Unique Aspects Of Financial Services Marketing Essay

Published Date: 23 Mar 2015

Timm (2005) said that "No business or organization can succeed without building customer satisfaction and loyalty. Likewise, no person can make a good living without meeting the needs of customers". Service quality has been found to be an important input to customer satisfaction (Caruana & Malta, 2002). Especially, in banking industry, banks all over the world provide the similar kinds of product range. Thus, banking service quality is becoming a critical success factor for many banks. For these reasons, the objective of this chapter is to review the remaining literatures in order to identify the relationship between service quality and customer satisfaction in Retail banking.

2.1 Services Marketing

Services marketing - a form of marketing which focuses on selling services, when a company sell services, the goal is to get customers to do business with them, not to get customers to buy products. Thus, the marketing approach for services is much different than for products (Smith, 2010). Nowadays the contribution of services to the development of every country is huge, significant and in the progress. The size of the service sector in both developed and developing countries is sharply increasing; the total for services reaches about 80 percent of the value of GDP in almost developed countries (Lovelock, Walker& Patterson, 2007). As a result, services are becoming a major contributor to every country. In their turn, the consumers are becoming more powerful and more demanding with service providers. Therefore, by understanding the distinctive characteristics of service to improve service quality, the service providers can meet customers' needs and create a competitive advantage for their own businesses.

Lovelock (2007) defined services as "economic activities offered by one party to another, most commonly employing times-based performances to bring about desired results in recipients themselves or in objects or other assets for which purchasers have responsibility". The different marketing approach for services comes from a number of distinctive characteristics of services: intangibility, inseparability of production and consumption, heterogeneity, and perish-ability (Zeithaml, Parasuraman, and Berry, 1985). Services cannot be touch, seen, felt and tasted. This intangible characteristic of services makes them different from products. While the processes of producing, selling, consuming of goods can occur different time and be separated. For services, those processes cannot be separated, the service providers' staffs and customers have to involve in the those processes, in other words the process of producing, selling and consuming of services have to occur at the same time. Heterogeneity refers to the quality of services can vary from service provider to provider, from day to day as well as from customer to customer. Due to the inseparable characteristic of services, services cannot be saved. This is perish-ability of services (Zeithaml, Parasuraman, and Berry, 1985).

According to Parasumaran, Berry and Zeithaml (1991), understanding customer expectations is a key for the performance in service marketing and a prerequisite of delivery superior service. Thus, in today's competitive environment, only those enterprises that attempt to exceed their customers' expectations will succeed (Sinha & Ghosal, 1999). Parasumran et al. (1991) also stated that service quality is considered as important factor that affect buyers' decision and as support for the performance in service marketing. For these reasons, the service quality is increasingly important as more emphasis placed on exceeding the expectations of customers (Gronroos, 2002). The co-production with customers also increases the importance of service quality. Customers today are very knowledgeable; they can gain significant information on the companies and industries. Hence, they can distinguish the service providers with high service quality. The companies that can provide valuable services will be seen through customers' eyes (Zineldin, 2005).

Unique Aspects of Financial Services

According to Estelami (2007), financial services have some special related aspects, such as subjective perceptions of quality, price complexity, regulations, market clustering and consumer protection, that makes financial services marketing differentiate it from others. The first unique aspect of financial services marketing results from the illusive notion of quality, in other word, the notion of quality is highly subjective in financial services, such as insurance services or securities brokerage services. Secondly, the prices of financial services are complex. For instance, a loan that payment is made in installments which may be monthly payment or a down payment. These payments are difficult for consumers to understand. Thirdly, regulations involved also make marketing financial services different from other marketing practices. For example, content of financial service advertisements, Securities and Exchange Commission, etc. Other unique aspect of financial services marketing is due to the needs of customers for financial services. The needs of these customers vary remarkably from one customer to other customer, thus the important thing for financial service providers is effectively segmenting and grouping customers. Moreover, any decision and discussion of financial services has to include the issues of consumer protection that also make financial service marketing distinctive.

2.2 Retail Banking

2.2.1 What is Retail Banking?

Retail banking can be simply understood as the antonym of wholesale or bulk banking. In other words, retail banks provide products and services to individuals and small businesses with large volumes of low value transactions through various channels, such as branches, Internet, mobile phone, ATM (Automated Teller Machines), etc (Oliver, 2009). Therefore, According to Gopinath (2005) retail banking can be characterized by three characteristics: multiple products and services, multiple channels of distribution and multiple customer groups.

