22

CHAPTER 2

REVIEW OF LITERATURE

This chapter contains a review of literature on housing, housing

finance, housing finance institutions, housing co-operatives,

member/customer loyalty and its antecedents in co-operatives. The chapter is

organised into two sections. Section I discusses different strands of literature

revolving around housing, housing finance, and primary housing co-

operatives. Section 2 explores the literature surrounding loyalty and its

antecedents.

2.1 Studies on Housing, Housing Finance and Primary Housing

Co-operatives

Lall et al. (2005) investigated residential mobility among slum

dwellers in Bhopal, India. Their analysis shows that one in five households

succeeds in getting out of a slum settlement, and a major determinant is the

household’s ability to save on a regular basis. Due to limited outreach of

institutional housing finance, most slum dwellers rely solely on household

savings for purchasing a house. These findings underscore the urgent need to

improve savings instruments for slum dwellers and to downmarket housing

finance to reach the poorest residents of rapidly growing cities in developing

countries.

United Nations (2005) in its study on housing finance systems for

countries in transition offered the evidence from the European Union. The

study reveals that the introduction of functioning housing finance markets

provides large external benefits to the national economy: a surge in

employment in the construction industry and related sectors, more efficient

property development, easier labour mobility, progress in capital market

23

development, more efficient resources allocation and lower macroeconomic

volatility.

Chan (2004) investigated how “villages-in-cities” function in a

metropolis in terms of their economic and organizational behaviours. The

study provides theoretical and actual solutions for the government and

housing related agencies to reconsider the “top-down” policy orientation in

curbing the growth of “lower-income migrants’ housing”. The study finds that

China’s existing practice of “villages-in-city” would be a preferred and

practical model for the development of low-cost migrants’ housing, in which

the construction of low-cost housing is on a self-help basis built by villagers

and rent by the migrants.

Suresh G.S. (2003) in his study made an attempt to evaluate the

performance of the primary housing societies in Kerala. The study revealed

that: (1) the operational performance of the housing societies in the state for

the last several years does not show any satisfactory improvement; (2) the

number of affiliated societies has remained constant for a very long time; (3)

the overdue and outstanding amount increased over the last several years; and

(4) the number of loss making societies has increased over the years.

Shamika Ravi (2003) examined the borrowing behavior of rural

households in India. The preliminary results of the study showed that that a

household in Uttar Pradesh is likely to approach the informal market 80% of

the time. Households are least likely to go to co-operatives. In Kerala, there is

a near reversal of U.P. story. Close to 80% of the time, households are likely

to approach institutional sources for credit and out of which more than half

the time, they will approach co-operatives for loans.

Raoul Minetti and Matteo Iacoviello (2003), in their study on credit

channel in the housing market analysed and tested the presence of a bank-

24

lending channel and more generally of a credit channel in four European

housing markets characterised by different institutional frameworks and

different levels of efficiency in the funding and mortgage systems. The results

suggest that, despite the process of integration, residual heterogeneity

characterises European housing markets and eventually, the transmission

mechanism of monetary policy. While robust evidence of a bank-lending

channel emerges for Finland and the UK, the study finds at most evidence of

a balance-sheet channel for Germany, and lack of evidence of a credit channel

for Norway.

Sinha et al. (2003), in their study on 5 Regional Rural Banks, sought to

assess how far the apparent tension between coverage (especially of poorer

clients) and financial viability was a real one. The study suggests that there is

no binding tension between the two. There has been some growth in average

size of account but RRB business remains geared to small clients. The

combination of product design and efficiency of operations explains why

some RRBs can override this tension, whilst for others it remains real.

Gopikuttan (2002) made an attempt to evaluate the suitability and

acceptability of public housing schemes for the poor people and the local

conditions and environment in the rural areas of Kerala. The study finds that

in the unique socio-economic and cultural conditions prevailing in Kerala, the

practice of partial financial assistance is insufficient to solve the housing

problem of the rural poor. Financial assistance provided under the public

housing schemes is inadequate. The study concludes that public housing

schemes for the rural poor constitute an unfruitful venture and wastage of

resources.

Di and Yang (2002) examined intergenerational wealth transfer and its

impact on housing. It synthesizes previous studies and findings through three

perspectives: the sociological concerns, economists’ concerns, and the

25

housing industry’s concerns. The study finds that intergenerational wealth

transfer contributes to the existing and growing inequality in wealth

distribution. The analysis proves that bequests and inter vivos transfers are the

dominant components of accumulated wealth, and the size of bequests alone

could potentially be as high as 40.5 percent of total wealth. Meanwhile, the

life-cycle savings only contribute about 34.5 percent (and no more than 45

percent) to the total wealth. The study also finds evidence that

intergenerational wealth transfer impacts housing and homeownership. The

analysis shows that all recipients of transferred wealth from parents have

achieved much higher homeownership rates, regardless of recipients’ age,

income, and race/ethnicity. However, whites are twice more likely to receive

wealth transfers than minorities, and low-income people are less likely to

receive wealth transfer.

Gireeshkumar G.S. (2001) in his study evaluated the financial

performance of the housing co-operative societies in Kerala. Specifically the

study analysed the managerial perspectives on the functional problems of the

housing co-operatives. Results of the study indicate that lack of

professionalism and competitiveness are the main problems faced by housing

co-operative societies in Kerala.

Vidyavathy K. (2001) in her study evaluated the role of urban housing

finance institutions in Karnataka. She examined the role of housing finance

companies in meeting the demand for housing finance and the perception of

borrowers about the home loans provided by the housing finance companies.

The study found that all home loan borrowers have more or less the same

perception about the housing finance company and the loans provided by

them. The study concluded that in this era of increasing competition housing

finance institutions which are now operating on a thin margin have to pay due

attention to the needs of the customers to expand their volume of business.

26

Koshy George (2000) has conducted a study on the sources of finance

for the construction of houses for the salaried class. The study explored

whether there is any outflow of fund on account of house building from the

state. Results showed that savings and home loans from housing finance

institutions are the two major sources of fund for the construction of houses

for the salaried class in Kerala.

Reiner Nordberg (2000) in his study examined the multiplier effect of

housing development through housing finance. The study found that in most

of the regions housing has the potential to become an engine of economic

growth because of its high yield on invested resources, a high multiplier effect

and a host of beneficial forward and backward linkages in the economy.

Suresh V. (2000) studied the nature and quantum of financial

assistance given by HUDCO to apex co-operative housing federation and

primary co-operative housing societies. The study revealed that financing

through Apex Co-operative Housing Federation is better than financing to

primary co-operative housing societies directly.

Khurana M.L. (2000) studied the need for strengthening Apex Co-

operative Housing Federation by analysing the sources of finance and

problems faced by apex and primary housing societies. The results indicate

that housing societies have poor capital base and they incur high managerial

expenses.

Tiwari (2000) analysed the demand for housing in Tokyo using a

discrete choice model. The results of the demand analysis indicate that

households choose ownership houses. As the income grows or the size of

household increases, there is a requirement for bigger houses. Most of the

rental houses in Tokyo are smaller in size. Since a large size rental house is

not easily available, households move to ownership houses. The income

27

elasticity of market share of ownership house is positive and ranges between

0.16 to 0.34. However, income elasticity for rental houses is negative ranging

between -0.17 to -0.57.

Srirangan (2000) analysed the situation of public land and property

development and the effects of cross-subsidisation for housing through public

land development and allocation. The study observed that the implications for

DDA policies need thorough examination with reference to the involvement

of the private sector in low income housing through cross-subsidisation from

commercial developments in core areas.

However, the study indicated that the role of the private sector with

local government laying down conditions attached to development

permissions and mixed use on one site or within one building would not only

increase the supply of formal housing but also eliminate illegal channels of

developments. Developments with office/workshop/retail/commercial/

residential in a single commercial complex provided by private developers

would be able to encourage employment and residential opportunities for low-

income groups.

Sanyal and Mukhija (2000) analysed the Dharavi scheme, Mumbai,

which aims at redeveloping the area by providing new infrastructure and

housing, and establishing housing co-operatives for the local dwellers. The

study reveals that institutional pluralism may be accompanied by conflict, but

that such conflict does not necessarily have to have a negative impact on the

institutions and the target group. Moreover, a possibility of institutional

conflict require its acknowledgement, clear-cut devises and unambiguous

rules about the division of labour when implementing habitat improvement

schemes, and the creation of a centralised institution that may mediate

disputes among the various parties involved in slum rehabilitation.

