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SERVICE QUALITY DIMENSIONS AND CUSTOMER SATISFACTION:
A STUDY IN THE LEBANESE RETAIL BANKING INDUSTRY
A thesis submitted in partial fulfillment
of the requirements for the degree of
Doctor of Business Administration
by
Zeina T. Al HAKIM
Grenoble Ecole De Management
2012
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To My Devoted Family and Loved Ones
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DOCTORATE OF BUSINESS ADMINISTRATION
Grenoble Ecole de Management, France
Author: Zeina T. Al Hakim
Title of Dissertation: Service Quality Dimensions and Customer Satisfaction: A Study
in the Lebanese Retail Banking Industry
Number of Pages: 362 pages
Year of Completion: 2012
ABSTRACT
This doctoral research was initiated for the purpose of investigating the relationship
between perceived service quality and customer satisfaction among bank customers in
Lebanon and defining service quality through uncovering its dimensions relevant to
the Lebanese culture. Due to the lack of similar studies in Lebanon and the significant
contribution of the banking sector to the Lebanese economy, it was decided that the
investigation be conducted within the Lebanese retail banking industry. Moreover,
due to the turbulent competitive banking environment in Lebanon and to the pressing
need to adopt a marketing orientation strategy that focuses on the consumer,
understanding what satisfies bank customers becomes crucial; this, in addition to
finding out what matters most to these customers in evaluating service quality to serve
them better.
Based on the extensive literature review, a model was proposed with a combination of
different variables: perceived service quality, customer satisfaction, bank reputation,
perceived payment equity, and gender. In addition to an exploratory study to discover
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the dimensions of service quality, a series of hypotheses were presented to explain the
relationship between perceived service quality and customer satisfaction. The model
was tested using a quantitative research technique. Using convenience sampling, the
research sample was chosen from customers of Lebanese banks and included 1336
respondents (54% males versus 46% females) from 36 out of the 51 commercial
banks operating in Lebanon. Data analysis uncovered the new dimensions of service
quality, measured using the SERVPERF tool, specifically applicable to Lebanese
retail bank services and provided support for five out of six hypotheses. The findings
provide support for the importance of stressing service quality to ensure customer
satisfaction by focusing on bank reputation, reliability, empathy, and tangibility
dimensions of perceived service quality. Moreover, the results uncover interesting
gender-related differences in the evaluation of perceived service quality and customer
satisfaction which should be taken into consideration when designing and delivering
bank retail services in Lebanon. The major outcome of this research is a new tool to
measure service quality in Lebanese banks: the Lebanese Bank Service Quality
Assessment Tool (LBSQAT).
Keywords: perceived service quality, customer satisfaction, perceived payment
equity, reputation, gender, retail banking, Lebanon.
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ACKNOWLEDGEMENTS
Finally, I have made it. I couldnt have done it without the support of many people
whose contribution cannot be ignored nor left without appreciation.
First, I would like to express my deepest gratitude and appreciation to my supervisor,
Dr. Caroline Cuny, for her invaluable support, guidance, and encouragement. Her
sincerity in providing me with the needed advice and critical constructive feedback
contributed highly to the quality of work generated. For that, I thank her.
Second, I would like to extend my gratefulness to the support of Dr. Benoit Aubert,
Associate Dean and Director of the Doctoral School at Grenoble Ecole De
Management who showed great consideration and empathy all through the program
and provided advice when needed. Moreover, I would like to thank Pr. Olivier
Trendel and Pr. Daniel Ray at Grenoble Ecole de Management for their precious
feedback. I would also like to thank Dr. Suzanne Altobello Nasco and Dr. Michel
Polski, the two reviewers whose comments and feedback were crucial for the
perfection of this work. For that, I thank them.
Third, I would like to thank my sincere colleagues and friends, Dr. Bassem Maamari
and Dr. Hiba Sukkarieh, for their truthful help, meticulous guidance, and sincere
support all through the process of data analysis and completion of the doctoral
dissertation. For that, I present my deepest gratitude and appreciation.
Fourth, I would like to thank all 1336 anonymous respondents for their precious time
and effort to answer my questionnaire. Without their sincere responses, this study
wouldnt have seen the light. I would also like to thank all those who helped me
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spread the questionnaire to generate such a huge number of responses; namely, Mr.
Amine Al Nassrawi, Mr. Wassim Al Hakim, Ms. Sara Al Hakim, Ms. Sukaina, Al
Nassrawi, Ms. Roueida Maamoun, Ms. Georgina Ibrahim, Ms. Maya Khateeb, Ms.
Razan Ladki, Ms. Dalia Baltaji, Dr. Yara Abdallah, Dr. Rola Chami, and finally Dr.
Esther Sleilati who also provided help and support in different areas of the research. I
would also like to deeply thank Ms. Arabia Osseiran, Head of the American
University of Beirut (AUB) Alumni Office and Dr. John McGill, Dr. Ketty
Sarouphime, and the Committee of Human Research Subjects at the Lebanese
American University (LAU) for their remarkable assistance in disseminating the
questionnaire. For that, I thank them all.
I would also like to extend my deepest gratitude to Rafik Hariri Foundation and Mr.
Mustapha Zaatari for their priceless and invaluable support, without which,
accomplishing this milestone would have been impossible. Moreover, I would like to
thank Mr. Piere Khoury, Chairperson at the Hariri Canadian University, for his
encouragement and advice to pursue the DBA.
My lovely family, to which I dedicate this piece of work, has bared a lot and for that I
express my apologies and great thankfulness for all what they have done for me. To
start with, my mother Bassima Baltaji for her heartfelt compassion, my father Dr.
Toufic Al Hakim for his encouragement, my brother Wassim Al Hakim for his
support and technical advice, and my sister Sara Al Hakim for being there when I
really needed her.
My greatest gratitude goes to my dearest and lovable husband and best friend, Amine
Al Nassrawi for no words can really express how grateful I am to what he has done to
help me achieve my goal. His genuine devotion, support, and encouragement go way
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back to the day he motivated me to commit to a doctoral program. His love, affection,
devotion, compassion, and care were the major drivers that kept me right on track to
complete my dissertation. For that, I greatly thank him and dedicate my DBA to him.
Finally, I cannot but thank my sweet and adorable 4-year old daughter, Dunia, who
has helped me in her own special way. Just the sight or thought of her were enough
incentives to work hard, persevere, and achieve a higher degree, perhaps that would
make her proud of me one day. For that, I affectionately thank her and promise to
make up for any time spent away from her.
Thank you!