However, the technological developments, the reformation of macroeconomic environment and financial market and the changes of micro level demand and supply factors in recent years make it difficult to identify the nature of a retail bank, many banks now are doing business in both retail and wholesale activities (Gopinath, 2005). Moreover, Dror (2007) said that human resource, technology, planning and organizational relationships are important factors to improve service quality in retail banking.

2.2.2 What services and products do retail banks provide?

Retail banks provide various products and services to customers with a number of low transactions. Traditionally, the products and services of retail banks are mostly intermediation and payment services, but now retail banking is increasingly providing a much wider range of products and services, such as investments and securities, insurance products, pension schemes, stock broking services. Especially, the recent developments of the products and services of retail banks significantly contribute to economies and the convenience of their customers, such as debit cards, automated clearing house debit, credit cards and smarter cards (Buckle and Thompson, 2000).

According to Oliver (2009), the nature of banking products has some unique characteristics: service character in general, interlacement, immateriality, and dualism. The interlacement of retail banking products means that these products have cross-links to the other. This can be found within production and sale process of the retail banking products and services. Thus, banks can sell different products and services at the same time to achieve a customer lock-in. Immateriality is another feature of retail banking products and services. The products cannot be stored and only produced when a customers demand. Finally, dualism means that the retail banking products consist of both piece and value related performance. The piece related performance refers to the involvement of banking staff and equipment. The value related performance refers to the receipt, creation and transformation of money or capital.

2.2.3 What channels do retail banks use to deliver services?

Traditionally, retail banks mostly use branches to deliver their products and services. But now with the technological development, the more channels of distribution are used, such as automated teller machines (ATMs), fixed line telephones, personal computers and cellular phones, to provide better services for the convenience of the customers.

Figure 2.1 Multi - Channel Service Delivery System in Retail Banking

Source: Xue, Hitt & Harker (2004)

Habubank's retail banking products fall into five main categories: Personal loans, credit/debit cards, mortgages and other products. The personal loan, such as consumer loans, household loans, is round 10% of Habubank's outstanding loans. Customers can get personal loans from Habubank to buy car, motorbike or house. Apart from issuing debit and credit cards, Habubank has become member of Visa and Master Cards. The total number of card issued was over 100,000. Furthermore, the banking services of Habubank consist of Guarantees, Money Transfer, International Settlement, Cash services, Automated Banking services and Wealth Advisory. In 2009, Guarantees contribute 16.5% to the bank's total revenues from services. International Settlement revenue was $395 million. The Wealth Advisory attracted more than 10,000 clients that made total funds raise over VND 115 billion (Habubank, 2009).

Habubank has diversifying sales channels. Besides, branches and transaction units, the bank can reach to customers via Wealth Advisory, ATMs (automated teller machines), POS (point-of-sale), Contact Centers, mobile banking, internet banking and SMS banking. The bank has over 50 branches and transaction units and 6000 ATMs nationwide. The bank has also been connected with Banknet and VNBC switching systems. These facilitate Habubank to easily reach to its customers (Habubank, 2009).

2.3 Consumer Behavior in Banking Sector

Today the competition among the banks is intense and cross boundary of the banking industry. Banks are not only competing with each other, they also competing with non-bank institutions (Cohen et al., 2006). Therefore, the need for understanding of banking consumer behavior is becoming extremely important for the survival of banks (Harrison, 2003). In this study, the consumer behavior of bank consumers will be examined by analyzing the Decision Making Process in banking consumer behavior.

There are many consumer decision making models. The foundation is the model of Simon (1957), which includes three stages: problem identification, information gathering and choice selection. Then this model is developed by Engel, Kollat & Blackwell (1968) and Howcroft, Hewer & Hamilton (2003). However, the model of Engel, Kollat & Blackwell is the most frequently applied model in analyzing banking consumer behavior (Harrison, 2000). In this model, consumer decision making is divided into five stages: problem recognition, information search, evaluation of alternatives, purchase decision and post-purchase evaluations.

Figure 2.2 Customer Decision Making Process

Source: Engel, Kollat & Blackwell (1968)

Problem recognition: the decision process begins with the customer's recognition of "problem" or awareness of need and the customer may be is motivated to act by external factors (advertising or promotion) or internal factors (need for security). According to Karim & Affif (2006), there are two different motives in placing customer fund in a bank; they are long-term saving needs and short-term transaction needs. The long-term saving needs refer to security and return reason, that means the purpose of bank selection is because of security and return criteria. Besides, the short-term transaction needs refer to convenience. Now the purpose of selecting a bank is because of convenience, such as utilities payment, purchasing staple needs, etc. Those explain why many banking consumers in Vietnam want to use more than one bank. However, because of the nature of banking products/services, such as lack of intrinsic appeal and complexity of product rage, the banking consumers do not actively recognize their needs (Ennew, 2007).

