualitative studies, Parasuraman

(1990) designed statements with scales for rating the antecedents of service

performance gaps, service quality, and service specifications. This instrument was

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adopted with the authors‘ permission to collect the perception of customers and

bankers of service performance and service quality.

3.4 Measurable Variables

Through an empirical study, Parasuraman (1990) found service performance

gaps to have a significant influence on the service delivery process. Service

performance gaps, defined as the discrepancy between service expectation or

specification and the actual service delivered is found in previous research to be

influenced by several antecedents. To determine the relationship between service

performance and service quality constructs, customers‘ perceived specification,

bankers‘ perceived specification, and service performance gap (dependent variables)

were measured against teamwork, employee-job fit, perceived control, supervisory

control systems, technology-job fit, role conflict, and role ambiguity (independent

variables). The use of the methodology proposed by Parasurama has been previously

proved to be effective and reliable in measuring the correlation of the antecedents of

service performance gaps and service quality dimensions. The independent and

dependent variables measured in this study are discussed in

detail in the next section.

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3.4.1 Independent Variables

Teamwork

Teamwork is the collective action of individual employees in an organization

geared towards the attainment of common goals. Teamwork has become a crucial part

ofworking culture in the banking industry. According to Parasuraman (1990),

teamwork involves employees working together and liaising with management with a

sense of commitment to ensure the attainment of the goal of the organization. In the

absence of teamwork, service performance gaps are likely to be created. Previous

researchers have already tested the effects of teamwork on service delivery. Similarly,

in this study, teamwork as an independent variable is measured against service quality

dimensions using a multi item scale based on 5-point Likert scale rated from strongly

disagree to strongly agree.

With the service performance gap instrument, bankers and customers were asked to

describe their feelings of teamwork at the banks where they do business. Therefore,

teamwork was operationalized as an antecedent of service performance gaps.

Employee-Job Fit

Employees-job fit refers to the skills, ability, fitness, and motivation of employees

in an organization. Job-fit can be acquired through training, education, and

experience. Employee-job fit has been found to have significant effect on service

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performance and service quality. In this study, employee-job fit was measured as an

independent variable against the dependent variables of service quality specifications

and service performance gaps using data collected on a 5-point Likert scale, rated

from strongly disagree to strongly agree as proposed by Parasuraman(1990). The

focus of the measurement was to establish how job fit impacted performance-

expectation gaps.

Technology-Job Fit

Technology-job fit refers to availability or otherwise of the needed technological

expertise or equipments employees need to perform their responsibilities effectively.

Corbett et al. (1989) found a causal relationship between advanced technology, job

satisfaction, and commitment. In this study, technology-job fit was defined as an

antecedent of service performance gap and was measured based on a 5-point Likert

scale rated from strongly disagree to strongly agree. This measurement was purported

to determine benefits accruing from the use of technology on the perception of

bankers and customers on the service performance and service quality.

Perceived Control

Perceived control relates to employees‘ abilities to manage stressful situations.

Control is crucial to the performance of an organization. Organizational ethics, rules,

112

principles, and procedures are enforced through control. Sustenance of the

organizational culture necessary for attainment of organizational goals is based on

sound control system. Control as an antecedent of service performance gap is

important for the success of service-oriented organizations.

Sepector (1986) conducted a meta-analysis of studies related to perceived control and

19 employee outcome variables. It was found that perceived control has positive

effect on level of job satisfaction, commitment, involvement, performance, stress,

absenteeism, and turnover. In this current study, perceived control as an independent

variable was measured using a 5-point Likert scale, rated from strongly disagree to

strongly agree.

Supervisory Control Systems

Supervisory control systems are instrumental in ensuring that work is performed

effectively. Empirical evidence and research have shown that with effective

supervision, employees assume greater roles and are inclined toward working for the

attainment of organizational goals. In a work environment where supervisors are

considerate, effective role conflict and ambiguity are reduced and job satisfaction is

promoted. As Parasuraman (1990) found, the supervisory control systems antecedent

although, has no direct effects on service performance but it is instrumental in

promoting a sense of commitment of employees to the goal of the organization. Like

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other antecedents or variables, Parasuraman (1990) designed 7-point Likert scale

rated from strongly disagree to strongly agree that was employed in this study to

examine the importance of supervisory control systems in service oriented industries

but with a change, 7-point likert scale was cut to 5- point Likert scale.

Role Conflict

Role conflict relates to conflictual issues at workplace as a result of different and

incompatible roles of employees at the same time. Role, when clearly defined and

assigned, can enhance productivity and efficiency. Where there are role conflicts,

employees are likely to leave their job, and where role is well defined, employee

retention is high. Parasuraman recommended this be measured on a 7-point Likert

scale rated from strongly agree through strongly disagree.

Role Ambiguity

Role ambiguity refers to a lack of clarity and comprehension of the role and

behavior of employees on the assigned task to be performed. Role ambiguity arises

when there is lack of clarity on the role of employees and management. According to

when there is obscurity on the roles of employees on the process of achieving a level

114

of performance, role ambiguity occurs. Role ambiguity was measured using

Parasuraman et al.‘s (1990) 5-point Likert scale rated from strongly disagree to

strongly agree to ascertain the link of role ambiguity of frontline employees

stakeholders, including customers, supervisors, co-workers, organization, and other

managers and service quality personnel.

3.4.2 Dependent Variables

Customers Perceived Specification

In the 21st century, delivery of excellent and superior service quality has become

fundamental to the success of retail banking. Customers are prudent and resentful in

paying for a service that does not meet their expectations. Banks need to meet or

exceed customer expectations in order to create the customer loyalty necessary for

increasing competitive advantages. This behavior of customers is well explained

under the disconfirmation theory in the literature review section. Therefore, bankers

need to be aware of expectation-consciousness of consumers. Customer expectation

or service quality specification can be understood through the measure of customers‘

perception of service. When the perception of customers of service is known, they

can then be influenced to value of the service relative to the cost found value to be a

higher order construct than quality. According to Schneider and Bowen (1995)

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Customers bring a complex and multidimensional set of expectations to the service

encounter. Customers come with expectations for more than a smile and handshake.

Their expectations include conformance to at least ten service quality attributes (i.e.,

Parasuraman et al.‘s 10 dimensions—reliability, responsiveness, competence, access,

courtesy, communication, credibility, security, understanding, and tangible). To

determine customers‘ expectation from retail banks, their perceived specification was

measured on a 5-point Likert scale rated from strongly disagree to strongly agree.

Bankers’ Perceived Specification

In a competitive environment, offer of a quality service is instrumental to gaining

competitive advantage. Zavvos (1989) identified that dissemination of the

information from banking services has resulted in an increase in customers‘

expectations. However, bankers‘ specifications differ from that of customers. It is,

therefore, expedient for bankers to focus on the increasing expectation of customers

to gain a competitive advantage. Bankers perceived specification was measured using

5-point Likert scale rated from strongly disagree to strongly agree to evaluate bankers

perception of service quality.

116

Service Performance Gap

Zeithaml (1988) defined service performance as the difference between service

specification and service delivery. According to Parasuraman (1990), the service

performance gap is significantly correlated to delivery of service, which has impact

on service quality. At each encounter with bankers, customers evaluate the encounter.

The service performance gap identified is then used to strategize toward provision of

service quality in the future. This variable was measured by calculating the

discrepancy between bankers‘ and customers perceptions‘ of service performance.

3.5 Sample

This research investigated the relation of service performance and service quality in

the Indian retail banking industry. For this reason, the targeted population for the

survey was 517 customers and bankers of 2 selected retail banks operating in India.

For each of the selected banks, 250 bankers and customers were randomly targeted to

fill in a questionnaire indicating how they perceived their banks‘ service quality and

service performance variables.

Choice of sample frame was motivated by convenience and the researcher‘s

judgment. The number of banks selected for this study was proportionately taken as

two. Out of all private and Public sector banks only HDFC Bank and State Bank of

India was taken into account.

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Valid completed questionnaires were only of those of customers who had been with

their bank for at least a year, and with bankers who had worked for their bank for at

least a year and performed identical functions.

Sampled Banks

HDFC Bank Ltd.

State Bank Of India

3.6 Setting

Data for this research was collected from the Indian Retail banking industry setting.

The banks face similar competition and compete among themselves for new

customers and retention of old customers. The banks market the same

service/products and operate under the same banking regulations and similar market

conditions.

3.7 Instrumentation/Measures

As indicated earlier, the survey instrument originally proposed by Parasuramanan

(1990) was for data collection. Various researchers in different settings have

previously and reliably used same instrument. The only slight modification was the

inclusion of a question on whether banks are private or public (see Appendix B). This

demographic information, although optional, public was envisaged to help provide

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data on how the link of service performance and service quality applied to banks

within the local and foreign category in the Indian retail banking industry As earlier

discussed in the literature review, the relation of service performance and service

quality is manifested in the existence or lack of gaps between customers‘ expectations

of service quality and the actual service performance. Therefore, questions were

tailored along the antecedents of service performance gaps and dimensions of service

quality to solicit bankers and customers‘ perceptions.

As in Huang (2004), there were two questionnaires: one for customers and one for

bankers. These survey instruments were designed to elicit effectively the respondents‘

opinions on the service quality and service performance of the retail banks operating

in India. The first part of the questionnaire reflected the 22 items in the SERVQUAL

model. This part contained expectation and perception statements that participants

were supposed to rate on a 7-point Likert scale. The second part encapsulated

questions along the five constructs of service quality dimensions: tangible, reliability,

responsiveness, assurance, and empathy. In this part, respondents were required to

rate their banks according to percentages. The third part contained questions along the

seven antecedents identified by Zeithaml, to have influence on service performance

gaps. The last and the fourth part contained questions on demographics.

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The original questionnaire proposed by Parasuraman (1985) was prepared in English.

To facilitate easy understanding of the content and context of the research, only

English version of the questionnaire was prepared.

