NIBM, Pune

Chapter : Service Quality Management

Dr Sarita Bhatnagar

Objective

To highlight the importance of customer service and understand dimensions of Service

Quality Management

Structure

1. Introduction
2. Service Quality and Customer Satisfaction
3. Service Quality in Banking
4. Gaps Model of Service Quality
5. Customer Rights

1. Introduction

Customer service focuses on protection of customers’ rights, enhancing the quality of

service, spreading awareness and strengthening the grievance redressal mechanism in
banks.

A customer can be defined as a user or a potential user of bank services. So defined, a

‘Customer’ may include:

 a person or entity that maintains an account and/or has a business relationship

with the bank;
 one on whose behalf the account is maintained (i.e. the beneficial owner);
 beneficiaries of transactions conducted by professional intermediaries, such as
Stock Brokers, Chartered Accountants, Solicitors, etc., as permitted under the law,
and
 any person or entity connected with a financial transaction which can pose
significant reputational or other risks to the bank, say, a wire transfer or issue of
a high value demand draft as a single transaction.

Enhancing and ensuring customer satisfaction is very significant for an organization in

the highly competitive business scenario.Banks also strategize and perform a number of
activities to satisfy customers including improvement in product designs, convenient
processes and helpful interactions. It is believed that satisfied customers generate
positive word of mouth, buy more products, are loyal and also increase profitability, as
manifested in the customer - company profit chain.

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Service quality
and other Customer
Customer Company
controllable retention
satisfaction profitability
marketing and loyalty
variables

Banks stand to gain a number of strategic advantages by ensuring customer satisfaction.

Some of these are –

(i) Lesser acquisition cost –

Acquisition of customers is a significant cost for bank. Satisfied loyal customers are
having lesser acquisition cost, as acquisition cost is spread over longer relationship
tenure and larger number of transactions

(ii) Lower costs to serve –

Satisfied and loyal customers can be better served at low cost because of banks’
understanding of their needs. Bank is in better position than competitors in
knowledge of customer needs and can quickly respond to opportunities.

(iii) Increased profit margins by cross selling and upselling –

The customers who are satisfied will be keener to take additional products .

(iv) Less price sensitivity by satisfied customers –

A customer satisfied with services has a less chance of ‘Post purchase dissonance
behaviour’. Post purchase dissonance behaviour is a retrospective mental process
that a customer undergoes to justify his purchase decision. Dissatisfied customers
revisit their purchase decisions to a greater extent to reassure their decision and tend
to be highly price sensitive as a result of rethinking on all components of decision like
service attribute and price. At the same time satisfied customers are observed to be
less price sensitive and assured of value proposition by bank.

(v) Generation of positive word of mouth –

In financial services, advice of friends, family members are more influential than mass
media promotion efforts. Satisfied customers provide positive word of mouth and
hence help develop more business.

Thus ensuring that customer service is designed and deployed by bank is of prime
importance for growing bank’s business as well as developing a differentiated brand
image.

2. Service Quality and Customer Satisfaction

i. Service quality

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Service Quality is defined as the extent to which a service meets customers’ requirements.
It is the delivery of excellent or superior service relative to customer expectations.

Managing service quality in order to ensure customer satisfaction requires an

understanding of how customers evaluate the services they receive and identification of
the elements which are most important.

The following model identifies the elements that determine the quality of service.

The model suggests that both functional quality and technical quality are needed for
forming customer’s perception and expectation of service. Functional quality is the way
in which the service is delivered. It refers to service attributes like helpfulness,
friendliness, politeness, etc. Technical quality refers to the evaluation of service outcome
that is the extent to which the service encounters results in desired outcomes like
correctness and accuracy of transaction. To deliver quality service, good technical skills
as well as interpersonal skills are required. Research indicates that functional quality
may be more important than technical quality in financial services.

ii. Customer Satisfaction

Customer Satisfaction is the post purchase evaluation of service taking into consideration
the expectations. It is the positive and pleasurable experience in service encounter.

