In chapter 1, an overview of the whole dissertation has been provided. It can be considered as a backbone of the dissertation with the clear objectives and purposes stated. As an illustration, the chapter has mentioned about the overview of Vietnam banking system as well as credit services in Vietnamese bank in general and BIDV in particular. Moreover, chapter 1 has also presented about the significance of this study, research scope, research purpose, the research questions, research hypotheses. Moving to chapter 2 of this dissertation, SERVQUAL Model measuring the customer satisfaction and its theories and concepts will be discussed. Moreover, some literature reviews of critical factors determining customer satisfaction in different industries, customer satisfaction on variety of banking services and credit facilities in Vietnam as well as other countries will be mentioned. Lastly, the limitations of previous researches will be concluded.

2.2 SERVQUAL Model

2.2.1 Origins of SERVQUAL Model

Managers in banking industry are under increasing pressure to demonstrate that their services are customer – focused and that continuous performance improvement is being delivered. Given the financial and resources constrains under which banks must manage it is essential that customer satisfaction are properly met and measured and that from the customer satisfactions, any gaps in services quality are indentified. This information the assists a manager in identified cost – effective ways of closing services quality gaps and of prioritizing which gaps to focus on – a critical decision given scare resources. SERVQUAL Model which is a popular model of quality research of services and the most common application in the marketing research as well as other industries such as hospitality and economy.

It can be said that the origin of SERVQUAL Model is derived from the study of Parasuraman, ZeithamI, and Berry in 1985 based on expectation – perception gap model. In 1985 work, Parasuraman, ZeithamI, and Berry illustrated that consumers’ quality perceptions are influenced by a series of four distinct gaps occurring in organizations. These gaps on the service provider’s side, which can impede delivery of services that consumers perceive to be of high quality, are:

Gap1: Difference between consumer expectations and management perceptions of consumer expectations.

Gap2: Difference between management perceptions of consumer expectations and service quality specifications.

Gap3: Difference between service quality specifications and the service actually delivered.

Gap4: Difference between service delivery and what is communicated about the service to consumers.

Gap5: Difference between service expectation and perceived service quality

According to Parasuraman, ZeithamI, and Berry (1985), perceived service quality is defined in the model as the difference between consumer expectations and perceptions, which in turn depends on the size and direction of the four gaps associated with the delivery of service quality on the marketer’s side.

In addition, Brown and Bond (1995) stated that the conceptual of service quality also called the expectation – perception gap model is one of the best received and most heuristically valuable contributions to the services literature. The model identifies the keys discrepancies or gaps relating to managerial perceptions of service quality, and tasks associated with service delivery to customers. The Gap 1, Gap 2, Gap 3 and Gap 4 are identified as functions of the way in which service is delivered, whereas Gap 5 pertains to the customer and as such is considered to be the true measure of service quality (Shahin A., 2006).

2.2.2 Dimensions of SERVQUAL Model

As Shahin A.( 2006) concluded that one service quality measurement model that has been extensively applied is the SERVQUAL model developed by Parasuraman et al . (1985, 1986, 1988, 1991, 1993, 1994; Zeithaml et al. , 1990). SERVQUAL as the most often used approach for measuring service quality has been to compare customers’ expectations before a service encounter and their perceptions of the actual service delivered (Gronroos, 1982; Lewis and Booms, 1983; Parasuraman et al., 1985). The SERVQUAL Model is derived from the study of Parasuraman, ZeithamI, and Berry in 1985 and originally 10 dimensions of service quality were reliability, responsiveness, competence, access, courtesy, communication, credibility, security, understanding/knowing the customer, tangibles.

Later, ZeithamI, Berry and Parasuraman, 1988 tested the variables and reduced them to five factors including tangibles, reliability, responsiveness, assurance (combining communication, credibility, security, competence and courtesy) and empathy (combining understanding and knowing the customer with accessibility (Saleh, F. and Ryan, C., 1991).

Figure 2.1 SERVQUAL MODEL

Reliability

Responsiveness

Customer satisfaction

Services quality

Tangibles

Assurance

Sympathy

Ravichandran et al, 2010

Reliability

Reliability shows the ability to provide services accurately, on time, and credibly (Parasuman, Zeithaml and Berry, 1985). This requires consistency in the implementation of services and respects commitments as well as keeps promises to customers.

Responsiveness

This criterion measures the ability to solve the problem fast, deal with customers’ complaint effectively and the willing to help customers as well as meet the customers’ requirements (Parasuman, 1988). In other words, responsiveness is the feedback from banks to what customers want.