3.8 Data Collection

Data for this research was collected using the self-administration of questionnaires

designed in English. With ethical consideration, the questionnaire was designed such

that respondents were given clear instructions on how to complete. The cover letter

attached to each questionnaire explained the purpose of the research, the importance

of respondents‘ participation, the anonymity of participants, and privacy issues. With

cultural consideration, questions were assessed for sensitivity to any issues that may

compromise the privacy of bankers and customers volunteering. The questionnaires

were designed with clear instructions on right of anonymity and right of

discontinuation, which were stated as options. Information on how to contact the

researcher for clarification, questions, and comments was also provided in the cover

letter attached to the questionnaires.

Data from sampled respondents are collected using convenient sampling contacted at

their homes and offices rather than in banks. The past similar research used mail

survey. However, as the likely response rate of mail survey in India is very poor,

personal administration of survey is used in this study.

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Since the self-administration process was chosen for administration of the

questionnaires, clear instructions were provided in the cover letter. In the case of

customers, the cover letter advised participants on how to fill out and return

completed questionnaires to the premises of their banks on the next visit or

immediately after completion. This process was adopted based on the assumption that

the bank‘s customers would revisit their banks more than once within one month

from distribution date. Volunteering banker-participants were advised to fill out and

keep the completed questionnaires at their premises for personal collection by

researcher.

3.9 Data Analysis

The quantitative data were coded into SPSS for analysis. The data were analyzed

using multiple regressions and correlational analysis to determine the link between

service performance and the service quality be used to explain and interpret the

results.The relation of the independent variables (antecedents) and dependent

variables was tested through various relevant statistical analysis.

3.10 Coding of Data

The SERVQUAL and SERVPERF dimensions are the main variables used in the

study and the researcher coded these dimensions in order to ease the analysis of data

121

collected. Also demographic information was collected from respondents but these

were not coded. Here is the coding of variables.

Table 2 : Coding of Data

S.No

Question

no Coding Construct Questions

1 Q1 TA1 T

an

gib

ilit

y Banks have Modern Equipments

2 Q2 TA2 Physical facilities are virtually appealing

3 Q3 TA3 Well dressed nd neat appearing employees

4 Q4 TA4 Visually appealing materials

5 Q5 R1

R

elia

bil

ity

when bank promises to do something by a certain time they do it

6 Q6 R2 Bankers should show sincere interest in solving the problem

7 Q7 R3 Banks perform the service right the first time.

8 Q8 R4 They provide their services at the time they promise to do so.

9 Q9 R5 Banks maintain their records accurately

10 Q10 RS1

R

esp

on

siven

ess tell customers exactly when services will be performed.

11 Q11 RS2 Employees will give prompt service to Customers

12 Q12 RS3 Employees in banks will always be willing to help customers.

13 Q13 RS4

Employees in banks will never be too busy to

respond to customers requests

14 Q14 A1

Ass

ura

nce

The behavior of employees in banks will instill confidence in

customers.

15 Q15 A2 Customers of banks will feel safe in their transactions

16 Q16 A3 Employees in banks will be consistently courteous with customers

17 Q17 A4

Employees in banks will have the knowledge to answer

customers‘ questions

18 Q18 E1

E

mp

ath

y

Banks will give customers individual attention

19 Q19 E2 Banks will have operating hours convenient to all their customers

20 Q20 E3 Banks will have employees who give customers personal attention

21 Q21 E4 Banks will have customers‘ best interests at heart.

22 Q22 E5

The employees of banks will understand the specific needs of their

customers

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PART

III

1 S1 T1

Tea

mw

ork

Every Banker is a part of team in the bank

2 S2 T2 Evry banker contributes to team effort in servicing customers

3 S3 T3

Every banker has a sense of responsibility to help fellow employees to do their

jobs well

4 S4 T4 Every banker is an important member of the bank

5 S5 EJF1

Em

plo

yee

-

job

fit

banker feels comfortable in his job in the sense that he is able to perform the job

well

6 S6 EJF2 The banker hires people who are qualified to do their jobs.

S7 TJF1 Tec

hn

olo

gy

job

fit

The bank gives employees the tools and equipment that they need to perform

their job well

8 S8 PC1

Per

ceiv

ed

co

ntr

ol Every banker has the freedom in his job to truly satisfy his customers‘ needs.

9 S9 PC2

feel a lack of control over their job because too many customers demand service

at the same time.

10 S10 PC3

bankers‘ frustrations on the job is, to depend on other employees in serving their

customers.

11 S11 SC1

Su

per

vis

ory

c

on

trol

The supervisor‘s appraisal of employees‘ job performance includes how well

they interact with customers

12 S12 SC2

In the bank, making a special effort to serve customers well does not result in

more pay or recognition.

13 S13 SC3

employees who do the best job serving customers are more likely to be rewarded

than other employees.

14 S14 RC1

Ro

le c

on

flic

t

The amount of paperwork in employees‘ job makes it hard for them to

effectively serve their customers

15 S15 RC2

The bank places emphasis on selling to customers that it is difficult to serve

customers properly.

16 S16 RC3

What a bank‘s customers want employees and bank‘s management wants

employees to do are same.

17 S17 RC4

The bank and the bankers have the same ideas about how their jobs should be

performed.

18 S18 RA1

Role

am

big

uit

y

banker receives a sufficient information from management for what he is

supposed to do in his job

19 S19 RA2 Bankers often feel that they do not understand the services offered by their bank.

20 S20 RA3

Every banker is able to keep up with changes in his (her) bank that affects his

(her) job.

21 S21 RA4 Bankers feel that they have not been well trained by their bank .

22 S22 RA5

Bankers are not sure which aspects of their supervisor will stress most in

evaluating their performance.

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Summary

The purpose of this research was to investigate the interlink of service performance

and service quality. To accomplish this objective, two set of variables were tested

using analysis of survey data collected from sample of bankers and customers of 2

retail banks in India. The research design was informed by previous studies (Chenet

et al., 2000; Huang, 2004; Parasuraman et al., 1990) and review of literature on the

serviceperformance gap model (Parasuraman et al, 1985, 1988, 1990; Zeithmal et al.,

1988, 1990).

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CHAPTER 4

INTERPRETATION OF DATA

This chapter presents the data that has been collected and the analysis and

presentation of data according to the research questions. Using quantitative data

collected on customers’ and bankers’ perceptions of services of selected retail banks

in India, this study measured the antecedents of service performance gaps as

independent variables against the dependent variables of customers’ service quality

specifications, bankers’ service quality specifications, and service performance gap

4.1 Introduction

This study investigated the service quality in the Indian retail banking industry using

the service quality and service performance gap model. As proposed in the model,

service performance is the difference between customers‘ expectations and actual

service delivered (Parasuraman ,1988). Where there are discrepancies between

customers‘ expectations and actual service delivered, gaps are created. The model

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identified the antecedents of service performance gaps – teamwork, employee-job fit,

technology-job fit, perceived control, supervisory control system, role conflict, and

role ambiguity – as critical factors in determining the size of service performance

gaps.

Using quantitative data collected on customers‘ and bankers‘ perceptions of services

of selected retail banks in India, this study measured the antecedents of service

performance gaps as independent variables against the dependent variables of

customers‘ service quality specifications, bankers‘ service quality specifications, and

service performance gap. The objective of the measurement was to ultimately

determine how factors influencing service performance impact service quality

dimensions. Also, the research dwelled on investigating the correlation of the

independent and dependent variables.

The main objective of this analysis was to identify the interlink of the factors

influencing service performance and service quality dimensions. In a related

dimension, the study investigated the difference in perception of service performance

of retail banks within the category of private-owned banks only.

An instrument designed by Parasuraman (1985, 1988) was adopted with a slight

modification of the demographic question for data collection on bankers‘ and

customers‘ perceptions of the antecedents of service performance gaps and service

quality attributes of their banks. The data collection covered bankers and customers

126

of 2 selected banks that have operated in India for at least 10 years and have retail

banking business line. With the survey instrument, data was collected based on 22

items in the SERVQUAL, five service quality constructs, and the antecedents of

service performance gaps, identified by Zeithaml (1990). The rest of this chapter

presents the survey participation, demographic information, analysis related to the

Hypothesis, and the summary of analysis.

4.2 Survey Participation

Although the study anticipated equal representation of bankers and customers of all

selected retail banks, the response rate varied from bank to bank. To maximize

participation, 700 questionnaires were distributed to bankers and customers of 2 retail

banks at their premises with the permission of the banks‘ management. The

respondents‘ task was to rate their perceptions of service quality specifications and

the antecedents of service performance on a 5-point Likert scale from strongly

disagree to strongly agree.

Thirty questionnaires were left at the premises of each of the selected retail bank

branches for completion. Within the given time frame of one month, 229

questionnaire representing 76.2% of total questionnaires distributed, were returned or

retrieved. Of these 229 questionnaires 205 were considered suitable for analysis as

they were complete. The response rate was considered acceptable for analysis. The

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validity of a returned questionnaire was determined by 85% completeness and a

respondent‘s relationship with one of the selected 2 retail banks as a customer or

banker for at least a year. Researcher covered various branches of HDFC Bank

namely Halwasiya, Pranay Towers, Teekarees Inn, Lekhraj Indira Nagar and Cantt,

and of SBI namely Hazratganj near stadium, Gomti Nagar Viram khand, Bhoothnath

Indira Nagar, Aliganj and Chinhat in Lucknow City.

Customer respondents were captured in Branch offices but as the response ratio was

not so good because of busy schedule and hurry. Therefore, an attempt was made by

the researcher to cover respondents at the workplace or at home. Total of 350

respondents were covered from colleges offices and homes, out of that 312

questionnaire were considered suitable for analysis as they were complete.

4.3 Demographic Information

The demographic information collected on customers and bankers helped to

determine their perceptions of service performance of retail banks within different

categories. Also, it allowed the presentation of a demographic profile of bankers and

customers of the Indian retail banking industry who participated in the study. Table 3

contains the demographic description of the sample.

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This table reveals that approximately 40% respondents are bankers and 60% are

customers. government owned banks are approximately 32% and private banks are

68%.