Information search: customer gathers relevant information either from external sources (friend recommendations, word of mouth) or their own memories. Howcroft et al. (2003) indicated that banking consumers rely more on personal sources, such as friend and family recommendations, during information search stage. According to Ennew (2007), the nature of banking products and services leads to consumer passivity and limited degree of information search. Thus, the banking services are high in experience and credence qualities while low in search qualities because of intangibility and inseparability characteristics (McGoldrick & Greenland, 1992). Moreover, information-gathering of banking products and services also have some further problems related to the validity and accessibility of information. They may be because of long-term in nature and complexity of banking services available and the lack of transparency in marketing (Ennew, 2007).

Evaluation of alternatives: Karim & Affif (2006) noted that convenience and service quality are the main consideration of banking consumers in this stage, while Tan and Chua (1986) argued that the recommendations of friends, family members and neighbors strongly influence on banking consumers' decisions. In the study of bank selection criteria, Kaufman (1967) stated that convenience location, length of bank-customer relationship and service quality are the most influential factor in selecting a certain bank. More detail, Kaynak et al. (1992) in the study of banking customer behavior in Turkey realized that the bank's reputation, opening hours, facilities, and rage of services are more important for male than female customers and bank location is more important of the customers under the age of 40 than others. Moreover, Boyd, Leonard, and White (1994) found that the bank's reputation is the most important factors for the age group under 21 in determining their bank selection, and friendliness of bank employees and the modern of facilities are less important factor for this age group.

Purchase decision or bank choice: a bank will be selected based on the result of the evaluation of alternatives stage.

Post-purchase evaluations: after choosing a certain bank, the customer will compare his experience and expectation. If the experience does not match his expectation, the customer will be dissatisfied and can switch to other banks. If the experience matches or exceeds his expectation, the customer will be satisfied (Karim & Affif, 2006). However, for banking products and services, the post-purchase evaluations are very difficult, because the expectations of customers may not be clear or the customers may lack knowledge to evaluate the banking service that they have received (Harrison, 2000).

The decision making process of Habubank's customer behavior also follow those five stages. In the problem recognition stage, the Habubank's customers prefer more to security and return motives. In other words, the convenient factors affect the bank's customers less than security and return reasons. This is because Habubank is the top ten biggest Joint Stock Commercial Banks in Vietnam and provide high interest rate to customers. However, the bank's channels to deliver products and services still remain small, even the bank puts a lot of efforts to expand those channels. In information search stage, Habubank's customers rely more on friend and family advices. The bank also tries to put more information available on its website and through advertising campaigns. Besides friend and family recommendations, the service quality and bank-customer relationship are also bank selection criteria of Habubank's customers (Habubank, 2009).

2.4 Service Quality

2.4.1 Definition of Service Quality

Service Quality is increasingly recognized as a critical success factor of any business, and retail banking industry is no exception. Nowadays, all banks offer similar kinds of products and services due to the technological development. However, the quality of service of banks can be distinguished by the customers; they can perceive the differences in the service quality of banks (Cronin & Steven, 1992). Therefore, many banks have understood the importance of service quality as a way to increase customer satisfaction and position themselves better than competitors in the market place.

Table 2.1 The Different Definitions of Service Quality

Authors

Definitions

Parasuraman et al.,(1985)

The differences between customer's expectations of services provider's performance and their evaluation of the services they received.

Asubonteng et al. (1996)

The difference between customers' expectations for service performance prior to the service encounter and their perceptions of the service received

Gefan (2002)

The subjective comparison that customers make between the quality of the service that they want to receive and what they actually get

Parasuraman, Zeithaml and Berry (1985, 1988) found that service quality can be determined by the comparison of customers between their expectations of the services provider's performance and their evaluation of the services provided. Similarly, According to Asubonteng (1996), the quality of service is determined by the difference between customers' perceptions of the service received and their expectations for services provider's performance prior to service encounter. So service quality can be defined as a judgment of customer about a service. When a customer evaluates banking services, he compares his expectation of service performance and his perception of the service provided, and he will be satisfied if his perception meets or exceeds his expectation (Kolter, 2000).