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TABLE OF CONTENTS
ABSTRACT ................................................................................................................... 3
ACKNOWLEDGEMENTS ........................................................................................... 5
TABLE OF CONTENTS ............................................................................................... 8
LIST OF FIGURES .................................................................................................. 12
LIST OF TABLES ....................................................................................................... 13
GENERAL INTRODUCTION .................................................................................... 16
INTRODUCTION .................................................................................................... 16
BACKGROUND AND SIGNIFICANCE OF THE RESEARCH ............................. 20
OBJECTIVES, SCOPE, AND RELEVANCE OF THE RESEARCH ....................... 31
EXPECTED CONTRIBUTIONS OF THE RESEARCH .......................................... 34
Theoretical Implications ....................................................................................... 34
Managerial Implications ....................................................................................... 35
ORGANIZATION OF THE RESEARCH ................................................................ 36
PART 1: LITERATURE REVIEW ............................................................................. 39
Introduction .................................................................................................................. 39
CHAPTER 1: SERVICES - A FOCUS ON THE BANKING SECTOR .................... 43
1.1 CHARACTERISTICS OF SERVICES ............................................................... 45
1.2 CLASSIFICATION OF SERVICES ................................................................... 48
1.3 BANKING SERVICES ...................................................................................... 51
1.3.1 RETAIL BANKING SERVICES IN LEBANON ...................................... 54
1.4 CONCLUSIONS AND IMPLICATIONS FOR THE RESEARCH QUESTIONS
................................................................................................................................. 59
CHAPTER 2: CUSTOMER SATISFACTION ........................................................... 62
2.1 DEFINITION OF CUSTOMER SATISFACTION ............................................. 63
2.1.1 APPROACHES TO COMPARISON STANDARDS IN THE
DISCONFIRMATION CONSTRUCT OF CUSTOMER SATISFACTION ...... 66
2.2 TYPES OF CUSTOMER SATISFACTION ....................................................... 75
2.2.1 SATISFACTION AS A COGNITIVE CONCEPT ..................................... 75
2.2.2 SATISFACTION AS AN AFFECTIVE CONCEPT .................................. 76
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2.2.3 SATISFACTION AS A COMBINATION OF COGNITIVE AND
AFFECTIVE CONCEPTS ................................................................................... 79
2.2.4 CUMULATIVE SATISFACTION ............................................................. 80
2.2.4.1 ANTECEDENTS OF CUMULATIVE SATISFACTION .................. 85
2.2.4.2 CONSEQUENCES OF CUMULATIVE SATISFACTION
(CUSTOMER COMPLAINTS AND LOYALTY) ......................................... 88
2.2.5 TRANSACTIONAL SATISFACTION ...................................................... 90
2.2.5.1 ANTECEDENTS OF TRANSACTIONAL CUSTOMER
SATISFACTION ............................................................................................. 91
2.3 CONCLUSIONS AND IMPLICATIONS FOR THE RESEARCH QUESTION 95
CHAPTER 3: SERVICE QUALITY ........................................................................... 96
3.1 DEFINITION OF SERVICE QUALITY .......................................................... 100
3.2 SERVICE QUALITY MODELS ...................................................................... 104
3.2.1 SERVQUAL: DIMENSIONS, APPLICATIONS, AND LIMITATIONS109
3.2.2 SERVPERF ............................................................................................... 118
3.3 CONCLUSIONS AND IMPLICATIONS FOR THE RESEARCH QUESTION
............................................................................................................................... 122
CHAPTER 4: BANK REPUTATION THE PROPOSED DIMENSION OF
SERVICE QUALITY ................................................................................................ 125
4.1 DEFINITION OF REPUTATION .................................................................... 126
4.2 REPUTATION VERSUS IMAGE AND IDENTITY ....................................... 134
4.3 RELATIONSHIPS BETWEEN REPUTATION AND OTHER CONSTRUCTS
............................................................................................................................... 137
4.4 MEASURING REPUTATION ......................................................................... 141
4.5 CONCLUSIONS AND IMPLICATIONS FOR THE RESEARCH QUESTION
............................................................................................................................... 143
CHAPTER 5: OTHER FACTORS INFLUENCING SERVICE QUALITY AND
CUSTOMER SATISFACTION ................................................................................ 146
5.1 GENDER ......................................................................................................... 147
5.2 PERCEIVED PAYMENT EQUITY ................................................................. 155
5.3 CONCLUSIONS AND IMPLICATIONS FOR THE RESEARCH QUESTION
............................................................................................................................... 159
CONCLUSION OF PART 1: LITERATURE REVIEW .......................................... 161
PART 2: RESEARCH HYPOTHESES, METHODOLOGY, MEASURES, AND
RESULTS .................................................................................................................. 163
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INTRODUCTION ..................................................................................................... 163
CHAPTER 6: RESEARCH HYPOTHESES ............................................................. 167
6.1 DESIGN OF THE RESEARCH MODEL ......................................................... 167
6.2 RESEARCH HYPOTHESES ........................................................................... 170
6.2.1 Bank Reputation An additional Dimension Explaining Perceived Service
Quality and its Impact on Customer Satisfaction (H1 H2) .............................. 170
6.2.2 Impact of Perceived Service Quality on Customer Satisfaction with the
Bank .................................................................................................................... 173
6.2.3 Gender Differences in Overall Perceived Service Quality and Customer
Satisfaction Ratings ............................................................................................ 174
6.2.4 The Moderating Role of Perceived payment equity on the Relationship
between Perceived Service Quality and Customer Satisfaction (H4) ................ 176
6.3 CONCLUSIONS ON THE RESEARCH HYPOTHESES ................................ 178
CHAPTER 7: METHODOLOGY, MEASURES, AND RESULTS ......................... 180
7.1 CHARACTERISTICS OF THE DESCRIPTIVE STUDY ................................ 180
7.2 CHARACTERISTICS OF THE EMPIRICAL STUDY .................................... 180
7.2.1 Components of Perceived Service Quality ................................................ 181
7.2.2 Research Hypotheses ................................................................................. 182
7.2.2.1 The Quantitative Study ...................................................................... 183
7.3 SCALE DEVELOPMENT AND VALIDATION ............................................. 188
7.3.1 METHODOLOGY FOR THE DEVELOPMENT OF SCALES .............. 188
7.3.1.1 Questionnaire Design ......................................................................... 188
7.3.1.2 The Specification of the Domain of Construct .................................. 189
7.3.1.3 Customer Satisfaction Scale .............................................................. 189
7.3.1.4 Overall Service Quality and Service Quality Dimensions Scales ..... 190
7.3.1.5 Bank Reputation Scale ....................................................................... 190
7.3.1.6 Perceived Payment Equity Scale ....................................................... 191
7.3.2 PILOT TESTING ...................................................................................... 191
7.4 TESTING THE FINAL MODEL...................................................................... 203
7.4.1 SAMPLING AND POPULATION ........................................................... 204
7.4.2 DATA COLLECTION .............................................................................. 204
7.4.2.1 Ethical Considerations in Data Collection ......................................... 206
7.4.3 BASIC SAMPLE DESCRIPTION ............................................................ 211
7.4.4 FINAL SCALE DEVELOPMENT AND VALIDATION ........................ 214
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7.4.4.1 The Purification of Measure .............................................................. 214
7.4.4.2 The Assessment of Reliability ........................................................... 224
7.4.4.3 The Assessment of Validity ............................................................... 230
7.4.5 TESTING OF HYPOTHESES AND RESEARCH RESULTS ................ 233
7.4.5.1 Statistical Methodology: Multiple Regression Model ....................... 233
7.4.5.2 Statistical Methodology: Correlation ................................................. 241
7.4.5.3 Statistical Methodology: Independent-samples t-test ........................ 242
7.4.5.4 Validation of the Hypotheses ............................................................. 243
7.4.5.5 Validation of the Moderating Role of Perceived Payment Equity .... 255
7.5 DISCUSSION OF THE MEASURE AND RESULTS ...................................... 258
CONCLUSION OF PART 2: RESEARCH HYPOTHESES, MEASURES, AND
RESULTS .................................................................................................................. 269
GENERAL CONCLUSION ...................................................................................... 271
CONTRIBUTION OF THE RESEARCH ................................................................. 273
Theoretical Contribution ......................................................................................... 273
Managerial Contribution......................................................................................... 276
LIMITATIONS OF THE RESEARCH ..................................................................... 287
IMPLICATIONS FOR FUTURE RESEARCH ........................................................ 292
REFERENCES .......................................................................................................... 299
APPENDICES ........................................................................................................... 334
APPENDIX A: LIST OF COMMERCIAL BANKS CLASSIFIED BY ABL .. 334
APPENDIX B: CUSTOMER SATISFACTION IN EXISTING LITERATURE
............................................................................................................................ 335
APPENDIX C: MEASURING SCALES ........................................................... 344
APPENDIX D: QUESTIONNAIRE PILOT STUDY STAGE ....................... 346
APPENDIX E: QUESTIONNAIRE DATA COLLECTION STAGE............ 351
APPENDIX F: RESULTS OF THE KMO AND BARTLETTS TESTS ......... 357
APPENDIX G: LBSQAT QUESTIONNAIRE NEW TOOL TO MEASURE
SERVICE QUALITY AND CUSTOMER SATISFACTION WITH BANKS IN
LEBANON ......................................................................................................... 358
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LIST OF FIGURES