28

Baken and Smets (1999) in their study focused on the public and

informal housing finance for the urban poor in Andhra Pradesh, India. They

suggest that an incremental building process, instead of aiming at the

construction of complete dwelling units, is beneficial to the poor. Such

incremental building activities to extend the size or improve the quality of the

shelter, taking place over years and even decades, are dependent on the

individual household priorities, the means available and change according to

the family cycle, or changes in the life of migrants in the city. Therefore,

housing should be considered a process. Housing should not be judged

according to its physical appearance, but its users’ value has to be the main

point of evaluation.

Smets (1999) looked at the role of non-governmental organizations

(NGOs) and community-based organizations (CBOs) in the housing finance

market in India. He finds that the role of NGOs and CBOs in the Indian

housing finance market is very limited, but there are possibilities of expansion

within certain limits. He suggest that forming alliances among CBOs and

NGOs can strengthen their negotiation capacity and position with other

stakeholders in the housing finance market, where those having access to

large sums of finance tend to dominate the terms and conditions of habitat

improvement schemes.

Ghatate (1999) conducted a Need Assessment Study on the housing

finance needs of women in the informal sector in Ahmedabad City. The study

revealed that the amount of loan sanctioned to the women was inadequate and

they had to supplement it from external sources. The study also revealed that

the women resorted to borrowing from money lenders in order to complete

the house for which the loan was originally taken. The loans from money

lenders carry a range of interest of between 36- 48 percent per annum – much

higher than the market interest rate.

29

Tirupurasundari K. (1999) in her study focused on the formal and

informal sector housing finance. Results of the study indicate that the

untapped household saving has to be tapped through the expansion of

informal sector. The formal and informal sector institutions need to work in

partnership to respond to the varying shelter needs of the population

especially the low income categories.

Krishna R.R. and Ganesh Murthy V.S. (1999) in their study examined

the trends and policy issues of housing finance in India. They evaluated the

role of banks and housing finance companies in the housing development of

the country. It is observed that there is immense scope for housing promotion

in India through the banking sector. The study suggested that the removal of

Urban Land Ceiling Regulation Act and granting of infrastructural status to

housing will improve the growth of housing in India.

Nelson, Hall and Walsh-Bowers (1998) attempted to achieve some

insight beyond the associational link between mental health and housing. In

their findings, there was evidence that having a better standard of housing

appeared to reduce the adverse effects of poor housing on mental illness,

while a good social environment increased the positive effect that housing

circumstances had on mental health problems. The authors used regression

analysis to test hypotheses to explore which housing characteristics could

predict which adaptations. They found that the physical aspects of the house

and the characteristics of the social environment produced different outcomes

for consumers: good physical housing reduced mental health problems, while

good social environment increased mental well-being.

Stuti Lal (1997) conducted a study on housing indicators and co-

operative housing by examining the contribution of housing co-operative

societies in terms of quality and quantity to the housing stock of the country.

The study showed that even when the contribution of co-operative housing

30

sector to the total housing stock is negligible, they supply quantitatively

superior housing stock.

Mehara N.S. (1997) in his study examined the housing finance system

of co-operative banks and housing co-operative societies. The study suggested

that the fund available with the urban co-operative banks for housing finance

should be routed exclusively through the institutional set up of housing co-

operative societies.

Joshi A.S. (1997) conducted a study on the working of the housing

societies with special reference to Kolhapur district in Maharashtra. The study

suggested that management and employee training needs a thorough change

to cope with the present day competition. The study also suggested that the

support from the government and funding agencies is to be increased and the

housing activities of the government are to be channelised through housing

co-operatives.

Renaud (1996) looked in detail at the development of housing finance

institutions and services in Transition Economies. Housing finance policy

development has been somewhat haphazard in many countries. But the

evidence suggests that the transition economies that have achieved low

inflation, have adopted radical banking reforms and seriously reformed and

liberalized their real estate sector should be among the first to develop a

modern system of housing finance.

Mahadeva M. (1995) in his study examined the functioning of housing

co-operatives in the state of Karnataka. The study found that the co-operative

movement in Karnataka has been hampered by a variety of weak and unviable

nature of societies, excessive membership, financial constraints, non-

availability of land and wrong government policy towards co-operative

housing.

31

National Co-operative Housing Federation (1995) has conducted a

study on the financial aspects of housing co-operatives in Kerala. The study

concluded that the share linking with loan amount and registration process

increases the loan expenses of the beneficiaries when compared to other

housing finance agencies like LIC, HUDCO and commercial banks.

Sreekumar B. (1995) in his study assessed the problems and prospects

of housing in India. Specifically the study examined the performance of state

housing federations. The study revealed that the three housing federations in

India i.e., Tamil Nadu, Maharashtra and Gujarat consructed 76 per cent of the

total number of houses constructed by housing societies. Of this the share of

Tamil Nadu is 46 per cent. But 58 per cent of the total housing co-operative

societies in India are in two states i.e., Maharashtra and Gujarat.

Shivarajan M. (1994) studied the effect of rapid urban growth on

housing in Chennai. The study examined the housing requirement of Chennai

metropolitan city at the current rate of population growth. The findings

revealed that 30 to 40 thousand dwelling units would be required per annum

to meet the housing demand of Chennai metropolitan city. The findings also

indicate that the factors affecting the housing market include unprecedented

population growth, rate of change in household income and paying ability,

replacement of stocks, inadequate land supply, spurt in land prices and

construction cost etc.

Khurana M.L. (1992) examined the condition of housing societies in

various states and the role of national government. The study suggested that

the government has to channelise its investments in housing sector through

housing co-operatives. The study also suggested that an apex body at the

national level must be established to co-ordinate the housing activities and the

housing resources of the various housing agencies functioning in the country.

32

Kaul Sanat (1991) made an attempt to develop a model for housing

finance to low income households by analysing the housing condition and

affordability criteria of the low income households. The study developed a

housing finance model for low income households. The model has been

developed after taking into account the existing macro economic situation, the

income and asset profile of the poor.

Kadarsha Murthy D. (1990) conducted a study on the role of

institutional agencies in housing finance. The study explored the ways for

extracting household savings for the housing finance institutions to solve the

housing problem. The study suggested that the housing is to be given the

status of an industry in order to tap the potential savings of the households.

Sharma K.S.R.N. (1989) in his study examined the different

alternatives for improving the financial position of the housing finance

institutions. Results of the study showed that diversification of activities by

the housing finance companies by taking up short term profitable transactions

and private initiatives in housing sector will improve the financial health of

housing finance institutions.

Sarala Gopalan (1989) in her study evaluated the recovery aspect and

affordability aspect of the housing finance. The study suggested that the

decentralisation of collection points, linkaging remittances to cooperative

banks, seasonal collection for seasonal occupation like fishing, agriculture etc.

would solve the recovery problem. The study also suggested that the

integration of housing schemes with other income generating programmes

would solve the affordability aspect of housing finance.

Chaudhuri (1989) in his study examined the role of housing finance

institutions in mobilising the savings. It is observed that in addition to

widening the role of HUDCO and HDFC there is also a need for setting up

33

housing finance institutions in private, public and joint sectors so as to

mobilise savings and boost the housing activities.

Buckley (1989) examined the impact of transaction cost on housing

finance in developing countries. The findings reveal that in countries where

the basic urban and financial infrastructure already exists and in which there

is an attempt to accelerate the development of the financial systems- that is, in

most developing countries - housing finance reforms can play an important

role in reducing transaction costs. The study also suggests that mutual

organizations can be expected to be very effective, offering their members a

way to share and thereby reduce the administrative costs of intermediation.

Even more importantly, they can help develop credible contracts requiring

that loans be repaid as long as the borrower is able to do so.

Gopikuttan G. (1988) studied causes and consequences of housing

boom in Kerala. Specifically the study examined the causes, dimensions and

consequences of the abrupt upturn of the long-term trend of house

construction activities in Kerala which began in the mid 1970’s. According to

the findings of the study the growth and spread of education, the emergence

of socio-political movements, the increase in spatial mobility and the

development of foreign trade links have a profound impact on the housing

pattern. An increase in the yield and the price of plantation crops raised the

demand for housing improvement and new construction. The liberal attitude

of the housing finance agencies also influenced the housing boom in Kerala.

Nasser Munjee (1988) in his study attempted to find out a mechanism

that would link formal and informal housing finance institutions in India. The

study revealed that micro level institutions and specialised housing finance

institutions are required in the housing sector.