Tangibles

Tangibles are the images of the facilities, equipment, machines, attitude of staffs, materials, manuals, and information systems of the bank (Parasuman, Zeithaml and Berry, 1985). In others words, the tangibles refer to the effect of physical facility, equipment, personnel and communication materials on customer (Sureshchandar, Rajendran and Kamalanabhan, 2001). The atmosphere also called servicescapes influences directly both employees and customers in physiological, psychological, sociological, cognitive and emotional ways (Sureshchandar, 2001).

Assurance

This element creates credibility and trust for customers, which is considered through professional services, excellent technical knowledge, attitude courtesy, and good communication skills, so that customers can believe in the quality of firm’s services.

Sympathy

Sympathy is the caring, consideration, and the best preparation for customers, so that they can feel as ‘guests’ of the firm and are always welcome at any times, anywhere. Human factors are the core of this success and the more caring the bank gives to customers, the more customer understanding increases.

2.2.3 Applications of SERVQUAL Model

There is no doubt that a firm wants to survive in a competitive environment, they have to ensure about the quality of products and services they are supplying to the market. Some firms provide only services therefore the quality of services is an important issue for all of these firms. Competing goods firms such as department stores, supermarket may sell a wide range of products and quality of services is a primary means of competitive differentiation. Firms that supply only services like telecommunication companies, airlines etc. have a little to offer if their quality is not good (Berry, 1986).

It can be said that SERVQUAL is multiple – item scale with good reliability and validity that help firms to have better understanding evaluation the services expectations and perception of customer and improve the services as well. Parasuraman et al. (1988) claimed that ‘SERVQUAL provides a basic skeleton through its expectations/ perceptions format encompassing statements for each of the five service quality dimensions. The skeleton, when necessary, can be adapted or supplemented to fit the characteristics or specific research needs of a particular organization’.

SERVQUAL shows its best valuation when it is used to track service quality trends as well as in combination with other forms of service quality measurement. Moreover, SERVQUAL is used to evaluate the firm’s quality according to the five services dimensions by averaging the difference scores on items making up the dimensions (Parasuraman et al.,1985). Similarly, an overall measure of service quality in the form of an average score across all five dimensions. Determining the relative importance of the five dimensions affecting customers’ overall quality perception is one potential application of SERVQUAL. Another application of SERVQUAL is used in categorizing a firm’s customers into several perceived – quality segments on the basis of their individual SERVQUAL scores (Parasuraman et al.,1988).

2.3 Theories and concepts of SERVQUAL Model

2.3.1 Definition

2.3.1.1 Service quality

Service quality is a concept that has aroused considerable interest and debate in the research literature because of the difficulties in both defining it and measuring it with no overall consensus emerging on either (Wisniewski, 2001). Besides, there are many different definitions of what is meant by service quality. The most common definition used to define service quality is the extent to which a service meets customers’ needs or expectations (Lewis and Mitchell, 1990; Dotchin and Oakland, 1994; Asubonteng et al ., 1996; Wisniewski and Donnelly, 1996). Service quality can also be defined as the difference between customer expectations of service and perceived service. If expectations are greater than performance, then perceived quality is less than satisfactory and the result is customer dissatisfaction (Parasuraman et al ., 1985; Lewis and Mitchell, 1990).

2.3.1.2 Customer Satisfaction

There are several definitions of customer satisfactions that come from the different point of views of researchers on customer satisfaction. For example, in opinion of Oliver (1981) ‘Satisfaction is a psychological state resulting when the emotion surrounding disconfirmed expectations is coupled with the consumer’s prior feelings about the consumption experience’. While Kotler (2000) defined satisfaction as: ‘a person’s feelings of pleasure or disappointment resulting from comparing a product’s perceived performance (or outcome) in relation to his or her expectations’. Hoyer and MacInnis (2001) said that satisfaction can be associated with feelings of acceptance, happiness, relief, excitement, and delight. While Hansemark and Albinsson (2004) stated ‘satisfaction is an overall customer attitude towards a service provider, or an emotional reaction to the difference between what customers anticipate and what they receive, regarding the fulfillment of some need, goal or desire’.

2.3.2 Service Quality

Realizing the growing importance of services quality to compete on the service dimensions of the augmented product, several scholars have examined the problems of measuring and managing service quality (Baumann, Burton, Elliott and Kehr, 2007; Bitner, Booms and Tetreault, 1990; Boulding, Kalra, Staelin and Zeithaml, 1993; Gilbert and Veloutsou, 2006; Parasuraman, Berry and Zeithaml, 1985, 1988, 1990, 1991, 1993; Robledo, 2001). However, service quality is more difficult to measure than goods quality (Gronroos, 1982) due to the intangibility of services. For this reason, firms actually find it more difficult to understand how customers perceive services and evaluate service quality (Zeithaml, 1981).

