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36 Regulatory Issues on Tender Offers Leading to Delisting in the Philippine Stock Market

Appendix B

Criteria for Accrediting Valuation Providers (PSE, 2011)

1. The firm must be duly registered or licensed by the SEC. For accounting firms, its accreditation with the SEC should be under the Group 'A' Category.

2. The firm, or its local or international affiliate, must have at least five (5) years of business operations.

3. A majority of the members of the firm's top management and/or division heads must each have a minimum of ten (10) years’ experience in the firm's business, including underwriting, investment and financial advisory services.

4. The firm must demonstrate that its key personnel are qualified to prepare valuation reports and issue fairness opinions. They must identify relevant industry experience in their list of individual qualifications.

5. The firm must submit a description or summary of its General Engagement Operating Guidelines or Risk Management Procedures. The firm must demonstrate that it has effective quality controls and procedures to ensure the integrity of fairness opinions and valuation reports. The valuation report and/or fairness opinion issued by the firm shall indicate that, in the preparation of such report/opinion , the firm relied on available information and records, including but not limited to the representation of the applicant company, audited financial statements, competent person's reports, regulatory agency's reports and such other relevant supporting documents.

6. The firm must have a proven track record of valuing securities. The firm must show proof of a steady client base and at least five (5) engagements to render financial valuation services to listed companies in the Exchange and other reputable stock exchanges, commercial banks and insurance companies for the past five (5) years.

7. The firm or its directors or its executive officers must not be subject to any act or case that will pose a serious question on the firm's, directors', or executive officers' integrity or capability to provide services to listed companies. A serious question exists relative to the above parties if, during the past (5) years any of the following events occurred.

i. Any petition for insolvency was filed by or against the firm or its directors or its executive officers.

ii. Any conviction by final judgment in a criminal proceeding for an offense involving moral turpitude, domestic or foreign, including a nollo contendere case, or being subject to a pending criminal proceeding for an offense involving moral turpitude, domestic or foreign, excluding traffic violations and other minor offenses.

Philippine Management Review 2020, Vol. 27, 37-56.

Measuring Service Quality in Philippine Banks:

An Exploratory Study Using SERVQUAL and Q-Methodology

Ma. Gloria V. Talavera, Ph.D.*

University of the Philippines, Cesar E.A. Virata School of Business, Diliman, Quezon City 1101, Philippines This paper determined the service quality dimensions considered by Filipino consumers important in describing an excellent bank. Development of the service quality dimensions utilized the Service Quality (SERVQUAL) framework espoused by Parasuraman, Zeithaml, and Berry (1988) which identified five SERVQUAL dimensions: (1) tangibles, (2) reliability, (3) responsiveness, (4) assurance, and (5) empathy. A total of 24-bank SERVQUAL attributes were developed from this SERVQUAL framework. A survey using a multi-stage systematic random sampling was conducted. A total of 242 Filipino consumers participated in this study. The respondents were asked to rate the degree of importance of each of the 24-bank SERVQUAL attributes using the Q-methodology. The internal consistency method using the Cronbach coefficient alpha was used to assess the instrument’s reliability while Exploratory Factor Analysis using Principal Component Analysis was employed to determine the construct validity.

Results indicate that out of the 24-bank SERVQUAL attributes, 16 are considered important by Filipino consumers, and these 16 attributes can be classified into four service quality dimensions: (1) reliability, (2) empathy, (3) responsiveness, and (4) tangibles. This is consistent with the SERVQUAL dimensions espoused by Parasuraman et al. (1988). Knowing the important SERVQUAL attributes that describe an excellent bank provides banks with the basic quality parameters that they can develop and strengthen to improve customer patronage, retention, loyalty, and satisfaction.

Keywords: Service quality attributes, service quality dimensions, tangibles, reliability, responsiveness, empathy, assurance, bank service quality, Q-methodology, Q-sort

1 Introduction

Service quality is a key differentiating factor for organizations in the service industry as it is associated with customer retention, corporate image and reputation, and improved profitability (Ladhari, Ladhari, & Morales, 2011; Zeithaml, 2000). Measuring service quality, however, is more challenging for services because of its inherent characteristics, i.e., intangibility, heterogeneity, perishability, and inseparability (Ladhari et al., 2011; Parasuraman, Zeithaml, & Berry, 1985).

