The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/1355-5855.htm Service quality and customers’ behavioural intentions Class and mass banking and implications for the consumer and society Koushiki Choudhury Indian Institute of Management Calcutta, Kolkata, India Abstract Customers’ behavioural intentions 735 Received 9 February 2015 Revised 28 March 2015 6 May 2015 12 May 2015 Accepted 12 May 2015 Purpose – The purpose of this paper is to explore how the different dimensions of service quality influence customers’ behavioural intentions in the private and public sector banks, that is, in class and mass banking, respectively, and the implications for the service provider, consumer, society and consumer policy. Design/methodology/approach – A contextually modified SERVQUAL instrument was used to capture customers’ perceptions of service quality followed by exploratory factor analysis to study the dimensionality of service quality in retail banking. Multiple regression was used to probe the influence of the dimensions of service quality on customers’ behavioural intentions. Findings – The study revealed four dimensions of service quality in retail banking, namely, customer-orientedness, reliability, tangibles and convenience and showed that the service quality factor customer-orientedness comprising of the responsiveness and attitude of employees is most important in influencing customers’ behavioural intentions in the case of private sector banks and reliability of the service is most influential in the case of public sector banks. Research limitations/implications – Future research can focus on “service excellence” being extended beyond assessment of the quality of services, towards evaluation of the quality of life outcomes, to which public organizations contribute, appraisal of the quality of public governance processes and quality of performance in meeting social objectives. Practical implications – Retail bank managers must realize the importance of employees providing competent, reliable service in the case of public sector banks and their responsiveness and behaviour towards customers in the case of private sector banks, as the keys to foster a culture of service excellence. Social implications – High-quality financial consumer policy must not only be able to increase customer satisfaction with financial services but also build security and trust in public administration through transparent processes and accountability. In this context, with public agencies being regarded as service providers and citizens as customers, the concept of quality must also visualize public agencies as catalysts of a responsible and active civic society. Originality/value – This study explores the relationship between service quality and customers’ behavioural intentions in the private and public sector banks by linking both constructs at their dimensional level. It highlights major implications for the service provider, society, consumer and public policy based on the different needs, characteristics and requirements of customers of class and mass banking, that is, private and public sector banks. Keywords Society, Service quality, Behavioural intentions, Public sector banks, Private sector banks, Consumer and policy implications Paper type Research paper 1. Introduction 1.1 Public policy in the financial sector in India The Indian financial sector went through a significant structural transformation with the initiation of financial liberalization in the 1990s. Before that, from the mid-1960s till the early 1990s, the Indian financial system was regarded as an instrument of public finance (Agarwal, 2003). The evolution of the Indian financial sector in the period Asia Pacific Journal of Marketing and Logistics Vol. 27 No. 5, 2015 pp. 735-757 © Emerald Group Publishing Limited 1355-5855 DOI 10.1108/APJML-02-2015-0025 APJML 27,5 736 post-independence can be categorized by three distinct phases. During the first period (1947-1968), the Reserve Bank of India (RBI) consolidated its function as the agency in charge of regulation, supervision and banking control (Sen and Vaidya, 1997). After that, the Indian financial sector was characterized by the nationalization of banks, directed credit and administered interest rates. Mid 1980s onwards, the financial sector was characterized by consolidation, diversification and liberalization. A more comprehensive financial sector liberalization programme, however, was initiated by the Government of India during the early 1990s, culminating in the Narasimham Committee Report in 1991 (Das and Drine, 2011), that provided the blueprint of the reforms, especially with regard to banks and other financial institutions. The liberalization programme comprised of de-controlled interest rates, reduced reserve ratios and slowly reduced government control of banking operations, while establishing a market regulatory framework. The major aims of financial liberalization were to improve the overall performance of the Indian financial sector, to make the financial institutions more competent and more efficient. The Indian banking sector has been dominated by the public sector banks in terms of number and asset share. In terms of asset share, the public sector banks constitute about 70 per cent of the total commercial banking asset (Das and Drine, 2011). Before 1994, foreign banks in India were the only benchmark for excellence – the ambience, the technology, the courtesy. The financial sector reforms in India which started in 1991-1992, advocated the liberalization of entry norms and suggested that new banks be permitted in the private sector provided they conformed to the minimum start-up capital and other requirements. It was felt that a robust banking sector is essential for achieving the objectives of growth and development. However, it was asserted that public sector banks would have to continue fulfilling their social obligations towards the financial growth and development of the economy and its citizens. Since the implementation of many of the recommendations, many new private sector banks have been set up, many foreign banks too have set up shop and many more are waiting in queue to get permission from the RBI. These new banks in India are characterized by a strong emphasis on the retail side of banking as well as their use of technology, and the presence of these private banks has served to increase competitive pressures on the government-owned public sector banks. To these pressures, which the public sector banks are facing, have to be added the trend towards globalization, deregulation and the abolition of several types of subsidies in the provision of financial services, fuelling competitive forces in the banking system. The consequent increase in competition has made service quality a key differentiating factor for banks attempting to improve their market and profit positions. In fact, studies have shown that there is a positive service quality-profitability relationship and that the intermediate link between service quality and profits is the relationship between service quality and customers’ behavioural intentions (Zeithaml et al., 1996). Studying the behavioural responses to service quality can help managers estimate the financial consequences of investing in service quality. With the rapid change taking place in the banking industry in India and the presence of more sophisticated customers in today’s Indian banking scenario, it has become very important especially for public sector banks in India to determine the service quality factors, which are pertinent to the customer’s selection process, as with increased competition, customers are now having greater difficulty in selecting one institution from another. In fact, it is reasonable to guess that the public sector banks can certainly hope to face increasingly stiffer competition from the private sector banks in the years to come. Exploring which facets of service quality have an important bearing on customers’ behavioural intentions in the private and public banking sectors should therefore help to specify, control and improve customer-perceived service quality in these two sectors. Most importantly, since the financial services sector drives the economy it would help policy makers craft policies that would enable citizens achieve their financial goals. Thus, considering the societal implications of research on the link between service quality and customers’ behavioural intentions in the context that the two banking sectors private and public are competing against each other, it was deemed that it would be of interest to explore as to how the different dimensions of service quality influence customers’ behavioural intentions in these two sectors and explore the implications for public and consumer policy and macro-level planning. 