Differential Strategies in the Banking Industry - Literature review Example

Banking and Finance: Literature Review Name Professor Name Course Date Table of Contents Table of Contents 2 Background 3 Scope and objectives 3 Methodology 6 Findings 8 Conclusion 11 Implication for services marketing theories and practices 12 References 14 Background Research related to marketing service in the banking and finance sector has picked considerable momentum over the past 3 decades. The outcome is a growing knowledge-base that is relative to how service customers perceive, evaluate and conceptualise service delivery in addition to how these factors influence customer perceptions and behaviours (Parasuraman, Zeithmal and Berry, 1985). This has called for a need to research on how service quality can effectively be evaluated, factors influence service quality, how customers derive value and how customers become loyal. This paper conducts a literature review of several studies that mainly used the SERVQUAL model to evaluate these constructs. Its major emphasis is on identifying the factors essential for understanding service evaluations. This paper is of the view that the number of such factors continues to grow, although five constructs are still predominant: service quality, sacrifice, customer satisfaction, service values and customer satisfaction (Adil, Falah and Albkour, 2013). The importance of quality service in banking and finance is well documented in the service quality literature. Banking and finance services are intrinsically intangible and difficult to evaluate and depend greatly on credence and experience of customers (Daniel & Berinyuy, 2010). Previous researches have given evidence to that effect on its correlation to customer satisfaction and retention (Parasuraman, Zeithmal and Berry, 1985). Five articles are reviewed that explore how service quality, customer satisfaction, value and customer loyalty are significant factors in banking and finance service industry and that SERVQUAL can provide an effective means to assess and manage service quality (Zhou, Zhang and Xu, 2002; Siddiqi, 2011; Titko and Lace, 2012; Parasuraman, Zeithaml and Berry, 1988; Ilyas et al, 2013). In respect to the literature review, this paper argues that better service quality of banks and finance institutions has positive influence on customer satisfaction and profitability. Findings suggest that profit and growth of banking and finance service companies are encouraged principally by customer satisfaction, service quality, value and customer loyalty. Scope and objectives This literature review attempts to identify the service evaluation models in banking and finance service to determine the relationship among the key service evaluation constructs such as customer satisfaction, behavioural intentions, sacrifice and service quality. A literature survey is conducted to comparatively test these models through the use of service customers in studies conducted in Pakistan, Bangladesh, the United States, China and Latvia. The purpose of the study is to determine whether the models can capture the identified relationships. The focus of the review is on studies on banking and finance service that used SERVQUEL instrument based on llandmark studies by Parasuraman et al. (1985), that was among the first studies to identify the key dimensions for service quality using SERVQUEL. Parasuraman et al. (1985) proposed reliability, tangibles, responsiveness, courtesy, competence, security, understanding, communication, credibility and access. Subsequent studies however saw the dimensions reduced to five, namely reliability, tangibles, empathy, assurance and responsiveness. Basing on the SERVQUAL scale, the measurement of service quality is based on measuring by identifying gaps such as customer expectations of the service that is provided and their perception of the actual performance of the services (Daniel and Berinyuy, 2010). The literature review is based on the assumption that most of the elements postulated by Parasuraman et al. (1988) under five dimensions are relevant in banking and finance service industry. Service quality is indeed crucial for banking and finance service companies. This is because service companies are competing to attain sustainable competitive advantage through the provision of high quality service to customers. This has contributed to increased focus on service quality. Indeed, players in the banking industry have recognised a host of potential benefits that can be derived from having service quality programs as well as increasing customer satisfaction and customer loyalty (Al Bassam, T. & Al Shawi, S. (2011). This calls for a need for a research in this area. A review of Zhou, Zhang & Xu (2002) and (Adil, Falah and Albkour, 2013) points to the need to explore further how the quest for service quality has been an important strategic consideration for banking and finance institutions to succeed in maintaining their customers and to survive the competitions in the industry. This assumption has led to the development of various approaches such as SERVEQUAL, which is perhaps the most used scale in the service and quality literature (Parasuraman, Zeithaml and Berry, 1988; Parasuraman, Berry and Zeithaml, 1991; Parasuraman, Zeithaml and Berry, 1994). Methodology Author DV= Dependent Variable IV= Independent Variable Relationship with DV Measurement used