Table 3: Demographic data presentation of Bankers and Customers

RESPONDENT Frequency Percent

Customer 312 60.3

Banker 205 39.7

BANK TYPE

Government Owned 166 32.1

Private 351 67.9

YEARS WITH BANK

1-2 80 15.5

2-5 240 46.4

More than 5 197 38.1

EDUCATION LEVEL

High School or Less 33 6.4

Graduate 167 32.3

Post Graduate 170 32.9

Professional Degree 146 28.2

Doctorate 1 .2

AGE

Under 20 33 6.4

20-30 227 43.9

31-40 225 43.5

41-50 18 3.5

51-60 14 2.7

GENDER

Male 356 68.9

Female 161 31.1

PROFESSION

Business 26 5.0

Service 278 53.8

Housewife 37 7.2

Student 176 34.0

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In this research service quality gaps are identified with the help of 22 variable

constructs designed by Parasuraman, namely Tangibles, Reliability, Responsiveness.

Assurance and Empathy to measure customer satisfaction.

Table 4: Descriptive Statistics for SERVQUAL variables for expectation dimensions.

These SERVQUAL constructs Items are Q1-Q4: Tangibles dimensions; Q5-Q9:

Reliability dimension; Q10-Q14: Responsiveness dimension; Q15-Q17: Assurance

N Mean

Std.

Deviation

Q1 517 3.99 .880

Q2 517 4.07 .795

Q3 517 4.15 .962

Q4 517 4.20 .762

Q5 517 4.19 .838

Q6 517 4.19 .872

Q7 517 4.21 .870

Q8 517 4.15 .898

Q9 517 4.16 .852

Q10 517 4.22 .952

Q11 517 4.24 .818

Q12 516 4.21 .847

Q13 516 4.23 .807

Q14 517 4.11 .941

Q15 517 4.19 .886

Q16 517 4.23 .897

Q17 517 4.23 .846

Q18 517 4.22 .873

Q19 517 4.32 .731

Q20 517 4.36 .786

Q21 517 4.21 .819

Q22 517 4.12 .895

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dimension; Q18-Q22: Empathy dimension. These dimensions are measured on likert

scale with, 1= Strongly disagree, 2=Disagree, 3=Undecided, 4=Agree and

5=Strongly Agree. Table 4 shows the response (Q20) with mean 4.36, (Q19) with

mean 4.32 and (Q16 and Q17) with mean 4.23 are the constructs where customers

expects highest response, These Questions are Q20= Personal attention, Q19=

convenient operating hours, Q16= Courteous employees and Q17= Knowledgeable

employees.

Table 5: Customer and banker perception for most important and least important feature

MOST IMPORTANT

FEATURE

Respondent

CUSTOMER BANKER

TANGIBLITY 15 20

RELIABILITY 51 20

RESPONSIVENESS 80 100

ASSURANCE 40 32

EMPATHY 124 63

SECOND MOST IMPORATNT

TANGIBLITY 20 25

RELIABILITY 54 25

RESPONSIVENESS 99 89

ASSURANCE 51 40

EMPATHY 88 26

LEAST IMPORTANT

TANGIBLITY 174 137

RELIABILITY 57 66

RESPONSIVENESS 16 0

EMPATHY 65 2

131

Table 5 shows that, there is no significant difference between banker‘s perception and

customer‘s perception. Both banker and customer perceive Empathy as the most

important feature followed by responsiveness, tangibility stands as the least important

aspect of expectation variable. The respondents were asked to rate the most

important, second most important and least important feature out of ten points

cumulatively. The results reveal tangibility as least important feature and empathy as

most important.

Table 6: Descriptive statistics for service quality measurement in terms of CUSTOMER’s

expectations

TANGIBLES N Mean Std. Deviation

Q1 312 3.96 .763

Q2 312 4.06 .876

Q3 312 4.14 .984

Q4 312 4.29 .751

RELIABILITY

Q5 312 4.19 .824

Q6 312 4.20 .868

Q7 312 4.26 .864

Q8 312 4.19 .846

Q9 312 4.22 .790

RESPONSIVENESS

Q10 312 4.22 .930

Q11 312 4.21 .856

Q12 311 4.22 .834

Q13 311 4.21 .791

ASSURANCE

Q14 312 4.05 .927

Q15 312 4.17 .892

Q16 312 4.26 .879

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Table 7: Descriptive statistics for service quality measurement in terms of BANKER’S

expectations

TANGIBLES N Mean Std. Deviation

Q1 205 4.04 .880

Q2 205 4.09 .963

Q3 205 4.17 .930

Q4 205 4.27 .780

RELIABILITY

Q5 205 4.20 .860

Q6 205 4.18 .881

Q7 205 4.12 .874

Q8 205 4.07 .970

Q9 205 4.05 .930

RESPONSIVENESS

Q10 205 4.21 .987

Q11 205 4.29 .755

Q12 205 4.19 .868

Q13 205 4.26 .832

ASSURANCE

Q14 205 4.19 .959

Q15 205 4.23 .877

Q16 205 4.18 .924

Q17 205 4.28 .827

EMPATHY

Q18 205 4.25 .843

Q19 205 4.31 .692

Q20 205 4.38 .780

Q21 205 4.20 .856

Q22 205 4.08 .890

Q17 312 4.20 .858

EMPATHY

Q18 312 4.20 .892

Q19 312 4.32 .756

Q20 312 4.35 .791

Q21 312 4.21 .796

Q22 312 4.15 .899

133

Table 6 and 7, shows the descriptive statistics of all the questions asked from

respondent

(Customer and Banker) In measurement of customer perception of service quality.

Q1-Q4 are dimensions which are related with tangibility in an excellent bank

(equipments, physical facilities, neatness and materials), Q5-Q9 are dimensions

related with customers perception about bank‘s reliability (time, problem solving

attitude of employees, right services and error free records), Q10-Q13 are related

with responsiveness dimension( prompt services, willingness to serve customers,

not too busy employees to help customers), Q14-Q17 are dimension related with

Assurance( confidence, feeling of safety, courteous and knowledgeable employees,

Q18-Q22 are the dimension of Empathy which includes( individual attention,

convenient operating hours, personal attention, customer‘s interest, understanding

specific needs of customers. These questions were asked from customers as well as

employees on likert scale with 1= Strongly Disagree, 2=Disagree, 3=Undecided,

4=Agree, 5=Strongly Agree.

In case of customers for dimension of ‗Tangibility‘, the highest mean is of 4.29 and

lowest mean of 3.96. The dispersion of data is high with S.D. high upto .984. For

dimension of ‗Reliability‘ the highest mean is of 4.26 and lowest 4.19. The

dispersion of data is moderate with S.D. upto .868. For dimension of

‗Responsiveness‘ the highest mean is of 4.22 and lowest 4.22. The dispersion of data

134

is high with S.D. upto .930. For dimension of ‗Assurance‘ the highest mean is of

4.26 and lowest 4.05, The dispersion of data is high with S.D. upto .927. For

dimension of ‗Reliability‘ the highest mean is of 4.35 and lowest 4.15. The

dispersion of data is moderate.

In case Banker‘s dimension of ‗Tangibility‘, the highest mean is of 4.27 and lowest

mean of 4.06, the dispersion of data is high with S.D. high upto .963. For dimension

of ‗Reliability‘ the highest mean is of 4.20 and lowest 4.05. The dispersion of data is

high with S.D. upto .970. For dimension of ‗Responsiveness‘ the highest mean is of

4.29 and lowest 4.19. The dispersion of data is high with S.D. upto .987. For

dimension of ‗Assurance‘ the highest mean is of 4.28 and lowest 4.18, The

dispersion of data is high with S.D. upto .959. For dimension of ‗Reliability‘ the

highest mean is of 4.38 and lowest 4.08. The dispersion of data is moderate.

Table 8: Descriptive statistics for measurement of service Performance variables for

customers

PERFORMANCE VARIABLES N Mean Std. Deviation

TEAMWORK

S1 312 3.77 1.125

S2 312 3.98 1.144

S3 312 4.14 1.016

S4 312 4.05 1.073

S5 312 4.12 1.038

EMPLOYEE-JOB FIT

S6 312 4.15 1.034

S7 312 3.97 1.145

TECHNOLOGY-JOB FIT

S8 312 4.11 .906

135

PERCEIVED CONTOL

S9 312 4.07 .897

S10 312 4.25 .925

S11 312 4.05 1.031

S12 311 4.19 .946

SUPERVISORY CONTROL SYSTEM

S13 311 4.12 .945

S14 312 4.22 .855

S15 312 4.12 .980

ROLE CONFLICT

S16 312 4.07 .964

S17 312 3.99 1.036

S18 312 4.15 .909

S19 312 4.18 .967

ROLE AMBIGUITY

S20 312 4.26 .830

S21 311 3.91 1.083

S22 312 4.19 .884

Table 9: Descriptive statistics for measurement of service Performance variables for bankers

PERFORMANCE VARIABLES N Mean Std. Deviation

TEAMWORK

S1 205 3.77 1.230

S2 205 3.95 1.115

S3 205 4.16 1.027

S4 205 3.94 1.127

S5 205 4.11 1.014

EMPLOYEE-JOB FIT

S6 205 4.16 1.022

S7 205 4.04 1.052

TECHNOLOGY-JOB FIT

S8 205 4.13 .952

PERCEIVED CONTOL

S9 205 4.14 .883

S10 205 4.13 .922

S11 205 3.96 1.081

136

S12 205 4.11 1.028

SUPERVISORY CONTROL SYSTEM

S13 205 4.08 .933

S14 205 4.09 .898

S15 205 4.10 .936

ROLE CONFLICT

S16 205 4.25 .926

S17 205 4.10 .957

S18 205 4.15 .833

S19 205 4.26 .874

ROLE AMBIGUITY

S20 205 4.13 .982

S21 205 4.07 .975

S22 205 4.11 1.020

Table 8 & 9 shows the descriptive statistics of all the questions asked from

respondent (Customer and Banker) in measurement of customer perception of

service performance. S1-S5 are dimensions which are related with TEAMWORK in

an excellent bank (part of team, contribution in team effort, sense of responsibility,

feeling of importance in and as bank employee), S6-S7 are dimensions related with

customers perception about EMPLOYEE JOB FIT (ability and qualification to

perform job well), S8 is related with TECHNOLOGICAL JOB FIT dimension(

supply of tools and equipments to perform job well ), S9-S12 are dimension related

with PERCEIVED CONTROL ( lot of time in resolving problem, freedom in job to

satisfy customers, dependency on others to solve problem) S13-S15 are the

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dimension of SUPERVISORY CONTROL SYSTEM which includes(performance

appraisal, customer service and pay hike, customer service and reward system ).