The intangibility of service makes quality assessment difficult before service delivery and customer experience. Given the heterogeneity of service, customer experience may vary depending on various circumstances (i.e., the day and time the service was delivered, the service personnel assigned, the consistency by which service was rendered, and the customer’s expectation of how services should be rendered) (Parasuraman, et al., 1985). Since services cannot be stored (perishability), and in most cases, the production and consumption of services happen simultaneously (inseparability), customer experiences of service play an important role in their service quality evaluation (Gronroos, 1984).

One industry where service quality is very important is banking. Bank transactions are repetitive; thus, banks need to establish a long-term relationship with its clients, requiring transparency and regularity in communication. With the fast pace of development in the banking industry, customers need to be regularly informed about new products, services, and bank

* Correspondence: mvtalavera@up.edu.ph

The author expresses her gratitude to the BA 174 (Marketing Research) class of Professor Agnes G. Tayao of the UP Cesar E.A. Virata School of Business, University of the Philippines, Diliman, for their assistance in data gathering during the Second Semester of Academic Year 2016-2017. The author also extends her appreciation to Professor Tayao for her guidance in the conduct of the Q-methodology, and to this paper’s Reviewer and Editor for their valuable comments that improved the content and form of this paper.

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38 Measuring Service Quality in Philippine Banks: An Exploratory Study Using SERVQUAL and Q-Methodology

technologies. Since bank customers come from different socio-demographic backgrounds, their understanding and appreciation of how to use and avail of bank products and services need to be attended properly with empathy, compassion, and attention (Shelton, 1995).

Aside from the fact that consumers value a favorable customer experience every single time that they transact with their banks, it is equally important that their bank transactions and finances remain secure. There are several situations where customers interact with the bank.

Examples of such service encounters include, among others, when customers deal face-to-face with tellers for different bank transactions; when customers interface with the bank’s automated and online facilities; and when customers communicate with customer service officers in the branch or through the telephone or emails. There are various instances, therefore, wherein customers can judge the service quality of a bank.

From a client’s perspective, he/she views a good customer experience if the automated teller- machines (ATMs) and/or the online banking system is working; if the teller is courteous and is responsive to his/her needs; and if the customer service unit is sympathetic to any complaints.

Therefore, customer satisfaction about a banking experience heavily relies on the customer’s service encounter with the bank. Thus, given the personal and experiential nature of service encounters in banks, not to mention the intangibility of service, determining and measuring service quality becomes a challenge, both theoretically and methodically.

1.1 Importance of Service Quality in Banks

Why should banks give importance to service quality? Kantar-TNS, in its 2018 Corporate Reputation Study, evaluated the 2008-2018 performance of Philippine banks based on two parameters – “business performance (stability and leadership in the industry) and good customer relations” (“Kantar TNS reveals,” 2019, p. 3). The study asked 800 respondents about their bank’s products and services, and their overall attitudes towards banking in their respective banks and on financial technology. The respondents were also asked about several service quality dimensions that related to the bank’s reputation: (1) overall reputation/renown, (2) favorability, (3) trust, (4) success, and (5) product and service quality. BDO ranked first in the Philippines and in the Greater Manila area, followed by the Bank of the Philippine Islands (BPI) (including BPI Family Bank). Other government-owned banks, such as the Philippine National Bank and the Land Bank of the Philippines, also landed in the top five banks.

BPI, despite ranking second in terms of business performance and customer relations (“Kantar TNS reveals,” 2019), experienced technical glitches in its internal systems in 2017. This led to a two-day downtime in its online facilities and ATMs, and 1.5 million accounts showing different balances. BPI’s management apologized to its clients, and reported that the 2017 glitch was an internal data processing error. Such an error led to the mistaken withdrawal amounting to PHP 42 million. The error was corrected after 37 hours (“Operational lapses,” 2017).