1.2 Service quality and customers’ behavioural intentions The relationship between overall service quality and certain dimensions of customers’ behavioural intentions have been examined by Cronin and Taylor (1992) and Boulding et al. (1993). Cronin and Taylor (1992) focused solely on repurchase intentions and reported non significant relationships whereas Boulding et al. (1993) focused on both repurchase intentions and willingness to recommend and reported significant and positive ones. Perceived service quality has been assumed to be a key factor in explaining purchase intentions, but this relationship has not been fully explained (Cronin et al., 2000). Several studies have confirmed a link between perceived service quality and behavioural intentions, but only through value and satisfaction (Patterson and Spreng, 1997), whereas other researchers have found a direct link between perceived service quality and behavioural intentions (Boulding et al., 1993; Parasuraman et al., 1988, 1991; Zeithaml et al., 1996). Service quality is believed to be a critical success factor for organizations to differentiate themselves from their competitors. In a study of the banking industry, it has been shown that high-service quality helps in gaining a competitive edge in terms of higher revenue, customer loyalty and customer retention (Kumar et al., 2010). High levels of service quality paves the way for customers’ satisfaction, customer loyalty, new customer attraction, increased market share and profitability for the banking sector (Kumari and Rani, 2011). Casado-Díaz et al. (2007), modelled the effect of specific emotions triggered by the service recovery on satisfaction with service recovery in the context of the banking sector which is facing huge competition and consequent demanding customers. Casado-Diaz and Nicolau-Gonzalbez (2009), showed that in the banking sector, the magnitude of service failure, recovery strategies, distributive and procedural justice, recovery-related emotions and satisfaction with service recovery all have a significant effect on customers’ choice of the type of response, with the latter showing the highest impact. However, much of the research on service quality has been in the developed countries (Herbig and Genestre, 1996; Choudhury, 2013), even though services are among the fastest growing sectors in emerging countries (Choudhury, 2013). In fact, the bulk of the research on service quality in banks has been in the context of US and European banking institutions. At this juncture, it is important to also study banking institutions based in developing economies like India, which has compartaively recently liberalized its banking sector. As banks in such countries as India mature, lessons may be learned from their experiences by banks in developed economies as well as in other developing countries, as banking becomes more and more globally integrated. In fact, there exists a gap in the service marketing literature on how consumers evaluate service quality in contexts and cultures very different from the developed countries, even though research has begun to explore this area (Bolton and Myers, 2003). Hitherto, studies have Customers’ behavioural intentions 737 APJML 27,5 738 compared private and public sector banks with regards to financial parameters. Gudep and Elango (2006) researched on service quality and customer satisfaction amongst the private, public and foreign banks in India. The results indicated that the foreign and the new generation private sector banks were serving the customers better. Mengi (2009) in a study to compare customers’ perceptions of service quality of public and private banks in Jammu, observed that the customers of public sector banks are more satisfied with their service quality than those of private sector banks. The study found that responsiveness and assurance are most important for customer satisfaction. On the other hand, Lo et al. (2010) found that empathy and assurance had the highest influence on customer satisfaction in the Malaysian retail banking industry. Levy (2014) found a significant, direct and negative relationship between the relative usage level of online banking services and bank loyalty, a positive relationship was found to exist between bank loyalty and customer satisfaction with online service quality. An indirect positive relationship was also found to exist between services’ convenience through satisfaction with online banking service quality. However, very few studies have explored the relation between customers’ behavioural intentions and service quality and examined the differences therein, between private and public sector banks, in a comparative analysis. Choudhury (2014c) in a study of private and public sector banks, explored the relation between customers’ behavioural intentions and service quality with a small sample size of customers and banks. In this regard, it would be interesting to study the link between the individual dimensions of service quality and customers’ behavioural intentions with a large scale study, with a large representative sample size and greater number of banks. This study hopes to build on the explicit connections between service quality dimensions and customers’ behavioural intentions by probing the link between the individual dimensions of service quality and customers’ behavioural intentions in the case of public and private sector banks in India and exploring the consequent societal implications for consumer and public policy. Linking both constructs at their dimensional level increases the diagnostics of explaining customers’ behavioural intentions. 1.3 Favourable behavioural intentions 1.3.1 WOM communications and purchase intentions. Word-of-mouth, both positive and negative (Richins, 1983), has been the subject of many marketing studies since the 1960s, across a wide range of products and services. Mahajan et al. (1990) proposed that consumers are influenced by two sources: media and WOM communication. WOM behaviour has been examined less for services than for products, though it has been shown to be invaluable to service organizations. This is more so if informal channels of communications are the primary means of disseminating market information and the services are particularly complex and difficult to evaluate (File et al., 1992). For most services, existing customers represent by far the best opportunities for profit growth. As the retention rate goes up, so too does profitability (Reichheld and Sasser, 1990). The greatest profit impact of long-time customers comes through their increased purchases and the positive WOM (referrals to other customers) that they engage in (Reichheld and Sasser, 1990; Reichheld and Kenny, 1990). The WOM generated by long-term customers act as free advertising, thus saving the firm from high investments in this area. In fact, WOM is particularly critical for certain services, such as banks and other financial services; research shows that personal referrals are responsible for 20-40 per cent of bank customers and are a key factor in selecting financial service providers (Reichheld and Kenny, 1990). 