According to Lewis and Booms (1983) service quality is a measure of how well the service level delivered matches customer expectations. Delivering quality service means conforming to customer expectations on a consistent basis. Parasuraman et al. (1985, 1988) also shared the opinion with Lewis and Booms (1983) by the statement: ‘Service quality perceptions result from a comparison of consumer expectations with actual service performance’. To demonstrate the above statement, Parasuraman et al (1985, 1988) proposed the SERVQUAL scale for measuring the service quality. Cronin et al. (1992) summarized four different measurement models for service quality these are SERVQUAL, SERVPERF, Weighted SERVQUAL, and Weighted SEVPERF. However, SERVPERF was regarded as the best of four models. Furthermore, Martilla et al. (1977) conducted the Importance – Performance Analysis which was considered as another measurement for service quality.

2.3.3 Customer Satisfaction

Customer satisfaction is generally considered among the most important long term objectives of firms. The marketing concept suggests that a satisfied customer will be more likely to repurchase products or use the services again than those are dissatisfied (Al – Wugayan et al., 2007). Al – Wugayan et al, (2007) also concluded that it is generally accepted that satisfaction is a psychological state that results from consumer experiences after consumption. Additionally, the basic conceptualizations focus on either or both of two aspects: the customers’ initial expectations in relation to product attributes and the customers’ perceptions of the product performance in relation to these expectations.

There are many different factors influencing customer satisfaction these are friendly employees, courteous employees, knowledgeable employees, helpful employees, accuracy of billing, billing timeliness, competitive pricing, service quality, good value, billing clarity and quick services (Hokanson, 1995).

In order to gain the customer satisfaction, first of all firms have to understand and satisfy their customer needs and wants (La Barbera and Mazursky, 1983). According to Kotler (2000) customers’ needs illustrate the felt deprivation of a customer. Meanwhile customers’ wants refer to the form taken by human needs as they are shaped by culture and individual personality.

Singh, H. (2006) indicated that customer satisfaction affect positively and directly to an organization’s profitability. Hoyer and MacInnis (2001) claimed that satisfied customers form the foundation of any successful business as customer satisfaction leads to repeat purchase, brand loyalty, and positive word of mouth. To some extents, the consequences of a lack of customer satisfaction need to be taken into account. According to Hoyer and MacInnis (2001), dissatisfied consumers can decide to discontinue purchasing the good or service; complain to the company or to a third party and perhaps return the item, or engage in negative word – of – mouth communication. From summarizing a numerous previous researches about satisfied customer and dissatisfied ones, La Barbera and Mazursky (1983) made a conclusion that ‘satisfaction influences repurchase intentions whereas dissatisfaction has been seen as a primary reason for customer defection or discontinuation of purchase’.

Moreover, customer satisfaction affects positively and directly customer loyalty as well as customer retention. According to Sivadas and Baker-Prewitt (2000), there is an increasing recognition that the ultimate objective of customer satisfaction measurement should be customer loyalty. It can be denied that high customer satisfaction will result in increased loyalty for the firm and that customers will be less prone to overtures from competition (Fornell, 1992). Anton (1996) also shared his opinion with statement: ‘satisfaction is positively associated with repurchase intentions, likelihood of recommending a product or service, loyalty and profitability’. Clearly, customer loyalty brings customer retention to repurchase or use the products and services the firms supply. In addition, long-term customer retention in competitive markets requires the business to go beyond mere basic satisfaction and to look for ways of establishing ties of loyalty that will help ward off competitor attack (Clare, 2001).

2.3.4 Relationship between Service Quality and Customer Satisfaction

Customer satisfaction is often defined as the customers’ post-purchase comparison between pre-purchase expectation and performance received (Oliver, 1980; Zeithaml et al., 1993). The relationship between service quality and customer satisfaction has been discussed in numerous previous papers during the past decade.

First of all, many researchers present that service quality has positive related relationship with customer satisfaction. In other words, service quality influence customer satisfaction and vice versa customer satisfaction influence quality (Jun and Cai, 2010). There is no doubt that in the world’s today intensive competition, once a business wants to survive, they have to improve the service quality that helps them to achieve a different advantage over their rivalries. Service quality, therefore has become one of the critical factors for satisfying and retaining valued customers in every industries and banking is not an exception. Many scholars indicate that high service quality results in customer satisfaction and loyalty with the product or service. A satisfied customer will have the willingness to recommend someone else, reduction in complaints and the bank can achieve the customer retention. Furthermore, a satisfied customer is likely to be a loyal customer who will give repeating business to the firm (Heskett et al., 1997). More importantly, according to Bedi (2010), the cost of retaining existing customer by improving the quality of product and services is perceived to be significantly lower than the cost of achieving the new customers.