Figure 1: Organization of PART 1 Literature Review ............................................. 41
Figure 2: Geographic Distribution of Commercial Banks in Lebanon end 2010 (ABL,
2011: 216) ............................................................................................................ 57
Figure 3: Expectancy Disconfirmation Paradigm (Adapted from Oliver, 1980; Oliver,
2010) .................................................................................................................... 68
Figure 4: The American Customer Satisfaction Index (ACSI) Model (Fornell et al.,
1996:8) ................................................................................................................. 85
Figure 5: The Service Profit Chain (Heskett et al., 1994:120) .................................... 98
Figure 6: The Gaps Model of Service Quality (Parasuraman et al., 1985: 44) .......... 110
Figure 7: Organization of Part 2, Research Hypotheses, Methodology, Measures, and Results .............................................................................................................. 166
Figure 8: The Research Model ................................................................................... 168
Figure 9: Research Model and the Research Hypotheses .......................................... 178
Figure 10: The 6 Factorized Reliable Dimensions of Perceived Service Quality ..... 230
Figure 11: Normality Probability Plot Overall Service Quality as the Dependent Variable .............................................................................................................. 237
Figure 12: Scatterplot Overall Service Quality as the Dependent Variable ........... 237
Figure 13: Normality Probability Plot Customer Satisfaction as the Dependent Variable .............................................................................................................. 251
Figure 14: Scatterplot Customer Satisfaction as the Dependent Variable .............. 251
Figure 15: Comparison of Service Quality Dimensions Proposed Versus Actual . 259
Figure 16: The New Verified Research Results ........................................................ 261
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LIST OF TABLES
Table 1: Top 10 Banks by Assets as at 31/12/2010 (Bank Audi sal Audi Saradar Group, 2010) ........................................................................................................ 56
Table 2: Facts and Figures Lebanon 2010 (Bank Audi sal Audi Saradar Group, 2010) .................................................................................................................... 56
Table 3: Components of Customer Satisfaction (adopted from Fornell, 1992) ........... 66
Table 4: IZARDs (1977) Affective Experience Taxonomy (Westbrook, 1987: 259) 77
Table 5: Summary Criticisms of Selected Research Adopting SERVQUAL ........... 117
Table 6: Summary Criticisms from Selected Research Adopting SERVPERF ........ 121
Table 7: Reputation Definitions and Categorizations ................................................ 132
Table 8: Differentiating Matrix: Corporate Identity, Corporate Image, and Corporate
Reputation (Adapted from Walker (2010:367). ................................................. 137
Table 9: Sub Research Questions and the Means to Answering Them ..................... 165
Table 10: Summary of the Research Hypotheses ...................................................... 179
Table 11: Item-Total Statistics for the Tangibility Dimension .................................. 195
Table 12: Item-Total Statistics for the Reliability Dimension ................................... 197
Table 13: Item-Total Statistics for the Responsiveness Dimension .......................... 198
Table 14: Item-Total Statistics for the Assurance Dimension ................................... 199
Table 15: Item-Total Statistics for the Empathy Dimension ..................................... 200
Table 16: Item-Total Statistics for Customer Satisfaction ......................................... 201
Table 17: Original and Modified PPE Scale Items .................................................... 202
Table 18: Item-Total Statistics for Bank Reputation ................................................. 202
Table 19: Gender Distribution of the Lebanese Population 2010 (UNDESA, 2010) ............................................................................................................................ 204
Table 20: Age Distribution of Sample ....................................................................... 212
Table 21: Duration with Bank (years) ....................................................................... 213
Table 22: Frequency of Bank Visits .......................................................................... 213
Table 23: Results of Eigenvalues Test for Service Quality Scale Values Greater than 1.0 ....................................................................................................................... 217
Table 24: Results of Eigenvalues Test for the Customer Satisfaction Scale ............. 217
Table 25: Results of Eigenvalues Test for Perceived Payment Equity Scale ............ 218
Table 26: Results of Eigenvalues Test for Bank Reputation Scale ........................... 219
Table 27: Communalities of the perceived service quality scale ............................... 220
Table 28: Communalities of the Customer satisfaction Scale ................................... 221
Table 29: Communalities of the Perceived Payment Equity Scale............................ 221
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Table 30: Communalities of Bank Reputation Scale ................................................. 221
Table 31: Oblimin Rotation for 5 Components after Removing Items with
Communalities < 0.4 (P7, P16) .......................................................................... 223
Table 32: Component 1 Reliability Statistics Reliability Dimension ..................... 225
Table 33: Component 1 Item-Total Statistics Reliability Dimension ..................... 225
Table 34: Component 2 Reliability Statistics Empathy Dimension ....................... 226
Table 35: Component 2 Item-Total Statistics Empathy Dimension ....................... 226
Table 36: Component 3 Reliability Statistics Online Banking Effectiveness Dimension .......................................................................................................... 227
Table 37: Component 3 Item-Total Statistics Online Banking Effectiveness Dimension .......................................................................................................... 227
Table 38: Component 4 Reliability Statistics Tangibility Dimension .................... 228
Table 39: Component 4 Item-Total Statistics Tangibility Dimension .................... 228
Table 40: Component 5 Reliability Statistics ATM Effectiveness Dimension ...... 229
Table 41: Component 5 Item-Total Statistics ATM Effectiveness Dimension ...... 229
Table 42: Correlations Results .................................................................................. 235
Table 43: Coefficients for the 6 Factorized Dimensions ........................................... 236
Table 44: R Square Evaluating the Model .............................................................. 238
Table 45: ANOVA Evaluating the Model .............................................................. 238
Table 46: Coefficients Evaluating Each of the Independent Variables .................. 241
Table 47: Correlations between Reputation and Perceived Service Quality ............. 244
Table 48: Correlations Bank Reputation and Customer Satisfaction ..................... 246
Table 49: R Square Reputation and Customer Satisfaction .................................... 246
Table 50: Coefficients Reputation and Customer Satisfaction ............................... 246
Table 51: Correlations Perceived Service Quality and Customer Satisfaction....... 247
Table 52: Correlations - The 6 Factorized Dimensions and Customer Satisfaction .. 248
Table 53: R Square The 6 Factorized Dimensions and Customer Satisfaction ...... 248
Table 54: ANOVA The 6 Factorized Dimensions and Customer Satisfaction ...... 249
Table 55: Coefficients The 6 Factorized Dimensions and Customer Satisfaction . 250
Table 56: Overall Perceived Service Quality Means for Males and Females ........... 252
Table 57: Independent-samples t-test Results for Gender and OSQ ......................... 252
Table 58: Customer Satisfaction Means for Males and Females ............................... 254
Table 59: Independent-samples t-test Results for Gender and CS ............................ 254
Table 60: R Square Moderating Effect of PPE ....................................................... 256
Table 61: ANOVA - Moderating Effect of PPE256
Table 62: Change Statistics - Moderating Effect of PPE...257
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Table 63: Coefficients Moderating Effect of PPE .................................................. 257
Table 64: Regression results of Perceived Payment Equity moderating the relationship
between Perceived Service Quality and Customer Satisfaction (H6) .............. 2588
Table 65: Dimensions of Service Quality across Difference Contextual Studies ..... 259
Table 66: Summary of Hypotheses Testing Results .................................................. 260
Table 67: Top 10 Banks by Assets as at 31/12/2010 (Bank Audi Audi Saradar Group, 2010) ...................................................................................................... 263
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GENERAL INTRODUCTION
This research project is conducted to investigate perceived service quality and
customer satisfaction in Lebanon in general and in the retail banking industry in
specific. For that, the relevance of this project is discussed linking the importance of
uncovering such findings to world-wide trends such as an increased focus on
customer service and customer-oriented marketing. The significance of the study in
Lebanon is also discussed taking into consideration the Lebanese culture in addition
to the Lebanese societys composition and values. Therefore, the framework of this
research project and its theoretical and practical relevance are hereafter presented.
Moreover, the distribution of sections of this dissertation is underlined to conclude
with a logical guideline of the document for the reader to easily navigate through the
subjects.
INTRODUCTION
The world around us is not only changing but also evolving rapidly; no one disagrees
about that. World changes are also reflected in world markets and thus affect the way
businesses are conducted, products and services are produced and delivered, and
customer relationships are built and managed. The major change that cannot be
ignored is globalization. Globalization is defined as the intensification of world-wide
social relations which link distant localities in such a way that local happenings are
shaped by events occurring many miles away and vice versa (Giddens, 1990: 64). To
strive in a market characterized by globalization, strong and ruthless competition, and
fast technological advancements, companies need to be more customer-focused to
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survive, let alone to lead. Trends that accompany the 21st century's business markets
include rapid globalization, a call for more ethics and social responsibility, increased
diversity, a focus on and demand for quality, competition and of course digitalization
(Schermerhorn, 2008; Kotler & Armstrong, 2010). Technology is one of the major
macro-environmental factors that affect today's businesses (Armstrong & Kotler,
2011) in terms of what they provide, how they provide it, and what the customer
really wants. Political and economic instabilities also affect businesses' need to secure
their position and ensure sustainability. Not to forget the influence of changing
demographics of the market place, the evolving customer needs, and the necessity to
comply with the different cultures of the various markets.