Customer satisfaction depends on two factors viz., customer expectations and bank
product/service performance termed as customer perception. Customer expectation is
determined by customer’s past experience with product /service/provider, customers
own needs and special conditions, and by word of mouth from other users as well as
communication from service provider. Customer perception is what customer

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experiences when he consumes the service, which depends upon product features,
service features, processes, policies, etc.

The discrepancy between customer expectations and customer experience with service
is termed as ‘disconfirmation’. When experience exceeds expectations then customer is
satisfied, when the service far exceeds beyond expectation, there is delight, conversely,
when service falls short of expectation, there is dissatisfaction.

3. Service Quality in Banking

Zeithaml and Berry in their work have identified dimensions and determinants of service
quality in banking. These are –

(a) Reliability – Reliability is the degree to which bank delivers the promised services to
customers. Reliability as expected by customers can be in form of ‘performance as
per promise’, disbursements on time stipulated, and maintenance of error free and
accurate records of financial transactions.

(b) Responsiveness – This dimension refers to the bank’s promptness and keenness in
attending customer needs. Responsiveness is manifested in providing fast services,
quickness in problem resolution, prompt actions, and timely decisions.

(c) Assurance – Assurance is defined by ability of bank to instill confidence in customers

about its capability to take care of their needs. Assurance is determined by actions
involved in maintaining trust in dealings, ensuring privacy of transactions, capability
to handle service requests in professional manner and knowledge to solve customer
queries.

(d) Empathy – Empathy stands for bank’s ability to give individualised attention to
customer needs and understanding of his unique situations. It is essential that
customer service employees exhibit a personal connection and care in dealing with
customers, especially when they are in need of help or facing distress.

(e) Tangibles – Tangibles are the physical characteristics of service experience. These are
branch location, décor, facilities, equipment, etc. These are also reflected in neatness
and quality of bank stationary, cheque books, as well as also the website’s user
friendliness. Similarly, appearance and grooming of officials , quality of published
material related to bank’s products and services etc. develop a service perception in
borrower’s mind.

All these 5 dimensions together form an assessment of customer satisfaction level. Banks
should determine customer satisfaction on all these dimensions by conducting customer
research. One of the most common research approaches is the use of SERVQUAL Survey.

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It consists of statements representing all these 5 dimensions of service. Results are

interpreted to know the customer satisfaction level across all these dimensions.

Dimensions of Service Quality – SERVQUAL

Dimensions Definition Some Illustrative Measures for Banking

Industry

Reliability Ability to perform Provide service at the time promised

promised service Error free records
dependably and accurately Perform the service right the first time

Responsiveness Willingness to help Provide prompt service to customers

customers and provide Always willing to help customers
prompt service Never too busy to respond to customer requests

Assurance Employees knowledge and Behaviour of employees instils confidence in

courtesy and their ability customers
to inspire trust and Employees are consistently courteous to
confidence customers
Employees will have knowledge to answer
customer questions

Empathy Caring, individualised Give customers individualised attention

attention Have operating hours convenient to all
customers
Employees understand the specific needs of
their customers

Tangibles Appearance of physical Physical facilities are visually appealing

facilities, equipment, Communication materials are visually
personnel, and written appealing
materials Employees are neat in appearance

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4. Gaps Model of Service Quality

The Gaps model developed by Parasuraman and Zeithaml is a framework of

understanding the reasons for customer dissatisfaction, which arise from discrepancies
between customer expectation of service and customer perception of service.

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The model postulates that the gap between customers expected service and perceived
service called Provider Gap (Gap 5), is related to four other gaps in the service delivery
process. Provider Gap can be attributed to any four Gaps viz., Listening Gap (Gap 1),
Service Design and Standards Gap (Gap 2), Service Performance Gap (Gap 3) and
Communication Gap (Gap 4).

Listening Gap (Gap 1) occurs when customers’ actual expectations from service are not
understood by senior management. Lack of market research and poor upward
communication may be the major reasons for this gap. Poor service recovery and absence
of customer relationship focus are also responsible for this gap. Frontline employees
have regular contact with customers, and have a good understanding of their needs and
expectations. To effectively address this gap, efforts to understand customers should be
made by conducting market research, encouraging upward communication from
frontline to senior management and developing relationship orientation with customers.

