Customer Satisfaction And Service Quality

Published Date: 23 Mar 2015

After a brief introduction and background of this study in the first chapter, more detailed analysis will be done on all the variables used in this study throughout this chapter. The main variables in this study are customer satisfaction and service quality as in the topic of this study. However, there are five more independent variables that will be used in this study under the variable service quality. All the variables to be discussed in this chapter are crucial in this study as all signifies the relationship between service quality and customer satisfaction. Also, in this chapter I will go through some information of the banking industry in Malaysia. Since this study is specifically conducted on banking industry in Malaysia, some knowledge about this industry in Malaysia must be captured so that the process of this study will be more smooth and easier to understand especially the current issues in banking sector in Malaysia. Besides, we will briefly explain the relationship between service quality and customer satisfaction and also how both the variables affecting each other. Then, I will proceed to the approaches in measuring service quality, the discussions of some popular service quality measuring mechanisms that has been widely used and even modified for different purposes around the world.

2.2 Customer Satisfaction

In today's competitive market, there is no business or any company can survive without having satisfied customers. Form the definition of Kotler (2000), customers satisfaction is considered as the feelings of pleasure or disappointment caused by the products or services received and their perception towards the products and services received; and also the comparison of what they expect and what they actually get through the products and services. On the other hand, Hoyer and MacInnis (2001) said that satisfaction can directly related to the feelings to accept, happy, relief, excitement, disappointment, surprise, delight and joy. This is applied to all industries as long as it involves with customers.

Findings from recent studies conducted by the Technical Assistance Research Program (TARP), a federal government sponsored program, support this statement:

96% of consumers who experience a problem with a small ticket product (small packaged goods for example) do not complain to the manufacturer. Of these, 63% will not buy again.

45% of consumers who experience a problem with a small ticket service (cable television or local telephone service for example) do not complain. Of these, 45% will not buy again.

Only 27% of unhappy consumers of large ticket durable products (automobiles or computer for example) do not complain. Of these, 41% will not buy again.

37% of unhappy consumers of large ticket services (insurance or loans for example) do not complain. Of these, 50% will not buy again.

In more detail, dissatisfied customers with small problem would share their experiences with 10 people in average; while those with large problem with share their experiences with 16 people. On the other hand, each customer whose small problem is resolved satisfactorily is expected to share with 5 people; while customers having their large problem resolved are expected to tell 8 people.

Clark (1997) said that customer satisfaction remains as a potential tool and the most powerful weapons which are used to enhance strategic advantage for survival in the competitive market. It can be used as a strategic plan in outclassing most competitors by understanding the factors that impact on customers and their degree of satisfaction. On the other hand, it is not enough by having only satisfied customers; to increase the loyalty of customers and keep their satisfaction highest at all times, companies need to have extremely satisfied customers to prove that they are the top among competitors in the market.

Hokanson (1995) summarizes the factors that affect customer satisfaction in the figure below:

Friendly Employees

Overall Customer Satisfaction

Helpful Employees

Quick Service

Billing Clarity

Good Value

Service Quality

Competitive Pricing

Billing Timelines

Accuracy of Billing

Knowledgeable Employees

Courteous Employees

Figure 2.1

All these factors above could be the foundation of any successful business they are the main considerations of customers when deciding which products and services to be purchased. From the figure above, we seen that employees' attitude is one of the most concerned factor in customer satisfaction. Competitive pricing is the most common factor we always seen in the public since there is no one who does not like the exact same products and services with lower prices. Generally the company which offers the lowest price among competitors will be the winner in market by attracting most customers. Meanwhile, a helpful and friendly employee would already set a good image and reputation of the company before the customer look for any products and services. For example, the employee serves the customer patiently and always with a warm smile; also they will response immediately upon requests from customers.

Such attitude will greatly enhance the perception of customers towards the company. With great service quality and quick response on any request, customers might not be too sensitive on higher prices or any changes in prices or offerings; customers would think that it is worth and great value for purchasing from the company.