34

Boleat Mark (1987) in his study assessed the role of formal and

informal sector in the housing finance system. He noted that a typical first

time buyer in a developed country meets 10 per cent of the purchase price of a

house from his savings and obtains 80 per cent loans from banks and the

remaining 10 per cent in the form of gift from parents and short term bank

loans. In a developing country it is 50 per cent savings, 10 per cent loan from

bank while 10 per cent is realised by the sale of assets, 10 per cent borrowed

from relatives, 10 per cent trade credit and 10 per cent borrowed from an

unregulated financial institutions.

Cherunilam Francis and Odeyar D. Heggade (1987) in their study

examined the global housing problem with particular reference to India. Their

findings showed that the very low level of income of the vast majority of the

population and the spurt in population have been aggravating the housing

problem in India.

Parvathiamma C. and Sathyanarayana (1987) in their study evaluated

the effects of the governmental measures on the rural homeless population in

Karnataka. Results of the study showed that the people’s (Janata) housing

scheme implemented in 1970 was very effective in solving the housing

problem of the rural homeless population in the State of Karnataka.

Bentrand Renard (1983) in his study examined the housing situation

and the different sources of finance for the construction of houses. The study

concluded that the three particularly conflicting objectives such as

affordability for households, viability for households and the resource

mobilisation for the expansion of the housing sector and the national economy

have to be reconciled in order to arrive at a possible solution to the problem of

housing.

35

Varghese K.V. (1980) studied economic and social aspects of housing

problem in India. The study made an attempt to identify the major factors,

which accelerate housing need, impinge housing demand and inhibit housing

supply. The study suggested that the plan allotment for housing by the

government has to be increased. A Central housing finance corporation

exclusively for providing housing finance at the central level and subsidiaries

at the state level is to be established to co-ordinate the housing finance

activities in the country.

Reserve Bank of India (1977) conducted a study on the role of the

banking system in financing housing in India. The study evaluated the

working of various housing finance institutions including LIC, GIC, HUDCO

and Housing Co-operative Societies. Results of the study showed that except

HUDCO and Housing Co-operative Societies, none of them specialised in

providing finance for the purpose of construction and purchase of houses.

Mahajan M.P. (1972) in his study focused on the methodology of the

two tier system of co-operative housing finance in Maharashtra. The study

examined the mobilisation and distribution of funds available with a housing

society. Results of the study indicate that the suitable amendments in the co-

operative societies Act of different states will improve its functioning better

than at present.

Ghanekar V.V. (1970) made an attempt to study the different stages of

the development of the co-operative housing societies in India with particular

reference to the State of Maharashtra. The study evaluated the working of

twenty one housing co-operative societies in the state, the problems faced by

them in terms of membership, promotion and registration, finance, accounts

and audit, management, dispute settlement etc. The findings reveal that the

management, accounts maintenance and dispute settlement are unsatisfactory

36

and unscientific in the societies. It was observed that the non-availability of

funds from the apex body is the main problem faced by the housing societies.

Jaswant Jas Singh (1968) studied the co-operative housing in the frame

work of a planned economy in India with special reference to Delhi. The

study examined the relevance of co-operative housing societies in a planned

economy like India. Results of the study showed that the insufficient housing

is one of the major problems faced by the Indian economy and co-operative

housing societies can solve this problem in a big way.

Madhukar Kesav Shete (1968) in his study examined the suitability of

housing co-operatives in solving the housing problems of weaker sections.

The findings revealed that co-operative housing is the ideal housing scheme

for the economically weaker sections and the low income groups in India.

Unlike other housing agencies, the co-operative housing protects the

beneficiaries from all kinds of exploitations.

2.2 Studies On Service Quality, Satisfaction, Loyalty and Switching Costs

Ashwini K. Awasthi and Balram Dogra (2006) have made an empirical

assessment of service quality, particularly the relative importance of

functional service quality dimensions and outcome service quality dimension

in the Indian banking sector. The results suggest that service quality

dimensions have internal consistency; however outcome quality could not

establish convergent validity and discriminant validity conclusively. The

results buttress the multidimensional structure of service quality. Though

some service quality dimensions are found to be similar to the ones posited in

five dimensional model, the model as such is not supported in banking

services. Outcome quality does not help explain more variance in overall

service quality. As expected, the functional quality dimensions of

responsiveness, assurance, empathy and tangibles do not have much

37

significance for customers. Results however do not support the proposition

that outcome quality dimension would emerge to be the important dimension.

Reliability is found to be the vital dimension in customers’ perception of

service quality.

Al-Tamimi and Jabnoun (2006) compared service quality and bank

performance between national and foreign commercial banks in the UAE. The

instrument used to measure service quality is the one developed by Jabnoun

and Al-Tamimi (2003). Bank performance is measured using ROA and ROE.

It was observed that there was no indication of overall superiority between the

national and foreign banks in both overall service quality and bank

performance. However, these observations give some indications of the

existence of a relationship between service quality and bank performance.

Kim,Y. J., M.T.-I.Eom, and J.H.Ahn, (2005) investigated three ways of

measuring service quality (i.e., confirmation/disconfirmation, perception-

only, and overall assessment) and shed light on the relationship between

service quality and user satisfaction.

Blose, J. E., and Tankersley, W. B. (2005) propose a new managerial

tool for evaluating and managing service quality levels. This new approach

treats service quality as an intermediate variable, not the ultimate managerial

goal of interest, and makes use of data envelopment analysis (DEA), a

nonparametric technique that allows for the relative comparison of a number

of comparable organizational decision-making units (DMUs).

The evidence suggests the DEA technique provides a unique and much

needed perspective that would help a manager to obtain optimal levels of

service quality dimensions that are directly linked to critical performance

outcomes for the organization.

38

Furthermore, this study proposes a reconfiguration of the dominant

paradigm with respect to the management of service quality; specifically, the

recognition that service quality is not to be maximized but optimized. There is

an optimal level of service quality each firm should try to attain. Beyond this,

marginally diminishing (and perhaps even negative) returns are encountered.

While marginally diminishing returns have been recognized in the literature,

this aspect of service quality has largely been ignored in terms of managerial

tools.

Gelade, G., & Young, S. (2005) examined the relationships between

organizational climate, employee attitudes, customer satisfaction, and sales

performance in the retail-banking sector. Specifically the study explored the

adequacy of the service profit chain model of business performance in

accounting for the sales performance of branches in the retail banking sector.

The results provide only limited support for the service profit chain theory. In

accordance with the predictions of the theory, this study finds that in the

overall sample, customer satisfaction mediates the relationship between

employee attitudes and sales performance. However, the effect size was small,

and when the banks were considered individually, the effect was non-

significant. This implies that the service profit chain is of limited practical

value in explaining the association between favourable employee experiences

and enhanced business unit sales. The fact that the service profit chain paths

in the structural model were invariant across banks reinforces this conclusion.

David H. Folz (2004) investigated how local officials can select

benchmarking partners whose best practices have the most potential for

applicability and success in improving service performance. This study

suggests the process for selecting the most appropriate benchmarking partners

and for making fair performance comparisons will be advanced if local

officials initially address the issue of what level of input service quality level

39

is desired or can be provided. Using data collected from a national survey, the

study presents a framework for measuring service quality for municipal solid

waste recycling programs. It examines the connection between input service

quality and service outcomes and describes the results of analyses of the

contextual factors and best practices that distinguish the top recycling

performers and potential benchmarking partners in each service-quality class.

The study suggests a model for how local officials can use this type of

information to select an appropriate benchmarking partner. The study shows

that a quality-of-service framework for municipal services can advance local

decision making about what citizens and stakeholders expect and will support

in terms of input service quality. It also can help local officials identify

benchmarking partners that provide a service at the desired level of quality.

Sathya Swaroop Debasish (2004) makes an attempt at identifying the

key factors responsible for customer preference for Life insurance products in

India. Using the technique of Factor Analysis, the study identifies five major

factors: Risk-Return Factor, Promotional Factor, Service Quality Factor,

Consumer Expectation Factor and Core Product Factor in the order of

preference.

The factors identified in the study provide key information inputs

regarding investor’s preference and priorities that will guide future Life

Insurance Product Managers.

Bansal et al. (2004) studied the effect of consumer commitment on

consumers’ intentions to switch. Drawing from the organizational behavior

literature, they build on previous service switching research by developing a

switching model that includes a three-component conceptualization of

customer commitment. Structural equation modeling is used to test the model

based on data from a survey of 356 auto repair service customers. The results

support the notion that customer commitment affects intentions to switch

40

service providers and that the psychological states underlying that

commitment may differ.

