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    Linkage between service quality and customer loyalty bank Linkage between service quality and customer loyalty bank Document Transcript

    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1 LINKAGE BETWEEN SERVICE QUALITY AND CUSTOMERS LOYALTY IN COMMERCIAL BANKS S. Dhandabani, PhD, Assistant Professor, S.S.T College, Coimbatore, T.N,India ABSTRACT This study examines the nature of linkage between service quality and customer loyalty in Indian retail banking. Study used confirmatory factor analysis to identify the service quality dimension. The resulted dimensions are Reliability, Responsiveness, Knowledge and recovery; and Tangibles. The service quality dimensions lead to customer satisfaction and the customers’ satisfaction leads to customer’s loyalty. The structural equation model reveals that there is no significant direct linkage between service quality and customers loyalty. At the same time, the service quality has a significant indirect impact on customer’s loyalty especially through customer’s satisfaction. The study indicates that the bank managers need to develop a systematic assessment programs to monitor service quality and customers satisfaction over time. Once the service culture is established, that will lead to customer satisfaction. And customer satisfaction result in customer’s loyalty.Keywords: Banks Customer, Loyalty, Responsiveness, Service, SatisfactionINTRODUCTION During the past two decades or so, regulatory, structural and technological factors havesignificantly changed the banking environment throughout the world (Angur et al., 1999). In amilieu which becomes increasingly competitive, service quality as a critical measure oforganizational performance continues to compel the attention of banking institutions and remainsat the forefront of services marketing literature and practice (Lasser et al., 2000; Yavas andYasin, 2001). The interest is largely driven by the realization that higher service quality results incustomer‟s satisfaction and loyalty, greater willingness to recommend to someone else, reductionin complaints and improved customer retention rates (Danaher, 1997; Magi and Julander, 1996;Levesque and McDongall, 1996). 1
    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1 Undoubtedly owing to the belief that delivery of higher service quality is a must forattaining customers satisfaction and a number of other desirable behavioural outcomes, recentyears have witnessed a flurry of research exploring inter relationship between service quality and,satisfaction and behavioural outcomes (Festus and Hsu, et al., 2006; Thamariselvan and Raja,2007). This study expands the research stream into India. The specific objectives of the studyare: to reveal the dimensions of service quality in commercial banks. to examine the inter relationship between exogenous and endogenous variables and to study the direct and indirect effects of service quality on customer loyalty. A study addressing these issues is relevant and significant for at least three reasons. First,while much is known about the items in the SERVQUAL instrument that are global in nature, theoutcome of administering the SERVQUAL scale to the consumers of a service is of little utilityvalue for instituting an operational instrument process for the service. Some researchers(Babakus and Boler, 1992; Lapierre, 1996; Levitt, 1981) have suggested that the search ofuniversal conceptualization of the service quality construct may be futile, and to be a practicalutility, a service construct should not only be operational, but also context specific. Secondly, while much is known about the relationships between service quality,satisfaction and behavioural outcomes as a result of research initially as conducted in the USAand England (Angur et al., 1999; Jamal Nasser, 2002; Yavas et al., 1997; Anthanassapoulous, etal., 2001), still there is a paucity of research dealing with these issues in the context of India. Thirdly, in today‟s fiercely competitive Indian banking environment, where Indian bankersconsider delivery of excellent service quality to customers as a key to success and survival, thefindings from the study can provide them with valuable insights in ways of enhancing servicequality to induce greater customer satisfaction and customers loyalty.CONCEPTUAL FOUNDATIONS 2