Great variations are accompanying the economic changes where the main
characteristics of the past economy were mass production and mass consumption of
products; while the current economy depends on producing and consuming goods and
services that are more differentiated (Fornell et al., 1996). There is substantial support
in the literature reviewed for both market share and customer satisfaction to be
leading to profitability although there is no certainty that these two are related
positively but more likely to be related negatively (Fornell, 1992); this means that
poor satisfaction is associated with poor profitability.
Generally speaking, customers occupy a great share of consideration in business
strategies. Business strategies constitute offensive and defensive strategies where the
objective of offensive strategies is to acquire new customers or to capture market
share, and the objective of defensive strategies is to maintain current customers and
avoid losing them to the competition by creating customer satisfaction (Fornell &
Wernerfelt 1987, 1988 and Fornell, 1992). These strategies are used when there is no
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hope for the company to grow except by snatching business from rivals due to slow
growth and saturated markets (Fornell, 1992). Therefore, customer needs and causes
for satisfaction should not be ignored when designing business strategies.
To protect ones market share, markets, and products, companies aim to have
customers who are highly satisfied as a form of defensive strategy to minimize the
number of customers exiting or switching to competitors (Fornell & Wernerfelt, 1987;
1988; Fornell, 1992). Such strategies seek customer turnover reduction and customer
retention maximization (Fornell & Wernerfelt, 1987, 1988) in two ways: increasing
switching barriers and increasing customer satisfaction (Fornell, 1992). Given the
slowly growing markets that are characterized by intense competitiveness, defensive
strategies are necessary since some companies try to grow by capturing market share
from others. So companies with no strong defense; that is, defensive strategy, will
eventually be the primary losers of market share (Fornell, 1992).
Not all industries are affected in the same way by customer satisfaction in terms of
loyalty and repeat purchases (Fornell, 1992). While Oliver (1997) declares that
customer satisfaction is linked to customer retention and customer loyalty, Fornell
(1992) declares that there is no proof that customer loyalty leads to satisfaction
although there is evidence that the opposite is true: satisfied customers eventually
become loyal customers (Fornell, 1992). Moreover, Lovelock & Wirtz (2011) confirm
that customer satisfaction and service quality are antecedents of customer loyalty. In
addition to customer loyalty, customer satisfaction significantly affects repeat sales
and word-of-mouth (Bearden & Teel, 1983; Anderson & Sullivan, 1993).
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The importance of achieving high levels of customer satisfaction has increased as
world markets are becoming more competitive and service industries are continuously
growing (Anderson, Fornell, & Rust, 1997). It is evident that the role that service
industries play in contributing to the whole economy, in almost all economies, is
significant (Ndhlovu & Senguder, 2002). Given the fierce competition among service
companies, many are attempting to find new means of differentiation in hope to be set
apart from rivals (Tam, 2000; Ndhlovu & Senguder, 2002). As a result, service
quality has emerged as the new way of differentiation, leading to the creation of a new
competitive advantage (Brown & Swartz, 1989; Ndhlovu & Senguder, 2002). The
same has been suggested in the case of banking services: differentiation and
customization of services are key success factors in competitive environments
(Mishra, 2009).
In general, quality is regarded as a competitive precedence for managers and a driver
of growth; therefore, quality improvement has become a mission for most firms
(Legcevic, 2008). With respect to services, it is obvious that one indicator of a
companys success is how its customers perceive the level of service quality, where
perceived service quality appears to be an antecedent of perceived value (Kumar, Kee,
& Manshor, 2009). With respect to banks, service quality has become a vital element
affecting profitability and market share in light of intensive competitive forces
(Anderson, Fornell, & Lehmann, 1994; Spathis, Pteridou, & Glaveli, 2004).
Outstanding service is considered to be a strategy for profit by itself, since it brings in
more customers, repeat business with current customers, fewer customers lost to
competition, high resistance to price competition, and an improved learning curve of
performing services (Berry, Parasuraman, Zeithaml, and Adsit, 1994; Lai,
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Hutchinson, Li, Bai, 2007). Hence, managing service quality and measuring it is
imperative for service firms to grow and survive (Legcevic, 2008).
Therefore, it is important for banks to understand what affects customer satisfaction,
and how to optimize service quality as a driver of customer satisfaction. Since no such
studies were conducted in Lebanon, it would be empirically significant to undergo
such an initiative and in one of the most viable sectors in Lebanon. Hence, the
background and significance of the research are put forward to focus the attention on
its nature and value.
BACKGROUND AND SIGNIFICANCE OF THE RESEARCH
This section discloses the significance of studying perceived service quality as a main
contributor of customer satisfaction in addition to the significance of choosing the
Lebanese retail banking industry as the contextual background for such an
investigation.
- The growing theoretical and managerial significance of customer
satisfaction and perceived service quality
The significance of customer satisfaction is increasingly growing for both consumer
researchers and marketers from the theoretical and managerial point-of-view (Mishra,
2009). Hundreds of studies have researched customer satisfaction in different
industries across various countries. Several research studies uncovered the different
types of satisfaction (e.g. Oliver, 1980; Vanhamme, 2002), approaches and concepts
(e.g. Westbrook & Reilly, 1983; Oliver, 1993), antecedents (e.g. Fornell et al., 1996),
and consequences (e.g. Fornell & Wernerfelt, 1987; Fornell et al., 1996). Moreover,
from the managerial point-of-view, customer satisfaction has become a strategic goal
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for most corporations (Mishra, 2009). In a nutshell, customer satisfaction is
fundamental to the well-being of individual consumers, to the profits of firms
supported through purchasing and patronization, and to the stability of economic and
political structures (Oliver, 2010: 4).
As for service quality, it is becoming an increasingly serious and important concern
across all service industries and as a major means for creating and sustaining a
competitive advantage in the market (Marla, 1996). Once again, numerous studies
were conducted on service quality in different industries such as banking, general
retailing, telecommunications, and utilities. Moreover, service quality was
investigated across various countries; to name a few: USA, India, UK, UAE, China,
Malaysia, Cyprus, South Korea, and Bangladesh. Several studies concluded with
service quality models and presented them as instruments to measure service quality,
such as SERVQUAL (Parasuraman, Berry, and Zeithaml, 1988) and SERVPERF
(Cronin & Taylor, 1992). Theoretically, service quality was confirmed as a major
antecedent of customer satisfaction in several research studies such as that of
Woodside, Frey, and Daly (1989), Cronin and Taylor (1992), Oliver (1993), Spreng
and MacKoy (1996), and Lee, Lee, and Yoo (2000). Managerially, service quality is
becoming a major component integrated into firms competitive strategies (Newman,
2001). Legcevic (2008) asserted that for organizations to effectively and efficiently
deal with the areas that contribute to their competitive advantage, they need to be
knowledgeable about perceived service quality in terms of its constituencies and
foundation. More importantly, it has been suggested that service firms who
experienced poor performance did not know their customers well in terms of their
expectations of service quality (Zeithaml, Berry, and Parasuraman, 1993).
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- The need for investigating customer satisfaction and perceived service
quality in Lebanon
Among the hundreds of studies that investigated service quality or customer
satisfaction, none were conducted in Lebanon. Since Lebanon is a country that
primarily depends on services in its economic composition, then there is a definite
need to explore the nature of perceived service quality and customer satisfaction.
Moreover, being a Lebanese who has witnessed a fluctuation in the level of service
delivery in Lebanon, this triggered the interest in such a scrutiny.
Since the study is conducted in Lebanon, a brief description of the economic and
cultural background of the country should be exemplified. The following subsection
presents a brief economic and cultural overview of Lebanon which will give
contextual meaning to the designed model, proposed hypotheses, uncovered findings,
respective recommendations, and managerial contributions.