Besides, knowledgeable employees and the billing in terms of clarity, timelines, and accuracy would enhance the perception of customers towards the reliability and assurance from the company. Whenever customers face any technical problems or misunderstanding in products and services of the company, they will be corrected by the experienced and skilled employees and therefore no worries when they making purchase decisions. For example, customers will certainly fed up with fuzzy services and low quality products. More important, they are not well informed about the products and services offered; for instance they get different information from different employees at each time they visit the company. On the other hand, billing is also an important factor to boost confidence in customers and keep the satisfaction high. Customers will also be satisfied when they experience a smooth payment or billing process where the bills will be processed in short time, in a clear and easy-to-understand format, and most importantly the accuracy in figures and information of the details.

If any of the factors caused dissatisfaction in customers, the customers will absolutely discontinue from purchasing the same products and services and go to other companies instead. Else, dissatisfied customers will directly complain to the company or managers about what they had felt bad about the products and services received. Meanwhile, some will return the item back to the company and if worse, they would request for full refund of the item or services purchased. Additionally, the customers will also complain to third parties such as friends and families. As discussed previously, where customers tend to share their bad experiences in purchasing products and services more than good experiences; and this will directly linked to the affected reputation and image of the company due to the complains.

According to Aaker (1995), the factors within customer satisfaction can greatly affect the profitability of company if it is well managed. Aaker had developed a dimension for companies to become more competitive and increased capabilities and performance in exchange for long-term profits. This dimension is illustrated as in figure 2 below:

Customer Satisfaction/ Brand Loyalty

Product/ Service Quality

Brand/ Firm Associations

Relative Cost

New Product Activity

Manager/ Employee Capability & Performance

Current Performance

Long-Term Profits

Figure 2.2

2.3 Service quality

Studies and researches have proven that when customers are well treated, being respected, and informed frequently from time to time in receiving service, they tend to show more favourably response, less complain, more cooperative with the service providers, and their perception of quality improves as loyal customers (TARP, 1994; Bell, 1994; Lyons, 1994).

Quality of service is far more difficult to evaluate compared to quality of goods. According to Zeithaml and Bitner (2003), quality customer service is imperative to gain and sustain competitive advantage. Service quality differs from the quality of goods in that a service is intangible (Van der Wal, Pampallis and Bond. 2002). Some researchers look at perceived service quality as an attitude. Service quality defined as an attitude formed by a long-term and overall evaluation of a performance whereas attitude is defined as a consumer's overall, enduring evaluation of a concept or object, such as a person, a brand, or a service (Arnauld et al, 2002). Different countries around the world have different culture compared to Malaysia. At the same time, different cultures create different expectations and attitudes in clients. This is because People around the world have different languages, mindsets, preferences, attitudes and prejudices. Feinburg & Ruyter (1995) pointed the importance of adapting the definition of service quality in different cultures.

A high performance in service does not mean it is perfect with standardization, unlike manufacturing, where products can be perfectly produced and accepted for its quality. Comparing the cost of producing poor quality products, where the costs are fixed; the cost of delivering poor quality service includes the costs associated with redoing the service, compensating for poor service, loss of customers, and negative word of mouth which are unpredictable costs (Bitner et al. 1994). Additionally the cost of retaining existing customers or loyal customers is lower than the cost of attracting new customers. Since quality of service is seen more than a key differentiator of advantages in the market competition, the understanding of customers' needs plays a significant role in the industry.

According to Tahir and Bakar (2007), there are five different directions of gaps in the model of service quality:

Understanding: between the expectations of customers and management perceptions of these expectations.

Service standards: difference between the management perception and specifications of service quality.

Service performance: difference between the specifications or stated service quality and the actual service quality delivered.

Communications: difference between the delivery of service and communication to customers.

Service quality: difference between the expectations of customers on service quality and their perceptions towards the performance of the service providers.

There is no 100 percent in measuring service quality, at least in the perception of customers who receiving the service. Customers evaluate service quality not only on the outcome of the service but also the process of service, and how well the service provider performs, relating to customers' expectations. Emphasizes must be focused on listening to customers' needs and seeking the key drivers of customer satisfaction. Even Karatepe at al. (2005) also supports that by providing high service quality to customers, a firm or company can differentiate itself to become more competitive in the market and creating great opportunities.