In April 2019, BPI anew advised its clients of the temporary unavailability of its services (online, mobile application, ATM, cash accept machines, debit, and prepaid card services) due to a system upgrade from April 7 to 9. The system upgrade, however, took longer than planned and inconvenienced BPI customers. BPI executives explained that these system upgrades were necessary given that the systems of the 168-year-old bank needed a major upgrade. BPI’s management assured its clients of its continuing efforts to improve bank technology, facilities, and systems for better customer experience (“BSP assessing BPI glitch,” 2019). Banks, therefore, need to improve systems and processes and employ service quality strategies to address service failures, to achieve continued customer patronage and loyalty (Felix, 2017; Johnston, 1997).

An important aspect of service quality is service recovery, which usually involves resolving the problems raised by dissatisfied customers. Service recovery is significantly associated with customer satisfaction and performance (Gronroos, 1984) and customer retention (Lewis &

Spyrakopoulos, 2001). Allred and Adams (2000) reported that 50% of the 143 bank and credit union respondents of its study stopped using a financial service due to poor service performance.

Customer defection or exit was found to be significantly related to service quality and customer

Ma. Gloria V. Talavera 39

satisfaction (Zeithaml, 2000). Decline or even discontinuation of service patronage was also found to be associated with failures during service encounters and service recovery (Keaveney, 1995).

Thus, to prevent customer defection, customers need to perceive that banks are taking concrete efforts to address whatever problems they may encounter inside their bank or in using any of their products or services. The frontline personnel in banks, therefore, play a critical part in addressing any breakdown in service quality (Lewis & Spyrakopoulos, 2001). In the context of e-banking, customers generally experience service quality failures in the use of ATMs and online banking brought about by interrupted connectivity. The timely ability to address these service quality failures lead to faster service recovery and greater customer confidence in their banks (Rejikumar, 2015).

1.2 Service Quality in Banks as a Basis for Competition

Danisman (2018) pointed out that the liberalization and deregulation of the banking industry globally led banks to expand its products and service offerings to its clients, beyond deposits, withdrawals, and loan transactions. Services now include investment management, asset management, insurance, and financial advising, among others. Banks also started investing in information technology to improve processes and communication, and the banks also started to invest in human capital. The liberalization and globalization of the banking industry, likewise, allowed the entry of new players in the industry to include non-bank financial intermediaries and financial technology firms, introducing to the customers diversified sets of products and services, thereby, giving customers more choices. The global financial crisis and deregulation resulted in geographical expansions as well as bank consolidations all over the world (Duke & Cejnar, 2013).

Similarly, the Philippine banking industry instituted several reforms to improve the sector (Manlagñit & Lamberte, 2004). These reforms included: (1) in the 1980s, expansion in the commercial banking system with more functions and a wider variety of bank services, as well as the removal of interest rate ceilings enabling banks to price competitively; (2) in the 1990s, relaxation of the moratorium on foreign banks through RA 7721 (Foreign Bank Liberalization Act of 1994) allowing the entry of foreign banks and thus creating a more competitive environment;

and (3) in the 2000s, the passage of the General Banking Law to strengthen the domestic banking system, so it can be ready to meet globalization. Some significant mergers and acquisitions enabled the rehabilitation of some Philippine banks affected by the East Asian financial crisis. The liberalization of the Philippine banking sector helped foster a competitive banking environment;

allowed the entry of foreign banks; strengthened the domestic banking industry to meet globalization; and enabled the Philippine banks to offer diversified banking services (Manlagñit

& Lamberte, 2004).

With these developments in the external environment, bank customers now face more choices.

Products and services have become generally standardized and commoditized. Since customers have wider choices in terms of bank providers, they can be more discriminating, more analytical in their buying behavior, and consequently more demanding (Shelton, 1995; Talib & Rahman 2012).

To ensure customer retention and loyalty in the banking sector, service quality should include strategies to improve service encounters and address service quality failures. Through service quality, banks can differentiate themselves from their competitors, thereby giving them a competitive advantage (Avkiran, 1999; Felix, 2017; Talib & Rahman, 2012).

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38 Measuring Service Quality in Philippine Banks: An Exploratory Study Using SERVQUAL and Q-Methodology

technologies. Since bank customers come from different socio-demographic backgrounds, their understanding and appreciation of how to use and avail of bank products and services need to be attended properly with empathy, compassion, and attention (Shelton, 1995).

Aside from the fact that consumers value a favorable customer experience every single time that they transact with their banks, it is equally important that their bank transactions and finances remain secure. There are several situations where customers interact with the bank.