    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1 Over the past 40 years, several authors have attempted to develop coherent classificationschemes for services. The intent of such schemes is to bring parsimony and order to allow abetter understanding of the characteristics that differentiate services and the organizations thatprovide them. The following section reviews some of these schemes.Service Quality Service quality is considered a multi-attribute construct-the product of the comparisonbetween the customers expectations and their perceptions of the company‟s actions (Parasuramanet al., 1985; 1998; Boulding et al., 1993; Gronroos, 1994). Perceived service quality has beendefined as the consumer‟s global attitude or judgement of the overall excellence or superiority ofthe service. Perceived service quality results from comparisons by consumers of expectationswith their perceptions of service delivered by suppliers (Lewis et al., 1994; Takeuchi and Onelch,1983; Zeithaml, 1988). Customers expectation are beliefs about a service that serve as standardsagainst which service performance is judged (Zeithaml et al., 1993); what customers think aservice provider should offer rather than what might be on offer (Parasuraman et al., 1988).Expectations are formed from a variety of sources such as the customer‟s personal needs andwishes (Edvardsson et al., 1994).Measurement of Service Quality The SERVQUAL instrument proposed by Parasuraman et al., (1988) posits the computeddisconfirmation approach whereby the difference between a customer‟s expectation and theactual performance is calculated. This approach has been criticized by several authors for anumber of weaknesses. The alternative approach namely SERVPERF, is that measurement of thecustomer‟s perception of the performance of a service which provides adequate assessment forservice quality (Gronroos, 1988; 1990; Cronin and Taylor, 1992; Peter et al., 1993; Brown et al.,1993; Bebko, 2000). The increasing support on the measurement of service quality byperformance-only measurement (SERVPERF) is witnessed (Andaleeb, and Basu, 1994; Zeithaml,1996 and Cronin et al., 2000). Since the weight of evidence in the literature supports the use of 3
    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1performance perception, the present study adopts the “SERVPERF” scale to measure servicequality.Service Quality Dimension in Commercial Banks Several researchers have suggested that the search for universal conceptualization of theservice quality construct may be futile (Levist, 1981; Lovetock, 1983). The service qualityconstruct is either industry or context specific (Babakus and Boller, 1992). The measurement ofthe service quality construct is multidimensional. In its original structure, service quality consistsof five dimensions (Parasuraman et al., 1988; Carman, 1990; Rust and Oliver, 1994). These are: 1. the tangibility aspects of the service 2. the reliability of the service provider 3. the assurance provided by the service provider 4. the responsiveness of the service provider; and 5. the service provider‟s empathy with customers The included variables to measure the service quality of commercial banks were rangingfrom seventeen to fifty seven variables (Narul Islam, 2005; Verma and Vehra, 2000; Sharma andMehta, 2004; Elango and Gudep, 2006; Sharma and Sharma, 2007; Bhat, 2004; Levesque andGorden, 1996; Bhat, 2005; Zillur, 2005; Gani and Bhat, 2003). In the present study, the includedservice quality variables are twenty seven (See Table 1).Customer Satisfaction Several studies seem to conclude that satisfaction is an affective construct rather than acognitive construct (Oliver, 1997; Olsen, 2002). Cronin et al., (2000) assessed servicesatisfaction using items that include interest, enjoyment, surprise, anger, wise choice, and doingthe right thing. Rust and Oliver (1994) defined satisfaction as the “customer‟s fulfillmentresponse” which is an evaluation as well as an emotion-based response to a service. In thepresent study, the more popular Westbrook and Oliver‟s (1991) four emotion-laden items havebeen used. 4
    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1Perceived Value Customers perceived services have been theoretically represented as consisting of twodimensions. Berry and Parasuraman (1991) distinguish a process and an outcome dimension,whereas Gronroos (1990) makes a distinction between functional and technical quality. Theprocess of functional quality refers to “how” the service is delivered, while the outcome ortechnical quality refers to “what” customers perceive, the benefits of using the service. In thecommercial banks, how banking operations are being transacted as functional benefit, easy to use,safety and confidence on the systems at banks are the benefits that customers perceive astechnical benefits. In the present study, the number of items used to measure the perceived valueon service is three (See. Table 1).Customer’s Loyalty According to a model presented by Zeithaml et al., (1996), behavioural intention can becaptured by such measures as repurchase intentions, words of mouth, loyalty, complainingbehaviour, and price sensitivity. High service quality often leads to favourable behaviouralintention (Burton et al., 2003). Loyal customers are important, because they contribute to thebank‟s profitability by passing positive words of mouth and also retain their customership.