Determinants of consumer satisfaction on service quality in private comercial banks in ho chi minh city

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RESEARCH PROJECT (BMBR5103) DETERMINANTS OF CUSTOMER SATISFACTION ON SERVICE QUALITY IN PRIVATE COMMERCIAL BANKS IN HO CHI MINH CITY STUDENT’S FULL NAME STUDENT ID INTAKE ADVISOR’S NAME & TITLE : PHAM NGOC DUNG : CGSVN00014973 : March, 2013 : PHAN DINH NGUYEN June, 2014 Page 1 Advisor’s assessment .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. Advisor’s signature Page 2 ACKNOWLEDGMENTS I would like to express my deeply sincere gratitude to my teacher, Dr. Phan Dinh Nguyen, for his valuable guidance and advice on effective method. His professional research understanding helps me and my friends recognize the research method thoroughly and we had experienced actual process. His comments and meaningful suggestions were contributed great help for my completion of this research. In addition, I would like to special express my thanks to all of my classmates, my colleagues, my friends who are working in some banks in Ho Chi Minh City: Ms Ngo Tran Doan Trinh (VietBank), Mr. Ky Minh Thien (Vietcombank), Mr Hoang Minh Hung (GPbank), Mrs Nguyen Thi Chau (Eximbank)….for their support and encouragement during the time I was doing my research. And thank you to all customers who had spent precious time to answer the questionnaire for my topic. Ho Chi Minh City, Vietnam September 6th 2014 Pham Ngoc Dung Page 3 Table of Contents Advisor’s assessment 2 Acknowledgements 3 List of Tables and figures 6 List of Abbreviations 6 Abstract 8 CHAPTER 1: INTRODUCTION 10 1.1 Problem statement 10 1.2 Research Objectives 11 1.3 Research questions 12 1.4 Scope and Methodology of Research 12 1.5 Research structure 12 CHAPTER 2: LITERATURE REVIEW 14 2.1Theoretical literature 14 2.1.1 Quality 14 2.1.2 Service 14 2.1.3 Service Quality 15 2.1.4 Customer Satisfaction 16 2.1.5 Relationship between Service Quality and Customer Satisfaction 18 2.2 Service Quality Research Models 19 CHAPTER 3: RESEARCH METHODOLOGY 21 3.1 Data sources 21 3.2 Methods of data analysis 21 3.2.1 For objective No.1 21 3.2.2 For objective No.2 21 a. Scale 21 Page 4 b. Analysis steps to achieve objective 2 22 3.2.3 For objective No.3 23 3.3 Research Framework 24 3.4 Research Hypotheses 24 CHAPTER 4: BUSINESS SITUATION AND PERFORMANCE OF PRIVATE COMMERCIAL BANKS IN HCMC 25 4.1. General overview of the activities of private commercial banks that have headquater in HCMC 25 4.2. The basic existence and limitations 27 4.3. A number of reasons 29 CHAPTER 5 : EMPIRICAL RESULTS AND DISCUSSION 32 5.1 Results of interviews about the customer personal information 32 5.2. Checking the relevence of the scale 33 5.3. Exploratory factor analysis 34 5.4 Regression Results 41 CHAPTER 6 : SOME POSSIBLE SOLUTIONS ARE GIVEN TO IMPROVE CUSTOMER SATISFACTION ON SERVICE QUALITY OF THE PRIVATE BANKS IN HCMC 47 6.1 Conclusion 47 6.2 Policy Recommendation 48 REFERENCES 53 APPENDIX 56 Appendix A – Questionnaire Survey 56 Questionnaire Survey (English) 56 Questionnaire Survey (Vietnamese) 61 Appendix B 66-73 Page 5 List of Tables and figures Table 1.1: Result of collected samples 11 Figure 1 : Research Framework 24 Table 4.1: The overview about business activities of private banks 25 Table 4.2: The operations for mobilizing and lending capital of the banks 26 Table 5.1: Demographic profile of the sample respondents 32 Table 5.2 Rotated Component matrix 35 Table 5.3 : Component score coeficient matrix 41 Figure 2: Research model 42 Table 5.4 : Regression analysis 42 Table 5.5 : Correlations testing results 43 Table 5.6 : Coefficientsa 44 Table 5.7 : The order of the impact of these factors to customer satisfaction 46 Page 6 List of Abbreviations HCMC Ho Chi Minh City ACB Asean Commercial Bank OCB Ocean Commercial Bank HDBank House Development Bank SCB SaiGon Commercial Bank ABBank An Binh Bank Page 7 ABSTRACT The banking industry is rapidly changing. This is the sector mainly depends on the trust and loyalty of the customer. Therefore, in order to succeed and survive in the current market, banking managers need to design strategies to enhance service quality to satisfy customers better than competitors. This study was conducted to identify the relationship between customer satisfaction, service quality of private commercial banks in Ho Chi Minh City (HCMC). It attempts to discover the impact of service quality on customer satisfaction in private commercial banks in HCMC. Five dimensions in service quality (SERVPERF) such as tangibles, reliability, responsiveness, assurance and empathy (Cronin and Taylor, 1992) were used to evaluate satisfaction with the quality of banking services. A Three-part questionnaire was developed as the instrument to collect data, using the five-point Likert