Service design and Standards Gap (Gap 2). This gap arises when organization designed
service standards, features and specifics are not matching with what customers expect.
Difficulty in standardizing services, managers’ judgement of customer expectations to be
unreasonable and lack of commitment towards service quality may be the reasons. This
leads to less intent and effort towards developing customer centred design standards.
Addressing this gap involves, getting top management commitment towards service
quality, ensuring that customer service expectations are considered in design. Customer
priorities and key service features should be identified and need to be the basis of service
design specifics. Those aspects of service which can be standardized, should be
standardized.

Service Performance Gap (Gap 3) - Even when customer driven service design and
standards are developed and deployed, it may happen that service delivery is not
according to these. Such discrepancies are termed as Service Performance Gap. Three
main reasons for this gap are inadequate human resource management, customer not
understanding his role vis-à-vis service and a failure to manage supply and demand.
Employees who are less motivated, committed or trained, deliver sub-optimum service.
Customers may not understand their own role in completion of service, or due to over
demand, service standards are compromised. To deal with this gap, human resource
policies need to be revamped towards ensuring recruitment of right people with
knowledge and skills, having monitoring mechanism to see that employees follow
specified service standards. Employees also need to be rewarded for good service, there
should be good fit among technology and people supposed to operate it. Customers also
need to be educated about information they need to provide so that service is provided
as desired. To manage supply and demand mismatch, cooperation, team work and
resource management should be ensured.

Communication Gap (Gap 4) – This gap arises when external communication by bank
promises a higher standard of service than what it actually delivers. Thus, the
expectations so raised, when not fulfilled create discontent and dissatisfaction. Poor

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information flow, inadequate understanding of actual service delivery realities, and

tendency to over promise in external marketing communications leads to this. To
address these issues, there is need to ensure good and accurate communications between
external marketing and internal service management officials. It should be made clear
that accurate information on customer service may be passed on to prospects and
consumers. This information needs to be integrated across all marketing
communications.

Thus, service quality can be managed and enhanced with the help of analysis guided by
Gaps Model and developing action plans to reduce the provider gap.

5. Customer Rights

The Reserve Bank of India (RBI) has formulated a "Charter of Customer Rights" for banks
based on global best practices in the area of consumer protection. The Charter enshrines
broad, overarching principles for protection of bank customers and enunciates the
following five basic rights of bank customers:

(i) Right to Fair Treatment: Both the customer and the financial services
provider have a right to be treated with courtesy. The customer should not be
unfairly discriminated against on grounds such as gender, age, religion, caste and
physical ability when offering and delivering financial products.

(ii) Right to Transparency, Fair and Honest Dealing: The financial services
provider should make every effort to ensure that the contracts or agreements it
frames are transparent, easily understood by and well communicated to, the
common person. The product’s price, the associated risks, the terms and
conditions that govern use over the product’s life cycle and the responsibilities of
the customer and financial service provider, should be clearly disclosed. The
customer should not be subject to unfair business or marketing practices, coercive
contractual terms or misleading representations. Over the course of their
relationship, the financial services provider cannot threaten the customer with
physical harm, exert undue influence, or engage in blatant harassment

(iii) Right to Suitability: The products offered should be appropriate to the needs
of the customer and based on an assessment of the customer’s financial
circumstances and understanding.

(iv) Right to Privacy: Customers’ personal information should be kept

confidential unless they have offered specific consent to the financial services
provider or such information is required to be provided under the law or it is
provided for a mandated business purpose (for example, to credit information
companies). The customer should be informed upfront about likely mandated

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business purposes. Customers have the right to protection from all kinds of
communications, electronic or otherwise, which infringe upon their privacy

(v) Right to Grievances Redress and Compensation: The customer has a right
to hold the financial services provider accountable for the products offered and to
have a clear and easy way to have any valid grievances redressed. The provider
should also facilitate the redress of grievances stemming from its sale of third
party products. The financial services provider must communicate its policy for
compensating mistakes, lapses in conduct, as well as non-performance or delays
in performance, whether caused by the provider or otherwise. The policy must lay
out the rights and duties of the customer when such events occur.