(Anderson and Mittal, 2000; Storbacka et al., 1994). Loyalty is predominantly satisfaction driven(Rust et al., 1995) and therefore customers satisfaction measurements are believed to give a betterindication of future performance of service firms (Anderson and Fornell, 1999) than, for instancefinancial and accounting based measures (Kaplan and Nortan, 1996). Customer loyalty is afeeling of commitment on the part of the consumer to a product, brand, marketer, or servicesabove and beyond that for the competitors in the market place, which results in repeat purchase(Szymigin and Carrigan, 2001). A loyal customer to a bank is thus, one who will stay with thesame service provider, is likely to take out new products with the bank and is likely to 5
    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1recommend the bank services (Fisher, 2001). The customer‟s loyalty towards the banks in thepresent study is measured on the basis of three statements (Kish, 2000; Bridgewater, 2001).Inter-Relationship among Service Quality, Customer Satisfaction and Customer Loyalty There is no clear message in the literature on the causal ordering of service quality andcustomers satisfaction, and on which of the two constructs is a better predictor of customerloyalty (Bolton and Drew, 1991; Cronin and Taylor, 1992). One group of researchers upholdsthat satisfaction is antecedent to service quality (Brady and Robertson, 2001). Dabholkar, 1995;and Winstanley, 1997). Another group of researchers believe that the service quality isantecedent to satisfaction (Brady and Robertson, 2001, Bloemer et al., 2002; Newman 2001). Athird perspective maintains that there is a non-recursive relationship between service quality andsatisfaction (Taylor and Cronin, 1994). The impact of service quality, customer satisfaction oncustomer loyalty is complex. The present study, however predicts the direct and indirect effectsof service quality, customers satisfaction on customer loyalty with the help of structural equationmodeling. The proposed research model is presented in Figure 1. FIGURE 1 Proposed Research Model Reliability Responsivenes s Service Perceived Customer Customer Quality Satisfaction Loyalty Quality Knowledge and Recovery Tangibles 6
    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1RESEARCH MATHODOLOGYScale Development Parasuraman et al. (1994) emphasized an alternative approach in giving customersdefinitions related to five underlying dimensions of service quality and asking them to assign theitems into the dimension only on the basis of each items content. Similar to the essence ofParasuraman et al.‟s approach, the questionnaire items in the present study were generated via aseries of focus groups. Specifically, the focus group customers comprised teams of customersand bank officials of public and private sector banks. The research developed a service blue printfor commercial banks because this gives the customers an opportunity to better understand thesequential stages of service encounter. The operational definition of the construct of perceivedquality (SERVPERF) was introduced to the customers prior to their development and verificationof the service quality measurement scale. The focus groups (bank officials) were requested tocheck the variables included to measure the service quality of commercial banks. TABLE 1 The Survey InstrumentSl.No Particulars I. Reliability 1. Error-free records 2. Timely Passion of service 3. Right at first time itself 4. Staffs sincerity in service 5. Providing service at promised time 6. Sincere in solving problems II. Responsiveness 7. Employees adopt service to the customer needs 8. Staffs readiness to customers request 9. Customers informed about service performance 7
    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1 10. Well handling of peak hours 11. Providing correct response to customers 12. Courteous among employees 13. Willing to help customers III. Tangibles `14. Attractive interior design 15. Upto-date equipment 16. Neat and professional appearance of employees 17. Confortable parking space 18. Visually appealing facilities IV. Recovery 19. Employees empowered for correction 20. Response on Complaints 21. Quick Correction on mistakes made 22. Convenient operating hours 23. Personalized serviceSl.No Particulars V. Knowledge 24. Customer Relationship 25. Knowledge of staffs 26. Awareness on Latest banking facts 27. Provision of adequate information VI. Perceived Value 1. Navigation Easy 2. Safety 3. Confidence on Bank 4. Accessibility VII. Customer Satisfaction 1. I am satisfied with my decision to choose this Bank 2. I did a right thing 3. My choice is a wise one 4. I feel good experience with this bankVIII. Customer Loyalty 1. I am proud to be a customer of this bank 2. I want to continue as a customer of this bank 3. I recommend others about my bank Each item of the service quality of commercial banks was rated on a five point likert typeof scale. In addition, the perceived value, customer satisfaction and customer loyalty were alsomeasured with the help of related statements. 8