scale, ranging from strongly disagree (1) to strongly agree (5). The structured questionnaire consists five (05) questions for Reliability, five (05) questions for Responsiveness, five (05) questions for Assurance, five (05) questions for Empathy and four (04) questions for Tangibility and five (05) for Customer satisfaction with relevant personal information. There were 269 usable responses of 390 customers who received the questionnaire. These customers were from five (05) private commercial banks in HCMC, such as : ABBank, OCB, VietABank, HDBank and SouthernBank, which approximates to 38,46% of the total number of banks that have headquarters in the area. Data has been analysed by using SPSS software (version: 16) and combining the Exploratory Factors Analysis (EFA) with Binary Logistic Model . Page 8 Result of the study showed service quality dimensions is crucial for customer satisfaction in private commercial banks in HCMC and helps managers of commercial banks in HCMC taking measures to improve the level of satisfaction for customers in oder to keep old customers and attract new customers such as : variety of banks products and services, promote marketing activities and improve the capacity, skills of staff. Page 9 CHAPTER 1: INTRODUCTION 1.1 Problem statement The social is increasingly developing, life quality of people is increasingly high, so the consumer demand for the products that they choose is also higher. Improving product and services quality is competitive trends that private commercial banks in Vietnam must pay attention in order to increase market share and face many challenges in term of competition, especially when large foreign financial groups and banks entered Vietnam. Being aware of the importance of customer satisfaction, Vietnam banking system in general and the private commercial banks in Ho Chi Minh City in particular need to improve their operations as well as strengthen their images in customers’ eyes in order to be able to capture market shares, develop faster and have position in the market. The problem that banks try their best to fulfill is how to give customers the best satisfaction in order to meet their needs when using bank’s products and services. The study “Determinants of customer saisfaction on service quality in private commercial banks in HCMC” is not out of this purpose which aims to enhance customer satisfactions for improving the service quality of the private commercial banks in HCMC in the context of financial liberalization and globalization. At the end of May, 2014 there are 13 private commercial banks that have headquarters in HCMC, such as : Eximbank, ACB, Sacombank, SaigonBank, NamAbank, VietcapitalBank, OCB, ABBank, DongAbank, VietABank, SCB, HDBank and SouthernBank. Three (03) of them such as ACB, Eximbank, Sacombank which have been rated as good domestic banks for the last years by various domestic and international financial publications based on theirs financial situation, operation scale, long-term vision, strategy, market positioning, service quality, analysts’ assessments. The remaining banks (10 banks) of them have Page 10 been rated as small banks by charter capital, total assets, financial situation and analysts’ assessments. Due to limited conditions to carry out this study, I only selected customers of 5 small-scale banks for my study, to ensure that collected samples are representative of the whole. These 05 small-scale banks are OCB, Vietbank, ABBank, HDBank, Southernbank. Number of samples was sent and eligible and to be presented through Table 1. Table 1 : Criteria Results of collected samples Number of samples was sent Number of samples was eligible Rate OCB 90 65 72,22% VietAbank 70 40 57,14% ABBank 80 67 83,75% HDbank 90 58 64,44% Southernbank 60 39 65,00% Total 390 269 68,97% 1.2 Research Objectives The main objectives of this research are to identify factors affecting the level of customer satisfaction on service quality in order to better serve customers, also enhance the competitiveness and business efficiency of private commercial banks in HCMC. Specific objectives are as follows : 1. To consider the level of customer satisfaction on service quality of commercial banks in HCMC; 2. To identify the impact of service quality on customer satisfaction of the private commercial banks in HCMC; Page 11 3. To give some possible solutions to improve customer satisfaction on service quality of the private commercial banks in HCMC; 1.3 Research questions Specifically, the research aims to address the following questions: 1. How are business situation and business performance of private commercial banks in HCMC? 2. What are are the most important dimensions of service quality that affect customer satisfaction in commercial banks in HCM city? 3. What should the private commercial banks in HCMC do in order to improve the level of satisfaction of existing customers and attract new customers? 