1.4 Unfavourable behavioural intentions Customers perceiving service performance to be inferior are likely to exhibit behaviours signalling they are poised to leave the company. These behaviours include exiting (switching to a new supplier) and complaining, the latter being viewed by many researchers as a combination of negative responses that stem from dissatisfaction and predict or accompany defection (Richins, 1983; Scaglione, 1988). Given that customers of retail banks have relatively high-switching costs, it is likely that a dissatisfying experience will evoke a complaint. A study by Richins (1983), on how dissatisfaction affects WOM communications showed that when the dissatisfaction is serious enough, consumers tend to complain, and if complaints are encouraged, the provider has a chance to remedy the legitimate complaints and win back a customer, who might also make a positive report to others, thus enhancing the goodwill. On the other hand, if people are dissatisfied with a product or service, and if complaints are discouraged by the company providing the product or service, then customers will engage in negative WOM. The result is reduced sales and damaged brand equity. Vyas and Raitani (2014) concluded that drivers of bank switching behaviour do not work in isolation; rather, it is an outcome of negative service experience that may be related to any of the factors of customer satisfaction. By integrating research findings a list of specific indicators of complaining behaviour can be compiled. According to Singh (1988), dissatisfaction leads to consumer complaining behaviour that is manifested in private responses (complaining to acquaintances, friends and relatives) and third-party responses (complaining to external agencies). Zeithaml et al. (1996), in their studies of the impact of service quality on particular behaviours, operationalised complaining behaviour in terms of complaining to others and complaining to external agencies in case of a problem experienced with the company’s service. 2. Methodology 2.1 Sample design and data collection For the study reported herein, responses were gathered from customers of four major banks in the retail banking industry of India (two leading private sector banks – the Bank A and Bank B and two leading public sector banks – Bank C and Bank D). All these four banks rank among the largest and strongly profitable banks in India in the public and the private sectors, respectively; moreover the banks have strong and significant retail presence. Seven branches for each bank were randomly selected. The actual names of the banks have been changed in the study, for purposes of confidentiality. The study was conducted in Kolkata, a key metropolitan city in the Eastern area of India with a large and diverse population. Questionnaires were self-administered to customers within the branches of the Bank A, the Bank B, the Bank C and the Bank D. The branches were considered by the management to be largely homogeneous with respect to size and service operations. Every other customer entering the branches was asked to complete the questionnaire. It was ensured that only existing customers, who had transacted with the bank for at least three years, filled up the questionnaires. Ultimately, a total of 1,800 customers were contacted (450 customers filled up the questionnaire in each of the four banks), and the overall response rate was 52 per cent (936 completed, usable questionnaires). The response rate varied between the branches of a bank. In the case of public sector banks, in a few branches, quite a few customers who were approached, refused to fill up the questionnaire. Demographic profiles of the samples from each bank were reviewed by the managers in the respective banks and considered to be representative of their Customers’ behavioural intentions 739 APJML 27,5 740 customer bases. The final sample size in each bank was in 232, 236, 235 and 233 in Banks A, B, C and D, respectively. The demographic profiles of the samples from each bank were as follows (Table I). 2.2 Design and development of questionnaire The questionnaire for the measurement of customer-perceived service quality followed the basic structure of the SERVQUAL instrument as developed by Parasuraman et al. (1988). According to Parasuraman et al. (1988, 1991), SERVQUAL provides the basic skeleton underlying service quality and this skeleton, when necessary, can be adapted or supplemented to fit the characteristics or specific research needs of a particular organization, and context-specific items can be used to supplement SERVQUAL. This has also been advocated by other researchers of service quality, who have echoed that contextual circumstances have a bearing on the perception of service quality and it is necessary in this regard to modify some of the items of the SERVQUAL scale and add or delete items from the scale as required (Carman, 1990). An inventory of service quality items was identified. Items for measuring customer-perceived service quality were adopted from the service quality and service marketing literature (Parasuraman et al., 1991) and the bank marketing literature (Levesque and McDougall, 1996; Yavas et al., 1997; Parasuraman et al., 1988, 1991; Cronin and Taylor, 1992; Brown et al., 1993; Choudhury, 2008, 2013, 2014a, b, c). The list of items generatedare as follows. Original list of items for measuring customer-perceived service quality: (1) YOUR BANK has modern-looking equipment; (2) YOUR BANK’s physical facilities are visually appealing; (3) YOUR BANK’s employees are neat – appearing; (4) materials associated with the service, such as pamphlets and statements, are visually appealing at YOUR BANK; (5) when YOUR BANK promises to do something by a certain time, it does so; (6) when you have a problem, YOUR BANK shows a sincere interest in solving it; (7) YOUR BANK performs the service right the first time; (8) YOUR BANK provides its services at the time it promises to do so; (9) YOUR BANK insists on error-free records; (10) employees of YOUR BANK tell you exactly when services will be performed; (11) employees of YOUR BANK give you prompt service; (12) employees of YOUR BANK are always willing to help you; Bank Sex – male (%) Sex – female (%) Mean age Self-employed (businessmen, doctors, lawyers) (%) Table I. Profiles of the banks’ Salaried (%) Others (Homemakers, retired persons, students) (%) customers Bank A Bank B Bank C Bank D 51 49 40.45 35 49 16 53 47 40.73 38 45 14 52 48 41.56 12 62 26 51 49 41.76 14 59 27 (13) employees of YOUR BANK are never too busy to respond to your requests; (14) the behaviour of employees of YOUR BANK instills confidence in customers; (15) you feel safe in your transactions with YOUR BANK; Customers’ behavioural intentions (16) employees of YOUR BANK are consistently courteous with you; (17) employees of YOUR BANK have the knowledge to answer your questions; (18) YOUR BANK gives you individual attention; (19) YOUR BANK has operating hours convenient to all its customers; (20) YOUR BANK has employees who give you personal attention; (21) YOUR BANK has your best interests at heart; (22) employees of YOUR BANK understand your specific needs; (23) YOUR BANK has convenient branch locations; and (24) it is very easy to get in and out of YOUR BANK quickly. A few items from this original list (above list) were dropped, because they were either vague, repetitive or difficult to comprehend to respondents, in a pilot study done with 30 customers from the Bank A, 32 customers from the Bank B, 30 customers from the Bank C and 32 customers from the Bank D. These items which were considered vague, repetitive or difficult to comprehend to respondents, were dropped after being reviewed by the researcher, social scientists and experts in marketing and statistics. Two items were added; one of this was “your bank has a large ATM network”, as all the customers surveyed in the pilot study indicated that this issue was very important with regards to banking services. The majority of the respondents also indicated that presence of internet banking services should be included in the questionnaire as they felt that it was important. Scale development procedure recommended by Churchill (1979) and Parasuraman et