S16-S19 are the dimension of ROLE CONFLICT which measures (amount of

paperwork, emphasis on selling, perception of management and employee towards

job ) These questions were asked from customers as well as employees on likert

scale with 1= Strongly Disagree, 2=Disagree, 3=Undecided, 4=Agree, 5=Strongly

Agree.

In case of customers for dimension of ‗teamwork‘, the highest mean is of 4.14 and

lowest mean of 3.77. The dispersion of data is high with S.D. high upto 1.144. For

dimension of ‗employee-job fit‘ the highest mean is of 4.15 and lowest 3.97. The

dispersion of data is high with S.D. upto 1.145. For dimension of ‗Technology-job

fit‘ mean is of 4.11. The dispersion of data is high with S.D .906. For dimension of

‗perceived control‘ the highest mean is of 4.25 and lowest 4.05, The dispersion of

data is high with S.D. upto 1.031. For dimension of ‗supervisory control system‘ the

highest mean is of 4.35 and lowest 4.15. The dispersion of data is high with S.D.

.980 . For dimension of ‗role conflict‘ highest mean is of 4.18 and lowest 3.99 The

dispersion of data is high with S.D 1.036. In case of ‗Role ambiguity‘ Highest and

lowest mean are 4.26 and 3.91 with dispersion of data as high upto 1.083

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4.4 Normality of Data

The statistical test to confirm to test normality is measurement of Skewness and

Kurtosis. Skewness refers to the balance of distribution: that is the bell shaped

curve, whereas Kurtosis refers to height of distribution: i.e. taller or flatter

distribution.

Kline(1998) Suggested that all variables in the analysis for univariate skewness and

kurtosis were satisfactory within conventional criteria for normality(the combination

of two or more variables) means that individual variable is normal in a univariate

sense and their combinations are also normal.

Table 10: Data distribution for SERVPERF and SERVQUAL items

Descriptive Statistics

N Skewness Kurtosis

Statistic Statistic Std. Error Statistic Std. Error

Q1 517 -1.187 .107 .794 .214

Q2 517 -1.255 .107 .904 .214

Q3 517 -.957 .107 .092 .214

Q4 517 -1.018 .107 1.089 .214

Q5 517 -.869 .107 .271 .214

Q6 517 -.860 .107 -.057 .214

Q7 517 -.889 .107 .009 .214

Q8 517 -.934 .107 .311 .214

Q9 517 -.778 .107 -.088 .214

Q10 517 -1.418 .107 2.004 .214

Q11 517 -.945 .107 .373 .214

Q12 517 -.913 .107 .298 .214

Q13 517 -.843 .107 .131 .214

Q14 517 -.871 .107 .107 .214

Q15 517 -1.010 .107 .577 .214

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Q16 517 -1.018 .107 .276 .214

Q17 517 -1.131 .107 1.257 .214

Q18 517 -1.041 .107 .607 .214

Q19 517 -.867 .107 .397 .214

Q20 517 -1.109 .107 .681 .214

Q21 517 -.904 .107 .471 .214

Q22 517 -.828 .107 .004 .214

S1 517 -.785 .107 -.283 .214

S2 517 -1.072 .107 .329 .214

S3 517 -1.253 .107 .991 .214

S4 517 -1.042 .107 .268 .214

S5 517 -1.299 .107 1.186 .214

S6 517 -1.323 .107 1.192 .214

S7 517 -.944 .107 -.041 .214

S8 517 -1.022 .107 .592 .214

S9 517 -.986 .107 .798 .214

S10 517 -1.192 .107 1.136 .214

S11 517 -.968 .107 .217 .214

S12 517 -1.287 .107 1.351 .214

S13 517 -1.029 .107 .650 .214

S14 517 -1.100 .107 1.162 .214

S15 517 -1.000 .107 .429 .214

S16 517 -1.144 .107 .886 .214

S17 517 -1.002 .107 .442 .214

S18 517 -.978 .107 .628 .214

S19 517 -1.264 .107 1.286 .214

S20 517 -1.220 .107 1.364 .214

S21 517 -.856 .107 -.066 .214

S22 517 -1.061 .107 .597 .214

All skewness value according to the guideline suggested by Kine, all variables are

univariate normal and individual variable is normal. So, it can be concluded that data is

multivariate normal and should be used for further multivariate analysis and regression

tests.

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Table 11: Correlation perception dimensions

Summated

Dimensions 1-4 5-9 10-13 14-17 18-22

TANGIBLES 1

RELIABILITY .599**

1

RESPONSIVENESS .762**

.577**

1

ASSURANCE .680**

.514**

.697**

1

EMPATHY .618**

.558**

.685**

.663**

1

**. Correlation is significant at the 0.01 level (2-tailed).

So it is clear from table 11 that our dependent variable is showing significant

correlation with independent variables In this construct, the correlation between all

independent variables are less than 0.9 therefore, as per guidelines suggested by Pallant,

all variables will be retained

4.5 Validity and Reliability

Checking the reliability and validity of the modified SERVQUAL model made up of

six dimensions, cronbach alpha was computed for each dimension of the SERVQUAL

model and factor analysis carried out to test validity. The Cronbach alpha ranges

between 0 (denoting no internal reliability) and 1 (denoting perfect internal reliability).

The first part of the data analysis was to check the internal reliability of results in order

to determine the credibility of findings results from the study since we are dealing with

multiple-item measure that is the modified SERVQUAL model made up of 5

dimensions measuring service quality. In other words reliability checks whether or not

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respondents‘ scores on any one indicator tend to be related to their scores on the other

indicators

Table 12: Reliability Coefficient (Cronbach alpha)

Dimension Items

Number of

items

Cronbach

alpha for

dimensions

Cronbach

alpha if

items deleted

TA1 TANGIBILITY 4 0.638 0.603

TA2 0.534

TA3 0.589

TA4 0.592

R1 RELIABILITY 5 0.834 0.765

R2 0.798

R3 0.804

R4 0.802

R5 0.769

RS1 RESPONSIVENESS 4 0.674 0.847

RS2 0.573

RS3 0.612

RS4 0.638

A1 ASSURANCE 4 0.763 0.678

A2 0.717

A3 0.674

A4 0.738

E1 EMPATHY 5 0.801 0.692

E2 0.807

E3 0.661

E4 0.756

E5 0.654

The internal consistency of the modified SERVQUAL items was assessed by

computing the total reliability scale. The total reliability scale for the study is 0.91,

indicating an overall reliability factor slightly same to that of Parasuraman et al.,

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(1988) study which was 0.92. This reliability value for the study is substantial

considering the fact that the highest reliability that can be obtained is 1.0 and this is

an indication that the items of the five dimensions of SERVQUAL model are

accepted for analysis. Table 12 above shows the reliability scale for all six

dimensions and also, the reliability scale for each dimension calculated when each

item is deleted from the dimension in order to see if the deleted item is genuine or

not. In case cronbach alpha for a dimension increases when an item is deleted it

shows that item is not genuine in that dimension. From table above, it can be

realized almost all the items showed a lower value of reliability when deleted except

E2 and had a higher value showing it is not a true measure under that dimension.

Looking at the reliability coefficients of all five dimensions, some dimensions have

coefficients slightly below 0.7, tangibles (0.638) and responsiveness (0.674). This

could as a result that some items under each dimension seemed too similar. The

dimension, products had a very low reliability coefficient, 0.434 and this could have

been because of the small number of items used in that dimension. Other

dimensions, reliability, assurance and empathy showed coefficients higher than 0.7,

meaning these dimensions comprising of various items show a true measure of

service quality.

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Table 13 : Factor Analysis(rotated component Matrix)

Items Componenets

1 2 3 4 5

E3 0.859 E4 0.857 E1 0.683 E5 0.684 R5 0.532 A4 0.477 R1

0.797

R4

0.751 R3

0.673

A2

0.581 RS4

0.590

R2

0.528 RS2

0.713

A3

0.669 A1

0.653

RS3 0.463

0.645 RS1

0.506

E2

0.963 TA2

0.760

TA1

0.698

TA3

0.636

TA4

0.456 Extraction Method: Principal Component Analysis

Rotation Method: Varimax with Kaiser Normalization

Table 13 shows the factor loadings for each item in relation to the various factors.

These values in the table show the weight and correlation each item has to a factor or

component. All values below 0.45 are cut off from this table because they are not

significant for analysis. From table 13, it can be realized that items from different

dimensions are regrouped under the same factor and some items from one dimension

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are found to fall in more than factor like RS3. This factor analysis proves that

SERVQUAL model is not a good measure of service quality in Banking Sector

because we expect to see similar items fall under the same factor showing that they

measure the same thing. In this case, just the items under the tangible dimension fall

under the same factor.

4.6 Analysis of Hypotheses

The analysis related to each of the Hypothesis and research questions are presented in

this section. Firstly, the research questions and Hypothesis are restated, and then the

analysis associated with each hypothesis is presented.

Research Question 1

The first question asked, what in the Indian retail banking industry, is the perception

of customers of the relation of service performance and service quality?.

Hypothesis 1

The first null hypothesis stated that in the Indian retail banking industry, customers do

not perceive or negatively perceive a link between the antecedents of service

performance gaps and service quality, while the alternative hypothesis stated that in

the Indian retail banking industry, customers perceive or positively perceive a

145

significant link between the antecedents of service performance gaps and service

quality.

To address this hypothesis, a correlation matrix that contained the correlations

between the antecedents of service performance and service quality was generated for

customers completing the questionnaire. In addition, step-wise multiple regression

analysis were conducted where each service quality variable served as the dependent

variable and the antecedents of service performance served as the independent or

predictor variables. The regression analysis are considered step-wise because the

independent variables included in the analysis are determined by the computer based

on the strength of the relationship they have with the dependent variable. Only those

variables that have a significant relationship with the dependent variable (i.e., p < .05)

are included in the analysis.