1.4 Scope and Methodology of Research - The scope of the study is direct customers that have used the products and services of 05 following banks : OCB, Vietbank, ABBank, HDBank, Southernbank - The variables included in this study are : Tangible, Reliability, Responsiveness, Assurance and Empathy are independent variables. And customer satisfaction is dependent variable. - The determinants of customer satisfaction is estimated from the SERVPERF model by Cronin and Taylor (1992) to fit the banking market in Vietnam through SPSS 16 software. The primary data and the secondary data are used to fulfill the proposed research objectives. 1.5 Research structure The study is organized in three chapters such as  Chapter 1 : the above introduction. Page 12  Chapter 2: This part reviews theoretical literature and research model of service quality.  Chapter 3: The study identifies and describes the sources of data, methods of data analysis, research framework will be used.  Chapter 4: Business situation and business performance of private commercial banks in HCMC.  Chapter 5: The impact of service quality on customer satisfaction of the private commercial banks in HCMC.  Chapter 6: Some possible solutions are given to improve customer satisfaction on service quality of the private commercial banks in HCMC Page 13 CHAPTER 2: LITERATURE REVIEW In this chapter, section 2.1 reviews key theories that are relevant of service quality and following this, section 2.2 introduces the service quality models which is used to measure service quality to fit private commercial banks in HCM city. 2.1 Theoretical literature 2.1.1 Quality : Quality is one of the things that consumers look for in an offer, which service happens to be one (Solomon 2009, p. 413). Quality can also be defined as the totality of features and characteristics of a product or services that bear on its ability to satisfy stated or implied needs (Kotler et al., 2002, p. 831). Therefore, quality is very important to specify needs & wants of customer and design the service to meet these requirements. 2.1.2 Service : - In order for a company’s offer to reach the customers there is a need for services. These services depend on the type of product and it differs in the various organizations. - Service can be defined in many ways depending on which area the term is being used. An author defines service as “any intangible act or performance that one party offers to another that does not result in the ownership of anything” (Kotler & Keller, 2009, p. 789). - Giving a comprehensive definition of service, Gronroos (1990) pointed out: A service is an activity or series of activities of more or less intangible nature that normally, but not necessarily, take place in interactions between the customer and service employees and/or systems of the service provider, which are provided as solutions to customer problems. (p. 21) Page 14 - In all, service can also be defined as an intangible offer by one party to another in exchange of money for pleasure. 2.1.3 Service Quality : - Organizations operating within the service sector consider service quality to be a strategic component of their marketing plan (Spathis et al., 2004). Through service quality, organizations can reach a higher level of service quality, a higher level of customer satisfaction, and can maintain a constant competitive advantage (Meuter et al., 2000) - Service quality is defined as “the consumer's overall impression of the relative inferiority/superiority of the organization and its services” (Bitner & Hubber, 1994, p. 77). - Service quality is an important tool to measure customer satisfaction (Hazlina et al., 2011). The studies of Lee et al. (2000); Gilbert and Veloutsou (2006); Sulieman (2011) and Buttle (1996) suggest service quality leads to customer satisfaction. - In the changing banking scenario of 21st century, the banks had to have a vital identity to provide excellent services. Banks nowadays have to be of world-class standard, committed to excellence in customer’s satisfaction and to play a major role in the growing and diversifying financial sector (Guo et al., 2008). There has been a remarkable change in the way of banking in the last few years. Customers have also accurately demanded globally quality services from banks. With various choices available, customers are not willing to put up with anything less than the best. Banks have recognized the need to meet customer’s aspirations. Consequently service quality is a critical motivating force to drive the bank up in the high technology ladder. Banking industry is a demand driven industry, which constitute an important part of the service industry (Newman & Cowling, 1996). Banks have to redefine their corporate image to that emphasizes service quality since it provides many advantages to a company such as allowing the company to Page 15 differentiate itself from its competitors by increasing sales and market shares, providing opportunities for cross selling, improving customer relations thus enhancing the corporate image, reliability, responsiveness, credibility and communication results in the satisfaction and retention of customers and employee, thus reducing turnover rate (Newman, 2001). 