L.C. Harris and M.M.H. Goode (2004) developed and extended

existing conceptualizations of service dynamics through incorporating the

construct of trust and evaluating its role and importance in driving loyalty

after accounting for the well-established antecedent links with service quality,

perceived value, and satisfaction. They also proposed, operationalised, and

tested a four-dimension scale of loyalty that reflects Oliver’s (1997)

conceptualization of a sequential loyalty chain. The results provide evidence

that supports a view and a framework of service dynamics that positions trust

as the central driver of loyalty, concurrent with the direct and indirect forces

of perceived value, satisfaction, and service quality. The empirical results

confirm associations and largely support the conceptualized model. The

results highlight the importance of each of these constructs, demonstrating

that not only is each fundamental to understanding service but also that each

must be considered simultaneously for a clearer understanding to emerge.

Apoorva Palkar (2004) examined the relationships among the service

quality, customer satisfaction, and payment equity for the service provided by

cellular service providers. The findings revealed the influence of quality

attributes on customer satisfaction and payment equity, and identified five key

quality elements that determine customer satisfaction. The study also revealed

that overall perceived quality is the important preceding variable that has a

positive correlation with customer satisfaction and payment equity.

Lee (2004) explored and identified key dimensions of foundation

service quality, using Community Chest of Korea’s (CCK) as a test case. The

study also examined the effects of these key dimensions on grantee overall

satisfaction and grantee perception of CCK’s impact on the recipient

organization, the field, and the community. The results revealed that higher

41

level of service quality is associated with higher level of overall satisfaction

and perception of impact. The results also showed that higher level of overall

satisfaction is strongly positively correlated to higher level of perception of

impact.

Yonggui Wang, Hing-P. Lo and Yer V. Hui (2003) in their study

focused attention on the distinction between, and respective antecedents of,

service quality and product quality in the Chinese context. In particular, this

research aims to extend the study of quality and the key influences concerned

into the setting of a new country, and use a survey of bank customers to

investigate the respective antecedents of service quality and product quality

and their different roles in building a positive bank reputation. The study finds

that both service quality and product quality have a significant influence on

bank reputation. The results also distinguish specific antecedents of service

and product quality, even though it is sometimes difficult, in practice, to draw

a clear line between products and services in the banking industry. It is

therefore important for any retail to take effective measures to improve both

service quality and product quality if they are to build and enhance their

reputations and thus attract a larger share of profitable customers and

maintain a sustainable competitive advantage in the long run.

Yonggui Wang and Hing-Po Lo (2003) have proposed that today’s

turbulent environment requires firms to give highest priority to customer-

focused performance, with the actual customer perspective as the focus, so

that interests of other stakeholders can also be met. The study seeks to

identify and recognize the closely intertwined competence building and

leveraging process, which consists of organizational learning, strategic

flexibility and core competences, which determines customer-focused

performance and further sustainable competitive advantages in turbulent

environments, and also assists in realizing superior performance. In this

42

framework, organizational learning, strategic flexibility and core competences

are identified as central to achieving superior customer-focused performance

and sustainable competitive advantages because these three form the basis for

the development of new products or services, with superior attributes

performance going beyond threshold level and reflecting what targeted

customers value.

Luarn & Lin (2003) investigated the direct effects of customer

satisfaction, trust, perceived value, and commitment on loyalty, and examined

the indirect effects of customer satisfaction, trust, and perceived value on

loyalty with the indirect path occurring through commitment. The results

suggest that trust, customer satisfaction, perceived value, and attitudinal

commitment are separate constructs that combine to determine the purchase

loyalty, with attitudinal commitment exerting a stronger influence than trust,

customer satisfaction, and perceived value. While customer satisfaction and

perceived value were each directly related to loyalty, they were also indirectly

related to loyalty through commitment. This finding suggests that

commitment plays a crucial intervening role in the relationship of customer

satisfaction and perceived value to loyalty.

Paolo Guenzi and Ottavia Pelloni (2003 explored the impact of

interpersonal relationships (both with a firm employee and with another

customer) on the customer-to-firm relationship. Starting from reviewing

different streams of research they developed and empirically tested an original

multi-level, multi-subject and dynamic framework. The findings of the study

show that customer-to-employee and customer-to-customer relationships

contribute differently to the development of the customer-to firm relationship.

The results confirm that strong customer-to-employee relationships can

contribute both positively and negatively to the customer-to-firm relationship.

In fact the existence of a friendship relation contributes to the firm’s success

43

by fostering customer satisfaction and each of the loyalty components but, on

the other hand, it also increases the customer willingness to follow a specific

service employee in case he leaves the company.

Johnson, M. D., and Nilsson, L (2003) examined the disagreement as

to the effect of reliability, or things gone wrong, as opposed to customization,

or things gone right, on customer satisfaction with goods and services. The

study and results show that customization (the provision of “things gone

right”) and reliability (the reduction of “things gone wrong”) play different

roles in driving customer satisfaction along the goods-to-services continuum.

Reliability becomes relatively more important when compared to

customization when moving from pure goods to pure services. The findings

are consistent with the argument that co-production makes reliability

inherently more important for services (Grönroos 1990; Zeithaml,

Parasuraman, and Berry 1996).

Devereux, Paul J. and Weisbrod, Burton A. (2003) examined the

markets for four types of local public services, where complaints and

geographic exit are potential responses to dissatisfaction. The results of the

study showed that reported satisfaction or dissatisfaction with local public

services— specifically, police, parks, garbage, and streets—is useful

information for predicting two types of behaviour: One is complaints

(“voice”) to government agencies. We find that complaints about local public

services are predictable responses to stated dissatisfaction with service

quality. The study also finds that very few satisfied people complain,

suggesting that individuals do not derive pleasure from the act of complaining

itself; complaining is not a consumption good.

Tung (2003) examined how service quality of the service providers and

perceived value affect customer satisfaction and how customer satisfaction

will affect their behavioural intention to continue to use SMS which in turn

44

affects the extent of SMS usage in the local context. The results showed that

the tangibles, empathy and assurance dimensions of service quality are

antecedents of customer satisfaction and a positive relationship exists between

customer satisfaction and customers' behavioural intentions to continue to use

SMS. Specially, the results revealed that perceived value, together with

tangibles, empathy and assurance aspects of the service quality, played an

important role in determining customer satisfaction for SMS.

Pushpangathan. G. (2003) in his study evaluated the quality of

customer service rendered by the Public Sector banks vis-à-vis private sector

banks and foreign banks in Kerala. Three findings of the eight major findings

of the study are: (1) Public sector banks fail to fulfill the expectations of

customers in facilities and amenities, (2) Dissatisfaction of customers with the

behaviour of bank staff in their dealings with customers in Public Sector

banks and Private Sector banks, and (3) Foreign banks and Private Sector

banks are providing better personalized services than Public Sector banks.

Carme Saurina and Germà Coenders (2002), report the results of a

modified SERVQUAL questionnaire (Parasuraman et al., 1991). The

modifications consisted in substituting questionnaire items particularly suited

to a specific service (banking) and context (county of Girona, Spain) for the

original rather general and abstract items. These modifications led to more

interpretable factors which accounted for a higher percentage of item

variance. The data were submitted to various structural equation models

which made it possible to conclude that the questionnaire contains items with

a high measurement quality with respect to five identified dimensions of

service quality which differ from those specified by Parasuraman et al. and

are specific to the banking service. The two dimensions relating to the

behaviour of employees have the greatest predictive power on overall quality

and satisfaction ratings, which enables managers to use a low-cost reduced

45

version of the questionnaire to monitor quality on a regular basis. The

empirical results also suggest that satisfaction and quality are the same

construct in the context of banking services in the county of Girona.

Customers seem not to perceive the minor differences between the conceptual

definitions of both concepts as given by marketing theoreticians. In this

respect, the discussion regarding whether satisfaction precedes quality or the

other way around seems to be meaningless.