The results of the correlational analysis are presented in Table 14. This table reveals

that none of the antecedents of service performance variables correlated significantly

(i.e., p < .05) with the service quality variables for customers. The step-wise

regression analysis resulted in none of the antecedents of service performance

variables being included in the analysis, since none of these variables had a

significant relationship with any of the service quality variables.

146

Table 14. Correlational Analysis for Antecedents of Service Performance and Service Quality for

Customers

Service Quality Specification (Dependent Variable)

Tangibles Reliability Responsiveness Assurance Empathy

Antecedents of

ServicePerformance

Teamwork 0.003 0.049 0.042 0.000 -0.01

Employee-job Fit -0.017 0.036 0.022 -0.007 -0.018

Technology-Job Fit 0.005 0.053 0.033 -0.024 -0.023

Perceived Control 0.025 0.029 -0.018 -0.011 0.053

Supervisory Control 0.08 0.021 -0.081 -0.073 -0.073

Role Conflict -0.018 0.040 0.017 0.018 0.026

Role Ambiguity -0.032 0.028 0.012 -0.011 -0.065

These results indicate that the null hypothesis, stating that there was no relationship or

a negative relationship between the antecedents of service performance and service

quality for customers, could not be rejected in favor of the alternative hypothesis,

suggesting that there is a positive relationship between these variables. There was no

evidence to conclude from this data that there is a positive relationship between the

antecedents of service performance and service quality variables for customers.

Therefore, it can be concluded that customers in the Indian retail banking industry do

not perceive a significant relation of service performance and service quality.

147

Research Question 2

The second research question asked what, in the Indian retail banking industry, the

perception of bankers of the relation of service performance and service quality is?

Hypothesis 2

The second null hypothesis stated that in the Indian retail banking industry, bankers

do not perceive or negatively perceive a link between the antecedents of service

performance gaps and service quality, while the alternative hypothesis stated that in

the Indian retail banking industry, bankers perceive or positively perceive a

significant link between the antecedents of service performance gaps and service

quality. The same analysis that addressed the first hypothesis were used to address

this hypothesis. The results of the correlational analysis for this hypothesis are

presented in Table 15. This table reveals that only one antecedent of service

performance variable was related to any of the service quality variables. In this case

Employee-Job Fit was related to Assurance (r (204) = .163, p = .02). None of the

remaining antecedents of service performance variables correlated significantly (i.e.,

p < .05) with the service quality variables for bankers. The step-wise regression

analysis resulted in only the Employee- Job Fit being entered into the regression

analysis when the Assurance service quality variable served as the dependent

variable. Further analysis revealed that Employee-Job Fit explained approximately

2.6% of the variance in Assurance.

148

Table 15. Correlational Analysis for Antecedents of Service Performance and Service Quality for

Bankers Service Quality (Dependent Variables)

Tangibles Reliability Responsiveness Assurance

Empathy

Antecedents of

Service

Performance

Teamwork -0.069 0.022 0.079 0.117 0.031

Employee-Job Fit 0.075 0.119 0.12 .163* 0.127

Technology-Job Fit -0.043 0.101 0.11 0.086 0.001

Personal Control 0.002 0.042 0.075 0.041 0.06

Supervisor Control -0.066 -0.112 -0.065 -0.099 0.011

Role Conflict 0.011 -0.021 -0.032 -0.033 0.019

Role Ambiguity -0.023 -0.054 0.039 0.053 0.12

* p < .05

It is important to note that this significant finding should be interpreted with caution

since there were many analysis conducted to address this hypothesis. There were 15

different correlations computed to assess the relationship of the antecedents of service

performance and service quality. Given this many analysis, there is a substantial

chance that a significant finding would emerge even though there was no relationship.

This is known as the Type I error. These results indicate that while there was one

significant correlation, for the most part the null hypothesis, stating that there is no

relationship between the antecedents of service performance and service quality for

bankers, could not be rejected in favor of the alternative hypothesis, suggesting that

there were such relationships. Furthermore, there is little to no evidence to conclude

149

from this data that there is a positive relationship between the antecedents of service

performance and service quality variables for bankers.

Research Question 3

Research question 3 asked whether in the Indian retail banking industry, customers‘

perception of service performance is different from that of bankers.

Hypothesis 3

The third null Hypothesis stated that bankers‘ perception of service performance is

not different from customers‘ perception of service performance in Indian banking

industry, while the alternative hypothesis stated that bankers‘ perception of service

performance is different from customers‘ perception of service performance in Indian

banking industry. To assess if there were differences between customers‘ and

bankers‘ perceptions of the antecedents of service performance variables, a series of

independent tests were conducted. The results of these analysis are presented in Table

16. This table reveals that there were significant differences between customers and

bankers on five of the seven antecedents of service performance variables.

Table 16. The Means, Standard Deviations, and t-tests for Differences in Antecedents of Service

Performance Between Bankers and Customers

Antecedents of

Service Performance Mean SD t p

Teamwork

Customers 4.4 1.33 -5.9 <.001

150

Bankers 4.3 0.662

Employee-Job Fit

Customers 4.34 1.44 -6.12 <.001

Bankers 4.02 0.789

Technology-Job Fit

Customers 4.33 1.55 -2.45 0.015

Bankers 4.64 1.06

Perceived Control

Customers 3.64 1.08 -2.39 0.017

Bankers 3.84 0.703

Supervisor Control

Customers 4.15 0.712 -1.73 0.084

Bankers 4.26 0.646

Role Conflict

Customers 3.85 0.745 1.64 0.103

Bankers 3.75 0.623

Role Ambiguity

Customers 3.95 0.63 11.34 <.001

Bankers 3.34 0.545

There was a stronger agreement with the questionnaire statements by bankers when

compared to customers on the Teamwork (t(514) = -5.90, p < .001), Employee-Job

Fit (t(514) = -6.117, p < .001), Technology-Job Fit (t(514) = -2.45, p = . 015), and

Perceived Control (t(514) = -2.393, p = .017) service performance variables. There

was a stronger agreement by customers on the Role Ambiguity (t(514) = 11.349,

p < .001) service performance variable. This result suggests that there are differences

between the perceptions of bankers and customers. These results led to the rejection

of the null hypothesis for five of the seven antecedents to service performance

variables in favor of the alternative hypothesis, which suggested that there are

151

differences between customers and bankers in their perceptions of the antecedents of

service performance.

Research Question 4

Research question 4 asked what the significant antecedents of service performance

gaps are that influence service quality attributes in the Indian retail banking industry.

Hypothesis 4

The fourth null hypothesis stated that in the Indian retail banking industry, customers

and bankers do not perceive or negatively perceive a link between the antecedents of

service performance gaps and service quality, while the alternative hypothesis stated

that in the Indian retail banking industry, customers and bankers perceive or

positively perceive a significant link between the antecedents of service performance

gaps and service quality. Like Hypothesis 1 and 2, this hypothesis was addressed by

computing a correlation matrix that contained the correlations between the

antecedents of service performance and service quality. Also like in Hypothesis 1 and

2, a series of step-wise multiple regressions were conducted where service quality

variables served as the dependent variable and the antecedents of service performance

served as the independent, or predictor, variables. The results of the correlational

analysis are presented in Table 17. This table reveals that none of the antecedents of

service performance variables correlated significantly (i.e., p < .05) with the service

152

quality variables for customers. The step-wise regression analysis resulted in none of

the antecedents of service performance variables being included in the analysis since

none of these variables had a significant relationship with any of the service quality

variables at the .05 level of significance.

Table 17. Correlational Analysis for Antecedents of Service Performance and Service Quality for

Customers and Bankers

Tangibles Reliability Responsiveness Assurance Empathy

Antecedents of

service Performance

Teamwork -0.01 0.048 0.056 0.029 0.002

Employee-Job Fit 0.015 0.062 0.051 0.036 0.017

Technology-Job Fit -0.01 0.068 0.057 0.008 -0.015

Perceived Control 0.02 0.037 0.035 0.02 0.056

Supervisory Control 0.021 -0.049 -0.073 -0.08 -0.045

Role conflict -0.007 0.019 -0.001 0.001 0.023

Role Ambiguity -0.034 -0.014 0.004 -0.003 -0.015

These results indicate that the null hypothesis, stating that there is a no relationship or a

negative relationship between the antecedents of service performance and service

quality for bankers and customers combined, could not be rejected in favor of the

alternative hypothesis, which suggests that there is a positive relationship. There is no

evidence to conclude from this data that there is a positive relationship between the

antecedents of service performance and service quality variables for customers and

bankers combined.

153

Research Question 5

The fifth research question asked what, in the Indian retail banking industry, the

difference in perception of service performance of private and government-owned

banks is.