al. (1988) was followed. An inventory of service quality items was identified. The initial pool of items generated were then iteratively assessed for internal consistency (by means of coefficient α estimates) and factor analysed using randomly drawn samples of banks’ customers. The process was continued until the scales exhibited acceptable measurement properties. The result was a final group of 16 items that were arrived at to measure service quality in this study and this instrument was referred to as the modified service quality (MSERVQUAL) scale (below list). The items of the MSERVQUAL scale: (1) Variable description: • V1. YOUR BANK’s physical facilities are visually appealing (physical facilities); • V2. materials associated with the service, such as pamphlets and statements, are visually appealing at YOUR BANK (materials); • V3. YOUR BANK has convenient branch locations (branch locations); • V4. YOUR BANK has a large ATM network (ATM network); • V5. when you have a problem, YOUR BANK shows a sincere interest in solving it (responsiveness); • V6. YOUR BANK performs the service right the first time (right service); 741 APJML 27,5 742 • V7. when YOUR BANK promises to do something by a certain time, it does so (dependability); • V8. employees of YOUR BANK tell you exactly when services will be performed (service timing); • V9. employees of YOUR BANK give you prompt service (prompt service); • V10. you feel safe in your transactions with YOUR BANK (safety); • V11. employees of YOUR BANK are consistently courteous with you (courteousness); • V12. employees of YOUR BANK have the knowledge to answer your questions (knowledge); • V13. YOUR BANK has operating hours convenient to all its customers (operating hours); • V14. YOUR BANK has employees who give you personal attention (personal attention); • V15. employees of YOUR BANK understand your specific needs (ability to understand); and • V16. YOUR BANK has a strong internet banking facility (internet banking). V Stands For variable. The abbreviated names of the variables appear in parenthesis in the above list. Feedback from the managers in each of the participating banks who reviewed the questionnaire confirmed that the MSERVQUAL had face validity. The questionnaire was administered in a pilot study to 31 customers from each of the four banks. Reliability (Cronbach’s α) for the MSERVQUAL scale was tested for each of the four banks, for the private sector banks as a whole (both the private sector banks clubbed together), for the public sector banks as a whole (both the public sector banks clubbed together) and for the entire sample. The results are depicted in Table II. It can thus be seen that the reliability figures are very high, all above the recommended lower limit of 0.70 (Nunnally, 1978). 2.3 Factor analysis of the SERVQUAL scores In this study, for each customer, SERVQUAL scores were generated. A description of the 16 SERVQUAL items used in this study is presented in the above list. Factor analysis of the SERVQUAL scores for the items was conducted to reveal the Bank Table II. Reliability scores for MSERVQUAL Bank A Bank B Bank D Bank C Private sector Public sector Total pilot study sample Cronbach’s α 0.9643 0.8777 0.9764 0.9214 0.9243 0.9265 0.9223 underlying dimensions of customer-perceived service quality, and was followed by a Varimax rotation. In this study, 70 per cent cumulative variance was chosen as the satisfactory level. Discriminant validity was assessed following Fornell and Larcker (1981) by comparing the average variance extracted for each factor with the variance shared between the remaining factors. All the service quality dimensions in this study met the criteria for discriminant validity. 2.4 The influence of service quality on customers’ behavioural intentions Multiple regression analysis was carried out, to explore the linkage between customer-perceived service quality and customers’ behavioural intentions. The factor scores of the service quality factors obtained in the factor analysis represented the independent variables, whereas customers’ behavioural intentions represented the dependent variables. Customers’ behavioural intentions were operationalised by WOM communications, purchase intentions and complaining behaviour. In order to interpret and cross-validate the findings of the quantitative study a qualitative follow-up study was conducted. In-depth interviews were held with 15 customers from each of the four banks in the study, in order to further elucidate and throw light on the relationships between the service quality and behavioural intentions’ dimensions, and the information gathered from the interviews was used to facilitate the interpretation of the results of the survey. 2.5 WOM communications In this study, customers’ willingness to engage in WOM about their banks was captured by the following questions, with anchors at 1 (not at all likely) and 7 (extremely likely): • “How likely are you to say positive things about YOUR BANK to others?”; • “How likely are you to recommend YOUR BANK to someone who seeks your advice?”; and • “How likely are you to encourage friends and relatives to do business with YOUR BANK?” It has been assumed that all the above items are equally weighted. 2.6 Purchase intentions In this study, customers’ purchase intentions were captured by the following questions, with anchors at 1 (not at all likely) and 7 (extremely likely): • “How likely are you to continue doing business with YOUR BANK?”; • “How likely are you to do more business with YOUR BANK?”; and • “How likely are you to consider YOUR BANK as the first choice to buy services?” It has been assumed that all the above items are equally weighted. 2.7 Complaining behaviour In this study, customers’ complaining behaviour was captured by the following questions with anchors at 1 (not at all likely) and 7 (extremely likely): • “How likely are you to complain to others if you experience a problem with YOUR BANK’s services?”; Customers’ behavioural intentions 743 APJML 27,5 744 • “How likely are you to complain to an external agency (consumer organization/ newspaper/government agency) if you experience a problem with YOUR BANK’s services?”; and • “How likely are you to convince your friends and relatives not to use YOUR BANK’S services if you experience a problem with YOUR BANK’s services?” It has been assumed that all the above items are equally weighted. Reliability was tested for the three-item WOM scale, the purchase intentions scale and the complaining behaviour scale in the pilot study done with 50 customers from each of the four banks. Reliability was tested for each of the four banks, for the private sector banks as a whole (both the private sector banks clubbed together), for the public sector banks as a whole (both the public sector banks clubbed together) and for the total pilot study sample. The results are depicted in Table III. 2.8 Private and public sector banks: the influence of customer-perceived service quality on customers’ behavioural intentions The linkages between customer-perceived service quality and customers’ behavioural intentions were explored for the two categories of private and public sector banks. To maintain internal consistency throughout the work, the factors obtained from the factor analysis done on the entire data set of 720 customers were used, in order to have the same factor structure throughout the study and so that when the linkages between customer-perceived service quality and customers’ behavioural intentions are compared between the private and public sectors, the factors per se would remain the same. In case of the private sector, factor scores generated for the customers of the two private sector banks (Bank A and Bank B) were pooled and in case of the public sector, factor scores generated for the customers of the two public sector banks (Bank D and Bank C) were pooled. This pooling resulted in 362 customers for the private sector and 358 customers for the public sector. Multiple regression analysis was then carried out for each sector; the factor scores of the service quality factors represented the independent variables, whereas customers’ behavioural intentions represented the dependent variables. SPSS was used for doing the factor analysis and multiple regressions. 