    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1THE SAMPLE Two waves of sampling took place in order to obtain a sufficient number of surveyrespondents. In total, 20 Public Sector and 20 Private Sector banks in Madurai, Tamilnadu havebeen purposively selected for the present study. From each bank, 10 customers are purposivelyselected. The total sample size came to 400 customers. The response rate among the customers ofPublic Sector and Private Sector banks are 64.00 and 76.00 per cent to its total respectively. Thisgenerated total of 280 customers (128+152). Among the total customers, the important age groupis 46 to 50 which alone constitutes 41.21 per cent to the total. The important occupationalbackground among the customers are business and private employment which constitute 31.09and 22.86 per cent to the total respectively. The important annual income among the customersare Rs.15,000 to 20000 per month which constitutes 40.96 per cent to the total. Most of thecustomers have an experience of 12-15 years in their present banks.DATA ANALYSIS The present study first reviewed the descriptive statistics (Mean, standard deviation,coefficient of variation, kurtosis and skewness) in both samples and were satisfied with the datadistribution. Next, focusing on the customers of Public sector banks (Sample-1), the present studyused an iterated factor analysis with item commonality estimated from squared multiplecorrelations, and maximum likelihood as the estimation method. This procedure resulted in afour-factor solution that was rotated by a Promax algorithm (i.e. an oblique rotation). As aconservative, heuristic, items with a loading small than 0.4 on any factor were deleted. Moreover,items that demonstrated cross-loadings greater than 0.4 on more than one factor were alsodropped because they do not provide pure measures of specific construct. In addition, the screetest and the Kaiser (1960) eigen value–one criterion were both used to identify the number offactors. The results are given in Table 2. 9
    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1 TABLE 2 Factor loadings for the underlying dimensions of service qualitySl.No V.No Variabels ReliabilityResponsiveness Knowledge Tangibles and Recovery1 V4 Staffs sincerity in service 0.89142 V2 Timely Provision of service 0.86223 V1 Error free records 0.74134 V6 Sincere in solving Problems 0.70285 V5 Providing service at promised 0.6541 time6 V3 Right at first time itself 0.51917 V11 Providing correct response to 0.9127 customers8 V9 Customers informed about 0.8096 services9 V13 Willing to help customers 0.753910 V8 Staffs readiness to customer 0.7044 request11 V10 Well handling at peak hours 0.659912 V21 Quick correction on mistakes 0.8968 made13 V24 Customer Relationship 0.821314 V25 Knowledge of staffs 0.790815 V27 Provision of adequate information 0.674416 V23 Personalized service 0.524617 V18 Visually appealing facilities 0.896918 V16 Neat and Professional appearance 0.8203 of employees19 V15 Upto date equipment 0.845620 V14 Attractive interior design 0.6339 Eigen value 7.5814 5.4117 2.8646 1.3309 Percent of variance explained 31.14 20.89 18.49 12.17 Cronbach alpha 0.7342 0.7817 0.7039 0.7324*Factor loading less than 0.5 are not shown Out of 27 service quality variables, seven variables were dropped because of their poorfactor loading (less than 0.4) and more than 0.4 in more than one factors. The 20 variables weretaken for the data validity test namely Kaiser-Meyer-Ohlin (KMO) measure of samplingadequacy and Bartletts test of sphericity. Both the two tests satisfied the validity of data for factoranalysis. The factor analysis result in four important factors with the cumulative varianceexplained of 82.69 per cent. The identified factors are Reliability, Responsiveness, Knowledgeand Recovery; and Tangibles. The above said service quality factors consist of 6,5,5 and 4 10