Christina O’Loughlinand Germà Coenders (2002), in their study, both

structural equation models (SEM) and partial least squares (PLS) approaches

were compared by evaluating perceptions of the Isle of Man Post Office

Products and Customer service using a customer satisfaction indices (CSI)

format. Since the instigation of the national customer satisfaction indices

(CSI), partial least squares (PLS) has been used to estimate the CSI models in

preference to structural equation models (SEM) because they do not rely on

strict assumptions about the data. However, this choice was based upon some

misconceptions about the use of SEM’s and does not take into consideration

more recent advances in SEM, including estimation methods that are robust to

non-normality and missing data. The results of the study showed that new

robust SEM procedures have some advantages over the competing PLS

methodology. The most important advantage is that SEM estimates are free of

bias, which has serious implications when validating a questionnaire and

when estimating relationships among factors. Product quality was found to be

the only driver of customer satisfaction, while image and satisfaction were the

only predictors of loyalty, thus arguing for the specificity of postal services.

George S. Day and Christophe Van den Bulte (2002) examined why

some businesses are superior to their rivals in managing their relationships

with customers. In a study of 299 businesses, they find that the customer

relating capability is an important source of relational advantages when it is

46

combined with a strategy that makes nurturing these relationships a defining

theme. This capability has three interrelated components that make different

contributions. The configuration component which incorporates the

organizational structure, incentives and accountabilities, is overall the most

important element of the customer relating capability. The orientation

component, comprising the mindset, values, and organizational priorities

toward customer relationships, sets the leaders apart from the rest. The

information component, including databases and customer information

systems, contributes little to the overall capability once a minimum level of

competency has been attained. The study also finds that a superior customer

relating capability has a strong relationship with relative sales, profitability

and customer retention performance.

Stefanie De Man, Paul Gemmel, Peter Vlerick, Peter Van Rijk and

Rudi Dierckx (2002) examine the importance of different service quality

dimensions by studying their relationship to patient satisfaction. Results

indicate that patients’ perception of service quality is correlated with patient

satisfaction, especially in terms of reliability and tangibles-assurance. Based

on these service quality dimensions, the study suggests that nuclear medicine

services have to optimise their physical and process component and the

technical skills of personnel.

Srinivasan et al. (2002) investigated the antecedents and consequences

of customer loyalty in an online business-to-consumer (B2C) context. They

identify eight factors (the 8Cs—customization, contact interactivity, care,

community, convenience, cultivation, choice, and character) that potentially

impact e-loyalty and develop scales to measure these factors. Of the 8Cs

considered, customization, contact interactivity, cultivation, care, community,

choice, convenience, and character, all but convenience, were found to have a

significant impact on e-loyalty. Equally important, e-loyalty was found to

47

have a positive impact on positive word-of-mouth and willingness to pay

more. The findings have both managerial and research implications. From a

managerial perspective, e-retailers can establish early warning systems based

on continuously measuring customer perceptions for the 8Cs, so that

management can take appropriate remedial action when any of these

dimensions is perceived as falling below an acceptable level. Moreover, e-

retailers can use the scale items developed in this research to benchmark their

e-retailing activities vis-à-vis competitors to identify their comparative

strengths and weakness from the stand point of customers.

Verhoef (2002) examined the effect of relationship perceptions

and relationship marketing instruments on customer share development.

He also studied the interaction effect of these instruments with behavioral

loyalty and relationship perceptions. The results show that commitment

positively affects changes in customer share, while loyalty program

membership and direct mailings also have a positive effect. It also finds that

satisfaction has a smaller effect among members of the loyalty program, while

the results also reveal some preliminary evidence to support the notion that

loyalty programs are less effective among behavioral loyal customers.

Liljander and Roos (2002) conducted a qualitative study of customer

relationships in a car dealership, where profitability depends on customer

commitment to both after-sales services and the car brand. The study revealed

that behavioural commitment to after-sales services was high, but that

affective commitment was low to moderate. Customers were satisfied but did

not perceive the services to be superior to the competitors’ service offerings.

They trusted authorised repair in general and did not feel that after-sales

service would have more than a minor influence on their future car purchases.

M.K. Brady et al. (2002) examined the ability of the performance-only

measurement approach to capture the variance in consumers’ overall

48

perceptions of service quality across three studies. For the first study, the

original Cronin and Taylor (1992) data were obtained and a replication of

their study was undertaken using a recursive form of their non-recursive

model in an effort to avoid the abnormal parameter estimates they reported.

The replication successfully duplicated their finding as to the superiority of

the performance-only measurement of service quality. The second and third

studies included new data in which different measures of the constructs

examined in Cronin and Taylor were employed in order to enhance the

validity of the findings. The results from these two studies lent strong support

again for the superiority of the performance-only approach to the

measurement of service quality. In addition, both the replication and the two

new studies were used to extend Cronin and Taylor’s investigation of the

service quality–consumer satisfaction relationship. The results of all three

studies indicate that service quality is properly modeled as an antecedent of

satisfaction. The results highlight the obvious importance of both service

quality and consumer satisfaction in the management of service organizations.

While this is hardly a new finding, the replication and extension presented

add to the growing support for the conceptualization of service quality as an

antecedent of consumer satisfaction and for consumer satisfaction as the super

ordinate construct based on its ability to explain a greater portion of the

variance in consumers’ purchase intentions.

Murray, D., and Howat, G., (2002) investigated the role that value

plays in mediating relationships between service quality, satisfaction and

future intentions of customers. The results support the basic premise that

perceptions of service quality influence satisfaction, which in turn affect

customers’ future intentions. The results also provide support for the position

that perceptions of value do play a mediating role in the formation of

satisfaction judgments of customers, rather than satisfaction leading to

perceptions of value. These findings support McDougall and Levesque

49

(2000), who proposed that any model considering the nature of service quality

and satisfaction of customers must also consider the mediating role that value

plays in the satisfaction judgments of customers.

Greenwell et al. (2002) investigated how customers’ perceptions of the

physical facility, within the context of the service experience, influenced

customer satisfaction.

The results of their study show that facility elements together predicted

customer satisfaction, but that the attributes of the facility had little impact

individually. The results also indicate that both perceptions of service

personnel and of the physical facility contributed to customer satisfaction over

and above the impact of customers’ perceptions of the core product.

Severt (2002) conducted an empirical research to investigate across

service outcomes the effects of: 1) interactional, distributive, and procedural

justice on overall justice and customer satisfaction and 2) overall justice on

customer satisfaction. The theoretical model of the customer’s path to loyalty

adapts previous models of the service profit chain, customer satisfaction with

service failure and recovery, and complaint handling relationships. The study

revealed that customers with positive prior experience with the particular

service provider were more likely to have positive evaluations of

interactional, distributive, and procedural justice with the current experience,

and customers with negative prior experience were more likely to have

negative evaluations of interactional, distributive, and procedural justice. Path

analysis results showed interactional, distributive, and procedural justice all

had direct effects and a significant positive relationship to overall justice and

customer satisfaction and overall justice had a direct and significant positive

relationship to customer satisfaction.

50

Martin S. Meyers and Gary E. Mullins, (2001) examined level of

customer satisfaction in banks and credit unions in Perth, Australia.

Consumers were asked to indicate their perceptions of the financial

institutions where they have accounts. The eleven variables were borrowing

rates, certificate of deposit rates, variety of services offered, fees, location,

employee knowledge, employee courtesy, hours of operation, ease of doing

business, parking, and overall impression. The credit unions received a more

favourable evaluation in all of the eleven variables. The difference in

perception was highly significant for all of the variables except for location.

Kal Kristensen, Hans Jern Juhl and Peder Ostergaard (2001),

conducted a comparative analysis of customer satisfaction by applying the

newly developed methodology behind the Pan-European customer

satisfaction measurement instrument ECSI to the food retailing sector in

selected European countries. The results of their study show that customer

satisfaction varies between 69 for France and 74 for Finland, while the lowest

score for loyalty is 63 for France with Finland on top once again with a score

of 79. It seems that the relationship between loyalty and satisfaction is slightly

non-linear which indicate that the law of diminishing returns applies. On

average the most important drivers of customer satisfaction and customer

loyalty is product quality. Correlations between product quality, customer

satisfaction on customer loyalty calculated across countries are significant at a

5% level of significance in these cases.

Devlin, J F, Gwynne, AL, and Ennew, C T (2001), in their study

present hypotheses which are derived from existing literature, concerning the

possible impact of a change in the “disposition of the customer” i.e. whether

cumulative experience has left the customer favourably or negatively

disposed towards the service, on the desired and adequate expectations and

consequently the zone of tolerance. The study offers a particularly valuable

51

insight as it is framed in a longitudinal dimension. Findings suggest that those

who become more favourably disposed towards a service over time are likely

to have significantly higher adequate expectations and a smaller zone of

tolerance. Moreover the study suggests that the change in the disposition of

the customer is also significantly related to the change in adequate

expectation standards over time.