Lebanon: An Economic and Cultural Overview
To begin with, Lebanon is an Asian, Middle Eastern, and Arab country located at the
Mediterranean with a surface of 10,452 km2. Its population is about 4.2 million,
according to the World Populations Prospect report of the United Nations Department
of Economic and Social Affairs, UNDESA (2010). The Lebanese population is
considered youthful in general where the average age is 28 years (Zbib, Wooldbridge,
Ahmed, & Benlian, 2010). Moreover, approximately 51% of the total population is
less than 30 years of age (UNDESA, 2010). In 2011, the overall median age was 29.8
years (28.7 years for males versus 31 years for females) and life expectancy for the
total population was 75.23 years (73.67 years for males versus 76.88 years for
females) (CIA World Factbook, 2011).
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23
Economically, there has been a clear shift of the contribution of economic sectors
from agricultural to services between 1950 and 2005 (Maamari, 2010). While the
contributions of the agricultural and industrial sectors to national income dropped
respectively from 20% and 13% in 1950 to 5.2% and 11.65% in 2005, the
contributions of the banking sector rose from 4% to a remarkable 25.46%, the
transportation sector from 4% to 7.26%, and the construction, government, and trade
sectors each from 0% to 8.21%, 11.45%, and 23.18% respectively (Ashi & Ayache,
2002). Before the civil war that broke out in 1975, Lebanon was known as a liberal
country which is unique among the Third World. Moreover, the 30 years preceding
that war were known as the golden age of the Lebanese economy especially in the
banking and tourism industries (Khalaf, 1987; Dirani, 2006). This was due to the
governments adoption of an advanced banking system and allowing for a liberal
environment to prevail, in contrast to neighboring countries. This gave way to the
flood of money and tourists into Lebanon labeling the country as the Switzerland of
the Middle East (Hitti, 1962; Pheraon, 1993; Dirani, 2006). Additionally, the pre-war
stage was prosperous where Lebanon witnessed high rankings of the human
development index (HDI), life expectancy, per capita income, and educational
attainment (Economic and Social Commission for Western Asia (ESCWA), 2001;
Dirani, 2006). In the post-war stage, mainly until the year 1990, the political and
economic impact of the war was devastatingly huge where the business sector, for
example, bore the greatest share of the damage especially in the services and tourism
industries (Dirani, 2006). The most noticeable events that affected the business sector
were the drastic fall of the Lira, the Lebanese currency, from 2.50 LL to 1500 LL
for every 1 USD, and the vanishing of the international confidence in the country. As
of the 1990s, the country witnessed great political, social, and economic challenges
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24
especially that its different economic sectors had no competitive advantage (Dirani,
2006).
For the past ten years, the economy has seen great improvements in different areas.
The banking sector became the major source for Lebanons gross domestic product
contributing to around 25% of GDP (Ashi & Ayache, 2002; Maamari, 2010) and
income (Association of Banks in Lebanon-ABL, 2000; Dirani, 2006). Moreover, in
terms of human development, Lebanon has the highest ranking compared to the Arab
countries with no large oil revenues (Dirani, 2006) while in general, Arab societies
witnessed medium levels of HDI representing quality of life, education levels, and life
expectancy (Kabaskal & Bodur, 2002; Dirani, 2006). Education is recognized as a
main driver for manpower training required for the Lebanese infrastructures
development and management, and has received high attention by investors (Dirani,
2006). The education in Lebanon is greatly influenced by the Western-style education
of Latin and Anglo-Saxon institutions, which gained the recipients of Lebanese
education higher prestige and enhanced earning power (Barakat, 1993; Dirani, 2006).
Compared to the needs of the local market, the Lebanese labor force is rated as
overeducated which has led, along with the economic recession, to the emigration of
an average of 7,500 young people on a monthly basis (Hamdan, 1999; Dirani, 2006).
Despite the fact that the educational system in Lebanon is rendered as the most
advanced among Arab countries, it is also considered the most advanced in terms of
gender equality, where female enrolment has surpassed that of males at the school
level (Dirani, 2006). Nevertheless, despite the advanced educational system in
Lebanon, research is dreadful. Only 500 papers were published in refereed
international journals between 1990 and 1995 compared to 743 papers published
between 1970 and 1975 (Dirani, 2006). Between 1992 and 2002, only 18 empirical
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25
scientific studies were published as manuscripts in refereed publications (BouJaoude
& Abd-El-Khalick, 2004; Dirani, 2006). The lack of research in Lebanon has led to
the shortage of reliable data; thus, it would be hard to design an efficient economic
and social strategy since the needs of people are not properly assessed (Dirani, 2006).
As for Lebanons strategy of openness to technology and globalization, its effect is
greatly noticed and reflects its ability and potential to play the role of an intermediary
between the region and the global economy thus develop into a major participant in
international networking (Dirani, 2006).
With respect to Lebanons culture, very few studies have been published to depict it.
In several studies about culture, Lebanon was included among other Arab or Middle-
Eastern countries. The fact that 95% of the Lebanese population belongs to the Arab
ethnicity (CIA World Factbook, 2011) could be the reason behind not separating the
Lebanese culture from that of other Arab countries. Despite the commonalities
between Lebanon and other Arab countries, such as the Arabic language, huge
differences exist in national culture, development level, education level, and legal-
political systems (Harnish, 2003; Dirani, 2006). Lebanon is especially different from
its surrounding due to the great influence of the West for the past half a century
(Dirani, 2006). Yet, the Global Leadership and Organizational Behavior Effectiveness
(GLOBE) study showed that Arab countries in general experience societal practices
with high scores of power distance and group and family collectivism, medium scores
of uncertainty avoidance, humane orientation, assertiveness, and performance
orientation, low scores of future orientation, and gender egalitarianism (Kabaskal &
Bodur, 2002; Dirani, 2006). Similar results were found by Hofstedes (1984) study
that provided an international comparison on work-related values where large power
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26
distance and uncertainty avoidance appeared to be the main dimensions of national
culture implying that both obedience to authority and control are reflected in the
Lebanese culture (Dirani, 2006). Jabbras (1989) study on Lebanon revealed that in
the Lebanese society great emphasis is placed on social conformity versus innovation
and creativity. Moreover, Lebanon like other Middle-Eastern countries shares the
value of subordination of the individual to group values where the individual, in Arab
thinking, is viewed as subservient to the group, and where his or her distinction is
usually subordinated to the enhancement of the relevant group (Shihadeh, 1963).
Group solidarity and primarily allegiance to the family and secondarily to ones
religious group, is inculcated into the individual beginning with early childhood
(Shihadeh, 1963: 4). Furthermore, the Lebanese culture is characterized by a
patriarchal nature in such a way that the family resembles the most significant social
structure (Sharabi, 1988) or institution (Khalaf, 1987; Super, 1988) and individuals
submit to the father, the head of the family, thus relinquishing their independence
(Sharabi, 1988; Dirani, 2006). In fact, Lebanon like all Middle Eastern cultures shares
this commonality where the family value system is at the center, and where the father
prevails as the unquestionable head of the family who is greatly respected that even
his grown up and married sons submit to his authority (Shihadeh, 1963:3). Unlike
Americans, Lebanese remain dependent on their family and find it very difficult to
leave it (Dirani, 2006). Although Lebanese individuals are open to new ideas and
inclined to challenge traditions and social values, as indicated by Jabbra (1989) and
Sharabi (1988), they remain under the influence of the family towards which their
loyalty persists to be stronger than towards their work, organization, or even their
nation (Dirani, 2006). According to Shihadeh (1963), in Lebanon like in other Middle
Eastern countries, age has a high value standing and is considered an asset to the
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27
individual. As for women, the Lebanese culture supports their active role in society
(Dirani, 2006). Lebanon has witnessed significant changes in its demographic
composition which led to changes in family structures, gender roles, and working
patterns (Sugita, 2008; Sidani & Al Hakim, 2012) where Lebanese women are
expected to attend to their home and share the burden of financially supporting their
families (Sidani & Al Hakim, 2012). They are given wider opportunities to build
careers, hold professional positions in traditional and nontraditional jobs, hold public
offices, and engage in social and political activities in the government; all of which
contributes to the significant advancement in Lebanese society (Dirani, 2006).