2.1.4 Customer Satisfaction: - Customer satisfaction is one of the most important concepts for most marketers and consumers (Jamal, 2004). Customer satisfaction has been a subject of great interest to organizations and researchers alike. The principal objective of organizations is to maximise profits and to minimise cost. Profit maximisation can be achieved through increase in sales with lesser costs. One of the factors that can help to increase sales is customer satisfaction, because satisfaction leads to customer loyalty (Wilson et al., 2008, p. 79), recommendation and repeat purchase. - Some authors stated that there is no specific definition of customer satisfaction, and after their studies of several definitions they defined customer satisfaction as “customer satisfaction is identified by a response (cognitive or affective) that pertains to a particular focus (i.e. a purchase experience and/or the associated product) and occurs at a certain time (i.e. post-purchase, post-consumption)”. (Giese & Cote, 2000, p. 15) This definition is supported by some other authors, who think that consumer’s level of satisfaction is determined by his or her cumulative experience at the point of contact with the supplier (Sureshchander et al., 2002, p. 364). It is factual that, there is no specific definition of customer satisfaction since as the years passes, different authors come up with different definitions. Customer satisfaction has also been defined by another author as the extent to which a product’s perceived performance matches a buyer’s expectations (Kotler et al., 2002, p. 8). According to Schiffman & Karun (2004) Customer satisfaction is defined as “the individual’s perception of the performance of the products or services in relation to his or her expectations” Page 16 (Schiffman & Karun 2004, p. 14). In line with Tsoukatos and Rand (2006), customer satisfaction is a key to long-term business success. To protect or gain market shares, organizations need to outperform competitors by offering high quality product or service to ensure satisfaction of customers. In proportion to Magesh (2010), satisfaction means a feeling of pleasure because one has something or has achieved something. It is an action of fulfilling a need, desire, demand or expectation. Customers compare their expectations about a specific product or services and its actual benefits. As stated by Kotler & Armstrong, (2010), satisfaction as a person’s feelings of pleasure or disappointment resulting from the comparison of product’s perceived performance in reference to expectations. Customer’s feelings and beliefs also affect their satisfaction level. Along with Zeithaml (2009), satisfaction or dissatisfaction is a measure or evaluation of a product or service’s ability to meet a customer’s need or expectations. Razak et al. (2007) also reported that overall satisfaction is the outcome of customer’s evaluation of a set of experiences that are linked with the specific service provider. It is observed that organization’s concentration on customer expectations resulted into greater satisfaction. If the customers of an organization are satisfied by their services the result is that, they will be loyal to them and consequently be retained by the organization, which is positive for the organization because it could also mean higher profits, higher market share, and increasing customer base (Karatepe et al., 2005). Customer satisfaction has become important due to increased competition as it is considered very important factor in the determination of bank’s competitiveness (Berry et al., 2002). Continuous measurement of satisfaction level is necessary in a systematic manner (Chakravarty et al., 1996). Because satisfied customer is the real asset for an organization that ensures long-term profitability even in the era of great competition. Cronin et al., (2000) mentioned in their study that satisfied customer repeat his/her experience to buy the products and also create new customers by communication of positive message about it to others. On the other hand, Page 17 dissatisfied customer may switch to alternative products/services and communicate negative message to others. Customer satisfaction is a set of feeling or outcome attached with customer’s experience towards any product/ service (Solomon, 1998). Hence, organizations must ensure the customer satisfaction regarding their goods/services. Summary, customer satisfaction could be the pleasure obtained from consuming an offer. Regardless of whether these organizations provide goods or services, they recognize that satisfied customers are the key to their success. 