Examples of such service encounters include, among others, when customers deal face-to-face with tellers for different bank transactions; when customers interface with the bank’s automated and online facilities; and when customers communicate with customer service officers in the branch or through the telephone or emails. There are various instances, therefore, wherein customers can judge the service quality of a bank.

From a client’s perspective, he/she views a good customer experience if the automated teller- machines (ATMs) and/or the online banking system is working; if the teller is courteous and is responsive to his/her needs; and if the customer service unit is sympathetic to any complaints.

Therefore, customer satisfaction about a banking experience heavily relies on the customer’s service encounter with the bank. Thus, given the personal and experiential nature of service encounters in banks, not to mention the intangibility of service, determining and measuring service quality becomes a challenge, both theoretically and methodically.

1.1 Importance of Service Quality in Banks

Why should banks give importance to service quality? Kantar-TNS, in its 2018 Corporate Reputation Study, evaluated the 2008-2018 performance of Philippine banks based on two parameters – “business performance (stability and leadership in the industry) and good customer relations” (“Kantar TNS reveals,” 2019, p. 3). The study asked 800 respondents about their bank’s products and services, and their overall attitudes towards banking in their respective banks and on financial technology. The respondents were also asked about several service quality dimensions that related to the bank’s reputation: (1) overall reputation/renown, (2) favorability, (3) trust, (4) success, and (5) product and service quality. BDO ranked first in the Philippines and in the Greater Manila area, followed by the Bank of the Philippine Islands (BPI) (including BPI Family Bank). Other government-owned banks, such as the Philippine National Bank and the Land Bank of the Philippines, also landed in the top five banks.

BPI, despite ranking second in terms of business performance and customer relations (“Kantar TNS reveals,” 2019), experienced technical glitches in its internal systems in 2017. This led to a two-day downtime in its online facilities and ATMs, and 1.5 million accounts showing different balances. BPI’s management apologized to its clients, and reported that the 2017 glitch was an internal data processing error. Such an error led to the mistaken withdrawal amounting to PHP 42 million. The error was corrected after 37 hours (“Operational lapses,” 2017).

In April 2019, BPI anew advised its clients of the temporary unavailability of its services (online, mobile application, ATM, cash accept machines, debit, and prepaid card services) due to a system upgrade from April 7 to 9. The system upgrade, however, took longer than planned and inconvenienced BPI customers. BPI executives explained that these system upgrades were necessary given that the systems of the 168-year-old bank needed a major upgrade. BPI’s management assured its clients of its continuing efforts to improve bank technology, facilities, and systems for better customer experience (“BSP assessing BPI glitch,” 2019). Banks, therefore, need to improve systems and processes and employ service quality strategies to address service failures, to achieve continued customer patronage and loyalty (Felix, 2017; Johnston, 1997).

An important aspect of service quality is service recovery, which usually involves resolving the problems raised by dissatisfied customers. Service recovery is significantly associated with customer satisfaction and performance (Gronroos, 1984) and customer retention (Lewis &

Spyrakopoulos, 2001). Allred and Adams (2000) reported that 50% of the 143 bank and credit union respondents of its study stopped using a financial service due to poor service performance.

Customer defection or exit was found to be significantly related to service quality and customer

Ma. Gloria V. Talavera 39

satisfaction (Zeithaml, 2000). Decline or even discontinuation of service patronage was also found to be associated with failures during service encounters and service recovery (Keaveney, 1995).

Thus, to prevent customer defection, customers need to perceive that banks are taking concrete efforts to address whatever problems they may encounter inside their bank or in using any of their products or services. The frontline personnel in banks, therefore, play a critical part in addressing any breakdown in service quality (Lewis & Spyrakopoulos, 2001). In the context of e-banking, customers generally experience service quality failures in the use of ATMs and online banking brought about by interrupted connectivity. The timely ability to address these service quality failures lead to faster service recovery and greater customer confidence in their banks (Rejikumar, 2015).