With respect to the nature of consumers in Lebanon, it was asserted by Rawwas,
Vitell, and Al-Khatib (1994) in a comparative study between Lebanon and Egypt, that
they tend to be more Machiavellian, less idealistic, and more relativistic than the
Egyptians. Lebanese consumers exhibit more tendencies to accept doubtful consumer
practices; this is attributed to the war that ripped the country and made way for such
behavior (Rawwas et al., 1994; Ford, Nonis, & Hudson, 2005). In a study by Ford et
al. (2005) that compares Middle Eastern consumers to US consumers, the results
reveal a high mean for the social value of Middle Eastern consumers which
demonstrates their group orientation and indicates the degree to which social and
group interactions receive great emphasis in the Middle East. Usually in cultures that
are group-oriented, social interactions exhibit unselfish behaviors (Ford et al., 2005).
Based on Hofstede (1980), high values for the social dimension is crucial in such
cultures and what people think of the individual is imperative to be accepted in the
group (Ford et al., 2005). Therefore, the reputation of the individual can be critical in
the Lebanese society. Furthermore, Lebanese consumers are described by Rawwas
(2001) as followers since they care about the common welfare, protect the interests
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28
of their members, expect respect and loyalty in return, follow rules, and do what is
right and beneficial for the society. In cultures that value formalities, rules, and
standards, the need for well-defined policies and procedures when customers deal
with an organization becomes necessary. This increases their comfort and decreases
uncertainty, since they will know what the organization they deal with expects from
them (Ford et al., 2005). This can be implemented by organizations making their
policies, procedures, and guarantees of quality and customer satisfaction public by
different means, especially when interactions with customers take place (Rawwas,
2001; Ford et al., 2005). Rawwas (2001) also describes Lebanese as absolutists who
stress on the importance of cooperation, security, and affiliation. In this sense, human
relations are affected by paternalism, titles, thrift, cordiality, and ultimate respect for
seniority (Ford et al., 2005: 43). When cultures value absolutism rather than
utilitarianism, more emphasis is placed on trust and idealism such that it would be
unacceptable if an individual is harmed in a transaction (Ford et al., 2005). Therefore,
organizational success can be achieved if trustworthiness is exhibited by honoring
ones word and or any commitment made to customers, and sincerely responding to
customer complaints with complete honesty. In such idealistic cultures, customers
value well-made products and truthful messages where a one-time transaction can
build relationships based on trust and encourage loyalty (Ford et al., 2005). Finally,
with respect to the value for power, Middle Eastern consumers score high on the
political value dimension shedding light on the significance of power and influence in
such cultures. In Lebanon, who an individual knows is more important to the group
than how he or she get things done (Ford et al., 2005).
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29
- The importance of studying perceived service quality and customer
satisfaction in the retail banking industry
The significance of selecting retail banking as the premises to investigate perceived
service quality and customer satisfaction is two-fold. The first reason is general and
relates to the nature of the banking industry and type of services provided. The second
is specific and relates to the significant contribution of the banking industry to the
overall Lebanese economy and the non-existence of such a study in Lebanon.
Generally speaking, the banking industry has witnessed a remarkable shift since the
1990s where profits peaked, retail services were revolutionized with the rise of
electronic technology, mergers among major banks were made, and securitization
appeared as a main source of funding (Rhoades, 2000). Due to liberalization,
deregulation, and advances in information technology, all financial sectors have
experienced radical transformation (Boot & Marinc, 2008: 1173). In general, banking
all around the world has become fiercely competitive (Stiroh & Strahan, 2003).
Additionally the competitive pressures facing the global market environment have
triggered banks to focus on service quality (Angur, Nataraajan, & Jahera, 1999;
Kumar et al., 2009; Karatepe, 2011). Retail banking has received a large portion of
attention by service quality researchers recently (Siddiqi, 2011). It is now evident for
banks that providing quality services is the key to survival and success in such a
competitive environment (Wang, Lo, and Hui, 2003; Arasli, Mehtap-Smadi, and
Katircioglu, 2005b); and the essence of that success is customer satisfaction (Siddiqi,
2011). Smart bank managers now know that high levels of service quality are directly
related to positive results related to reduced number of complaining customers,
increased levels of customer satisfaction, loyalty, retention, and willingness to spread
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30
positive word-of-mouth (Angur et al., 1999; Karatepe, 2011). Attention is directed
today to service quality as a means for competing in the banking environment mainly
because banks offer undifferentiated products (Marla, 1996) and because todays
customers, who are more educated, are increasingly demanding superior quality of
bank services (Karatepe, 2011). Obviously, the bargaining power has shifted from
banks to customers.
As for the banking industry in Lebanon, its marked significance in the economy and
the changes it has witnessed are no different than in any other country. As per ABL
(2011), the Lebanese banking industry has proved to be healthy and stable and
characterized by openness, high resilience to financial crises, competence of its
human resources, innovative services in addition to the traditional ones, compliance
with international standards, and ability to satisfy the financing needs of the local
economy. The main reasons behind selecting the banking industry among other
industries to investigate the relationship between perceived service quality and
customer satisfaction is that banks, in general, play a significant role in influencing
the economic system of any country (Naeem, Akram, & Saif, 2009) and that it is one
of the largest industries in Lebanon, and is considered one of the major foundations of
the Lebanese economy (ABL, 2011). Further discussion about the Lebanese banking
industry will be presented later in this document.
Now that the background of the research has been exhibited in details, the objectives,
scope, and relevance of the research are depicted hereafter leading to the presentation
of the organization of the research.
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31
OBJECTIVES, SCOPE, AND RELEVANCE OF THE RESEARCH
This research aims to investigate the concept of service quality specifically in the
Lebanese retail banking industry to further understand the impact of different service
dimensions on perceived service quality and customer satisfaction. Thus, to accurately
answer the later proposed research question, the scope of this research was
delimitated to perceived service quality and customer satisfaction in addition to
conducting this research in a defined field and in a specific country, which is the retail
banking industry in Lebanon.
The choice to study service quality and customer satisfaction is justified as follows.
Customer satisfaction is proven by many researchers as a main reason for company
success. Customer satisfaction has been clearly related to customer loyalty, profit,
increased market share, etc. (Fornell, 1992; Anderson & Sullivan, 1993; Jones &
Sasser, 1995; Rust, Zahorik, & Keiningham, 1995; Fornell, Mithas, Morgeson, &
Krishnan, 2006).
Moreover, service quality has become an area of interest to many researchers
although not many studies have inspected the dissimilarities in consumer perceptions
regarding the various service quality dimensions (Davis, Nhat Lu, Veale, 2009). In
addition to that, the nature of the relationship between customer satisfaction and
service quality is an area in great need of additional exploration (Cronin & Taylor,
1992), especially in Lebanon where it was never researched before. Additionally, it
would be interesting to test whether the already-established scales to measure
perceived service quality and customer satisfaction can be replicated in the Lebanese
context or require changes due to cultural differences.
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32
Finally, since the banking sector is one of the most active sectors in Lebanon (Ashi &
Ayache, 2002; Iskandar & Oueiss, 2002), it was chosen as the subject of the study.
Therefore, this study aims at better understanding the dimensions of service quality
that matter most to retail bank customers in Lebanon and that lead to their
satisfaction, in addition to exploring a new dimension which is bank reputation, a
moderating variable which is perceived payment equity, and gender-related
differences with respect to service quality perception.
As such, the research questions have been formulated:
What are the factors that are most important to explain customer perception of
service quality and satisfaction with the quality of Lebanese retail banking
services?
o What are the main dimensions of service quality in the Lebanese
retail banking sector?
o Is bank reputation positively related to service quality in the
Lebanese retail banking sector? Is it positively related to customer
satisfaction?
o Is service quality positively related to customer satisfaction in the
Lebanese retail banking sector?
o Do any gender-related differences exist in the perception of service
quality and customer satisfaction of Lebanese retail bank
customers?
o Does perceived payment equity moderate the relationship between
perceived service quality and customer satisfaction?