    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1variables with the reliability coefficient of 0.7342, 0.7817, 0.7039 and 0.7324 respectively.Notably all of the calculated reliability coefficient are above the widely recognized rule of thumbof 0.7 (Nunnally, 1978) which suggests a good internal consistency among item in this eachidentified Dimension. Guided by results generated from the above analysis, an informal Confirmatory FactorAnalysis (CFA) is made on a broader sample of customers in Private sector banks (Sample-2). Aniterated factor analysis with forced four-factor selection method resulted in a four-factor solutionthat is analogous to the one reported in Table 3. TABLE 3 Factor loadings for the underlying dimensions of service qualitySl.No V.No Variabels ReliabilityResponsiveness Knowledge Tangibles and Recovery 1 V1 Error Free records 0.9133 2 V2 Timely Provision of Service 0.8646 3 V4 Staffs sincerity in service 0.7028 4 V5 Providing service at promised 0.6517 time 5 V6 Sincere in solving problems 0.5803 6 V9 Customers informed about 0.8403 services 7 V11 Providing correct response to 0.7868 customers 8 V13 Willing to help customers 0.6917 9 V8 Staffs readiness to customers 0.5803 request 10 V25 Knowledge of staffs 0.8917 11 V21 Quick correction on mistakes 0.7804 made 12 V27 Provision of adequate information 0.6517 13 V24 Customer Relationship 0.5964 14 V15 Upto date equipment 0.7914 15 V18 Visually appealing facilities 0.6306 16 V16 Neat and Professional appearance 0.5341 of employees Eigen value 5.0817 3.4517 2.0862 1.1408 Percent of variance explained 31.58 21.41 20.71 12.39 Cronbach alpha 0.7414 0.7602 0.7334 0.7046* Factor loading less than 0.4 are not shown It is worth noting that refinement of items making up each dimension was done three timesto obtain a clean four-factor picture. Specially, variable-3 was deleted due to a lower than 0.3 11
    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1factor loading on factor-1 (Reliability). In addition, Variable No.10; No.23 and No.14 weredropped to avoid the possible ambiguous dimensionality. They were associated with factor 2, 3and respectively in Sample-1. The reliability and validity of data for factor analysis has beenconducted with the help of KMO measure sampling adequacy and Bartletts test of sphericity.Both these tests satisfied the condition of validity of data also. The four factors namelyReliability, Responsiveness, knowledge and Recovery; and Tangibles consist of 5,4,4 and 3variables with the reliability coefficient of 0.7414, 0.7602, 0.7334 and 0.7046 respectively. Allthe four factors explain the service quality in commercial banks to the extent of 86.09 per cent.Assessing reliability and validity of constructs It should be noted that a more rigid procedure was also performed to assess thedimensionality of the service quality measure. Empirically, convergent validity (the degree ifassociation between measures of a construct) was assessed by reviewing the „t‟ tests for the factorloadings. The composite reliability scores for each of four factors have been also computed. Theresults are given in Table 4. TABLE 4 Properties of the CFA for SERVPERF Construct Items Standardised T- Composite and Loading Statistics Reliability IndicatorsService Reliability Error free records 0.8303 14.18* 0.93 Timely provision of service 0.8517 15.48* Staffs sincerity in service 0.9208 17.33* Providing service at promised time 0.8417 14.91* Responsiveness Customers informed about service performance 0.8163 12.06* Providing correct response to customers 0.7492 10.31* 0.82 Willing to help customers 0.8169 12.73* Staffs readiness to customers request 0.6965 8.17* Knowledge and recovery 0.6566 7.29* Knowledge of staffs 0.8143 7.13* 0.87 Quick correction on the mistakes made 0.7309 6.96* Provision of adequate information 0.6256 6.45* Customer Relationship 0.6144 6.03* Tangibles Upto date equipment 0.8308 5.94* 0.86 Visually appealing facilities 0.7736 5.38* Neat and professional appearance of employees 0.6943 5.11* 12
    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1The metric for each scale was established by fixing the coefficient for one indicator to 1.00 foreach of four factors. Other than the fixed loadings, each item evidenced highly significant „t‟statistics (value < 0.01), suggesting that all indicator variables provide good measures to theirrespective construct. Specifically, the entire set of indicators has a standardized loading higherthan 0.6256 with the highest being 0.9208. These results generally supported the convergentvalidity of the indicators. (Anderson and Gerbing, 1988). Composite reliability is similar toCronbach alpha, and reflects in the internal consistency of the indicators measuring eachConfirmatory Factor Analysis construct (Fornell and Larcker, 1981). Results show that all fourfactors have composite reliability scores greater than the commonly recommended 0.7benchmark, and this suggests that each of the factors is reliably measuring its respectiveconstructs.Discriminant Validity It is not easy to establish discriminant validity. (the degree to which items of constructs aredistrict) when the involved