Riccardo Peccei and Patrice Rosenthal (2001), studies a major

customer care initiative in one of the largest supermarket companies in the

UK, with a view to contributing to the wider debate in the literature about the

impact of HRM on employee work behaviour and performance in a service

context. Two main findings emerged from the study. The first is the positive

association between all three dimensions of psychological empowerment and

customer orientation. Autonomy, internalization of service values and a sense

of competence were all related to customer orientation, with internalization

emerging as the strongest driver of Customer-oriented Behaviour. The second

is that all the perceived management behaviours and HR practices examined

were linked to Customer-oriented Behaviour, but only indirectly, through

their impact on empowerment.

Joohyun Lee (2001) developed a service quality model in the context

of interpretive services in parks, and evaluated the factors that impact a

visitor’s expectation and perception of these services. The results of the study

indicated that perceived quality in the reliability dimension points to the need

for improvement in interpretive services. In addition, gender and income level

affected visitors’ perceptions and expectations. The study suggests that

perceived quality could be improved through the identification of suitable

dimensions and a continuing process of evaluation and modification.

M.D.Johnson et al. (2001) proposed and tested a number of

modifications and improvements to the national index models. Using survey

52

data from the Norwegian Customer Satisfaction Barometer (NCSB), they find

general support for the proposed modifications. They added multiple

benchmark comparison for price to isolate a perceived price index. The model

successfully isolates perceived price, and by removing “value” from the

model and replacing it with price, they removed the overlap that exists

between value and quality in the American Customer Satisfaction Index

(ACSI) and European Customer Satisfaction Index (ECSI) models.They also

argued that price may have a direct effect on loyalty over and above its

indirect effect via satisfaction.

Verhoef et al. (2001) investigated how satisfaction and payment equity,

defined as the perceived fairness of the price, affect cross-buying at a multi

service provider. They also considered its competitors’ performance on these

factors. The results show that the effect of satisfaction differs between

customers with lengthy and short relationships. It also shows that payment

equity negatively affects cross-buying for customers with long relationships.

Cronin, J.J.Jr., Brady, M.K., and Hult. G.T.M., (2000), in their study

both synthesizes and builds on the efforts to conceptualize the effects of

quality, satisfaction, and value on consumers’ behavioral intentions.

Specifically, it reports an empirical assessment of a model of service

encounters that simultaneously considers the direct effects of these variables

on behavioral intentions. The study builds on recent advances in services

marketing theory and assesses the relationships between the identified

constructs across multiple service industries. Several competing theories are

also considered and compared to the research model. A number of notable

findings are reported including the empirical verification that service quality,

service value, and satisfaction may all be directly related to behavioral

intentions when all of these variables are considered collectively. The results

53

further suggest that the indirect effects of the service quality and value

constructs enhanced their impact on behavioral intentions.

Krepapa et.al. (2000), explores the importance of market orientation

gap and its outcomes in a relationship marketing context. The results elicit

some interesting observations. First, the gap between customers and providers

perceptions of market orientation has a unique effect on the satisfaction

response, over and above that of the direct effect that customer’s perceptions

have on satisfaction. Clearly both effects (direct and gap) need to be

considered in the management of customer satisfaction. Second,

inconsistencies in providers’ and customers’ perceptions of market orientation

negatively impact customer satisfaction. Third, although, the customer

orientation gap has the largest impact on satisfaction, both inter-functional

coordination and competitor orientation gaps also have a significant effect;

furthermore, all have similarly sized betas and thus similar magnitude of

effect. They conclude that the entire market orientation gap has an overall

impact on customer satisfaction, and that there is likely to be synergy between

high levels of each.

Colgate, Mark R.; Danaher, Peter J. (2000) examined the

implementation of a personal-banker strategy as a means to developing

customer relationships in the retail banking industry. The results show that an

"excellent" personal banker can increase overall customer satisfaction and

loyalty compared to customers who do not have a personal banker. However,

a poorly performing personal banker can result in lower overall customer

satisfaction and loyalty than if no personal banker had been available.

Moreover, the effects seem to be asymmetric, with the negative effects of a

poor relationship strategy exceeding the positive benefits of an "excellent"

strategy.

54

Kimball P. Marshall and J. R. Smith (2000), in their study applies

SERVPERF items to urban community development issues by considering

the utility of the SERVPERF items in predicting a propensity to shop

neighbourhood stores as compared to a propensity to shop in areas outside the

neighbourhood. They have successfully demonstrated construct validity for

the SERVPERF method as an approach to assessing perceptions of

neighbourhood shopping experiences, at least in regard to retail clothing

shopping. However, the study has not been able to produce a satisfactory

model by which the SERVPERF sub-scales accurately predict actual

neighbourhood shopping propensity. This is consistent with other research

which has shown weak and unstable relationships of SERVQUAL and

SERVPERF type items to purchase intentions, and it is also consistent with

other research regarding uncertainty in relationships of purchase intentions to

actual behaviour (Rust and Oliver, 1994).

Ken Simpson (2000) examines a cornerstone concept of mainstream

marketing theory relating to the importance of customer satisfaction as an

influence on future behavioural intentions. The underlying premise is that

visitors to a tourist attraction whose expectations are met or exceeded will be

satisfied with their experience, and that the degree of perceived satisfaction

will positively correlate with their stated intention to repeat purchase and to

recommend the experience to others. The results indicate that perceived levels

of satisfaction have little bearing on the visitor’s stated intention to return to

the attraction; however, a significant relationship exists between perceived

satisfaction and intention to recommend to others.

Michelle Lowndes (2000) studied the impact of negatively directed

statements on service quality ratings. Two data sets from an ongoing

commercial mystery shopping study were used for the purposes of this

research. The first data set included positively and negatively directed

55

statements, and the second used exactly the same items, all positively

directed. This enabled a direct comparison between the items that were stated

negatively in the original study and the same items stated positively. The

findings suggest that there is no ‘negative statement effect’, displayed by the

unusual similarity between mean rating peaks and troughs in each study.

There were no unexpected differences between the mean ratings for the

negatively directed statements and their positive opposite at the aggregate

level. This implies that both positively and negatively directed statements can

be employed to measure service quality.

Rujirutana (‘A’) Mandhachitara, Paul G. Patterson and Tasman Smith

(2000) seek to measure and understand the moderating role of high and low

psychological switching costs on the relationship between technical and

functional performance, and customer satisfaction. The results of the study

show that the moderator variable, switching costs, has a major impact on the

nature of the relationship between key antecedents (technical and functional

quality) and the dependent variable, customer satisfaction, at least for services

high in experience properties. These findings indicate that future studies of

satisfaction need to take into account the fact that the nature of the

relationship between the antecedents and satisfaction are context specific. The

findings show that both service types, technical performance is highly

associated with customer satisfaction under high switching cost conditions.

When strong social bonds have been formed, customers will be forgiving of

core service failures and such lapses will have little impact on customers’

overall satisfaction judgments. Hence local firms and international marketers

from the West would be well advised to develop strong social ties with

customers as a protection against a less than superior core service

performance.

56

Karin A. Venetis and Pervez N. Ghauri (2000) investigated the effect

of service quality on the long-term maintenance of customer relationships.

Results of the study showed that service quality has the highest contribution

to customers’ affective commitment compared to the trust and the stuck bonds

and the other proposed antecedents. Next to this strong effect on commitment

it also influences customers’ intentions directly. This finding confirms that

quality is not only related to a potential start of a relationship (i.e., intentions)

but also to its long-term maintenance (i.e., commitment).

Baker, D.A.,and Crompton, J. L.,(2000), in their study conceptualized

performance quality as the attributes of a service which are controlled by a

tourism supplier, while satisfaction referred to a tourist's emotional state after

exposure to the opportunity. They hypothesized that perceived performance

quality would have a stronger total effect on behavioral intentions than

satisfaction. The findings of the study support the theoretical position that

enhanced performance quality leads to stronger positive behavioral intentions,

and that visitor satisfaction does add to the explanatory power of quality.

Since quality of performance is under control of the tourism provider,

measuring its attributes is likely to offer the most guidance for making

changes that would lead to stronger behavioral intentions.