1.2 Service Quality in Banks as a Basis for Competition

Danisman (2018) pointed out that the liberalization and deregulation of the banking industry globally led banks to expand its products and service offerings to its clients, beyond deposits, withdrawals, and loan transactions. Services now include investment management, asset management, insurance, and financial advising, among others. Banks also started investing in information technology to improve processes and communication, and the banks also started to invest in human capital. The liberalization and globalization of the banking industry, likewise, allowed the entry of new players in the industry to include non-bank financial intermediaries and financial technology firms, introducing to the customers diversified sets of products and services, thereby, giving customers more choices. The global financial crisis and deregulation resulted in geographical expansions as well as bank consolidations all over the world (Duke & Cejnar, 2013).

Similarly, the Philippine banking industry instituted several reforms to improve the sector (Manlagñit & Lamberte, 2004). These reforms included: (1) in the 1980s, expansion in the commercial banking system with more functions and a wider variety of bank services, as well as the removal of interest rate ceilings enabling banks to price competitively; (2) in the 1990s, relaxation of the moratorium on foreign banks through RA 7721 (Foreign Bank Liberalization Act of 1994) allowing the entry of foreign banks and thus creating a more competitive environment;

and (3) in the 2000s, the passage of the General Banking Law to strengthen the domestic banking system, so it can be ready to meet globalization. Some significant mergers and acquisitions enabled the rehabilitation of some Philippine banks affected by the East Asian financial crisis. The liberalization of the Philippine banking sector helped foster a competitive banking environment;

allowed the entry of foreign banks; strengthened the domestic banking industry to meet globalization; and enabled the Philippine banks to offer diversified banking services (Manlagñit

& Lamberte, 2004).

With these developments in the external environment, bank customers now face more choices.

Products and services have become generally standardized and commoditized. Since customers have wider choices in terms of bank providers, they can be more discriminating, more analytical in their buying behavior, and consequently more demanding (Shelton, 1995; Talib & Rahman 2012).

To ensure customer retention and loyalty in the banking sector, service quality should include strategies to improve service encounters and address service quality failures. Through service quality, banks can differentiate themselves from their competitors, thereby giving them a competitive advantage (Avkiran, 1999; Felix, 2017; Talib & Rahman, 2012).

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40 Measuring Service Quality in Philippine Banks: An Exploratory Study Using SERVQUAL and Q-Methodology

1.3 Research Objectives

Given the importance of service quality in the banking sector and its strong association with customer patronage, retention, and loyalty, there is a need to understand the attributes that define service quality in banks. The objectives of this research are as follows:

1. To identify the service quality dimensions considered by Filipino consumers important in describing an excellent bank; and

2. To classify service quality attributes into these service quality dimensions, and to validate them vis-à-vis the SERVQUAL framework.

Understanding the service quality dimensions important to customers can guide banks on how to retain existing customers, attract new ones, and attain customer satisfaction, patronage, and loyalty. However, given the intangibility of service quality, its measurement poses challenges for both theorists and practitioners (Allred & Adams, 2000; Felix, 2017; Zeithaml, 1988). According to Zeithaml (1988), service quality involves a comparison of the customer’s service expectations and his/her perception as to how the service was performed. Since customer expectations vary and are subjective, service quality measurement also becomes difficult because of this subjectivity. To capture these subjective dimensions of service quality, this study employs the Q- methodology, a qualitative data-gathering methodology.

Section 2 presents a literature review on service quality principles, the related studies on bank service quality, and the Q-methodology. Section 3 and 4 discuss the research methods and data analysis, respectively, while Section 5 discusses the research findings. The last part shows the conclusion, the implications of this study, research limitations, and areas for further study.

2 Literature review 2.1 Service Quality

In 1984, Gronroos described the dimensions of service quality in terms of: (1) technical quality (what the customer received as an outcome from services provided to him/her); (2) functional quality (how the outcome was received by the customer); and (3) image (an important attribute that was developed through word-of-mouth advertising, tradition, and public relations).

Parasuraman, et al., (1985) expanded the definition of service quality to mean the difference between the expectation of customers about quality vis-à-vis the performance or actual outcome.

In their analysis of four service industries (retail banking, credit card, securities brokerage, and product repair and maintenance), they were able to identify ten determinants of service quality.

They also introduced a Service Quality Model which tackles five possible gap areas in service quality, as follows (Parasuraman et al., 1985, p. 4).