constructs are theoretically related to a hierarchically high orderconstruct (i.e. service quality), as is the case here. The existence of a second order factor structuresuggests the sub-dimensions of service quality share common variance. However, discriminantvalidity can be empirically assessed in a weak sense by using the confidence interval test (plus orminus two standard deviations around the factor correlations). Discriminant validity is said to besatisfied if a 95 per cent confidence interval of the inter-factor correlation between two constructsdoes not include an absolute value of one (Anderson and Gerbeing, 1988). The Correlationsamong all the constructs are presented in Table 5. TABLE 5 Correlation Matrix for all exogeneous and endogenous VariablesSl.No. Variables Reliability Responsive Knowledge Tangibles Perceived Customer Customer ness and value Satisfaction loyalty Recovery 1. Reliability 0.4617* 0.4208* 0.5168* 0.8234* 0.7186* 0.5163* 2. Responsiveness 0.6143* 0.4599* 0.7908* 0.6345* 0.5081* 13
    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1 3. Knowledge 0.5347* 0.8189* 0.7408* 0.4408* and Recovery 4. Tangibles 0.8406* 0.7902* 0.5244* 5. Perceived data 0.6904* 0.6508* 6. Customer 0.8147* Satisfaction 7. Customer Loyalty*Significant at five per cent level. Though some of the correlation coefficients were found to be relatively high, the 95 percent confidence intervals for the inter factor correlation were not found to include 1.0. As a result,this confidence interval test tends to support to the discriminant validity of the studied constructs.Impact of independent variable on dependent variable The impact of service quality on perceived value, perceived value on customersatisfaction, and customer satisfaction on customer loyalty have been estimated with the help ofstructural equation Modeling. The fit indices like x2, RMSEA, TLI, AGFI, GFI, CFI and NFIhave also been computed. The implications of these with the proposed model are explained inTable 6. TABLE 6 Results of the Structural Equation Modeling Sl.No Hypothesis Standardized t-Statistics p-Value Data 1. Service Quality with 0.7134 6.1718 0.0244 Perceived value 2. Perceived value with 0.6291 5.2376 0.0139 Customer Satisfaction 3. Customer Satisfaction 0.5739 0.9708 0.0172 with Customer Loyalty Fit Indices Chi-square=113.08 RMSEA=0.041 TLI = 0.934 p-value (.0018) AGFI = 0.917 GFI=0.946 CFI=0.952 NFI=0.923The standardized coefficient in the Hypothesis namely service quality with a positive impact onthe perceived value of the commercial banks has a significant value ( = 0.7134; t-value= 6.1718), 14
    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1supporting the assertion that the service quality significantly and positively influences theperceived value of the service offered by the commercial banks. This fundamental conceptreiterates that the commercial banks should focus on the quality of service to increase theperceived value of service among the customer‟s mind. The real challenge for the commercialbanks is to find SERVQUAL dimensions and their significance to overall service quality. The second Hypothesis is trying to predict the relationship between the perceived value ofthe service by the customers to their satisfaction. This hypothesis supports and proves that theperceived value of service plays a significant impact on the overall customer satisfaction since its value is 0.6291 and the t-statistics of 5.2376 which is significant at one per cent level. Thisdirect effect would give clear relationship between perceived value and customer satisfaction. The third hypothesis reveals the impact of customers‟ satisfaction on their loyalty. The -value (0.5739) and the t-statistics (5.9708) are significant at two per cent level. The present studyreveals that there is a significant and positive direct impact of customers‟ satisfaction oncustomers loyalty. Moreover, the results are encouraging for commercial banks as very muchsatisfied customers would like to recommend this bank to others. The fit indices for this model indicate how well the data fit with model. Infact, all fitindices are well within the range accepted among the researchers. The significant Chi-squarevalue (113.08) supports the model. The comparative fit index that is Normed Fit Index (0.923)value signifies the best of fit of model with the collected data. The variances are also greatlyexplained. The Goodness of Fit Index (GFI=0.946), Adjusted Goodness of Fit Index(AGFI=0.917) and Tucker Lewis Index (TLI= 0.934) along with Root Mean Square, Error ofApproximation (RMSEA = .052) strongly supports this model.Direct and indirect effects on Customer loyalty 15