Apaolaza, V.; Hartmann, P., and Zorrilla, P., (2000) proposed a

conceptual framework that analyses the effect of perceived service quality,

customer satisfaction, trust in the energy provider and perceived switching

costs on customer loyalty in residential energy markets. They also proposed

and tested a model in the scope of a representative survey of Spanish

residential energy customers. The results show the dependence of the loyalty

of residential customers in the energy market as much on satisfaction and trust

in the energy provider, as on switching costs. These results are in line with the

view of several authors that customer satisfaction is necessary, but not

57

sufficient to predict customer loyalty. Moreover, the results suggest that to

enhance customer satisfaction it is necessary to concentrate on functional

quality of the service.

Ruyter, K., De and Wetzels, M. (2000) conducted an experimental

study to assess the impact of customer equity considerations on perceived

quality, satisfaction, loyalty and trust with respect to service recovery across

different service industries. The findings reveal that in general, distributional

fairness and procedural fairness during the service recovery significantly

improve scores for service quality, customer satisfaction, customer loyalty

and trust, whereas interactional fairness only enhances customer trust

perceptions. Moreover, the results suggest that the effects of equity

considerations in a service recovery situation are idiosyncratic to specific

service industries.

Krepapa et al. (2000), in their study explored the market orientation

gap and its outcomes in a relationship marketing context. Specifically the

research explored the importance of such a gap for the relationship. The

results elicit some interesting observations. First, the gap between customers

and providers perceptions of market orientation has a unique effect on the

satisfaction response, over and above that of the direct effect that customer’s

perceptions have on satisfaction. Clearly both effects (direct and gap) need to

be considered in the management of customer satisfaction. Second,

inconsistencies in providers’ and customers’ perceptions of market orientation

negatively impact customer satisfaction. Third, although, the customer

orientation gap has the largest impact on satisfaction, both inter-functional

coordination and competitor orientation gaps also have a significant effect;

furthermore, all have similarly sized betas and thus similar magnitude of

effect. Thus, we may conclude that the entire market orientation gap has an

overall impact on customer satisfaction, and that there is likely to be synergy

58

between high levels of each. Becoming more customer oriented, without

concomitant enhanced inter-functional coordination and competitor

orientation, may not produce the overall gains in customer satisfaction as

managing all three elements of market orientation.

Antreas Athanassopoulos, Spiro Gounaris and Vlassis Stathakopoulos

(2000) have investigated the behavioural responses of customer satisfaction of

customers of commerecial banks in Athens, Greece. More specifically they

have examined the impact of customer satisfaction on customers’ behavioural

responses. Overall, the results provide strong support for the notion of direct

effects of customer satisfaction on the behavioural responses of customers.

Their findings indicate that when customers assess customer satisfaction to be

high: (1) decide to stay with the existing service provider, and (2) subdue their

negative behavioural intentions. Furthermore, their results indicate that

customer satisfaction is associated positively with word-of-mouth

communications.

Van Dyke, Prybutok, and Kappelman (1999) examined the validity and

reliability of Kettinger and Lee’s (1995) modified SERVQUAL instrument to

assess the quality of the services supplied by an information services provider.

The results of this study indicate that many of the difficulties which have been

identified for the SERVQUAL instrument also apply to the 13-paired-item IS-

version of the SERVQUAL instrument recommended by Kettinger and Lee

(1995). This modified SERVQUAL instrument, much like the Parasuraman et

al.’s (1988) original instrument, suffers from unstable dimensionality, poor

predictive and convergent validity, and inadequate reliability. The literature,

as well as the findings of this study, provides impressive evidence that the use

of perception-minus-expectation gap scores is problematic. Practitioners who

want to measure IS service quality should be cautioned. The authors

recommend that practitioners who utilize IS-SERVQUAL use the perceived

59

performance-only scoring method. This method shows superior reliability and

predictive validity.

Soderlund M, and Vilgon M (1999) explored links between customer

satisfaction, repurchase intentions, purchase behaviour, and customer

profitability with empirical data on attitudes, behaviour, and profitability at

the customer level of analysis. The analysis reveals a strong link between

customer behavior and customer profitability, while modest links exist

between repurchase intentions and subsequent behaviour. Moreover, although

a positive and significant link was found between customer satisfaction and

repurchase intentions, the former variable explains only a fraction of the

variation in the latter. This suggests that factors other than satisfaction affect

repurchase intentions.

Smith and Bolton (1998) developed a simple model which addressed

the following questions: (1) How does a customer’s satisfaction with a service

failure and recovery encounter affect his/her cumulative satisfaction

judgments and repatronage intentions? (2) To what extent do a customer’s

prior assessments of overall satisfaction and repatronage intentions formed

before the service failure and recovery encounter ‘‘carry over’’ to influence

his/her subsequent overall satisfaction and repatronage intentions? (3) Can a

highly satisfying service failure and recovery encounter enhance a customer’s

overall satisfaction with a service organization and increase his/her

repatronage intentions? The results suggest that although excellent service

recoveries can enhance customer satisfaction and increase repatronage

intentions, viewing service failures as opportunities to impress customers with

good service performance may involve substantial risks. This study also finds

empirical support for the existence of the service recovery paradox. A highly

satisfactory recovery will maintain or increase cumulative satisfaction and

loyalty. However, this conclusion is a challenge to service organizations

60

because (conversely) a dissatisfactory recovery will decrease cumulative

satisfaction and loyalty.

Zeithaml et al. (1996) conducted a multi-company/multi-industry study

to examine the relationship between service quality and behavioural

intentions. They reviewed the extant literature about the relationship between

service quality and profits and empirically examined several relationships

between service quality and consumer behavioural. They found that service

quality is positively associated with communicational behavioural intentions

(e.g. intention to recommend the service provider). They also found that

service quality is associated negatively with unfavourable behavioural

intentions (e.g. propensity to switch).

Gremler, D.D. and S.W. Brown, (1996) extends previous loyalty

research by examining service loyalty and factors expected to influence its

development.

Results of the study suggest five important themes:

(1) Service loyalty is a multidimensional construct, composed of at least three

dimensions (behavioral loyalty, attitudinal loyalty, and cognitive loyalty).

(2)Service loyalty begins only after a certain level of customer satisfaction

has been achieved.

(3) At least six different types of switching costs (habit/inertia, setup costs,

search costs, learning costs, contractual costs, and continuity costs) can play a

significant role in the development of customer loyalty to service

organizations.

(4) In this study five specific relationship dimensions (familiarity, care,

friendship, rapport, and trust) were found to have significant influence on

61

service loyalty. A new construct, interpersonal bonds, was formed to describe

these dimensions.

(5) Customers perceive they receive several benefits for being a loyal

customer. These benefits can include a feeling of optimal satisfaction, a

knowledge of what to expect from the service provider, confidence in the

provider, friendship with employees, time savings from not having to search

for a provider, and various types of special treatment.

David T. Wilson, Praveen K. Soni and Michael O’Keeffe (1995), in

their study on Customer Retention, first examined the economic push for

customer retention and then explored customer satisfaction as input to

developing alternative retention models. They examined three models of

customer retention. They began with a simple model where retention is a

function of customer satisfaction. This model is expanded to include personal

relationships between the firm and the customer and finally drawing upon the

buyer-seller relationship literature they develop a general model of customer

retention. They tested all the three models using data from the study of a

specific retention problem of a business firm. Results indicate that four

variables -Structural Bonds, Social Bonds, Satisfaction and Trust have a direct

effect on Retention, the ultimate dependent construct. Trust and Satisfaction

do have a dominant impact on Retention due to the presence of several

indirect effects on Retention that occur through the development of Social and

Structural Bonds. The extended model provides the best description of how

retention is achieved. At it’s core is customer satisfaction but in business

markets just satisfying the customer is not enough to retain the business. As

one would predict from the literature, customer satisfaction had the largest

impact on retention, however, trust also has a major impact on retention. Trust

facilitates the development of the transaction specific investments in both

62

assets and knowledge that creates the structural bonds that hold the

relationship together.

Rust et.al. (1995) have developed a financial approach to quality

improvement, which they term the “return on quality (ROQ)” approach. This

approach is based on the assumptions that (1) quality is an investment, (2)

quality efforts must be financially accountable, (3) it is possible to spend too

much on quality, and (4) not all quality expenditures are equally valid. The

study notes that it is possible to spend too much on quality and that not all

quality expenditures are equally valid. The ROQ approach enables managers

to determine where to spend on service quality, how much to spend, and the

likely financial impact from service expenditures, in terms of revenues,

profits, and return on investments in quality improvement—the “return on

quality.”