3. Results 3.1 Factor analysis of the SERVQUAL scores For each customer, SERVQUAL scores were generated. A SERVQUAL score is obtained by subtracting the expectation score from the perception score for each SERVQUAL item. Factor analysis was conducted with the SERVQUAL scores for the Bank Table III. Reliability scores for the scales Bank A Bank B Bank C Bank D Private sector Public sector Total sample Cronbach’s α for WOM scale Cronbach’s α for purchase intentions scale Cronbach’s α for complaining behaviour scale 0.9324 0.9645 0.8534 0.9233 0.9037 0.9127 0.9283 0.8424 0.8754 0.8242 0.9876 0.8548 0.8540 0.8961 0.8424 0.9532 0.8853 0.9645 0.9038 0.9270 0.9189 entire set of 720 customers. A description of the 16 SERVQUAL items is presented in the above list. Factor analysis of the SERVQUAL scores for the SERVQUAL items was conducted, and was followed by a Varimax rotation to examine the dimensionality of the items. A four-factor solution was obtained, and the 16 items could be reconfigured into four dimensions, namely, customer-orientedness, reliability, tangibles and convenience. The factor loading matrix is presented in Table IV. The first factor, customer-orientedness, was defined by five scale items and was primarily related to the attitude and skills of the employees providing the service. The second factor, reliability, was constructed by five scale items, which were primarily associated with the concept of providing reliable services to customers. The third factor, tangibles, was constructed by two scale items, which were primarily associated with the visual appeal of the banks’ physical facilities and communication materials to the customers. Finally, the fourth factor, convenience, encompassed three items related to the convenience of the banks’ branch locations, presence of internet banking services and the spread of the banks’ ATM networks. The reliability coefficient (Cronbach’s α), of the MSERVQUAL scale used in this study, was 0.9274 for the entire sample. The bank wise reliability coefficients (Cronbach’s α) for the MSERVQUAL scale used in this study were as follows: Banks Cronbach’s α Bank A 0.9587 Bank B 0.9198 Factor 1 customerorientedness Bank D 0.9312 Component Factor 2 Factor 3 reliability tangibles Prompt service 0.643 Courteousness 0.754 Ability to understand 0.753 Knowledge 0.834 Responsiveness 0.673 Personal attention 0.618 Right service 0.684 Dependability 0.844 Service timing 0.676 Safety 0.686 Operating hours 0.643 Physical facilities 0.867 Materials 0.776 Branch locations Internet banking services ATM network Eigenvalues 7.43 1.15 0.96 Percentage of variance explained 26.34 22.65 11.62 Cumulative percentage of variance explained 26.34 48.99 60.61 Cronbach’s α 0.9273 0.9242 0.8233 Notes: Cumulative variance was 70.84 per cent. Rotated component matrix Customers’ behavioural intentions 745 Bank C 0.9113 Factor 4 convenience 0.951 0.845 0.613 0.89 10.23 70.84 0.8423 Table IV. Results of the factor analysis APJML 27,5 746 3.2 Private and public sector banks: an analysis of the influence of customer-perceived service quality on customers’ behavioural intentions Multiple regression analysis was carried out in order to explore the linkages between customer-perceived service quality and customers’ behavioural intentions in case of the private and public sector banks, studied in this study. The exercise was intended to explore sectoral differences if any between the private and public sector banks with regards to the influence of customer-perceived service quality on customers’ behavioural intentions. The reliability coefficient (Cronbach’s α) of the MSERVQUAL scale was 0.9137 for the private sector and 0.9118 for the public sector. The reliability coefficient (Cronbach’s α) of the three-item WOM scale was 0.9126 for the private sector and 0.9217 for the public sector. The reliability coefficient (Cronbach’s α) of the three-item purchase intention scale was 0.9138 for the private sector and 0.9047 for the public sector. The reliability coefficient (Cronbach’s α) of the three-item complaining behaviour scale was 0.9056 for the private sector and 0.9240 for the public sector. 3.3 Private sector banks: effect of customer-perceived service quality on customers’ behavioural intentions To explore the linkage between customer-perceived service quality and customers’ behavioural intentions, factor scores generated (for the factors obtained from the factor analysis done on the entire data set of 720 customers) for the customers of the two private sector banks (Bank A and Bank B) were pooled. The factor scores of the service quality factors represented the independent variables, whereas customers’ behavioural intentions represented the dependent variables (Table V). It is thus evident from the adjusted R2, that the model explains 60.3 per cent of the variance in customers’ willingness to engage in WOM about their banks. The Anova table indicated that the multiple regression model is statistically significant and that the independent variables have a systematic association with the dependant variable. In case of private sector banks, the regression coefficients indicated in Table II offer strong support for the facts that: Table V. Private sector banks: an analysis of the influence of customer-perceived service quality on WOM • all the four independent variables are significant predictors of customers’ willingness to engage in WOM about their banks; • the service quality factor customer-orientedness is the most important factor for influencing WOM about the banks; Constant Customer-orientedness Reliability Tangibles Convenience Estimate 5.162 0.934 0.425 0.324 0.121 SE 0.104 0.025 0.064 0.103 0.023 Prob 0.000 0.000 0.000 0.000 0.034 Model summary R R2 Adjusted R2 SE of the estimate 0.786 0.617 0.603 0.4582 Note: Independent variables: customer-orientedness, reliability, tangibles and convenience; dependent variable: WOM (word-of-mouth) • the service quality factor reliability is the second most important factor for influencing WOM about the banks; • the service quality factor tangibles is the third most important factor for influencing WOM about the banks; and • the service quality factor convenience is the fourth most important factor for influencing WOM about the banks. Customers’ behavioural intentions 747 It is thus evident from the adjusted R2, that the model explains 47.7 per cent of the variance in customers’ purchase intentions. The Anova table indicated that the multiple regression model is statistically significant and that the independent variables have a systematic association with the dependant variable. In case of private sector banks, the regression coefficients indicated in Table VI offer strong support for the facts that: • the independent variables customer-orientedness and reliability are significant predictors of customers’ purchase intentions; • the service quality factor customer-orientedness is the most important factor for influencing customers’ purchase intentions; • the service quality factor reliability is the second most important factor for influencing customers’ purchase intentions; and • the service quality factor tangibles and convenience are non significant for influencing customers’ purchase intentions. It is thus evident from the adjusted R2, that the model explains 54.2 per cent of the variance in customers’ complaining behaviour. The Anova table indicated that the multiple regression model is statistically significant and that the independent variables have a systematic association with the dependant variable. In case of private sector banks, the regression coefficients indicated in Table VII offer strong support for the facts that: • the three independent variables customer-orientedness, reliability and tangibles are significant predictors of customers’ complaining behaviour; • the service quality factor customer-orientedness is the most important factor for influencing customers’ complaining behaviour; Constant Customer-orientedness Reliability Tangibles Convenience Estimate (standardized coefficients) 5.274 0.974 0.637 0.125 0.132 SE 0.125 0.124 0.107 0.116 0.075 Prob 0.000 0.000 0.000 0.117 0.143 Table VI. Private sector banks: an analysis of the Model summary influence of 2 2 R R Adjusted R SE of the estimate customer-perceived 0.694 0.481 0.477 1.01 service quality on Note: Independent variables: customer-orientedness, reliability, tangibles and convenience; dependent customers’ purchase intentions variable: purchase intentions APJML 27,5 748 • the service quality factor reliability is the second most important factor for influencing customers’ complaining behaviour; • the service quality factor tangibles is the third most important factor for influencing customers’ complaining behaviour; and • the service quality factor convenience is non significant for influencing customers’ complaining behaviour. 