According to Parasuraman (1985), there are four unique characteristics of services that cause the difficulty to evaluate service quality; which are intangibility, inseparability, heterogeneity, and perishability. In terms of intangibility, services offered cannot be seen, taste, feel, smell, or listen before the purchase. Customers will need to try out and experience themselves the services and perceive themselves whether it is good or not. Different customers might perceive different views due to their personal expectations and desire. Inseparability means that the services offered must be parallel with consumption at the same time, which means when services are in process; the customers are receiving the services at the same time.

High level of interaction will easily affect the perception of customers of how they feel about the services they received. Meanwhile, heterogeneity means a high variability of services in terms of the time process, service providers' attitude, and places. For example, some customers are still satisfied with the services although it is not as expectation; but the attitude of the service provider is great and patient in the service process. Perishability refers to the storability of services; a service is the opposite with product, which it cannot be stored or saved for future transactions. Although the service sector shows a rapid growth and is almost the fastest growing sectors worldwide (Malhotra et al., 1993), there are still a large number of researches and studies which have been conducting in most developed countries to measure the degree of service quality (Herbig and Genestre, 1996). This has signifies the difficulties in measuring and predicting service qualities in every countries with different cultures, ways of operating businesses and the perception of different people.

In the industry of banking, there has been a widespread usage of service quality which is significant for evaluating the performance of the banks (Cowling and Newman, 1995). As most banks and institutions are offering identical products for more or less the same price, they will be most likely to gain a sustainable and unique competitive advantage if these banks manage to extend their products and services with additional service features and values (Chang, Chan, and Leck, 1997). Additionally, due to the stiff competition where any new products and offerings by a bank will be quickly copied and matched or even countered by competitors, customers of the banking services and products will perceive only a little difference in the banking products and services offered.

Hence, all banks must focus and well concerned on the service quality as their core competitive strategy to compete with each other (Chaoprasert and Elsey, 2004). As a first step in providing excellent service quality and great values to the customers, banks must identify the underlying dimensions of service quality as well as the provision of quality services which opted to be a central concern and focus for every bank. Banks must be ensure that their customers who receive services from them daily are satisfied, it is then the banks will grow in terms of their businesses and profitability in this competitive environment when they succeed to build a base of loyal customers and differentiate themselves among competitors through superior service quality (Morgan 2003). For the banks which can successfully excel in service quality provided and delivered to their customers, their will have a distinct marketing edge in their products and services offerings and also will directed to higher revenues, increased sales, greater profitability and higher customer retention.

Moreover, commercial or retail banks are among the crucial groups in financial institution of most countries as they form the largest group in the financial sector. The stiff competition in the banking industry consists of foreign banks and domestic banks and some other financial institutions such as broker company. So it is extremely important for the banks to improve and keep their service quality on top to survive in the industry. We have seen that in recent years there is quite a number of banks worldwide have been closed down or merged with each other due to their insufficient capability to survive in the industry. Besides, due to the globalization and liberalization of banking products and services, the competition among players in the banking industry and the products and services offered by them become more intense and even more difficult to remain in the industry if not well managed. For example we can see that nowadays many banks have started to establish their branches overseas and expand their banking services to make globalization more useful.

In addition, customers' preferences nowadays are more towards the quality of service when they choosing which products or services to be purchased, this is especially in banking products and services since the customers will be depositing and investing their money in banks. Customers absolutely care about how their money is managed and of course the employees in banks who represent as agents for their money; and since customers nowadays have better knowledge and more educated about the products and services in the market, they would certainly know about the flow of products and services offered in the market, the pricing and some terms and condition possessed in the products and services comparing different banks. This is because the economy has been moving towards a knowledge based; and so as the purchasing power and capability of the customers. Hence, demand of the customers for better and high quality services is much more anticipated and this is just within the customers' expectation. We can conclude that the service quality of a bank remains as a priority for both banks and customers in the financial business operations. The banks need to firstly determine the degree of perceptions and expectations of their customers towards their services; then they can strategically plan their methods to provide high quality services to suit the market locally and globally based on the information obtained.