Edward Burch et.al. (1995) examined the applicability of the service

quality measurement scale (SERVPERF) to the rental industry. Apart from

assessing the reliability and validity of the scale, the study addresses practical

and user-related aspects of rental services. The SERVPERF scale was found

to explain a great deal of the variation in service quality. While satisfaction

seems to have a significant positive effect on purchase intention, service

quality does not seem to have a similar effect. Indeed, satisfaction seems to be

more closely tied to purchase intentions than is service quality. The results of

this analysis appear to provide some support for conceptualizing and

measuring service quality as an attitude as suggested by Cronin and Taylor

(1992).

Since SERVPERF essentially measures performance, it can be used in

conjunction with attribute importance to determine consumer attitudes toward

key service attributes. The importance attributes represent the consumer's

63

evaluative criteria in service choice. This, in turn, can be used in determining

the firm's marketing strategy.

Liljander, V and Strandvik, T (1995) developed perceived relationship

quality model which relates perceived service quality and customer

satisfaction to relationship characteristics. The findings suggested that the

nature of the relationship is determined by the commitment of both the

customer and the service provider to the relationship and by the bonds that

exist between them. Indications of different degrees of relationship strength

could thus be the strength of the ten bonds and different degrees of

commitment. Commitment could be expressed, for example, by a) talking

positively/negatively about the company, b) the customer complaining to the

personnel/service provider, c) only using company X / simultaneously using

also competing service companies d) his/her involvement in the company

(e.g. reading news and advertisements), e) the degree to which the customer

feels that his/her service company is better/worse than competing companies,

f) the customer would end his/her relation with the service company if there

was an alternative and g) the degree to which customers tolerate mistakes

without being upset with the company.

Quester et al. (1995), in their study tested four service quality

measurement scales in Australian advertising industry. They found

SERVPERF performs better than SERVQUAL. They observed that though

the SERVQUAL measurement scale followed a more scientific approach to

scale development and is more firmly based on the literature than SERVPERF

scale, its performance is worst. They also observed that the difficulty lies in

the operation of expectations part in SERVQUAL rather than in the

theoretical underpinnings.

Johnston (1995) studied the determinants of service quality to identify

the satisfying and dissatisfying attributes. He found that the predominantly

64

satisfying attributes, or enhancers, were: attentiveness/helpfulness; care;

friendliness; and commitment. The predominantly dissatisfying attributes, or

hygiene factors, were: integrity; reliability; availability; functionality; and

competence. Responsiveness was a dual, critical, factor and the others were

neutral.

Wirtz and Bateson (1995) empirically demonstrated the existence of

halo effects in the perceptions of attributes. In an experiment using a PC

based simulation of a home banking service and involving 134 subjects, they

found that by manipulating the response time, and only the response time,

they could alter the disconfirmation of expectations and satisfaction levels

with all attributes. They concluded that halo effects operate in attribute

specific disconfirmation and satisfaction measures.

David W. Large and Roger A. More, (1994) explains how to define

and measure the behavioral variables of sales and service quality.

Specifically, this study explores the empirical validity of a behavioral

typology with four sub dimensions, each measured by multiple variables:

Attention, Collaboration, Intensity, and Reliability. Data are analyzed from

106 organizational purchasers of private branch exchange

telecommunications equipment. The findings support and enrich

SERVQUAL's three behavioral sub-dimensions, and strongly suggest the

existence of a fourth important behavioral sub-dimension labeled

Collaboration. These findings may also be applicable to the measurement of

the quality of relational behavior in other fields of marketing such as sales and

functional intra-relationships.

Parasuraman et al. (1994) compared the performance of four

alternative measures, SERVQUAL, SERVPERF, a summary disconfirmation

measure (Brown et al., 1993), and a three-column disconfirmation scale that

compares a consumer’s desired and adequate expectations (zone of tolerance)

65

to their performance perceptions. The results of the study suggest that both

SERVPERF and the summary disconfirmation measure outperform

SERVQUAL. However, the authors recommend the continued use of their

gap-based measure due to its superior diagnostic capacity.

Bitner and Hubbert (1994) conducted a study on encounter satisfaction,

overall satisfaction and quality. They found that encounter satisfaction

(defined as satisfaction with a discrete service encounter) was more easily

distinguished from overall satisfaction (satisfaction with the organisation

based on all encounters and experiences with them) and perceived quality

(overall impression of the relative superiority of the organization and its

services) than the latter two constructs were from each other.

Bolton, Ruth N. and James H. Drew (1994), in their study made a first

effort to understand the factors affecting customers' decisions to invoke

warranties, and to distinguish this behavior from the factors affecting

customer perceptions of service quality. The study context is GTE's

introduction of a warranty program as part of a telecommunications repair

service for small business customers. The results suggest that customer

perceptions of the service and the decision to invoke the service warranty

depend on customers' attributions about the service failure and their perceived

control of the service process -- as represented by specific service attributes.

For repair service, the customer's decision to invoke the warranty is

strongly influenced by the severity of the service failure, the amount of time

that elapsed between when the failure was reported and when it was resolved,

and his/her causal attributions about the failure. Although these variables do

not have a similar effect on the overall perceived quality of repair service,

they are related to two underlying dimensions of service quality: reliability

and responsiveness. For example, customer perceptions of responsiveness are

influenced by the amount of time between when the problem was reported

66

and when the first repair attempt was made. More extreme service attributes

are required to result in warranty invocation rather than more negative

perceptions of the service.

Cronin and Taylor (1992) in their study offered a theoretical

justification for discarding the expectations portion of SERVQUAL in favor

of just the performance measures included in the scale (i.e., what they termed

SERVPERF). The term ‘‘performance-only measures’’ has thus come to refer

to service quality measures that are based only on consumers’ perceptions of

the performance of a service provider, as opposed to the difference (or gap)

between the consumers’ performance perceptions and their performance

expectations. In addition to their theoretical argument, they report empirical

evidence that the performance-only SERVPERF instrument outperforms the

disconfirmation-based SERVQUAL scale across four industries (i.e., banks,

pest control, dry cleaning, and fast food). Through empirical tests with

SERVPERF (performance only measure) they argue that it has greater

predictive power than SERVQUAL (disconfirmation measure).They also

found empirical evidence that perceived service quality leads to satisfaction.

Carman (1990), in his study focused on the consumer’s perceptions of

service quality identified nine distinct dimensions of service quality:

admission service, tangible accommodation, tangible food, tangible privacy,

nursing care, explanation of treatment, access and courtesy afforded to

visitors, discharge planning, and patient accounting. He found importance

weights were relatively homogenous when he collected importance ratings in

a dental clinic setting. He also found low coefficients of variation for the

importance of an attribute, and suggested that mean importance weights might

be sufficient.

Bitner (1990) conducted an experimental study of customers’

attributions. Although she operationalised satisfaction as ‘overall satisfaction

67

with the travel agent’, she considered it to be transaction specific. The results

provide empirical evidence that overall satisfaction leads to perceived service

quality.

Parasuraman, Zeithaml and Berry (1988) developed a scale,

SERVQUAL, for the assessment of the gap between perceptions and

expectations of service quality based on data from 4 firms delivering service

to the individual customer. SERVQUAL includes five dimensions:

Reliability, Responsiveness, Assurance, Empathy, and Tangibles. The authors

propose that perceived service quality is a ‘global judgment or attitude

relating to the superiority of the service’, whereas measures of satisfaction

relate to a service encounter. The authors further propose that a company’s

average service quality along each of the five dimensions can then be derived

by averaging the SERVQUAL scores across the items on each dimension.

Therefore, an overall global service quality score can be obtained by

averaging the dimension scores.

Parasuraman et al. (1985) studied customers’ assessment of service

quality in four service industries: banks, credit card companies, stockbrokers,

and service companies for household goods. They used focus group

interviews with three groups in each industry and developed a model which

shows how various gaps in the service process may affect the customer’s

assessment of the quality of the service. The findings revealed that: (1)

service quality can be defined as the discrepancy between customer

expectations and perceptions; (2) discrepancies existed between the firm's and

the customer's perceptions of the service quality delivered; (3) key factors that

affect customer expectations are word of-mouth communications, personal

needs, past experience, and external communications; and (4) evaluative

criteria that customers use to assess service quality have ten general

dimensions: reliability, responsiveness, competence, access, courtesy,

68

communication, credibility, security, understanding/knowing the customer,

and tangibles.

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