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33
Therefore, to answer these questions, first, the demographic characteristics of the
retail banking services customers need to be identified, and second, the criteria and
dimensions of service quality that make these people satisfied need to be labeled and
studied via a slightly modified SERVPERF tool adapted to the Lebanese context,
which lies at the core of this research. Moreover, a new dimension, bank reputation,
will be proposed as an addition to the model due to cultural reasons applicable in the
Lebanese context. Gender will be investigated as a possible differentiator of service
quality perceptions and customer satisfaction. Finally a specific moderating factor,
perceived payment equity, will be considered to determine if the relationship between
perceived service quality and customer satisfaction is affected by customers
perception of the fairness of fees charged.
Accordingly, as the main output of this research study, a new service quality
measurement tool is presented as an instrument that can be used by managers of
Lebanese banks to assess service quality and levels of customer satisfaction for
corrective or improvement purposes. Moreover, recommendations on how to satisfy
these customers depending on the most important dimension(s) will be presented for
banks, taking gender differences into consideration.
Studying the perception of service quality in retail banking services in Lebanon will
lead to understanding the nature of bank customers in Lebanon and finding out:
- Which dimensions of service quality matter most to bank customers in
Lebanon?
- What satisfies the bank customers in Lebanon?
- What should banks do to attract more customers in Lebanon in a tempting
market?
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- How to plan strategies to target different genders?
EXPECTED CONTRIBUTIONS OF THE RESEARCH
This research is expected to fill current gaps in the existing literature which are
identified due to realizing the following:
1- A shortage of studies that include or propose corporate reputation as a
dimension of service quality.
2- A lack of studies that propose perceived payment equity as a moderator of the
relationship between perceived service quality and customer satisfaction
3- The absence of similar studies in the Lebanese context, where none exist to
investigate service quality and customer satisfaction in the Lebanese retail
banking industry or any other Lebanese industry.
Accordingly, theoretical and managerial implications are expected and presented
hereafter.
Theoretical Implications
This research is expected to contribute to service quality and customer satisfaction
theories due to its application in a new culture, Lebanon, and a specific industry, retail
banking. Moreover, these contributions are anticipated due to incorporating new
variables into the model relating service quality to customer satisfaction: a new
dimension of service quality, bank reputation; a moderator, perceived payment equity;
and a differentiating variable, gender.
With the model proposed in this study, which is unique and not proposed before, new
findings are expected. After concluding the quantitative research conducted and data
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35
analysis completed, a new series of dimensions of service quality are expected to be
uncovered, in addition to a new set of questionnaire items to measure both these
dimensions and overall perceived service quality. Finding whether bank reputation
contributes to perceived service quality or not, would also add value to the service
literature and encourage related future investigations. Additionally, the presence or
absence of a moderating effect of perceived payment equity is expected to explain the
role of perceived fairness of price or fees charged by banks in affecting customers
satisfaction based on service quality. Finally, uncovering any differentiating effect of
gender on both perceived service quality and customer satisfaction would help
conclude whether gender should be incorporated into such models or not.
Managerial Implications
Since this study is limited to the Lebanese context and to the retail banking industry,
the findings are expected to provide valuable contributions to bank managers in
Lebanon in the form of solutions to improve service quality, and thus enhance the
satisfaction of their customers. Such contributions are important in light of the highly
competitive banking industry in Lebanon, and the need for differentiation as a form of
competitive advantage.
The primary expected outcome of this research is a new tool to measure bank service
quality and customer satisfaction, applicable to Lebanon, taking cultural differences
into consideration. This tool could be valuable for bank managers to uncover any
deficiencies in their production and delivery of service quality, thus helping them
satisfy their customers. Moreover, finding what matters most to customers in Lebanon
is crucial for bank managers especially if customers in Lebanon revealed behavioral
differences regarding perception of service quality and satisfaction. This will guide
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36
managers towards directing their efforts and allocating their budgets to improve in the
areas that are most important to customers, that is the identified service quality
dimensions, and shifting their attention away from areas that are unimportant to
customers. This will lead to an increased efficiency as opposed to inefficiencies in
managing bank services. Hence, specific recommendations would be proposed at the
end of this study on how to improve the identified dimensions of service quality and
advise bank managers whether to invest in reputation programs, tailor retail bank
products and services according to gender differences, or focus on customers
perception of perceived payment equity or not.
ORGANIZATION OF THE RESEARCH
Following the general introduction, this research is divided into seven chapters
organized in two parts, as explained hereafter.
PART 1: LITERATURE REVIEW
Literature review is comprised of five chapters. Chapter 1, entitled Services A
Focus on the Banking Sector presents a detailed description of services and their
nature, as opposed to tangible products, in addition to their characteristics and
different classifications. Moving from this general description, banking services are
then discussed, followed by a subsection about retail banking services in Lebanon, the
contextual setting of this study, for further specificity. The purpose of having this
chapter as part of this document, and the first, is to provide the proper background
about and framework of banking services to aid in the choice of other related
variables in the proposed model and the selection of the proper tools to measure
service quality. Chapter 2, entitled Customer Satisfaction, aims to define customer
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37
satisfaction, its antecedents, and consequences since customer satisfaction will be
presented as the ultimate dependent variable in this study. Types and approaches to
measuring customer satisfaction are presented and compared to justify the choice of
the proper scale to measure it for the purpose of this study. Chapter 3, entitled
Service Quality, presents the different definitions and models of service quality in a
comparative manner leading to the choice of the most appropriate model to be
adopted in this study. Moreover, the different dimensions of service quality are
discussed for the purpose of defining the dimensions that will be studied in this
research. Chapter 4, entitled Bank Reputation The Proposed Dimension of Service
Quality, defines bank reputation and presents its relationships with other constructs,
logically leading to portraying it as a new dimension of service quality in the
Lebanese banking industry. Finally, chapter 5, titled Other Factors Influencing
Service Quality and Customer Satisfaction presents and defines Gender, as a
differentiating variable, and perceived payment equity as a moderating variable to the
relationship between service quality and customer satisfaction.
PART 2: RESEARCH HYPOTHESES, METHODOLOGY, MEASURES, AND
RESULTS
The second part of the document comprises of two chapters discussing the research
hypotheses and the methods used to collect data and analyze results. Chapter 6,
entitled Research Hypotheses, presents the research model and the subsequent
hypotheses to be studied for the first time in the Lebanese banking sector. Chapter 7
entitled Methodology, Measures, and Results, defines the characteristics of the
descriptive and the empirical parts of the study. Furthermore, the methodology is
detailed leading to the final results of both the exploratory study and hypotheses
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38
testing, finally arriving to the conclusion of the research and the final tool to measure
service quality and customer satisfaction in the Lebanese banking industry.
Last but not least, the GENERAL CONCLUSION of the research is presented as an
appropriate closure for this study. Primarily, all the results attained are portrayed and
summarized. Moreover, theoretical and managerial contributions of this study are
presented in addition to the possible limitations. Accordingly, possible implications
for future research are raised as the finale of this study.
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39
PART 1: LITERATURE REVIEW
Introduction
This research study is mainly concerned with what makes bank customers in Lebanon
satisfied with the service provided. Thus, the major concepts studied are customer
satisfaction, perceived service quality, and service dimensions: tangibility, reliability,
responsiveness, assurance, and empathy. Moreover, as an added value to this topic,
two variables are studied: the first is bank reputation as a new dimension of service
quality and the second is perceived payment equity in terms of its moderating impact.
Finally, gender is closely considered as a possible differentiator of perceived service
quality and customer satisfaction.
This chapter presents the different findings existing in literature based on previous
research about this topic. Despite that a lot of research has been conducted on
customer satisfaction and service quality, yet no similar study has been undertaken in
Lebanon, nor considered bank reputation as a dimension of service quality, nor
studied the moderating effect of perceived payment equity. Therefore, this part is for
the purpose of providing a general overview of existing published research related to
customer satisfaction, perceived service quality, the five main dimensions of service
quality, bank reputation, and perceived payment equity.
The literature review is organized in five chapters (see figure 1).
Since the study will be conducted in a services context, then the first chapter is
designed to define services and present their characteristics and classifications to
differentiate them from physical and tangible products. Moreover, under this chapter,
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40
a section is dedicated to discussing the nature of banking service with a specific
description of the retail banking sector in Lebanon.