From a case study of service quality in Malaysia Islamic banking sector, the findings stated that globalization and liberalization of financial institutions accelerate, competition among banks in offering products and services becomes more intense. Customers in Malaysia become more educated better informed, more internalized, and as Malaysian economy becomes more and more knowledge based, the demand for high quality services expands with increases in customers' buying power (Izah M.T. and Mazlina A.B., 2007). Islamic banking assets, deposits and financing expanded massively from RM370 millions in 1983 to RM79.5 billion at the end June 2003 (Economic Report, 2003). Islamic banking industry in Malaysia always thinks strategically by providing high quality products and services to satisfy their customers. In order for these banks to provide high quality products and services, they need firstly to investigate the level of customers' perceptions and expectations to their service quality from their customers' perspective (Izah M.T. and Mazlina A.B., 2007). The compliance dimension was the most important look by BIMB's customers and this clearly shows the importance for Islamic banks to place cultural difference in front when adopting service quality (Sharil S., 2004). Bank Islam Malaysia Berhad (BIMB) was ranked top under the compliant attribute. It is not surprising as the bank carries the word 'Islam' as such it is expected to perform and operating fully under Islamic principles (Nurdianawati I.A. and Asyraf W.D., 2006).

2.4 Banking Industry in Malaysia

The financial crisis in Asia had proved that financial sector is extreme important for the process of economy growth in the country. Without a proper and well-managed financial structure, investments might easily misallocate and lead to a negative development in the economic and causing problems such as inflations or depressions. Since the banking industry has the most involvements in financial activities and structures, the industry considered as the biggest impact in the country's economy progress. In Malaysia, the purpose of banks is to maintain and improve the stability of monetary and financial system in the country, which can bring a sustainable growth in Malaysia economy.

Banking industry in Malaysia consists of two major groups, which are banking system and non-bank financial intermediaries. The banking system in Malaysia consists of:

Central Bank of Malaysia (Bank Negara Malaysia)

Commercial Banks

Finance Companies

Merchant Banks

Islamic Banks

Discount Houses

Representatives

Offices of Foreign Banks

While non-bank financial intermediaries include:

Provident and Pension Funds

Insurance Companies

Development Finance Institutions (DFI)

Saving Institutions (Bank Simpanan Nasional)

Others such as Unit Trust, Cagamas Berhad, Housing Credit Institutions, Leasing Companies, Credit Guarantee Corporation, Venture Capital Companies

Table 2.1 below shows the current licensed commercial banks listed by the Central Bank of Malaysia:

Table 2.1

Local Commercial Banks

Affin Bank Berhad

Alliance Bank Berhad

AmBank (M) Berhad

CIMB Bank Berhad (Commerce International Merchant Bankers Berhad)

EON Bank Berhad

Hong Leong Bank Berhad

Malayan Banking Berhad (Maybank)

Public Bank Berhad

RHB Bank Berhad

Foreign Commercial Banks

Citibank Berhad

HSBC Bank Malaysia Berhad

Oversea-Chinese Banking Corporation (OCBC)

The Standard Chartered Bank

The Bank of Nova Scotia (Scotiabank)

The Royal Bank of Scotland

United Oversea Bank (UOB)

Bangkok Bank Berhad

Bank of America Malaysia Berhad

Bank of China (Malaysia) Berhad

Bank of Tokyo-Mitsubishi UFJ (Malaysia) Berhad

Deutsche Bank (Malaysia) Berhad

Industrial and Commercial Bank of China (Malaysia) Berhad

J.P. Morgan Chase Bank Berhad

Souce: Bank Negara Malaysia (BNM)