Hypothesis 5

The fifth null hypothesis stated that in the Indian retail banking industry, there is no

significant difference in perceptions of service performance of private and government

owned banks, while the alternative hypothesis stated that in the Indian retail banking

industry, there is a significant difference in perceptions of service performance of

private and government-owned banks. A series of t-tests were conducted utilizing type

of bank (i.e., private or government-owned) as the independent variable and the

antecedents of service performance as the dependent variables. The means, standard

deviations, and t tests are presented in Table 18. An inspection of this table shows that

none of the t-tests revealed differences on the antecedents of service performance

variables between respondents who were from government banks and respondents who

were from private banks. These results indicate that the null hypothesis, stating that

there are no differences between government and private banks on the antecedents of

service performance, could not be rejected in favor of the alternative hypothesis, which

suggests that there are differences. Furthermore, there is no evidence to conclude from

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this data that there are differences between government and private banks on the

antecedents of performance

Table 18. The Means, Standard Deviations, and t-tests for Differences in Antecedents of

Service Performance Between Government and Private Banks

Antecedent of

Service Performance Mean SD t P

Teamwork

Government 4.58 1.27 -0.65 0.516

Private 4.66 1.12

Employee-Job Fit

Government 4.59 1.29 -0.221 0.825

Private 4.62 1.26

Technology-Job Fit

Government 4.37 1.41 -0.81 0.418

Private 4.48 1.38

Perceived Control

Government 3.86 0.921 1.89 0.06

Private 3.67 0.96

Supervisor Control

Government 4.28 0.712 1.59 0.112

Private 4.17 0.678

Role Conflict

Government 3.89 0.669 1.47 0.142

Private 3.79 0.709

Role Ambiguity

Government 3.73 0.663 0.457 0.648

Private 3.70 0.67

4.7 Summary of Analysis

This study primarily investigated the link of service performance and service quality

in the Indian retail banking industry using the service performance gap model. As

shown in Table 18, the data analysis revealed that service performance has some

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positive link to service quality in the Indian retail banking industry. However, in large

part, the link is not significant and in some cases negative. It is difficult to find a

model that can apply the same across all cultures. Therefore, the mixed results of this

study may be accounted for by the fact that the retail banking culture of India is

different from that of the U.S. and other parts of Asia, where similar studies have

been conducted to test the service performance gaps model. The analysis show that,

to some extent, customers perceive a positive link between service performance and

service quality. However, as can be seen from the analysis, customers largely

perceive service performance as not significantly correlated with service quality, and

in some cases the constructs have a negative link. Similarly, bankers perceive a

significant link between service performance and service quality, but in some cases

they perceive a marginally positive to negative correlation between the two

constructs. In line with the research expectations, there are differences in perceptions

of bankers and customers of service performance factors. The analysis further

revealed that there are no significant differences in the perception of service

performance of retail banks in India, whether these banks are government-owned or

privately owned . Therefore, the analysis answered the six preliminary research

questions that this study intended to address.

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Table 19 Summary of Hypothesis Test Results

Hypothesis number Statement of Null Hypothesis Test Results

H1 In the Indian retail banking industry, customers do

not perceive or negatively perceive a link between

the antecedents of service performance gaps and

service quality.

Not rejected

H2 In the Indian retail banking industry, bankers

do not perceive or negatively perceive a link

between the antecedents of service performance

gap and service quality

Partially Rejected

H3 Bankers‘ perception of service performance is not

different from customers‘ perception of service

performance in Indian banking industry.

Rejected

H4 In the Indian retail banking industry, there is

no link or negative link between the antecedents

of service performance and the perception of

bankers and customers of service quality.

Not Rejected

H5 In the Indian retail banking industry, there is

no significant difference in the perceptions of

service performance of private and government

owned banks.

Not Rejected

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CHAPTER 5

CONCLUSIONS & RECOMMENDATIONS

In the previous chapter the data was analyzed. In this final chapter the end

Implications for management, theory and future research will be addressed.

5.1 Discussion

This study investigated the relation of service performance and service quality using

data collected from bankers and customers of selected retail banks operating in India.

In Chapter 4, detailed analysis were conducted to interpret the survey data, test the

Hypothesis, and answer the research questions. In this chapter, the discussions,

implications, conclusions, and recommendations for future studies are presented.

Testing the service performance gap model in the Indian retail banking industry

158

setting was the focus of this study. The main research question from literature review

was whether there was a link between service performance and service quality in the

Indian retail banking industry. Secondary questions posed included:

What is the customers‘ perception of the relation of service performance and

service quality?

What is the bankers‘ perception of the relation of service performance and

service quality

Is the customers‘ perception of service performance different from that of

bankers; what are the significant antecedents of service performance gaps

influencing service quality attributes?

What is the difference in perception of service performance of private and

government owned banks?

To address these questions, five Hypothesis were suggested from literature review on

marketing relationship, trust-commitment model, service-profit chain model, service

encounter, disconfirmation of expectations, and service performance gap model. The

Hypothesis suggested no relationship or alternative significant positive relationship of

the independent variables of antecedents of service performance as proxy for

teamwork, employee-job fit, technology-job fit, perceived control, supervisory

control systems, role conflict, and role ambiguity, and bankers‘ and customers‘

159

perception of service quality dimensions – tangible, reliability, responsiveness,

assurance, and empathy.

In the analysis, each of the antecedents has been tested for its relation with service

quality. The outcome of the data analysis indicated mixed results. Out of the six null

Hypothesis formulated, only one was rejected and one partially rejected. The findings

in part supported previous studies like Chenet, Parasuraman, but in other respects

contrasted with previous research like that of Huang

In an earlier study, the proponents of the service performance gaps model

(Parasuraman 1990) found teamwork, employee-job fit, technology-job fit, and

perceived control to have a significant effect on service quality gaps. In a similar

research using data collected from Taiwanese banking market, Huang (2004) found

evidence supporting or partially supporting Parasuraman (1990) findings. This

present study similarly found to a few significant correlations but mostly no

significant correlations or negative correlations between the antecedents of service

performance and dimensions of service quality.

The first hypothesis proposed no relationship between customers‘ perceptions of the

link between the antecedents of service performance and service quality as the null

hypothesis and a significant relationship of the variables as the alternative hypothesis.

The results presented in Chapter 4 indicate that the null hypothesis could not be

rejected in favor of the alternative hypothesis. Moreover, the results showed that

160

customers do not perceive a positive link between supervisory control and the

dimensions of service quality, except tangible dimension. Perceived control is

believed to have positive relationship with all the dimensions of service quality, but

there is no evidence to suggest a significant correlation. While role conflict and role

ambiguity are perceived to be negatively linked to tangibility, assurance, and

empathy, there is no evidence to suggest their negative effects on service reliability

and responsiveness. To a large extent, the findings in this study identified role

conflict and role ambiguity to be linked negatively to service quality, supporting the

existing theory.

Similar to Parasuraman (1990) and Huang‘s (2004) findings, empirical evidence

showed that customers perceive teamwork, employee-job fit, technology-job fit, role

conflict, and role ambiguity to have some positive link to service reliability and

responsiveness. This finding means that clearly defined and properly assigned roles

can enhance performance and prevent service performance gaps. Where there are role

conflicts, employees are likely to leave their job, and where roles are well-defined,

employee retention is high.

The second null hypothesis suggested that in the Indian retail banking industry,

bankers do not perceive or negatively perceive a link between the antecedents of

service performance and service quality. The alternative hypothesis stated that in the

Indian retail banking industry, bankers perceive or positively perceive a significant

161

link between the antecedents of service performance and service quality. The result of

the correlational analysis shows that employee-job fit is the only service performance

antecedent significantly linked to service quality. This reveals that skillful, well-

trained, and motivated employees are crucial to the delivery of service quality in retail

banking. Prior research emphasized the important role skillful employees play in

determining service quality , and the findings of this research partially support this

view. The finding regarding the significant role that employee-job fit plays in service

quality delivery supports the postulations of the service-profit-chain discussed in

Chapter 2.

However, the perception of customers of the link of employeejob fit to service quality

seems to suggest the contrary. In customers‘ opinion, employee-job fit is negatively

linked to tangible, assurance, and empathy dimensions, but there is no evidence that it

has the same link with reliability and responsiveness. To understand the differences in

customers‘ and bankers‘ perceptions of service performance, as the third research

question indicated, the third hypothesis was formulated. The third null hypothesis

suggested there is no difference between customers‘ and bankers‘ perceptions of

service performance, while the alternative hypothesis suggested that there is a

difference between customers‘ and bankers‘ perceptions of service performance.

The result of the analysis enabled the rejection of the null hypothesis in favor of the

alternative hypothesis. In most part, bankers‘ perception of service performance is

162

found not to be different from that of customers. A strong agreement between

customers and bankers on teamwork, employee-job fit, technology-job fit, perceived

control, and role ambiguity as the antecedents of service performance suggests the

existence of functional communication link between customers and their banks in the

Indian retail banking industry. Effective communication link between customers and

bankers is important in relationship marketing.

Trust and commitment, as Morgan and Hunt (1994) stated, is important in

relationship marketing. The results of this research support this view. The long-term

relationship that firms strive to have with customers thrives on mutual fulfillment of

promises, by both customers and banks emphasized the need for firms to deliver

excellent service and to avoid service performance gaps.

The results of present research reiterated the call for the provision of excellent service

quality to ensure customer satisfaction. The fourth null hypothesis suggested that both

customers and bankers perceive no link between the antecedents of service

performance and service quality. The alternative hypothesis suggested that both

customers and bankers perceive a significant link between the antecedents of service

performance and service quality.

The result showed that the null hypothesis could not be rejected. Although the result

showed the absence of a negative link between employee-job fit and perceived

control variables, they were not significantly correlated with service quality.

163

Supervisory control and role ambiguity are perceived to be negatively linked to

reliability, assurance, and empathy. The inverse relationship between role conflict and

role ambiguity has been identified in previous research (Parasuraman, 1990). This

study supports the postulation of the service performance model that role conflict and

role ambiguity, if not properly managed, create a gap in service quality delivery.

However, contrary to the research expectations, there was no evidence to suggest a

positive link of teamwork and technology-job fit to tangibles. In line with earlier

research , this study found the need for managers of retail banks to focus less on

tangibles and more on empathy and assurance. This finding is also consistent with

Parasuraman (1988). In a study by Othman and Owen (2001), tangible was similarly

rated as least important among the dimensions of service quality. This research also

suggested that there is no difference between government-owned and private retail

banks in terms of performance.

The emerging competition has also resulted in the replacement of banking

bureaucracy and inefficiency that adversely affected customer service in the past.

Therefore, retail banks in India are compelled to seek better ways to provide services

to achieve customer satisfaction and ensure loyalty and profitability. From the

research findings, retail banks, whether government-owned or private-owned, have

performed well competitively since the deregulation of the banking industry.

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5.2 Implications

The study sought to investigate how service performance factors are linked to service

quality delivery in the Indian retail banking industry. The objective of the

study was to test the effectiveness of the service performance gap model in

understanding and explaining bankers‘ and customers‘ perception of service

performance and service quality of Indian retail banks. After data collection and

regression and correlation analysis, interesting findings were made that have the

following implications.

Firstly, the results of the study imply that the service performance gap model applies

differently in different cultures and market settings. The original study by

Parasuraman (1990) was conducted in the U.S., and Huang‘s (2004) study was

conducted in Asia. This research, in turn, was conducted in India. The results

suggested that testing the service performance gap model in different cultures may

produce varying results. Therefore, culture may have an influence on the perception

of service performance gaps.