 Gap 1 – Difference between customer expectations and management’s perceptions of those expectations;

 Gap 2 – Difference between management’s perceptions of customer expectations and service quality specifications;

 Gap 3 – Difference between service quality specifications and actual service delivery;

 Gap 4 – Difference between actual service delivery and what was externally communicated to consumers; and

 Gap 5 – Difference between a consumer’s expectation and perceived service performance.

Ma. Gloria V. Talavera 41

In 1988, Haywood-Farmer further defined service quality as being achieved when customer expectations and preferences were met consistently. Three dimensions of service quality were proposed: (1) professional judgment (competence, confidentiality, knowledge); (2) physical facilities and processes (location, layout, process flow, timeliness, and speed); and (3) behavioral aspects (communication, courtesy, attitude, and problem-solving).

Following their exploratory study in 1985, Parasuraman et al. (1988) introduced the Service Quality (SERVQUAL) framework to measure service quality. The validated service quality dimensions included “Tangibles, Reliability, Responsiveness, Assurance, and Empathy”

(Parasuraman, et al., 1988, p. 1212). The 22-item service quality instrument was tested for reliability and content validity, and was found to be applicable in various service settings. The SERVQUAL framework is useful in understanding the expectations of customers for the services provided to them, and consequently how such services can be improved.

Service quality is an important source of competitive advantage (Gounaris et al., 2003;

Petridou, Spathis, Glaveli, & Liassides, 2007). A firm that can respond well to the customer’s needs and queries, and address their concerns empathically results in an improvement in the perception of quality, customer attraction, customer satisfaction, purchase intention, and consequently in profitability (Anderson, Fornell, & Lehmann, 1994; Lee & Ing, 2005). Service quality perceived more consistently by customers leads to better customer acquisition and retention, as well as higher job satisfaction for staff (Galloway & Ho, 1996).

2.2 Service Quality Studies

Several studies were conducted on service quality following the SERVQUAL frameworks of Parasuraman et al. (1988). (Refer to Table 1). Reliability was found to be a common significant dimension of several quality studies (Choudhury, 2013; Guo, Duff, & Hair, 2008; Jabnoun &

Khalifa, 2005; Ladhari et al., 2011). Other studies pointed out empathy, assurance, and responsiveness as other critical service quality dimensions (Culiberg & Rojsek, 2010; Ladhari et al., 2011).

Jabnoun and Khalifa (2005) suggested the need for a customized measure of service quality in different countries considering their unique national culture(s). In their survey of customers of United Arab Emirates (UAE) conventional and Islamic banks, results indicated four dimensions:

(1) personal skills, (2) reliability, (3) values, and (4) image. The four dimensions were significantly associated with service quality for conventional banks and while only personal skills and values were significant determinants of service quality for Islamic banks.

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40 Measuring Service Quality in Philippine Banks: An Exploratory Study Using SERVQUAL and Q-Methodology

1.3 Research Objectives

Given the importance of service quality in the banking sector and its strong association with customer patronage, retention, and loyalty, there is a need to understand the attributes that define service quality in banks. The objectives of this research are as follows:

1. To identify the service quality dimensions considered by Filipino consumers important in describing an excellent bank; and

2. To classify service quality attributes into these service quality dimensions, and to validate them vis-à-vis the SERVQUAL framework.

Understanding the service quality dimensions important to customers can guide banks on how to retain existing customers, attract new ones, and attain customer satisfaction, patronage, and loyalty. However, given the intangibility of service quality, its measurement poses challenges for both theorists and practitioners (Allred & Adams, 2000; Felix, 2017; Zeithaml, 1988). According to Zeithaml (1988), service quality involves a comparison of the customer’s service expectations and his/her perception as to how the service was performed. Since customer expectations vary and are subjective, service quality measurement also becomes difficult because of this subjectivity. To capture these subjective dimensions of service quality, this study employs the Q- methodology, a qualitative data-gathering methodology.

Section 2 presents a literature review on service quality principles, the related studies on bank service quality, and the Q-methodology. Section 3 and 4 discuss the research methods and data analysis, respectively, while Section 5 discusses the research findings. The last part shows the conclusion, the implications of this study, research limitations, and areas for further study.

2 Literature review 2.1 Service Quality

In 1984, Gronroos described the dimensions of service quality in terms of: (1) technical quality (what the customer received as an outcome from services provided to him/her); (2) functional quality (how the outcome was received by the customer); and (3) image (an important attribute that was developed through word-of-mouth advertising, tradition, and public relations).