The Central Bank of Malaysia was established on 1959, under the Central Bank of Malaya Ordinance 1958 (BNM). Across so many years, the Central Bank of Malaysia has been responsible for monetary stability, financial stability, and payment system in the banking and financial industry in Malaysia. It represents the central of Malaysia banking industry which played an important role as a banker and financial advisor for the Malaysia government, and to issue currency then protecting the value of currency by keeping reserves. Moreover, Central Bank of Malaysia has the power for supervision and regulation of all financial institutions in Malaysia. It oversees the operations of financial businesses and keeps it in control to protect the economy. On the other hand, commercial banks formed the largest financial group in the country and considered the most important fund providers in Malaysia banking industry. This is because the commercial banks have the largest assets and coverage of branches in Malaysia. The total number of commercial banks in Malaysia including local and foreign banks is 23 and we can see over thousands of commercial bank branches in the country. The development of commercial banks can significantly affect the country's economy. However, any financial institutions or commercial bank in Malaysia can only start operating their financial businesses and services under the licensing of the Banking and Financial Institutions Act 1989 (BAFIA).

Banking and Financial Institutions Act 1989 (BAFIA) is a replacement of the previous banking regulations in Malaysia, which is the Banking Act 1973 and Finance Companies Act 1969 (BNM). The establishments of BAFIA had extended the supervision power and authority of the Central Bank of Malaysia to direct and regulate all the licensed financial institutions in Malaysia. Generally, BAFIA had given the authority to the Central Bank of Malaysia to regulate three groups of financial institutions which are licensed institutions, scheduled institutions, and non-scheduled institutions. Meanwhile, there are some other Acts in the banking industry of Malaysia such as the Islamic Banking Act 1983.

2.5 Relationship between Service Quality and Customer Satisfaction

Service quality has been found out is the one of the important element for increasing the customer satisfaction. Service quality has found is the important input to the customer satisfaction (Araghchi, 2008). Customer will be satisfied to the company if the better services are provided by the company. As an example is the physical layout of a company, its ambience, parking facilities, the number of employees available, as well as problem resolution during critical incidents (Bitner, Booms, and Mohr 1994) There has been various factors which impact the satisfaction of customers, but service quality remains as the first when it is crucial because it has a high degree of interaction between the employees and customers.

Most of the researchers have come out their opinion about the relationship between customer satisfaction and service quality very close among each other, although there are some of the distinction between customer satisfaction and service quality. However, They are the strong relationships exist between service quality and customer satisfaction while emphasizing that these two are conceptually distinct constructs from the customer points of view's (Akbar and Parvez, 2009; Sureshchandar et al, 2003). A literature has suggests that the service quality and customer satisfaction are speared constructs which is unique and share a close relationship (Yap and Kew, 2005).

Some of the researches are found out that in term of satisfaction, service in banking industry settings appear to different among the customer segments. So the banks need to provide different of the service to satisfy the different type of need for the customer.

In a case study of service quality and customer satisfaction in Turkish banking sector, it was stated that services play an important role in the economy of the Turkish Republic of Northern Cyprus (TRNC henceforth), which is struggling under the United Nations (U.N) imposed embargoes (Arasli H, et al.2005). The economy of the Turkish Republic of Northern Cyprus is dominated by the services sector (69% of GDP in 2007). There is a developed banking system in the TRNC. Due to the banking crises, customers have switched to banks with a long history and sound reputation. This has caused excess demand for bank services and long queues in banks. The research results from Arasli, et al. revealed that the expectations of bank customers in the TRNC were not met. The largest gap between expectations and perceptions was found in the assurance dimension. Brink and Brendt (2004) state that service quality and customer satisfaction are the focus of attention of organizations because they want to measure it.

From most of the researches and studies conducted on many areas and industries, service quality is majority the most important factor that deeply influencing customer satisfaction. This has been applied to almost all service sectors. Moreover, banking industry contains much services and interactions especially when customers want to know more about the offerings by the banks. The service quality of banks includes the capability of bank employees to interact and communicate with customers. Below is the distinction between customer satisfaction and service quality summarized in table form:

Table 2.2

Customer Satisfaction

Service Quality

Customer satisfaction can result from any dimension, whether or not it is quality related.

The dimensions underlying quality judgments are rather specific.

Customer satisfaction judgments can be formed by a large number of non-quality issues, such as needs, equity, perceptions of fairness.

Expectations for quality are based on ideals or perceptions of excellence.