3.4 Public sector banks: effect of customer-perceived service quality on customers’ behavioural intentions To explore the linkage between customer-perceived service quality and customers’ behavioural intentions, factor scores generated (for the factors obtained from the factor analysis done on the entire data set of 720 customers) for the customers of the two public sector banks (Bank C and Bank D) were pooled. The factor scores of the service quality factors represented the independent variables, whereas customers’ behavioural intentions represented the dependent variables (Table VIII). It is thus evident from the adjusted R2, that the model explains 60.5 per cent of the variance in customers’ willingness to engage in WOM about their banks. The Anova table indicated that the multiple regression model is statistically significant and that the independent variables have a systematic association with the dependant variable. Estimate (standardized coefficients) SE Prob Constant 2.344 0.101 0.000 Table VII. Customer-orientedness 0.972 0.104 0.000 Private sector banks: Reliability 0.564 0.062 0.000 an analysis of 0.282 Tangibles 0.101 0.011 the influence Convenience 0.126 0.053 0.116 of customerModel summary perceived service R R2 Adjusted R2 SE of the estimate quality on 0.741 0.549 0.542 0.8165 customers’ complaining Note: Independent variables: customer-orientedness, reliability, tangibles and convenience; dependent behaviour variable: customers’ complaining behaviour Table VIII. Public sector banks: an analysis of the influence of customer-perceived service quality on WOM Constant Customer-orientedness Reliability Tangibles Convenience Estimate 4.916 0.622 0.843 0.267 0.167 SE 0.145 0.065 0.043 0.074 0.101 Prob 0.000 0.000 0.000 0.007 0.102 Model summary R R2 Adjusted R2 SE of the estimate 0.791 0.626 0.605 1.0281 Note: Independent variables: customer-orientedness, reliability, tangibles and convenience; dependent variable: WOM (word-of-mouth) In case of public sector banks, the regression coefficients indicated in Table V offer strong support for the facts that: • the three independent variables, reliability, customer-orientedness and tangibles are significant predictors of customers’ willingness to engage in WOM about their banks; • the service quality factor reliability is the most important factor for influencing WOM about the banks; • the service quality factor customer-orientedness is the second most important factor for influencing WOM about the banks; • the service quality factor tangibles is the third most important factor for influencing WOM about the banks; and • the service quality factor convenience is non significant for influencing WOM about the banks. Customers’ behavioural intentions 749 It is thus evident from the adjusted R2, that the model explains 54.7 per cent of the variance in customers’ purchase intentions. The Anova table indicated that the multiple regression model is statistically significant and that the independent variables have a systematic association with the dependant variable. In case of public sector banks, the regression coefficients indicated in Table IX offer strong support for the facts that: • the two independent variables, reliability and customer-orientedness are significant predictors of customers’ purchase intentions; • the service quality factor reliability is the most important factor for influencing customers’ purchase intentions; • the service quality factor customer-orientedness is the second most important factor for influencing customers’ purchase intentions; and • the service quality factors tangibles and convenience are non significant for influencing customers’ purchase intentions. It is thus evident from the adjusted R2, that the model explains 57.1 per cent of the variance in customers’ complaining behaviour. The Anova table indicated that the multiple regression model is statistically significant and that the independent Constant Customer-orientedness Reliability Tangibles Convenience Estimate (standardized coefficients) 4.756 0.468 0.934 0.242 0.232 SE 0.115 0.116 0.113 0.136 0.132 Prob 0.000 0.000 0.000 0.114 0.118 Model summary R R2 Adjusted R2 SE of the estimate 0.743 0.552 0.547 1.36 Note: Independent variables: customer-orientedness, reliability, tangibles and convenience; dependent variable: customers’ purchase intentions Table IX. Public sector banks: an analysis of the influence of customer-perceived service quality on customers’ purchase intentions APJML 27,5 750 variables have a systematic association with the dependant variable. In case of public sector banks, the regression coefficients indicated in Table X offer strong support for the facts that: • the three independent variables, reliability, customer-orientedness and tangibles are significant predictors of customers’ complaining behaviour; • the service quality factor reliability is the most important factor for influencing customers’ complaining behaviour; • the service quality factor customer-orientedness is the second most important factor for influencing customers’ complaining behaviour; • the service quality factor tangibles is the third most important factor for influencing customers’ complaining behaviour; and • the service quality factor convenience is non significant for influencing customers’ complaining behaviour. 4. Conclusion The study shows that dimensions of service quality are important determinants for behavioural intentions. Even though SERVQUAL has been studied in the banking context, the explicit connections between service quality dimensions and customers’ behavioural intentions has been relatively under-researched in the banking sector. This study aimed to probe the link between the individual dimensions of service quality and customers’ behavioural intentions in the case of public and private sector banks in India and explore the consequent societal implications for consumer and public policy. Linking both constructs at their dimensional level increases the diagnostics of explaining customers’ behavioural intentions. In this study, the comparative analysis of the relation between service quality and customers’ behavioural intentions in private and public sector banks show that for influencing WOM, purchase intentions and complaining behaviour, in the case of private sector banks, customer-orientedness is the most important factor while for public sector banks, reliability is the most important factor. The factor customer-orientedness is basically concerned with employees’ attitudes towards their customers. The service quality factor reliability is related to the banks’ ability to perform the promised service accurately and dependably. In this study, a modified SERVQUAL scale was used in a context (the Indian retail banking sector) entirely different from the one in which Table X. Public sector banks: an analysis of the influence of customer-perceived service quality on customers’ complaining behaviour Constant Customer-orientedness Reliability Tangibles Convenience Estimate (standardized coefficients) 3.113 0.669 0.876 