Country Method & No. of respondents Population size survey method Unit of Analysis Ilyas et al (2013) IV= Service quality DV= Customer satisfaction Better banking service has a positive impact on satisfaction of its customer From other related studies that use SERVQUEL e.g. Parasuraman, Zeithaml and Berry (1988) Pakistan -Questionnaire used -306 respondents Structured survey through self-administrated (SERVQUEL) questionnaires Banking Customer’s perceived service quality Parasuraman, Zeithaml and Berry (1988) IV= Service quality DV= Customer satisfaction Customer satisfaction depends on quality service SERVQUEL USA - questionnaires 97 respondents Structured survey through self-administrated (SERVQUEL) Questionnaires Customer perception of service quality in service and retailing organizations. Titko and Lace (2012) -IV= Service quality and loyalty -DV= Customer satisfaction From other related studies that use SERVQUEL e.g. Parasuraman, Zeithaml and Berry (1988) Latvia -questionnaires Respondents = 301 bank customers’ and 79 bank employees’ Structures survey through self-administrated (SERVQUEL) questionnaires Banking customers’ and employees’ perceptions of service quality Siddiqi (2011) IV= service quality DV = customer satisfaction, customer loyalty - Service quality constructs are positively related to customer satisfaction - customer satisfaction is positively related to customer loyalty From other related studies that use SERVQUEL e.g. Parasuraman, Zeithaml and Berry (1988) Bangladesh -questionnaires -100 Respondents Structured survey through self-administrated (SERVQUEL) questionnaires Correlation between service quality constructs, customer satisfaction variables and customer loyalty in the retail banking sector Zhou, Zhang and Xu (2002) IV = SERVQUEL DV = customer perception SERVQUEL explores specific customer perceptions and expectations of service quality From other related studies that use SERVQUEL e.g. Parasuraman, Zeithaml and Berry (1988) China - questionnaires -373 bank customers Structured survey through self-administrated (SERVQUEL) questionnaires Role of SERVQUEL in exploring customer perceptions and expectations of service quality, and the gap between the two All the five articles matched the criteria: previous researches in the banking and finance service industry that used SERVQUAL scale to measure quality of service. The articles identified gaps such as customer expectations of the service that is provided and the perception of the actual performance of the service. Four of the studies were showed that most of the elements postulated by Parasuraman et al. (1988) under five dimensions are relevant in banking and finance service industry (Siddiqi, 2011; Titko and Lace, 2012; Zhou, Zhang and Xu, 2002; Ilyas et al, 2013). Further, the quality of the service provided by a bank is correlated to the satisfaction of the customers. Studies by Zhou, Zhang and Xu (2002) and Ilyas et al (2013) found that perceived quality has a positive effect on customer satisfaction. A review of Siddiqi (2011) also indicates that service quality in the banking industry is related to assurance, responsiveness and reliability. Zhou, Zhang and Xu (2002) found that reliability and assurance have substantial influence on the banking industry service quality and satisfaction of customers. This relates to a review of Siddiqi (2011) and Titko and Lace (2012) which found that the banking industry has a direct impact on the service quality of customer satisfaction. Similar results were found by Ilyas et al (2013). Findings Banking and financial institutions are increasingly exceeding customer expectations in three major dimensions including responsiveness, tangibles and reliability (Zhou, Zhang and Xu, 2002; Siddiqi, 2011; Titko and Lace, 2012). Ilyas et al (2013) however noted that dimensions such as empathy and assurance are wanting. These findings are indeed in contrast with banking institutions in Latvia, USA, Bangladesh and China where high competition among the banks exists in addition to the existing strong regulatory frameworks (Zhou, Zhang and Xu, 2002; Siddiqi, 2011; Titko and Lace, 2012; Parasuraman, Zeithaml and Berry, 1988). This clearly suggests that although service quality gap is incredibly low in the two areas, banks need to take serious steps to tackle the dissatisfaction faced by a cross-section of the customers. The suitability of SERVQUAL in the banking industry has generated various results. SERVQUAL applications in banking and finance service industry has been categorised into three dimensions that influence service quality (Siddiqi, 2011; Titko and Lace, 2012). These include responsiveness-empathy, reliability and tangibles. Ilyas et al (2013) commented that because of inadequate factor loading, assurance has been eliminated. In China, the use of SERVQUAL identified six key dimensions of service quality. These include reliability, tangibles, assurance, responsiveness, empathy1 (including understanding of needs) and empathy 2 (involving having convenient work/operating hours). Indeed, the four studies are consistent with landmark studies by Parasuraman et al. (1985), which was among the first studies to identify the key dimensions for service quality. Parasuraman et al. (1985) proposed reliability, tangibles, responsiveness, courtesy, competence, security, understanding, communication, credibility and access. Subsequent studies however