Secondly, the results of the test of the second hypothesis revealed a significant

relationship between employee-job fit and assurance. This finding implies that

employees‘ knowledge, skills, and fitness for job can propel a retail bank to gain

competitive advantage over rivals. Over the decade, the banking industry in India is

165

increasingly becoming competitive. In such a competitive environment, customers are

more informed and sophisticated; they face low cost of switching and develop diverse

needs. Therefore, the need is on the rise for retail banks to pay attention to

the training of employees in order to compete favorably. Managers of retail banks

need to focus on service reliability and employee performance more than on the

tangible dimension. The results of this research support this call. The results also

confirmed Chenet (2000) finding that cooperation and employee-job fit are significant

factors influencing service performance. Gronross (2007) added that effective

internal marketing, effective supervisory control, and employee training can prevent

service performance gaps.

Thirdly, the results of the test of the third hypothesis imply that customers and

bankers may have similar perceptions of the factors influencing gaps in service

delivery. However, in other respects, there are differences in bankers‘ and customers‘

perceptions of the link between the antecedents of service performance gaps and

service quality dimensions. For example, while bankers perceive role conflict and

role ambiguity to have a positive link to service quality dimensions, bankers perceive

no such linkage. This contradicts the postulation of the service performance gap

model, which links these variables to service performance gaps.

The implication of this finding is that for firms to gain and increase their competitive

advantage, excellent service must be delivered. In this regard, even where there are no

166

service performance gaps, management must continue to enhance the effectiveness of

the variables influencing service performance gaps to keep their promises to the

customers and sustain long term relationships. Also, in the Indian retail banking

industry, the taste and needs of customers continue to change. Therefore,

management of retail banks needs to continue to enhance the quality of service not

only to maintain their market share, but to maintain their share of customers, as well.

Other implications of the study are:

1. Banks in the Indian retail banking industry need to place great importance on

improving reliability, responsiveness, assurance, and empathy dimensions of their

service quality to be profitable. Although, the tangible dimension seems to be given a

low rating by customers and bankers, there is still a need to pay attention to this

dimension to ensure delivery of service quality.

2. The results emphasize the importance of employee-job fit, implying that

management of retail banks should pay attention to the training needs of employees.

The hiring practices of retail banks in India should be oriented toward recruiting

skillful employees to deliver quality service to stay competitive.

3. In customers‘ view, perceived control is crucial to the delivery of service quality.

Therefore, employees of retail banks in India must be motivated to be able to cope

with and manage stressful situations. Rules and procedures must be clearly stated.

167

5.3 Conclusions

Important conclusions reached in this study are:

1. There is a link of service performance and service quality in many respects, as

suggested in prior literature. However, in some respects, service performance is

found to have either inverse or marginally positive relationship with service quality.

For example, antecedents of service performance gaps such as role conflict and role

ambiguity have been found to negatively impact service quality dimensions such as

reliability, responsiveness, and empathy. This finding confirmed earlier research.

2. Customers and bankers perceive the relation of service performance factors and

service quality dimension similarly, but in some respects differently. As the results of

this study show, there is a strong agreement between customers and bankers on the

effects of teamwork, employee-job fit, technology fit, perceived control, and role

ambiguity on service quality dimensions.

3. Service performance of retail banks in India, whether government-owned,

private-owned, is perceived similarly by both customers and bankers in terms of

service .

4. The service performance gap model, when applied under different business and

cultural environments, may yield different results. This conclusion emanated from the

fact that the results of this research in some respects confirmed prior studies and, in

other areas, contrasted with prior research.

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5.4 Recommendations for Future Research

This study focused on the Indian retail banking industry due to the growing

competition in the industry emanating from macroeconomic stability, liberalization,

and entry of foreign banks. This competitive environment may be similar to or

different from the banking industries of other countries. For this reason, it is

recommended that future research replicate this study in other countries and

industries. The changing nature of the retail banking industry, customers‘

expectations, global economy, as well as the effect of cultural differences on research

population may necessitate the replication of this study in other settings.

This study found that teamwork, employee-job fit, technology-job fit, perceived

control, supervisory control systems, role conflict, and role ambiguity have a mixed

effect on the perception of service quality dimensions – tangibles, reliability,

responsiveness, assurance, and empathy. However, the research could not establish

the causality and consequentiality of the two sets of variables. Therefore, future

research could focus on the investigation of the causal and consequential relationship

between the antecedents of service performance and service quality dimensions.

Also, this study sampled only retail banks. However, there are different types of

banks in the Indian banking industry. Therefore, future research may focus on other

169

types of banks to test the applicability of the service performance gap model.

Moreover, future research may examine the effects of each of the antecedents of

service performance on other variables such as financial performance of an

organization. This research used quantitative methodology, and future research may

use qualitative or mixed research design to test the link between service performance

and service quality.

170

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185

APPENDIX A: LETTER TO RESPONDENTS

186

Sub: Questionnaire for Research on Indian Banks

Dear Respondent:

My name is Shraddha Pathak. I am a doctoral candidate at University of Lucknow. I

am conducting a survey on service performance and service quality of banks in India

as part of my dissertation entitled "Service Performance and Service Quality in the

Indian Banking Industry".

I would be very grateful if you could take time to complete the attached

questionnaire. Every effort has been made to keep the questionnaire easy to complete.

Therefore it should take approximately 15 minutes to complete.

Please be advised that you are not required to put your name or information that

identifies you on the questionnaire. The demographic information requested is

anonymous and will be kept completely confidential.

Please also note that participation in this survey is absolutely voluntary. In this

regard, in the course of answering the questions at anytime if you feel uncomfortable

you may discontinue or leave any question(s) unanswered. The report of the survey

will also be made available to you when it is completed.

I will greatly appreciate if you completed the questionnaire and return it back.

I will not hesitate to answer your question(s) related to this survey. I can be reached at

shrads.pathak@gmail.com or 9956901107.

Thank you very much for your time and assistance.

187

APPENDIX B: INSTRUMENTS

188

SERVICE PERFORMANCE GAP QUESTIONNAIRE

Customer Survey

Part I

Directions: This portion of the survey deals with what you think is an excellent bank

that, in your view, delivers excellent quality service. Please indicate the extent of

which features you feel an excellent bank should possess described by each

statement. If you are likely to feel a feature is not at all essential for ,circle number

1. If you are likely to feel a feature is absolutely essential, circle 7. If your feeling is

likely to be less strong, circle one of the numbers in the middle. Remember, there are

no right and wrong answers –we are interested in what you regard as an excellent

bank.

Strongly Strongly

Agree Disagree

TANGIBLES

1 Banks will have modern–looking equipment. 1 2 3 4 5

2 The physical facilities at banks will be visually

appealing.

1 2 3 4 5

3 Employees at banks will be neat-appearing. 1 2 3 4 5

4 Materials associated with service (such as

pamphlets or statements) will be visually

appealing in an excellent bank.

1 2 3 4 5

RELIABILITY

5 When banks promise to do something by certain

time, they do so.

1 2 3 4 5

6 When a customer has a problem, banks will

show sincere interest in solving it

1 2 3 4 5

7 Banks will perform the service right the first time 1 2 3 4 5

9 Banks will insist on error-free records. 1 2 3 4 5

RESPONSIVENESS

10 Employees in banks will tell customers exactly

when services will be performed.

1 2 3 4 5

11 Employees in banks will give prompt service to

Customers

1 2 3 4 5

189

12 Employees in banks will always be willing to

help customers.

1 2 3 4 5

13 Employees in banks will never be too busy to

respond to customers‘ requests.

1 2 3 4 5

ASSURANCE

14 The behavior of employees in banks will instill

confidence in customers.

1 2 3 4 5

15 Customers of banks will feel safe in their

transactions.

1 2 3 4 5

16 Employees in banks will be consistently

courteous with customers.

1 2 3 4 5

17 Employees in banks will have the knowledge to

answer customers‘ questions.

1 2 3 4 5

EMPATHY

18 Banks will give customers individual attention. 1 2 3 4 5

19 Banks will have operating hours convenient to all

their customers.

1 2 3 4 5

20 Banks will have employees who give customers

personal attention.

1 2 3 4 5

21 Banks will have customers‘ best interests at

heart.

1 2 3 4 5

22 The employees of banks will understand the

specific needs of their customers.

1 2 3 4 5

190

Part II

Directions: Listed below are five features pertaining to banks and the services they

offer. We would like to know how important each of these features is to you when

you evaluate a bank‘s quality of service. Please allocate a total of 10 points among the

five features according to how important each feature is to you-the more important a

feature is to you, the more points you should allocate to it.Please ensure that the

points you allocate to the five features add up to 10.

TANGIBLES

1 The appearance of the bank‘s physical facilities,

equipment, personnel, and communication materials..

Points

RELIABLE

2 The bank‘s ability to perform the promised service

dependable and accurately

Points

RESPONSIVENESS

3 The bank‘s willingness to help customers and provide

prompt service

Points

ASSURANCE

4 The knowledge and courtesy of the bank‘s employees

and their ability to convey trust and confidence.

Points

EMPATHY

5 The caring, individualized attention the bank provides

its customers

Points

TOTAL POINTS ALLOCATED 10 Points

Which one feature among the above five is likely to be most

important to you?

(please enter the feature‘s number)

Which feature is likely to be second most important to you?

Which feature is likely to be least important to you?

191

Part III

Directions: Listed below are a number of statements intended to measure your

perceptions about your bank and its operations. Please indicate the extent of which you

disagree or agree with each statement by circling one of the seven numbers next to each

statement. If you strongly disagree, circle 1. If you strongly circle 7.If your feelings are

not strong, circle one of the numbers in the middle. There are no right or wrong answers.

Please tell us honestly how you feel.

Strongly Strongly

Disagree Agree

Teamwork

1 I feel that every banker is part of a team in the bank. 1 2 3 4 5

2 Every banker in the bank contributes to a team

effort in

servicing customers.