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41
Figure 1: Organization of PART 1 Literature Review
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42
Moreover, since the dependent variable, which is the main and ultimate object of the
research, is customer satisfaction, then the second chapter aims to explore the concept
of customer satisfaction which is a wide construct that has been researched
exhaustively. Thus, this chapter would present the different definitions of customer
satisfaction, its various types, and its antecedents and outcomes.
The third chapter is devoted to explore service quality and the different measures
available in the literature to evaluate service quality. Moreover, this chapter will
convey how the different dimensions of service quality explain perceived service
quality which will then be related to customer satisfaction. The main focus will be on
two models for measuring service quality: SERVQUAL and SERVPERF, where a
critical comparison between the two models will be presented to lead to the final and
justified choice of the most relevant model to be used in this specific study.
The fourth chapter presents prior findings and explanations of corporate reputation, or
bank reputation in the context of the study, as a new dimension of service quality that
explains customer satisfaction in the Lebanese retail banking sector. Arguments are
presented as to why bank reputation was selected as a new dimension.
Last but not least, the final and fifth chapter in the literature review section aims to
explore two other variables namely influencing service quality and customer
satisfaction. The first variable is gender, which is presented as a differentiating
variable in service quality perceptions and customer satisfaction. The other variable is
perceived payment equity, which is presented as a moderator of the perceived service
quality and customer satisfaction relationship. Although several existing variables can
play a moderating role, only one will be considered in this study: perceived payment
equity.
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43
CHAPTER 1: SERVICES - A FOCUS ON THE BANKING SECTOR
Services are economic activities offered by one party to another. []. In
exchange for money, time, and effort, service customers expect value from
access to goods, labor, professional skills, facilities, networks, and systems;
but they do not normally take ownership of the physical elements
involved(Lovelock & Wirtz, 2011: 37).
In general, service industries are practicing a progressively more significant role in
the United States economy (Cronin & Taylor, 1992), where more attention has been
directed to services and to how to deliver them across all its sectors (Schneider,
Holcombe, & White, 1997). According to Kotler (2003), 79 percent of all employees
work in the service sector which accounts for 76 percent of the US economys GDP;
moreover, according to the OECD (Organization for Economic Co-operation and
Development), the service sector employs more than 70 percent of the people in the
European community (Arasli et al., 2005b).
The significance of services have been realized several decades ago; for instance,
Bessom and Jackson (1975) declared that services have conquered a major part of
customers lives and have become a major contributor to their lifestyle. Many
researchers agree that this sector is continuously improving and increasing in size. But
this is not just limited to the United States since services by 1992 accounted for 58
percent of the total worldwide GNP (Cronin & Taylor, 1992). Global service exports
marked an 18.1% growth to reach 3.3 trillion USD in 2007 according to the United
Nations Conference on Trade and Development (2008) while according to de Prabit
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(2006) and World Trade Organization (2008) services exports in developed countries
contribute to more than 70% of GDP and in lower income countries between 45% and
55% of GDP (Davis et al., 2009). According to the latest statistics provided by The
WORLD FACTBOOK, services account for 63.2% of world GDP and for 79.4% of
Lebanons GDP (CIA World Factbook, 2011), which highlights the significant role
services play in the Lebanese economy. By 2014, it is expected that services will
make up 64 percent of gross world product (Armstrong & Kotler, 2011). Due to the
great importance of the services sector in a global context, it is becoming more vital
for marketers of services to unveil the best and most effective ways to market their
services internationally (Bang, Raymond, Taylor, & Moon, 2005; Davis et al., 2009).
The major requirement for success in offering best services is to understand the
essence of service, and thus services marketing is the area that should be
investigated for that purpose (Schneider et al., 1997). Before the year 1975, services
were not considered as part of the marketing field where marketing referred only to
the efforts exerted by a firm to promote packaged goods. Since then, a drastic change
occurred and the field of services marketing started to develop (Schneider et al.,
1997).
The banking industry in Lebanon is the context in which the study will be conducted.
Since the banking sector in Lebanon is one of the most powerful and solid service
sector among other sectors (ABL, 2010a), it is chosen to test the model and
hypotheses.
This chapter aims at exploring the concept of services, definitions, characteristics, and
classifications since such information is directly applicable on banking services. The
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chapter will be concluded by describing retail banking services and presenting
contextual information about retail banking in Lebanon.
1.1 CHARACTERISTICS OF SERVICES
Berry (1980) describes a service as a deed, act, or performance (Lovelock, 1983:
10). Moreover, Heizer and Render (1999) define services as: those economic
activities that typically produce an intangible product such as education,
entertainment, food and lodging, transportation, insurance, trade, government,
financial, real estate, medical repair and maintenance like occupations (Arasli et al.
2005b: 41). Shahin and Janatyan (2011: 100) define a service as an activity or series
of activities of more or less intangible nature.
It is generally accepted that services have four main characteristics that differentiate
them from goods: intangibility, inseparability, variability, and perishability
(Armstrong & Kotler, 2011). Understanding these characteristics is essential to this
study for methodological and service quality measurement purposes. The
characteristics of services along with the growing importance of this sector have
reinforced the need for higher quality of service as a major requirement to enhance
financial returns and attract new customers given the highly-competitive marketing
environment (Wang et al., 2003; Arasli et al., 2005b).
Service intangibility refers to the fact that services cannot be seen, tasted, felt,
heard, or smelled before they are bought (Armstrong & Kotler, 2011: 249). For this
reason, customers try to evaluate the quality of a service by looking at tangible
components such as the place, people, price, equipment, and communications
apparent (Armstrong & Kotler, 2011). It is worth noting that price is not included in
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the scales that measure service quality SERVQUAL and SERVPERF- which will be
discussed later in chapter 3, and this will be taken into consideration when designing
the model of the study.
Service inseparability refers to the fact that services cannot be separated from their
providers, whether the providers are people or machines (Armstrong & Kotler,
2011: 250). This means that the employee providing the service becomes part of the
service, although Lovelock and Wirtz (2011) provide examples of services whose
production and consumption are indeed separable like dry cleaning and weather
forecasting. Moreover, in most cases, the customer is also present at the time of
providing the service; therefore, the provider-customer interaction becomes important
in determining the outcome of the service (Armstrong & Kotler, 2011). A service
occurs when an interaction is established between customers and service providers
and/or the physical component of the service and/or the systems through which the
service is delivered (Shahin & Janatyan, 2011). Consequently, this provider-customer
interaction would be important to consider when evaluating the quality of the service.
Service variability refers to the fact that the quality of services depends on who
provides them as well as when, where, and how they are provided (Armstrong &
Kotler, 2011: 250). This means that the quality of a service provided is not just
determined by the company but by the service provider too; therefore, understanding
the role of service providers is crucial to understand perceptions of service quality.
Etzel, Walker, and Stanton (2007) name this characteristic heterogeneity declaring
that it is almost impossible for service organizations and individual service sellers to
standardize output. The reason is that the human factor in production and delivery
leads to a difference between each unit of the service offered.
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Service perishability refers to the fact that services cannot be stored for later sale
or use (Armstrong & Kotler, 2011: 250), although Lovelock and Wirtz (2011, 36)
argue that not all service performances are perishable like video recordings of
events and concerts! One problematic situation that accompanies this characteristic is
when demand exceeds supply (Armstrong & Kotler, 2011). This can be applied to the
banking sector when there is traffic at the counters and not enough service providers,
thus the service in that case cannot be stored for later use. In this case, banks should
think of better ways to match the service supply with the demand. For this reason,
understanding perishability of services is important in the context of this study.
In addition to services characteristics, several researchers have highlighted the two
service components: core service and relationship components. The core service is
the part of the service that we think of when we name the service (Iacobucci &
Ostrom, 1993: 258), such as the lunch served in a certain restaurant; while, the
relationship component of a service describes the interpersonal process by which the
service is delivered (ibid), such as the courteousness of the waitress, and is
considered to be vitally important during customer-service provider interactions.
Therefore, a service encounter constitutes an interactive exchange between a customer
and a service provider during which the customer experiences both components of the
service, the core and the relational (Solomon, Surprenant, Czepiel, & Gutman, 1985;
Crosby & Stephens, 1987; Surprenant & Solomon, 1987; Swartz & Brown, 1989;
Bitner, Boo