2.4.2 Service Quality Models

Many researchers have developed the models of service quality. In this research, the study refers to the two key models, Perceived Service Quality Model (Gronroos, 1983, 1984, 2000) and the Service Quality Gaps Model (Parasuraman et al., 1988).

2.4.2.1 Perceived Service Quality Model

Perceived service quality is the result of the evaluation process of comparing customers' expectations with their real life experiences (Gronroos, 1983). He stated that the perceived quality will be low if expectations are not met by performance or actual experiences. In other word, when the experienced quality meets or exceeds their expectations, the perceived quality is high.

Figure 2.3 The Total Perceived Service Quality Model

Source: Gronroos (2001)

Gronroos (1983) have found that the service quality experienced by a customer has two dimensions: technical quality and functional quality. Technical quality describes what the customers received and functional describes how the service is delivered. Gronroos (1984) suggests the third dimension of service quality: the corporate image which describes how customers perceive the firm and is built up by technical and functional quality. Gronroos (1984) also stated the expected service quality as a result of a number of factors, namely market communication, sale, company image, and word of mouth, etc (see Figure 2.2)

Gronroos (2001, 2007) identified and emphasized that the following 7 criteria of good perceived service quality that are very similar to the service quality dimensions of Parasuraman (1985). These criteria are the determinants and need to be considered when evaluating the service quality.

Table 2.2 Determinants of good perceived service quality

No.

Determinants of good service quality

1

Professionalism and Skills

2

Attitudes and Behaviors

3

Accessibility and Flexibility

4

Reliability and Trustworthiness

5

Service Recovery

6

Services cape

7

Reputation and Credibility

Source: Gronross (2001, 2007)

2.4.2.2 The Service Quality Gaps Model

Parasuraman (1985) consider perceived service quality as a gap between the perceptions of customers of received service quality and their expectations.

Service Quality = Perception - Expectation

In the service quality gaps model, Parasuraman (1985) suggests five gaps. The first four gaps focus on the service provider side of service and the last gap, gap 5, refers to the customer side of service.

Figure 2.4 Model of Service Quality Gaps

Source: Parasuraman et al. (1985)

Gap 1 is difference between customers' expectations and management perceptions. The managers think that they know what their customers want, but in fact they are mistaken. This may be result of the lack of a marketing research orientation and inadequate upward communication.

Gap 2 is difference between management perceptions and the translation of those perceptions into services quality specifications. This may be a result of inadequate commitment to service quality, a perception of unfeasibility, inadequate task standardization and an absence of goal setting.

Gap 3 is difference between the service quality specification and service delivery. This may be a result of role ambiguity and conflict, poor employee-job fit, poor technology-job fit, inappropriate supervisory control system, lack of perceived control and lack of team work.

Gap 4 is the difference between the service delivered to customers and the external communications. This may be a result of inadequate horizontal communications and propensity to over promise.

Gap 5 is the difference between what consumers expect and what they receive. This gap suggests that the difference between expected and perceived levels of service form consumers' overall perception of service quality. This gap may be a result of the influence exerted from the customer side and the shortfalls on part of the service provider.

The central focus of the service quality gaps model is on the "customer gap" (Shahin, 2004)). Therefore, Gap 5 is considered to be the true measure of service quality. The SERVQUAL instrument has developed by Parasuraman et al. (1988) with five service quality dimensions (Tangibles, Reliability, Responsiveness, Assurance and Empathy) to measure this gap. The SERVQUAL instrument uses a "gap score or SERVQUAL score = Expectation - Perception" analysis methodology by using 22 item scales with questions intended. In addition, Zeithaml et al. (2000) develops the extended service quality model which characterizes and delineates the four gaps indentified in Gaps model of Parasuraman. This model suggests that most factors, such as communication and control process implemented by the firms, focus on managing employees.

Figure 2.5 Extended model of service quality

Source: Zeithaml el al. (2000)

2.4.3 Measuring Service Quality - The SERVQUAL Instrument

Measuring service quality is more difficult than physical product quality because of special characteristics of services, particularly the tangible nature of services (Parasuraman et al., 1985). However, in the competitive environment, service quality measurement is becoming very important and creates an interest among service providers, especially among banks all over the world that provide similar kinds of products and services. There are various service quality models have been used to measure service quality, such as the SERVQUAL model (Parasuraman, 1985), the SERVPERF model (Cronin and Taylor, 1992), and the Human-Societal Element model (Sureshchandar, 2002). According to Babakus and Mangold (1992), Cronin and Taylor (1992) and Carman (1990), SERVQUAL instrument has been widely used to measure the quality of service in various industries and research studies. SERVQUAL is the most popular instrument to measure service quality Cronin and Taylor (1992).