saw the dimensions reduced to five, namely reliability, tangibles, empathy, assurance and responsiveness. Brady et al (2005) discussed that a notable income is the consistency with which service quality is a driver of behavioural change. Several studies have supported this assumption (Siddiqi, 2011; Titko and Lace, 2012; Zhou, Zhang and Xu, 2002; Ilyas et al, 2013). Indeed, strong evidence is provided supporting the significance of that service consumer in the banking and finance industry place on the value experienced in the service offered. Brady et al (2005) found that service quality, value of service and customer satisfaction have a strong effect on the behaviours of customers. Review of a study by Ravichandran et al (2010) shows that customer quality and service quality are closely correlated constructs. This finding is related with previous studies by Brady et al (2005). The researchers argued that service quality positively influences customer satisfaction and generates customer loyalty (Siddiqi, 2011; Titko and Lace, 2012; Zhou, Zhang and Xu, 2002; Ilyas et al, 2013). Ravichandran et al (2010) came up with a conceptual model that related customer satisfaction, service quality and customer loyalty into one structure. Based on the model, service quality is perceived as the outcome of the five key dimensions, namely tangibles, empathy, responsiveness, reliability and assurance. Service quality construct is in most cases conceived in the service marketing literature. In which case, it is concerned with the notion of perceived service quality. Perceived service quality refers to the extent to which an organization is able to successfully fulfill the needs or purpose of customers (Markovic, S. & Raspor, 2009). Customers are at the upper hand of determining the cognitive and perceived value of the quality of service delivered. Zhou, Zhang and Xu (2002) and Ilyas et al (2013) found that customer expectations, service outcome and service delivery processes influence perceived quality. The researchers were of a consensus that favourable or unfavourable experiences as well as negative and positive emotions significantly impacts perceived service quality. Similarly, Ilyas et al (2013) reported that the perception of customers on service quality largely influence the level of their earlier experience with a certain banking and finance service. From a survey of literature, satisfaction came out as a critical antecedent of behavioural intentions. Even as the antecedent role of these constructs has been independently recognised in the service literature, the key findings from literature review are that customer service quality plays a key role customer satisfaction and loyalty. Brady et al (2005) commented that service quality, customer satisfaction and service value have a collective influence on behavioural intention in banking and finance industry. This highlights the relationship between satisfaction and value. Further review of literature suggests that customer satisfaction is vulnerable to influences such as personal and situational factors. There is a direct and strong correlation between customers, growth, value of goods and customer satisfaction as well as the services delivered to the customers. The findings are consistent with Siddiqi’s (2011). Siddiqi’s (2011) analyses the correlation between customer satisfactions, service quality and customer loyalty in the banking sector. Service quality is a critical success factor influencing organizational competiveness. Banks can differentiate themselves from their competitors by offering high quality service. Further, it is a major attractive area for consolidating customers in the banking industry. Customers in the banking industry are at a vantage point given the significant increase in the number and competitiveness of banks. Siddiqi’s (2011) found that based on these assumptions, banks are obligated to constantly improve service quality. Zhou, Zhang and Xu (2002) and Ilyas et al (2013) attempted to find the correlation between customer satisfactions, service quality and customer loyalty in banking and finance service. The researchers argued that customer satisfaction and service quality are indicators of customer loyalty. Conclusion Findings suggest that profit and growth are encouraged principally by customer loyalty. Further, loyalty is viewed as a direct result to customer satisfaction. Further, customer satisfaction is greatly stimulated by the value of the services provided to the customers. Additionally, value is created by loyal, satisfied and productive employees. Lastly, satisfaction of employees stimulates high quality of quality services. The quality of the banking and finance service strategies for maintaining customers will have minimal potential to be a success if not built on high quality service. This however does not imply that the company must perform best in the industry in regards to offering quality service and customer satisfaction. In any case, it must be competitive and far more than that. All strategies to maintain customers depend on the perception of the quality of the service rendered. This implies that there is no need to elaborate certain customer preservation strategies that render poor quality services to the customers. Each employee within a banking and finance company contributed to a higher or lower extent to the negative or positive perception of the