0.235 0.197 SE 0.112 0.057 0.086 0.103 0.104 Prob 0.000 0.000 0.000 0.002 0.037 Model summary R R2 Adjusted R2 SE of the estimate 0.761 0.579 0.571 1.02 Note: Independent variables: customer-orientedness, reliability, tangibles and convenience; dependent variable: customers’ complaining behaviour Parasuraman et al. (1991) had conducted their studies. This may explain the emergence of service quality dimensions different from the ones identified by them. Most of the private sector banks devote resources and attention to a small set of comparatively wealthy retail and corporate customers, while a huge percentage of people in India remain without access to formal, secure financial services. Private sector banks do not target the poor as a market until they find ways to serve them profitably, which they often do not. Moreover, their branch network is not even 10 per cent of an average public sector bank. Their limited numbers of branches are only in those areas of the country where their presence enhances the bank’s profits. This study reflects that for the customers of public sector banks, a substantial portion of who are nowhere as wealthy as the customers of the private banks, what is crucial is protection of their very limited hard-earned money. Hence the factor reliability, comprising of variables like a feeling of safety in the transactions with the bank, performing the service reliably, turned out to be more important than the service quality factor customer-orientedness characterized by personalized services, prompt service, employees giving personal attention and employees having the knowledge to respond to customers’ needs, the latter being more important when the bank offers complex state-of-the art products and services as in the case of private sector banks. The point to note here is that what constitutes good service quality in the private sector may not be the same in the public sector, and quality management concepts may have to be modified in case of the public sector to meet the unique needs of its customers. In case of the private sector banks in this study, about 37-38 per cent of the customers are self-employed (as opposed to about 11-12 per cent in the case of the public sector banks), consisting mainly of well-to-do businessmen as well as doctors, lawyers and consultants. It is an established fact that it is in the hands of the self-employed group that the purchasing power lies. Both the two private banks studied have several marketing practices and an impressive array of cutting edge products which are suitable for and geared towards the self-employed group, especially businessmen and relatively affluent groups of customers. Premium accounts where the customer has to maintain a substantial minimum average quarterly balance – around 700 times more than what one has to maintain in a public sector bank and he gets multiple benefits and waivers such as free cash or cheque delivery or pickups, free cheque clearing between metros, free courier facility, free funds transfers up to certain amounts, free cheque books, demand drafts and bank statements whenever customers require them and home delivery of the same, enhanced ATM withdrawal limits – these are commonly offered by private sector banks. These services provided are useful for many businessmen, as they offer a range of value-added features as well as flexibility. Moreover, better mobile and internet banking services (many public sector banks do not have these), provisions for paying utility or other bills online, better online investment and trading sites all serve to attract relatively affluent people. Stronger and more effective inter-branch, intercity banking, a feature of these banks, is also convenient for businessmen who often have to travel quite frequently. Both the private banks in this study pay special attention to their high-net worth customers who are required to maintain minimum balances which are around 500-600 times more than in public sector banks. This feature serves to exclude people who will find it difficult to maintain these balances from being customers of private sector banks. HNW customers are provided with a gamut of personalized services, as well as relationship managers who provide a one-stop solution for them. The banks are also focusing on the customers of their corporate salary accounts and giving them many incentives, and depending upon the status of the company, are even waiving Customers’ behavioural intentions 751 APJML 27,5 752 off the minimum balance requirements. Hence it can be seen that the marketing practices of these two private banks are geared towards the relatively affluent people. Now for this base of customers it is reasonable to assume that they may be time-pressed and hence factors such as the promptness and responsiveness of the service is expected to be very important so as to make it convenient for them to carry out their banking transactions in spite of their busy schedules. The customers of these banks state that the reason they started transacting with private banks is because they expect to be specially treated in the sense of being given a priority when they come to the bank and to get faster and more efficient service, than what a public sector bank gives them. The very term “private bank” itself denotes to them efficiency, and they are willing to and can afford to lock up a large amount of money for those services. These reasons can perhaps explain as to why for customers of the private sector banks, customer-orientedness is the most important service quality factor for influencing behavioural intentions. In case of the public sector banks, minimum balances that are to be maintained in the savings, current and fixed deposit accounts are about 500-600 times lower than that for HNW customers of private sector banks. For instance, at the Bank C, the customer can open a savings account with a minimum deposit of INR500 for metro, urban and semi-urban branches and INR250 for rural branches with cheque book facilities. Without cheque book facilities, the rates are even lower. In fact, a few public sector banks have started having a “no minimum balance required policy” for all customers. Again, although technological advances (such as provision of ATM services) provide customers with automatic and impersonal services, customers, especially those of the public sector banks a majority of who are not so well-educated, and/or perhaps older in age (because pension of retired government employees is paid only through public sector banks) and not so comfortable with technology, still need direct help from the banks’ employees to solve their problems and concerns. They often want to communicate with the banks’ employees via traditional communication media, like telephone and mostly face-to-face meetings. An important finding from the in-depth interviews was that a majority of the customers explained that the most important reason they transact in public sector banks in spite of the crowded conditions, the heat, long queues, very long waiting times and often quite unresponsive and tardy service is the feeling of safety that they get, the assurance that their very hard-earned money will be protected and secure. These are therefore the areas which the government has to pay attention to so as to strengthen and enable the public sector banks to cater to the specific set of needs which are unique to their customer base, comprising the “masses” of India. However, at the same time, the challenge that public sector banks face is that besides serving the masses, they also serve well-off customers who value the “security” that public sector banks offer, but who post-liberalization of the Indian banking sector, demand responsive, personalized, fast service and services like “banking delivered at your home” akin to that provided by private sector banks. However, public sector banks often fail miserably in this regard. As one manager of a public sector bank put it: “we are into mass banking and not class banking”. This is another area that the government at the macro level has to reflect on as it crafts enablers for public sector banks to remain competitive while fulfilling their social objectives. 