Parasuraman, et al., (1985) expanded the definition of service quality to mean the difference between the expectation of customers about quality vis-à-vis the performance or actual outcome.

In their analysis of four service industries (retail banking, credit card, securities brokerage, and product repair and maintenance), they were able to identify ten determinants of service quality.

They also introduced a Service Quality Model which tackles five possible gap areas in service quality, as follows (Parasuraman et al., 1985, p. 4).

 Gap 1 – Difference between customer expectations and management’s perceptions of those expectations;

 Gap 2 – Difference between management’s perceptions of customer expectations and service quality specifications;

 Gap 3 – Difference between service quality specifications and actual service delivery;

 Gap 4 – Difference between actual service delivery and what was externally communicated to consumers; and

 Gap 5 – Difference between a consumer’s expectation and perceived service performance.

Ma. Gloria V. Talavera 41

In 1988, Haywood-Farmer further defined service quality as being achieved when customer expectations and preferences were met consistently. Three dimensions of service quality were proposed: (1) professional judgment (competence, confidentiality, knowledge); (2) physical facilities and processes (location, layout, process flow, timeliness, and speed); and (3) behavioral aspects (communication, courtesy, attitude, and problem-solving).

Following their exploratory study in 1985, Parasuraman et al. (1988) introduced the Service Quality (SERVQUAL) framework to measure service quality. The validated service quality dimensions included “Tangibles, Reliability, Responsiveness, Assurance, and Empathy”

(Parasuraman, et al., 1988, p. 1212). The 22-item service quality instrument was tested for reliability and content validity, and was found to be applicable in various service settings. The SERVQUAL framework is useful in understanding the expectations of customers for the services provided to them, and consequently how such services can be improved.

Service quality is an important source of competitive advantage (Gounaris et al., 2003;

Petridou, Spathis, Glaveli, & Liassides, 2007). A firm that can respond well to the customer’s needs and queries, and address their concerns empathically results in an improvement in the perception of quality, customer attraction, customer satisfaction, purchase intention, and consequently in profitability (Anderson, Fornell, & Lehmann, 1994; Lee & Ing, 2005). Service quality perceived more consistently by customers leads to better customer acquisition and retention, as well as higher job satisfaction for staff (Galloway & Ho, 1996).

2.2 Service Quality Studies

Several studies were conducted on service quality following the SERVQUAL frameworks of Parasuraman et al. (1988). (Refer to Table 1). Reliability was found to be a common significant dimension of several quality studies (Choudhury, 2013; Guo, Duff, & Hair, 2008; Jabnoun &

Khalifa, 2005; Ladhari et al., 2011). Other studies pointed out empathy, assurance, and responsiveness as other critical service quality dimensions (Culiberg & Rojsek, 2010; Ladhari et al., 2011).

Jabnoun and Khalifa (2005) suggested the need for a customized measure of service quality in different countries considering their unique national culture(s). In their survey of customers of United Arab Emirates (UAE) conventional and Islamic banks, results indicated four dimensions:

(1) personal skills, (2) reliability, (3) values, and (4) image. The four dimensions were significantly associated with service quality for conventional banks and while only personal skills and values were significant determinants of service quality for Islamic banks.

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42 Measuring Service Quality in Philippine Banks: An Exploratory Study Using SERVQUAL and Q-Methodology

Table 1. Related Studies on Bank Service Quality Dimensions

Authors Sample Methodologies Bank Service Quality

Dimensions Analyzed Findings

Ahmed (2017) 250 bank customers (Pakistan)

Self-administered questionnaires (5-point Likert scale)

Correlation and regression analyses

Five SERVQUAL dimensions: (1) tangibility, (2) reliability, (3) convenience, (4) competence, and (5) satisfaction

All five dimensions were important, but Islamic banks needed to focus on tangibility, reliability, and responsiveness.

Allred and Addams (2000)

143 bank and credit union respondents (USA)

Self-administered questionnaires (5-point Likert scale)

Descriptive statistics

14-item service quality questions to assess bank and credit union measurement of customer’s expectations, perceptions of service quality, and customer retention practices

Credit unions rated better than banks in 11 out of 14 service quality dimensions; 50% of respondents stopped using financial service due to poor service performance.