Parasuraman, Zeithaml, and Berry (1985) found ten overall dimensions of service quality to use for measuring the quality of services. They are tangibles, reliability, responsiveness, competence, courtesy, credibility, security, access, communication and understanding.

Table 2.3 The explanations of original ten service quality dimensions

Dimensions

Explanations

Tangibles

Appearance of physical facilities, equipment, personnel and communication materials

Reliability

Ability to perform the promised service dependably and accurately

Responsiveness

Willingness to help customers and provide prompt service

Competence

Possession of the required skills and knowledge to perform the service.

Courtesy

Politeness, respect, consideration, and friendliness of contact personnel

Credibility

Trustworthiness, believability, honesty of service provider

Security

Freedom from danger, risk, or doubt

Access

Approachability and ease of contact

Communication

Keeping customers informed in language they can understand and listening to them

Understanding

Making the effort to know customers and their needs

Source: Zeithaml, Parasuraman & Berry, (1988)

After refining their research, Parasuraman, Zeithaml and Berry (1988) reduced the ten service quality dimensions to five with a 22 item scale. The three of original ten dimensions remained unchanged (tangibles, reliability and responsiveness). The other seven dimensions were combined into two dimensions (Assurance and Empathy).

Figure 2.6 Correlation between Modified SERVQUAL and original ten dimensions

Source: Zeithaml, Parasuraman & Berry, (1988)

Now, the new five service quality dimensions made up what we called SERVQUAL. The SERVQUAL dimensions are tangibles, reliability, responsiveness, assurance and empathy which are used to measure service quality through measuring both customer perceptions and expectations. The SERVQUAL instrument measure the "customer gap" by establishing 22 questions of 22 attributes. Therefore, the SERVQUAL questionnaire is also based on these 22 attributes.

Table 2.4 The explanations five service quality dimensions

Dimensions

Explanations

Tangibles

Appearance of physical facilities, equipment, personnel and communication materials

Reliability

Ability to perform the promised service dependably and accurately

Responsiveness

Willingness to help customers and provide prompt service

Assurance

Employee's knowledge and courtesy and their ability to convey trust and confidence

Empathy

The caring, individualized attention given to customers

Source: Zeithaml, Parasuraman & Berry, (1988)

Although SERVQUAL has been widely used to measure service quality, it has been subjected to criticism by many researchers. They criticized that SERVQUAL mainly focuses on the process of service delivery (Gronroos, 1984; Richard and Allaway, 1993). Gronroos (1984); Carman (1990); Cronin and Taylor (1992) also stated that SERVQUAL has low predictive validity because it uses only functional quality to predict the behavior of customers. Cronin and Taylor (1992) indicated that the customers' perceptions of service quality and their evaluations of service provided are very close. However, Parasuraman, et al. (1988) disagreed with them, he stated that when establishing gaps in the provided service, the disconfirmation is valid. According to Angur and Jahera (1999), SERVQUAL scale seems to provide much greater information about the quality of service and they agreed that although SERVQUAL still is a topic to criticism, but it is a better and the most popular instrument to measure service quality.

2.4.4 Validity of SERVQUAL Application in Banking Industry

There are various approaches and methods for measuring the quality of service, however the SERVQUAL that developed by Parasuraman (1985, 1988, 1991 and 1994) seem to have greatest potential for applying in various service sectors, such as banks, credit card companies and long distance telephone companies. According to Angur and Jahera (1999), perceived service quality is playing the important role in retail banks. Realizing the important role of SERVQUAL in services marketing, particularly in a customer intensive industry like Retail Banking, Cowling and Newnam (1993-1995) applied SERVQUAL model in two British banks and then in 1996 they reported that this model worked extremely well in the two banks and had no trouble in the implementation. They also said that the model improved the quality of service, and both banks enjoyed substantial increases in profit.

Although Cronin and Taylor (1992) have criticized SERVQUAL, but they also agreed that it has the basic beneficial application in certain industries, particularly in banking industry. Similarly, Oppewal and Vriens (2000) stated that the SERVQUAL instrument is insufficient measures of service quality dimensions, but finally they concluded that most of perceived service quality measurements are completed by SERVQUAL. In the study of one of the top ten UK banks, Newman (2001) noted that "Nevertheless, SERVQUAL continues to be one of the most widely recognized methods of measuring service quality, notwithstanding these criticisms" (Newman, 2001, p. 129).