service quality. At the time of rendering the service, a small number of employees may be involved although their activity depends on the support of the bulk of other employees who are responsible for the quality of the service. In sum, most often, marketing policies developed by companies dealing in goods have often been directed towards attraction of new customers. In contrast, service companies focus on marinating their current customers. Within the domain of banking and finance service, the service process comprises a host of relationships between a company and a customer. In particular, the product is the key instrument that creates and offers quality service wholly for the company to prove that it indeed is taken care of the problems and interests of the customers. Indeed, the concept of ‘care and interest’ is strongly correlated to the concept of providing customer satisfaction. To be able to establish and create long-term marketing relationships, banking and finance institutions must ensure that they provide quality service, quality value and satisfy their customers. Implication for services marketing theories and practices The findings signify the significance of sacrifice by the managers. Its roles as a key antecedent of value are substantially supported in the SERVQUAL model. Through emphasis on the creation of value, it is critical that managers have to account for the important of sacrifice in establishing service customers’ perception of service quality and value (Brady et al, 2005). Managers of banking and finance service organizations can derive several benefits from the findings. Configuration of the model offers direction on the way in which services should be leveraged to ensure optimal customer appeal. The model shows that the focus of manager should be on the antecedents of behavioural intentions, namely service value, service quality and customer satisfaction (Zhau, 2002). The findings further call on the managers to give regard to the significance of customer satisfaction and service value as the main strategic goals. Despite the setting, service customers have appeared to place emphasis on these two variables in evaluation of these options. This indicates that pricing, promotion, service environment, location, operating hours, customer service policies as well as other strategic options should be evaluated by managers in accordance with their potential impact on the customers perception of value and service quality and customer satisfaction. Therefore, managers should integrate training programs to focus more on development of employee skills to maximise customer satisfaction and value. Additionally, while the findings do not indicate that provision of service quality is important, they indicate that it is not as crucial as other constructs such as customer satisfaction and value (Buttle, 1994). Managers also need to consider the likely moderatos of these correlations in their local markets. For example, political upheaval or local economy may influence the choice of suitable managerial goals such as in cases of countries that have experienced severe economic depression. On the other hand, affluent customers may prefer quality-based strategies as a way of high value perception. Such customers may place emphasis on non-monetary sacrifices more emotional in the evaluations and anchor their purchase preference on evaluation of satisfactions. Observably, service managers have to fine-tune their strategies to best fit the features of their target markets as well as specific contributions that they make on the markets. Banking and finance service managers should also understand that only those organizations that will have the capacity to ensure quality in their end-products will enable them to maintain their position. In which case, service manager should focus on quality improvement to get rid of the flaw in quality by giving priority to the areas with the biggest gaps as well as to the items that have the lowest gaps (Bala, Sandhu & Nagpal, 2011). In any case, SERVQUAL tool is moving around the element f service delivery – such as reliability, assurance, empathy and responsively and the tangible attributes. This implies that service managers should ensure that employees understand the needs of the customers and offer services in a way that the organization is intended to provide to the customers. In any case, within a competitive industry such as the banking industry, performance on differential strategies intended to improve service quality will enable an organization to add value to its relation with the prospective and existing customers (Bala, Sandhu & Nagpal, 2011). References Adil, M., Falah, M. & Albkour, M. (2013). 'SERVQUAL and SERVPERF: A Review of Measures in Services Marketing Research.' Global Journal of Management and Business Research Marketing 13(6): 1-12 Al Bassam, T. & Al Shawi, S. (2011). Analysing the Use of the SERVQUAL Model to Measure Service Quality in Specific-Industry Contexts. Uxbridge: Brunel University Bala, N., Sandhu, H. & Nagpal, N. 'Measuring Life Insurance Service Quality: An Empirical Assessment of SERVQUAL Instrument.' International Business Research 4(4): 176-190 Brady, M., Knight, G., Cronic, J., Tomas, G., Hult & Keillor. (2005). 'Removing the contextual lens: A multinational, multi-setting comparison of service evaluation models.' 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