Avkiran

(1994) 791 commercial bank customers (Australia)

Exit interviews, telephone interviews, and mailed surveys (5-point Likert scale)

Factor analysis using Principal Axis Factoring

It started with 27 items but ended with 17 items.

Dimensions studied included responsiveness, empathy, staff conduct, access, communication, and reliability

Validated these service quality dimensions – staff conduct, communication, credibility, responsiveness, access to branch management, and access to teller services.

Choudhury

(2013) 570 customers of 3 public and 3 private banks (India)

Self-administered questionnaires (7-point Likert scale)

Factor analysis

Original 24 items were reduced to 15 items.

Modified SERVQUAL to four dimensions: (1) behavior, (2) reliability, (3) tangibles, and (4) convenience

Reliability was important in influencing customer’s purchase intentions.

Culiberg and

Rojsek (2010) 150 bank customers (Slovenia), 100 females and 50 males

Self-administered questionnaires (6-point Likert scale)

Literature review Focus group discussion In-depth interviews

Factor analysis and regression analysis

28 items

Original five SERVQUAL dimensions plus Access

Assurance and empathy (considered softer

dimensions dealing with the interaction of customers with banks), and reliability and responsiveness (considered harder dimensions dealing with bank processes) were critical determinants of customer satisfaction.

Felix (2017) 384 bank customers (a bank in Rwanda with several branches)

Descriptive and cross-sectional survey designs (5-point Likert scale)

Correlation analysis

Five SERVQUAL dimensions: (1) reliability, (2) responsiveness, (3) assurance, (4) empathy, and (5) tangibles

Tangibles and assurance had the highest rating.

Table 1. Related Studies on Bank Service Quality Dimensions Authors SampleMethodologiesBank Service Quality Dimensions Analyzed Findings Ahmed (2017)250 bank customers (Pakistan) Self-administered questionnaires (5-point Likert scale) Correlation and regression analyses Five SERVQUAL dimensions: (1) tangibility, (2) reliability, (3) convenience, (4) competence, and (5) satisfaction All five dimensions were important, but Islamic banks needed to focus on tangibility, reliability, and responsiveness. Allred and Addams (2000)

143 bank and credit union respondents (USA) Self-administered questionnaires (5-point Likert scale) Descriptive statistics 14-item service quality questions to assess bank and credit union measurement of customer’s expectations, perceptions of service quality, and customer retention practices.

Credit unions rated better than banks in 11 out of 14 service quality dimensions; 50% of respondents stopped using financial service due to poor service performance. Avkiran (1994)791 commercial bank customers (Australia)

Exit interviews, telephone interviews, and mailed surveys (5-point Likert scale) Factor analysis using Principal Axis Factoring It started with 27 items but ended with 17 items. Dimensions studied included responsiveness, empathy, staff conduct, access, communication, and reliability.

Validated these service quality dimensions – staff conduct, communication, credibility, responsiveness, access to branch management, and access to teller services. Choudhury (2013)570 customers of 3 public and 3 private banks (India)

Self-administered questionnaires (7-point Likert scale) Factor analysis Original 24 items were reduced to 15 items. Modified SERVQUAL to four dimensions: (1) behavior, (2) reliability, (3) tangibles, and (4) convenience.

Reliability was important in influencing customer’s purchase intentions. Culiberg and Rojsek (2010) 150 bank customers (Slovenia), 100 females and 50 males

Self-administered questionnaires (6-point Likert scale) Literature review Focus group discussion In-depth interviews Factor analysis and regression analysis 28 items Original five SERVQUAL dimensions plus Access

Assurance and empathy (considered softer dimensions dealing with the interaction of customers with banks), and reliability and responsiveness (considered harder dimensions dealing with bank processes) were critical determinants of customer satisfaction. Felix (2017)384 bank customers (a bank in Rwanda with several branches)

Descriptive and cross-sectional survey designs (5-point Likert scale) Correlation analysis Five SERVQUAL dimensions: (1) reliability, (2) responsiveness, (3) assurance, (4) empathy, and (5) tangibles

Tangibles and assurance had the highest rating.

Mga Sanggunian

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