Cronin and Taylor (1992) indicated that SERVQUAL uses only functional quality to predict the behavior of customers. However, Kotler and Armstrong (2006) stated that in the competitive and developed economies, the functional quality is more attentive than technical quality and banks can obtain product differentiation and position themselves better than competitors through the way banking services are delivered, creating customer and employee satisfaction. Therefore, SERVQUAL can be an appropriate instrument for measuring service quality in the retail banking industry.

2.5 Customer Satisfaction

2.5.1 Definition of Customer Satisfaction

In the banking industry, customer satisfaction is commonly seen as a key in determining why customers stay or leave a bank and establishing the relationship between banks and their customers. Leeds (1992) noted that "approximately 40 percent of customers switched banks because of what they considered to be poor service". According to Zairi (2000), dissatisfied customers may share their unfortunate experiences with another 10 people, while satisfied customers will tell another five or six people of their experience. Thus, satisfying customers is an important task of every company. Evans and Lindsay (1996) also stated that having satisfied customers will give an organization a good opportunity to convert its customers to loyal customers who will stay with the organization over an extended period.

There are a variety of alternative definitions about customer satisfaction. One of the most popular definitions holds that: "Satisfaction is a person's feelings of pleasure or disappointment resulting from comparing a product's perceived performance or outcome in relation to his or her expectations" (Kotler, 2000). Kotler and Armstrong (2006) further discuss about customer satisfaction, he said if service performance does not meet the customers' expectations, the customers will be dissatisfied, and if it matches or exceeds, the customer will be satisfied and make repeat purchases. According to Oliver (1997), customer satisfaction is defined as the evaluation of customers of a product or service, whether the product or service meets their needs or expectations. If the product/service does not meet the customers' expectations, dissatisfaction with that product/service will occur.

Table 2.5 The Different Definitions of Customer Satisfaction

Authors

Definitions

Kotler (2000,p.36)

A person's feelings of pleasure or disappointment resulting from comparing a product's perceived performance (or outcome) in relation to his or her expectation

Yi(1990)

A collective outcome of perception, evaluation and psychological reactions to the consumption experience with a product/service.

McColl-Kennedy, J.R. (2003)

Satisfaction is a function of consumer's belief that he or she was treated fairly

Some researchers argued that customer satisfaction has two elements, namely cognition and emotion. The cognitive element is related to the evaluation of the comparison of expectation and perceived performance. The emotional element is related to different emotions, such as happiness, surprise and disappointment (Yi, 1990)

2.5.2 Customer Satisfaction Models (Disconfirmation of Expectations Model)

The main model that has been applied to satisfaction research is the disconfirmation of expectation model that was found in 1977 and further developed in 1980 and 1981 by Oliver. The model is the foundation concept of Perceived Service Quality Model (Groross, 1983), Gaps and SERVQUAL models (Parasuraman et al., 1985, 1988, 1991 and 1994). This model holds that if the expectations of customers are not met by actual product/service performance then they change their perceptions and attitudes toward a product/service. Thus satisfaction is determined by the differences between perceived performance and expectation (Khalifa and Liu, 2003).

Figure 2.7 Disconfirmation of Expectations Model

Source: McColl-Kennedy (2003)

The model suggests three determinants of customer (dis)satisfaction: expectations, perceptions and (dis)confirmation. Oliver (1997) indicated that customer formed expectations before they purchase a product or service, thus expectations act as a standard or frame of reference against which service performance has been judged. According to Timm (2005), in relation with actual product/service performance, the higher expectation will lead to the greater degree of disconfirmation and the lower level of satisfaction to be achieved.

Oliver (1980) found three possible outcomes of this model - dissatisfaction, satisfaction and enhanced satisfaction. First, if service performance exceeds pre-purchase expectations, positive disconfirmation results, and customers are likely to demonstrate a high level of satisfaction. Second possible outcome occurs when a service experience just meets customer expectations, confirmation results and the customer is just satisfied. Third, if the service experience is not met or is below customer expectations, negative disconfirmation results, and consumers are dissatisfied.