Customer satisfaction is believed to have more conceptual antecedents.

Service quality has less conceptual antecedents.

Satisfaction judgments do require experience with the service or provider.

Quality perceptions do not require experience with the service or provider.

Source: Adapted from the sources (Yap and Kew, 2005)

2.6 Variables Description

In this part, each of the independent variables will be discussed in detailed for the understanding of the components in this study. However, these variables are extracted from the Service Quality scale purified by Parasuraman et. al. (1988) and summarized as below:

Table 2.3

Service Quality Dimensions

22-Item Scale

Reliability

Providing service as promised

Dependability in handling customers' service problems

Performing services right first time

Providing services at the promised time

Maintaining error-free records

Responsiveness

Keeping customer informed as to when services will be performed

Prompt service to customers

Willingness to help customers

Readiness to respond to customers' requests

Assurance

Employees who instill confidence in customers

Making customers feel safe in their transactions

Employees who are consistently courteous

Employees who have the knowledge to answer customers questions

Empathy

Giving customers individual attention

Employees who deal with customers in a caring fashion

Having the customer's best interests at heart

Employees who understand the needs of their customers

Convenience business hours

Tangibles

Modern equipment

Visually appealing facilities

Employees who have a neat, professional appearance

Visually appealing materials associated with the service

Source: Parasuraman et. al. (1988)

2.6.1 Reliability

From the definition of Joppe (2000), reliability is the extent to which results and outcomes are stable at most times and able to represent the total population accurately. For example, if a study which had been completed and its findings are similar even though the study is repeated for another few times; the method used in the study is considered to be reliable. Chowdhary and Prakash, 2007; Zeithaml et al., 2006: Reliability represents the most significant among all the dimensions in service quality model. From most researchers they would agree that reliability is has the biggest impact on service quality and remains as the most important dimension. On the other hand, Kirk and Miller (1986) have derived the three types of reliability as:

The degree to which same findings are obtained in repeated measurements.

The stability of measurement in researches or studies over time.

The similarity of measurements in a certain time given.

However, in the perspectives of service quality, O'Neill, Palmer (2003), and Buttle (1996) defined reliability as the extent to which promising services are made to be delivered to customers by service providers. In short, reliability can relate to the actual services provided by the providers as promised. A reliable service provider will performs the services at the right way and right time to the customers; most importantly the service provider will do what as promised before the delivering of services. In the reliability of services, it is consists of the billing accuracy, records and information keeping, delivering and performing the services correctly and in time, the accuracy in order fulfilment, dependability in managing services problems such as complains, and maintaining an error free services. For example, if an employee frequently make mistakes in the service delivery such as taking wrong orders and providing wrong information to the customers; it will end up having complains from the customers, the customers will certainly give a poor feedbacks for such services and they will think that the service provider is not dependable without a well knowledge based. In opposed, if the service provider maintains a zero error service and delivering services on time and accurately, it will surely please the customers thus they will think that the service provider is highly reliable in solving their problems in the process of service delivering. Additionally, a reliable service provider must be possessed with a high capability in handling problems during the service process. This includes the solutions and information provided to the customers, the efficiency of service and knowledgeable.

Since it is already known that reliability is the most significant impact on customers, all the financial institutions in the banking industry must be able to avoid such mistakes in reliability (Johnston, 1997). Every service provided by banks involves cash money or any related financial components, it is unlike other service sectors which the impact on error services is not as serious as that of banking services. For example, when a customer deposits his or her money into a bank for investing purposes; any mistakes or error occur by the banking service provider will cause a huge loss of money of the customers. In other case, if there are errors in the bank statements or account information it will be troublesome to the customers and the false information might mislead them in further financial planning. In more serious case which involves credit cards, it will be more risky for any mistakes occur. If the bank employee did not well manage the credit card information of customers, it can easily lead to credit card fraud which the credit card information is stolen by a third party for the use of unauthorized purchasing. Thus, in the area of banking services; correct services, accurate record and billing are the most concerned factors which related to the consistency and reliability of performance in banking service industry. Banks must maintain error free services so that customers will have confidence using the banking and financial services.