1 2 3 4 5

3 I feel that every banker has a sense of responsibility

to help his (her) fellow employees do their jobs

well.

1 2 3 4 5

4 Every banker‘s fellow employees and bankers

cooperate more often than they compete.

1 2 3 4 5

5 I feel that every banker is an important member of

this bank.

1 2 3 4 5

Employee-job fit

6 Every banker feels comfortable in his (her) job in

the sense that he (she) is able to perform the job

well

1 2 3 4 5

7 The banker hires people who are qualified to do

their jobs.

1 2 4 5

Technology-job fit

8 The bank gives employees the tools and equipment

that they need to perform their job well

1 2 3 4 5

Perceived Control

9 Every banker spends a lot of time in his (her) job

trying to resolve problems over which he (she) has

1 2 3 4 5

192

little control. (-)

10 Every banker has the freedom in his (her) job to

truly satisfy his (her) customers‘ needs.

1 2 3 4 5

11 Bankers sometimes feel a lack of control over their

job because too many customers demand service at

the same time. (-)

1 2 3 4 5

12 One of the bankers‘ frustrations on the job is that

they sometime have to depend on other employees

in serving their customers. (-)

1 2 3 4 5

Supervisory control systems

13 The supervisor‘s appraisal of employees‘ job

performance includes how well they interact with

customers.

1

2 3 4 5

14 In the bank, making a special effort to serve

customers well does not result in more pay or

recognition. (-)

1 2 3 4 5

15 In the bank, employees who do the best job serving

customers are more likely to be rewarded than other

employees.

1 2 3 4 5

Role conflict

16 The amount of paperwork in employees‘ job makes

it hard for them to effectively serve their customers

(-)

1 2 3 4 5

17 The bank places so much emphasis on selling to

customers that it is difficult to serve customers

properly. (-)

1 2 3 4 5

18 What a bank‘s customers want employee to do and

what a bank‘s management wants employees to do

are usually the same thing.

1 2 3 4 5

19 The bank and the bankers have the same ideas about

how their jobs should be performed.

1 2 3 4 5

Role ambiguity

20 Every banker receives a sufficient amount of

information from management concerning what he

(she) is supposed to do in his (her) job.

1 2 4 5

21 Bankers often feel that they do not understand the

services offered by their bank. (-)

1 2 3 4 5

193

22 Every banker is able to keep up with changes in his

(her) bank that affects his (her) job.

1 2 3 4 5

23 Bankers feel that they have not been well trained by

their bank in how to interact effectively with

customers. (-)

1 2 3 4 5

24 Bankers are not sure which aspects of their

supervisor will stress most in evaluating their

performance. (-)

1 2 3 4 5

* Statements with a (-) sign at the end are negatively worded and therefore should be

reverse-scored

(i.e., a rating of 4 should be scored as 1, 6 as 2, 3 as 3, and so on).

194

Part IV.

(Demographic Characteristics)

The remaining questions on this survey are concerned with your background and

business experience. This information will help identify trends in the data for

different groups of responders. Please remember that your responses are completely

confidential.

1. What kind of bank are you doing business with?

-------1. Government-controlled bank (public)

-------2. Private bank

2. Approximately for how many years have you done business in this bank___

3. What is the highest level of education you have completed?

-------1. High school or less

-------2. Intermediate

-------3. Graduate

-------4. Post graduate

-------5. Professional degree

-------5. Doctorate

4. Age (Year):

-------1. Under 20

-------2.20 to 30

-------3.31 to 40

-------4.41 to 50

-------5.51 to 60

-------6. Over 60

5. Gender:

-------1. Male

-------2.Female

6. What kind of profession you are into.?

-------1. Business

195

-------2. Service

-------3. Housewife

-------4. Student

196

SERVICE PERFORMANCE GAP QUESTIONNAIRE

Banker Survey

Part I

Directions: This portion of the survey deals with what you think is an excellent bank

that, in your view, delivers excellent quality service. Please indicate the extent of

which features you feel an excellent bank should possess described by each

statement. If you are likely to feel a feature is not at all essential for banks, circle

number 1. If you are likely to feel a feature is absolutely essential, circle 5. If your

feeling is likely to be less strong, circle one of the numbers in the middle. Remember,

there are no right and wrong answers –we are interested in what you regard as an

excellent bank.

Strongly Strongly

Disagree Agree

TANGIBLES

1 Bank will have modern–looking equipment. 1 2 3 4 5

2 The physical facilities at bank will be visually

appealing.

1 2 3 4 5

3 Employees at banks will be neat-appearing. 1 2 4 5

4 Materials associated with service (such as

pamphlets or

statements) will be visually appealing in bank.

1 2 3 4 5

RELIABILITY

5 When bank promise to do something by certain

time, they do so.

1 2 3 4 5

6 When a customer has a problem, bank will

show sincere interest in solving it

1 2 3 4 5

7 Bank will perform the services right the first

time

1 2 3 4 5

8 Bank will provide their services at the time they

Promise to do so.

1 2 3 4 5

9 Bank will insist on error-free records. 1 2 3 4 5

RESPONSIVENESS

197

10 Employees in Bank will tell customers exactly

when services will be performed.

1 2 3 4 5

11 Employees in Bank will give prompt service to

Customers

1 2 3 4 5

12 Employees in Bank will always be willing to

help customers.

1 2 3 4 5

13 Employees in Bank will never be too busy to

respond to customers‘ requests.

1 2 3 4 5

ASSURANCE

14 The behavior of employees in Bank will instill

confidence in customers.

1 2 3 4 5

15 Customers of Bank will feel safe in their

transactions.

1 2 3 4 5

16 Employees in Bank will be consistently

courteous with customers.

1 2 3 4 5

17 Employees in Bank will have the knowledge to

answer customers‘ questions.

1 2 3 4 5

EMPATHY

18 Bank will give customers individual attention. 1 2 3 4 5

19 Bank will have operating hours convenient to all

their customers.

1 2 3 4 5

20 Bank will have employees who give customers

personal attention.

1 2 3 4 5

21 Bank will have customers‘ best interests at

heart.

1 2 3 4 5

22 The employees of Bank will understand the

specific needs of their customers.

1 2 3 4 5

198

Part II

Directions: Listed below are a number of statements intended to measure your

perceptions about your bank and its operations. Please indicate the extent of which

you disagree or agree with each statement by circling one of the seven numbers next

to each statement. If you strongly disagree, circle 1. If you strongly circle 5.If your

feelings are not strong, circle one of the numbers in the middle. There are no right or

wrong answers. Please tell us honestly how you feel.

Strongly Strongly

Disagree Agree

Teamwork

1 I feel that I am a part of a team in the bank. 1 2 3 4 5

2 Everyone in bank contributes to a team effort

in servicing customers.

1 2 3 4 5

3 I feel a sense of responsibility to help my

fellow employees do their jobs well.

1 2 3 4 5

4 My fellow employees and bankers cooperate

more often than they compete.

1 2 3 4 5

5 I feel that I am an important member of this

bank.

1 2 3 4 5

Employee-job fit

6 I feel comfortable in my job in the

sense that I am is able to perform the job well

1 2 3 4 5

7 Bank hires people who are qualified to do

their jobs.

1 2 3 4 5

Technology-job fit

8 The bank gives me the tools and equipment

that I need to perform my job well

1 2 3 4 5

Perceived Control

9 I spends a lot of time in my job trying

to resolve problems over which I have little

control. (-)

1 2 3 4 5

10 I have the freedom in my job to truly

satisfy my customers‘ needs.

1 2 3 4 5

11 I sometimes feel a lack of control over my

job

1 2 3 4 5

199

because too many customers demand service

at the same time. (-)

12 One of the my frustrations on the job is that I

sometime have to depend on other employees

in serving my customers. (-)

1 2 3 4 5

Supervisory control systems

13 My supervisor‘s appraisal of my job

performance includes how well I interact

with

customers.

1

2 3 4 5

14 In bank, making a special effort to serve

customers well does not result in more pay or

recognition. (-)

1 2 3 4 5

15 In bank, employees who do the best job

serving customers are more likely to be

rewarded than other employees.

1 2 3 4 5

Role conflict

16 The amount of paperwork in my job makes it

hard for me to effectively serve their

customers (-)

1 2 3 4 5

17 Bank places so much emphasis on selling to

customers that it is difficult to serve

customers properly. (-)

1 2 3 4 5

18 What bank‘s customers want me to do and

what bank‘s management wants me to do are

usually the same thing.

1 2 3 4 5

19 Bank and I have the same ideas about

how my job should be performed.

1 2 3 4 5

Role ambiguity

20 I receives a sufficient amount of information

from management concerning what I am

supposed to do in my job.

1 2 3 4 5

21 I often feel that I do not understand the

services offered by bank. (-)

1 2 3 4 5

22 I am able to keep up with changes in bank

that affects my job.

1 2 3 4 5

23 I feel that I have not been well trained by

Bank in how to interact effectively with

1 2 3 4 5

200

customers. (-)

24 I am not sure which aspects of my supervisor

will stress most in evaluating my

performance. (-)

1 2 3 4 5

* Statements with a (-) sign at the end are negatively worded and therefore should be

reverse-scored

(i.e., a rating of 7 should be scored as 1, 6 as 2, 5 as 3, and so on).

201

Part III

(Demographic Characteristics)

The remaining questions on this survey are concerned with your background and

business experience. This information will help identify trends in the data for

different groups of responders. Please remember that your responses are completely

confidential.

1. What kind of bank are you doing business with?

-------1. Government-controlled bank (public)

-------2. Private bank

2. Approximately for how many years have you done business in this bank

---------------------

3. What is the highest level of education you have completed?

-------1. High school or less

-------2.Intermidiate

-------3. Graduate

-------4. Post graduate

-------5. Professional degree

-------6. Doctorate

4. Age (Year):

-------1. Under 20

-------2.20 to 30

-------3.31 to 40

-------4.41 to 50

-------5.51 to 60

-------6. Over 60

5. Gender:

-------1. Male

-------2.Female

202

6. What kind of profession you are into.?

-------1. Business

-------2. Service

-------3. Housewife

-------4. Student