2.1.5 Relationship between Service Quality and Customer Satisfaction: Quality and customer satisfaction have long been recognized as playing a crucial role for success and survival in today's competitive market. Regarding the relationship between customer satisfaction and service quality, Oliver (1993) first suggested that service quality would be antecedent to customer satisfaction regardless of whether these constructs were cumulative or transaction-specific. In relating customer satisfaction and service quality, researchers have been more precise about the meaning and measurements of satisfaction and service quality. Satisfaction and service quality have certain things in common, but satisfaction generally is a broader concept, whereas service quality focuses specifically on dimensions of service (Wilson et al., 2008). Although it is stated that other factors such as price and product quality can affect customer satisfaction, perceived service quality is a component of customer satisfaction (Zeithaml & Bitner, 2003). As said by Wilson et al. (2008), service quality is a focused evaluation that reflects the customer’s perception of reliability, assurance, responsiveness, empathy and tangibility while satisfaction is more inclusive and it is influenced by perceptions of service quality, product price and quality, also situational factors and personal factors. The relationship between service quality and customer satisfaction is becoming crucial with the increased level of awareness among bank customers Demographic characteristics should be considered by the bank managers to understand their customers (Sureshchander et al. 2002). Page 18 2.2 Service Quality Research Models There were various service quality models proposed and applied in different context for the purpose of this study are such as : SERVQUAL and GAP model by Parasuraman et al. (1985; 1991), SERVPERF by Cronin and Taylor (1992).  In 1985, Parasuraman, Zeithaml, and Berry introduced a new model of service quality measurement by using the gap be between expected level of service and dilivered level of sevice called “SERVQUAL”. Initially, it has ten dimensions and later it got condensed to five dimensions like Tangibility, Reliability, Assurance, Responsiveness and Empathy. + Tangibility: physical facilities, equipment, and appearance of personnel. + Reliability: ability to perform the promised service dependably and accurately. + Responsiveness: willingness to help customers and provide prompt service. + Assurance: knowledge and courtesy of employees and their ability to inspire trust and Confidence. + Empathy: caring individualized attention the firm provides to its customers. Service quality is defined the model SERVQUAL as follows : Service Quality = Customer Perceptions – Customer Expectations Although SERVQUAL has been applied in many studies to assess service quality, the reliability and validity of this instrument have been debated by several authors, particularly the expectation dimensions. Carman (1990), for Page 19 instance, argued that SERVQUAL is not applicable for the measurement of service quality in every service industry since its five dimensions cannot be generalized to all service industries. Teas (1993) also claimed that SERVQUAL lacks the discriminatory validity that stems from the expectation dimension scores because the respondents misunderstand the And a new research instrument, SERVPERF is came up by Cronin and Taylor (1992). This SERVPERF did not include the expectation dimension for the measurement of service quality. Compared to SERVQUAL, SERVPERF is considered a simpler instrument for measuring service quality since the elimination of the expectation dimension makes the SERVPERF instrument more efficient (Buttle, 1996). Boulding et al., (1993) also disagreed with the consideration of the expectation dimensions, and stated that only perception can be used to evaluate service quality. Thus, in this study, SERVPERF will be used to measure service quality.  The SERVPERF scale consists of the five dimensions of service quality and 22 perception items excluding any consideration of expectations. Five dimensions of the SERVPERF scale are tangibility, reliability, assurance, responsiveness and empathy. Service quality is defined the model SERVPERF as follows : Service Quality = Customer Perceptions The research instrument designed is based on the five dimensions of service quality and the 22 service items of the SERVPERF model. Page 20
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