Although Disconfirmation of Expectations model is widely used in the customer satisfaction literature, it still has some disadvantages. Firstly, according to McKinney & Yoon (2002), the major disadvantage of this model is that it provides insufficient differentiation between cognitive and evaluative notions, its explanations of customer satisfaction is less convincing in some circumstances, and it makes no clear prediction of expectations. The next problem of this model is the evaluation assumption that is limited, only to those who believe that expectations are formulated prior to purchase.

2.5.3 Customer Relationship Management (CRM) and Customer Satisfaction

Ryals and Adrian (2001) noted that customer relationship management (CRM) has great impact on the financial services industry, particularly retail banks. Thus, many banks today have realized the importance of CRM that helps them retain existing customers, acquire new ones and maximize their lifetime value (Peppard, 2000). CRM allows banks to leverage information from databases to better satisfy and retain customers, as well as achieve better relationships with their customers (Blery and Michalakopoulos, 2006). They also argued that in banking sector, CRM, high service quality and differentiation are the most influential factors for banking customers in choosing a certain bank.

There are many alternative definitions of CRM, the core differences among them are relationship aspect and technological aspect of CRM. William, Raymond and Faye (2003) define CRM as "a business strategy that uses information technology to provide an enterprise with a comprehensive, reliable, and integrated view of its customer base to help maintain and expand mutually beneficial relationships". Couldwell (1998) defines CRM as a combination of technology and business process to get better understanding of customers. Another view of CRM is it is considered as technological orientated (Blery and Michalakopoulos, 2006).

In a retail bank, CRM works as a tailor to help it meet customers' needs by using information available. In the study of the impact of CRM on the customer satisfaction in agricultural bank, Sarlak and Rard (2009) concluded that there is certain relationship between CRM and customer satisfaction from the bank. Ryals, et al. (2000) indicated that CRM help in leveraging information to better serve the customers; this is a good condition to satisfy and retain customers and achieve customer loyalty. Thus, the banks that implement CRM will be able to gather more information about customer; this allows them to predict what they should take to satisfy their customers (Ryals and Payne, 2001).

A bank with a good CRM system will gain better insight into the behavior and value of customers that help in achieving higher level of customer satisfaction. To do this, all areas of CRM should be balanced, existing a balance in areas of CRM will not only help a bank satisfy customers but also get better performance (Reinartz, et al., 2004). Blery and Michalakopoulos (2006) in the study of customer relationship management in Greek bank noted that CRM today is at the top of banking priorities and of strategic importance. Thus, CRM is considered as one of the best ways for banks to improve customer satisfaction, build long-lasting relationships with customers and sustain a competitive edge.

2.6 Service Quality and Customer Satisfaction

Service quality and customer satisfaction are two core concepts in marketing theory and practice, and they are attracting the attention of banking institutions all over the world (Hossain and Leo, 2009). In today's world of competitive environment, a bank has ability to deliver high service quality that leads to customer satisfaction is a key to sustain competitive advantage (Spreng & Mackoy, 1996)). Thus, there are numerous studies that have been conducted to identify the interrelationship between service quality and customer satisfaction, particularly the importance of service quality on customer satisfaction in retail banking (Carman, 1990; and Mersha & Adlakha, 1992).

Many researchers found that service quality and customer satisfaction are two distinct constructs (Bitner, Boom & Tetreault, 1990; Rust, Zahorik & Keiningham, 1995). In most research, service quality is considered as a global attitude while customer satisfaction is transaction specific (Parasuraman et al., 1988). Bitner, Boom & Tetreault (1990) in the study of international airport argued that customer satisfaction is causal antecedent of the service quality. In contrast, many other researchers have noted that service quality appears to be the causal antecedent of customer satisfaction (Johnston, 1997; Cronin and Taylor, 1992; Oliver, 1997; Asubonteng, Mccleary & Swan, 1996).

Moreover, Caruana and Malta (2002) also found that service quality takes place before and be an important input to customer satisfaction. Similarly, Brady &Robertson (2001) in the study of fast food restaurants stated that "there is a certain relationship between service quality and customer satisfaction based on different cultural background" and "service quality has significant impacts on customer satisfaction". Indeed, many researchers have reported that service quality seems to be only one service factor contributing to customer's satisfaction judgments (Cronnin and Taylor, 1992; and Spreng and Mackoy, 1996).

Therefore, based on this relationship between service quality and customer satisfaction, many researches on customer satisfaction is associated with service quality measurement (Cronin and Taylor, 1992; Anderson and Sullivan, 1993; Taylor and Baker, 1994). Soderlund & Ohman (2003) also agreed that the measurement items of customer satisfaction should be generated with the same dimensions of service quality.