2.7 Approaches in Measuring Service Quality

From the statement of Parasuraman, Zeithaml, and Berry (1985, 1988), it is defined the perception of service quality as global judgement and attitude which relate to the performance of service. They linked and relate the concept of service quality and expectations in way that both are affecting directly to each other. Due to this, they concluded that the overall of service quality is highly relying on the gap between customers' expectations and perceptions when receiving services. Hence, a model used to define the service quality gaps had been developed by them, consisting of five basic determinants which are tangibility, reliability, responsiveness, assurance, and empathy. This model, famously known as the "SERVQUAL" model, has been adopt by many other researchers in the study of service quality specially to measure and evaluate the validity and reliability of service quality which can be applied in any industry. Also, many researches had successfully obtained validity and reliability in measuring the service quality of banks by using SERVQUAL.

The SERVQUAL model has now been widely used around the world for service quality assessment. In the financial institutions of United Kingdom, there are two British banks which are using the SERVQUAL model and resulted in the improvement in quality of service, hence enhancing an enjoyable increase in their profit (Newman and Cowling, 1996).

In the study of Chang and San's (2005) to determine the relationship between service quality, customer satisfaction, and profitability in Taiwan banking industry, they have found out that the performance scale of SERVPERE model has confirmed that the service quality is a significant factor to affect customer satisfaction while customer satisfaction is the key of profitability in the banks of Taiwan.

Arasli et. al. (2005) had developed a study of the perceptions of service quality in Greek Cypriot Bank by using the SERVQUAL model. He however, determined the relationship between service quality and customers satisfaction with the positive word of mouth. In the result of his study, he found that the reliability of service quality had the most significant impact on customer satisfaction that also had an impact on the positive word of mouth. Also, he obtained from the result that the expectation of customers did not met the gap in the responsiveness and empathy.

Meanwhile, Bahia and Nantel (2000) have developed an alternative scale in measuring service quality in the banking sector. In their study they compared the BSQ dimensions and SERVQUAL model, and they found out that the BSQ dimensions were more reliable compared to the SERVQUAL model. Generally, BSQ (Bank Service Quality) is the extension of the original model of service quality (SERVQUAL) and had been modified specifically for the measuring of service quality in banking sector. The variable components are tabulated as below:

Confidentiability

Delivering what promised

Precision of filling systems

Good reputation

Confidence

Innovation in banking services

Communication quality

Recognition

Feeling of security

Reasonable fees for administration of accounts

Valorisation of the client by personnel

Efficacious work environment

Sufficient number of open tellers

Free from interruption of services

Complete range of services

No delays due to bureaucratic factors

Queues that move rapidly

Balance amount from service charges

Waiting is not too long

Decoration of facilities

Well trained personnel

Good explanation of service fees

Automation in all services

Cleanliness of facilities

Useful bank contacts

Knowledge of the client on personnel basis

Latest innovation in banking services

Keeping the client informed about service fees

Table 2.4Precision of account statements

Error free service delivery

Besides that, in a study conducted by Lassar et. al. (2000) which comparing two major models of measuring quality, the SERVQUAL model and the Functional Quality models in measuring quality in private banking industry. The result shown that the Functional Quality model of service quality was better and more suited in measurement of service quality in banking industry compared to the SERVQUAL model.

In the view of Tahir (2007), he derived the model of service quality into five gaps as in below:

Gap 1 (Understanding): he defined understanding as the difference between the expectations of customers and the expectations service providers or the companies.

Gap 2 (Service Standards): he defined service standards as the difference between the perceptions of service providers towards the customers' expectation and the specifications of services they provided to customers.

Gap 3 (Service Performance): he defined service performance as the difference between the specifications of service quality by the service providers and the services actually provided by them.

Gap 4 (Communications): he defined communications in service quality as the difference between the delivering of the actual services and what have been communicated throughout the services they delivered to the customers.

Gap 5 (Service Quality): he defined the last gap which is service quality as the difference between the expectations of customers towards the quality of services and their perceptions of a good service provided by the company and the company's performance.