4.1 Implications for public and consumer policy This study raises important implications for public and consumer policy. Consumer policy considerations traverse virtually everything the financial services sector does, yet governments often make many consumer policy decisions without specific data and research regarding the financial marketplace. The important point to note, however, is that, crafting of consumer policy for a country as large, complex, populous and diverse as India is intrinsically much more complex than in a smaller political entity. Besides serving well-off customers, public sector banks in India serve economically disadvantaged customers as well with objectives that are social rather than purely commercial, unlike their private sector counterparts. Public sector banks maintain huge branch networks which serve rural areas and even the most remote corners of the country in order to provide access to banking services for all. Most importantly, the minimum balances that one requires to maintain in public sector banks is decreasing day by day with the aim to encourage the economically disadvantaged, poorer sections of society to keep even their very meagre savings in a bank instead of falling prey to fly-by-night operators who give these poor and illiterate people false promises of very high returns and then elope with their money. Priority sector lending is another initiative of the Government of India to nurture the social banking concept. Public sector banks are required to take a big role here and ensure credit delivery to priority sectors like agriculture, small scale and cottage industries, small businesses, as well as finance education and schooling amenities, housing, healthcare and other facilities like sanitation and clean water for the weaker sections of society and entrepreneurial projects by women. Microfinancing, with its promise of financial sustainability and provision of informal and flexible financial services to the poor is also one of the growing areas in the portfolio of public sector banks. Hence there is the imperative to have the right regulations in place in creating the appropriate environment for banks to provide adequate and timely finance at reasonable rates as well as cater to the special needs of a large section of its customers who are quite different from the customers of private sector banks, in order to attain the objectives of social and economic development for its customers. As mentioned earlier, the test that public sector banks face is that besides serving the masses, they also serve affluent customers, who in this competitive phase of the Indian financial sector demand responsive, customized, more effective and speedy service like that offered by private sector banks. This is another challenge area that macro-level policy formulation has to consider so that public sector banks remain competitive while satisfying their social objectives. All said and done, when one of the major reasons behind public and consumer policy in the banking sector in India is to protect the unprivileged customers’ interests, the public sector banks need to be supported and strengthened in order to continue fulfilling their roles for social service, satisfying their customers’ unique needs and meeting their social objectives while concurrently being able to compete with private sector and foreign banks. The areas for strengthening and development could include instituting delivery channels that are far-reaching, yet inexpensive to set up, ensuring the preservation of the branch network of the banking system to ensure that banking services continue to reach the remote corners of the country, providing a wider range of focused financial services to poor customers, responding to their needs for assurance, safety and hand-holding and enhancing the ability to handle transactions at low cost. Private and foreign banks enjoy certain privileges compared to the public sector banks. Being late entrants they have not been tied down by constraints in technology infusion, and they enjoy comparatively more freedom in the matter of recruitment of professionals on attractive remuneration packages. Last but not the least, public sector banks have to deal with huge customer bases and daily branch transactions worth at least 60 times more than in private sector banks in terms of the number of customers served per day in a typical branch. On top of that public sector banks are required to maintain an extensive network throughout the Customers’ behavioural intentions 753 APJML 27,5 754 country, even in the most inaccessible, unprofitable regions. These are certain areas where public sector banks suffer a disadvantage and these should be addressed from a public and consumer policy perspective. A significant input into a bank is its people. Being a service industry, the quality of services is directly related to the quality of people and their ability to satisfy the customer. Hiring and training of employees is one crucial area that needs to be looked into for the public sector banks which are facing the pressures of competition. For instance, this study highlights the importance of a feeling of safety in the transactions with the bank in the case of public sector banks. What this means in terms of training and evaluating employees should be given thought to in policy formulation. In the case of public sector banks especially, which have a unique challenge in the different categories of customers it serves, (for instance with regards to financial positions – the well-off and not so well-off and the very poor), policy needs to address the question of how frontline staff need to be more attentive to and aware of the differences between different segments of customers and provide information and services in more customized, targeted ways. Most importantly, it is necessary to recognize the importance of quality to not only services and service delivery but also to policy formulation. From this larger perspective, an excellent public organization is not simply one which is an excellent service provider but which also discharges its political and social responsibilities to its electorate. Hence in the case of crafting of public and consumer policy in the area of banking service quality, quality indicators should not only focus on monitoring service quality as provided by individual organizations but also on the quality of services provided by the overall financial service system in the country. Moreover, high-quality financial consumer policy must not only be able to increase customer satisfaction with financial services but also build security and trust in public administration through transparent processes and accountability. In this context, with public agencies being regarded as service providers and citizens as customers, the concept of quality must also visualize public agencies as catalysts of a responsible and active civic society. 5. Limitations of the research and directions for further research Future research can focus on “service excellence” being extended beyond assessment of the quality of services towards evaluation of the quality of life outcomes to which public organizations contribute, appraisal of the quality of public governance processes and quality of performance in meeting social objectives. The findings of the current study also deserve replication across other countries with different cultures, in order to explore how service quality influences customers’ behavioural intentions, in the context of both private and public sector banks and explore the consumer policy implications therein. This study was primarily quantitative. In future research, in-depth interviews can be carried out in to capture aspects of customers’ perception of service quality and their behavioural intentions that are not possible to cover with SERVQUAL and similar quantitative studies. 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