Thus, SERVQUAL of Parasuraman et al. (1985, 1988) appears to be the best instrument to measure customer satisfaction. Parasuraman, Zeithaml, and Berry (1985) found ten dimensions to measure service quality, namely tangibles, reliability, responsiveness, competence, courtesy, credibility, security, access, communication and understanding. Then in 1988, they reduced these ten dimensions to five: tangibles, reliability, responsiveness, assurance and empathy. In the study of service quality determinants in retail banking, Newman (2001) indicated that out of these five dimensions, reliability and responsiveness are the most influential factors on customer satisfaction in retail banking.

Figure 2.8 The conceptual framework of this study

Source: Researcher

Tangibles - refers to appearance of physical facilities, equipment, personnel and communication materials. In retail banks, they might be well-skilled personnel, modern ATMs, branches, plastic card, bank statement, etc. Those can be observed by banking customers. Thus:

H1: Tangibles is positively correlated with overall consumer satisfaction

Reliability - refers to ability of a retail bank to perform the promised service dependably and accurately. For example, the bank performs service right at the first time, keeping records correctly or accuracy in billing. Thus:

H2: Reliability is positively correlated with overall consumer satisfaction

Responsiveness - refers to the willingness of the bank, particularly first line personnel or bank tellers, to help customers and provide prompt service. For example, the bank mails immediately transaction ship to customers, quickly calls them back or quickly sets up appointment. Thus:

H3: Responsiveness is positively correlated with overall consumer satisfaction

Assurance - refers to the knowledge and courtesy of banking employees and their ability to convey trust and confidence. This is very important for banking customers and retail banks where risk involved. It involves the knowledge and skill of the bank's staffs, confidentiality, financial security or physically safety of customers while they are using service. Thus:

H4: Assurance is positively correlated with overall consumer satisfaction

Empathy - refers to the caring, individualized attention that a bank gives to its customers. It involves waiting time to receive service, easily access by telephone, the convenient location of service facility or providing individualized attention. Thus:

H5: Empathy is positively correlated with overall consumer satisfaction

The five dimensions of service quality are clearly addressed in Habubank. Firstly, Tangibles - the bank now has over 50 branches with modern equipments and well-skilled staffs, 6,000 ATMs nationwide and 100,000 cards. Secondly, Reliability - Habubank puts a lot of effort to provide accurate services as promise. That explains why Habubank achieved numerous rewards and tiles, such as "Bank of the year - Vietnam" for the three consecutive years, form 2006 to 2008. Responsiveness - besides the willingness of well-skilled and friendly tellers to help customers, Contact Center and Wealth Advisory play significant role in helping customers. Fourthly, Assurance - to ensure safe and high service quality, all Habubank's staffs have to attend professional training courses. The bank also has programs to protect customers while they are using ATMs. Finally, Empathy - The Contact Center, ATMs, POS network, internet banking, and phone banking of Habubank facilitate its customers to easily access and reach the banks. "Help us to make you satisfied" is a slogan of Habubank for the two programs named "Best Bank Counter" and "Smiles of Habubank". These two programs have been launched within Habubank's network in 2008 in order to improve customer service quality and better serve its customers' demands. The target of Habubank is "to be the top 2 Vietnamese banks of choice for best service quality" in the coming time. Thus, the focus of Habubank now is on improving service quality, satisfying customers and minimizing risks (Habubank, 2009).

2.7 Summary

This literature review has discussed the concept of services marketing; particularly the unique aspects of financial services that make financial services marketing differentiate it from others. The research on the nature of retail banking highlighted what products and services does a retail bank provide and what channels it use to deliver banking services. To help in better understanding the behavior of banking customers, the decision making process in banking customer behavior has been analyzed. More importantly, the literature review of overall customer satisfaction and service quality was stated. The different viewpoints of service quality and service quality dimensions were discussed with the Perceived Service Quality Model and the Service Quality Gaps Model. Moreover, service quality measurement was indicated with five dimensions of the SERVQUAL instrument, namely tangibles, reliability, responsiveness, assurance and empathy. Especially, the validity of SERVQUAL application in Banking Industry was mentioned. The customer satisfaction concept was reflected in Disconfirmation of Expectation model. The importance of Customer Relationship Management (CRM) in banking sector was discussed in relation to customer satisfaction. Finally, the chapter concluded with the research on the relationship between service quality and customer satisfaction and conceptual framework of this study.