    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1 The direct and indirect effects of service quality, perceived value and customer satisfactionon customer loyalty are evaluated with the help of structural equation modeling. The results areshown in Table 7. TABLE 7 Total effects of the factors involved in evaluation of service quality on Customer Loyalty Sl.No Factors Direct Indirect Total Relative effects effects effect Percentage 1. Service Quality 0 0.173 0.1730 18.02 2. Perceived value 0 0.213 0.2130 22.19 3. Customer satisfaction 0.5739 0 0.5739 59.79 4. Customer Loyalty 0.5739 .3860 .9599 100.00 From table 7, customer satisfaction clearly has the high level of impact (59.79%), followedby perceived value (22.19%) and service quality (18.02%). The customer satisfaction has a directimpact whereas perceived value and service quality have indirect effects on the customer loyalty.CONCLUSION AND MANAGERIAL IMPLICATIONS The service quality scale developed in this study was first calibrated using the data fromcustomers of public sector banks (i.e. sample-1) and then cross-validated using a more diversifieddata set (i.e-sample-2). Four service quality factors were identified as the first order dimensionsof service quality in the context of commercial banks. These are Reliability; Responsiveness;knowledge and Recovery; and Tangibles. Notably, the variables in knowledge and recovery arecorrelated together and formed as a factor namely knowledge and recovery. Subsequently, theconfirmatory factor analysis was employed to confirm the dimensionality of the first order servicequality factors. The purification process in the present study was dictated by the desire to developa more parsimonious as well as reliable measure of service quality that would be widely useableto most industries falling under service sector. The result highlights the need not only tooperationally the service quality construct, but also to identify to which typology a servicebelongs, because the latter fact may suggest the service quality factor. So emphasize for trainingservice staffs and for formulating competitive operations strategy. Based on results reported inthe present study, consequently, service providers in the commercial banks could interpret these 16
    • International Journal of Management & Strategy July-Dec.2010 Vol.1,No.1results suggesting that they may downplay the role of reliability, responsiveness, knowledge andrecovery; and tangibles. In order to achieve customer satisfaction, bank mangers need to understand whatcustomers want and how they assess the bank service quality. The present study compiled a list of16 service quality variables (grouped into four factors) that an average bank customers often useto assess bank services. Our operationalizable questionnaire items could provide several hints tobank manager in terms of how to shape bank customer‟s experience. Concentrating on the fouridentified service quality factors, the reliability and responsiveness appear to be slightly moreimportant than the knowledge and recovery; and Tangibles. As far the reliability dimensions areconcerned, error free records and timely provision of service need to give customers, specialattention. On the other hand, in order to enhance the responsiveness dimension, bank mangersand staffs have to be highly responding the customers call. I terms of knowledge on recoverydimension, knowledge of staffs is the key whereas in the case of tangibles, it is upto dateequipment. Bank managers may improve the tangibles dimension by keeping bank‟s physicalenvironment up to date and visually appealing. It is worth noting that improving all dimensions ofservice quality sounds a good and audacious goal, but the main advantage of a distinctivesequential improvement allows bank managers and staffs more opportunity to learn from possiblemistakes in one clinical change before a full-range service quality program is implemented. The findings indicate that while service quality is an important driver of customer loyalty,its indirect effect through perceived value and customer satisfaction is overwhelmingly largerthan the direct effect in generating higher customer loyalty. It is important for the bank managersto understand the relevant service quality dimensions in their banking that could reinforcepositive customer satisfaction assessments. Bank managers need to develop a systematicassessment programs to monitor service quality and customer satisfaction overtime. Bank staffsshould be kept informed of results and be encouraged to take part in figuring out an effectiveresolution strategy. Only when a service culture is created, can the commercial bank‟smanagement ensure the efficient delivery of services most desired by customers. The customersloyalty should be generated only through customers satisfaction. So the bank managers should 17
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