On the other hand, when regarding the relationship between service quality and customer satisfaction in some industries as banking, some scholars point out that service quality is not related to customer satisfaction under certain circumstances. For example, through numerous studies, Parasuraman et al. (1985) indicated that even though customers were satisfied with a particular service, they did not think that it was of high quality. Another scholar also agrees with this idea, Storbacka et al. (1994, pp. 24) stated that: ‘A customer could, therefore, respond on a questionnaire that a particular bank is of high quality, even if this did not mean this customer was satisfied with using the bank. Its interest rates on loans may be too high or it might not fit the customer’s preferences for some other reason’.

2.4 Previous research

2.4.1 Critical summaries of previous research

a. Title: Lending Policies of Informal, Formal and Semiformal Lenders – Evidence from Vietnam

Authors: Thi Thu Tra Pham and Robert Lensink (2007)

Country: Vietnam

Data collection: the data used in this study are from a household survey on living standard in Vietnam that conducted by Vietnam’s General Statistical Office in 1998 with the sample of 6,002 households.

Summary: This paper aims to compare lending policies of formal, informal and semiformal lenders towards household lending in Vietnam. The study points out that the probability of using formal or semi formal credit increase when borrowers provide collateral, a guarantor and/or borrow for business-related activities. The probability of using informal credit increases for female borrowers. Formal loan contract terms such as loan interest rate and form of loan repayment affect strongly default risk of formal credit. While internal characteristics of the borrowing household influent much on default risk of informal credit. Lastly, this paper aims to explore how different types of lenders try to avoid adverse selection as well as moral hazard by screening, monitoring and enforcement instruments.

b. Title: Formal and Informal Rural Credit in Four Provinces of Vietnam

Authors: Mikkel Barslund and Finn Tarp (2008)

Country: Vietnam

Data collection: A survey of 932 rural households (in four provinces of Long An, Quang Nam, Ha Tay and Phu Tho) in combination with information from the 2002 Vietnam Household Living Standard Survey.

Summary: This paper aims to indicate how the rural credit market operates in Vietnam. Households can obtain the credit provided by both formal and informal lenders. Normally, formal loans are used for production and asset accumulation, whereas informal loans are supplied for consumption smoothening. The determinants of formal and informal credit demand are extremely different. While credit rationing depends on education and credit history, in particular, regional differences in the demand for credit are striking. The study indicates that credit policy in Vietnam only has one size fits all approach would be inappropriate.

c. Title: Research on Customer Satisfaction: Take the Loan Market of the Taiwanese Region as An Example.

Authors: Chih-Chung Chen, Su-Chao Chang (2006)

Country: Taiwan

Data collection: In this study, 650 questionnaires were distributed of which 413 valid questionnaires returned. Moreover, this research also conducted interviews five native branch office managers.

Summary: This study aims to examine the feasibility of employing customer satisfaction model in the loan departments of banks. The research presents that once customer expectations are significantly as well as positively related to the bank’s performance, customer satisfaction and loyalty will be high and the complaints will be few as the result.

d. Title: Credit and Non – Interest Rate Determinants of Loan Demand: a Spanish Case Study

Authors: Manrique, J. and Ojah, K. (2004)

Country: Spain

Data collection: This survey contains data for 21,155 Spanish households. 430 observations were excluded due to missing and/or inconsistent information, leaving a final sample of 20,725 observations.

Summary: This research aims to investigate the potential relationship between the condition of being credit – unconstrained and holdings loans as well as the determinants for a household being credit – unconstrained, consumer loans and real – estate loans. Spanish households’ desire and capacity to hold loans depends on the family size, education, permanent and transitory incomes. Lastly, this research provides deeply insights that attract credit consumers, credit suppliers, and policy makers in Spain.

e. Title: Consumer Credit and Money Policy in Malaysia

Authors: Kassim, Salina Hj and Manap, Turkhan Ali Abul (2008)

Country: Malaysia

Data collection: The study uses monthly data from January 1998 until March 2006. Data such as interest rates and bank loans come from Bank Negara Malaysia’s Monthly Statistical Bulletin. Data on the economic conditions such as the CPI and the IPI are gathered from the respective publications of the Department of Statistics, Malaysia.

Summary: The study aims to find out the consequences of interest rate on consumer credit in Malaysia based on empirical investigation. The authors categorized aggregate consumer loans into specific types including loans for purchase of residential property, loans for credit cards, loans for personal needs, loans for purchase of securities and so on, so forth. Through categorizing types of loans, the paper aims to present the relative sensitivity of each loan to interest rate shocks.

f. Title: Credit demand of Rural Enterprise and Loan Supply in China

Authors: Du Zhixiong (2004)

Country: China

Data collection: The two databases were collected during two fields of rural enterprises, undertaken in 2000 and 2001 in different provinces, namely, Jiangsu province in coastal China, and Anhui province in the central part of China.

Summary: This study aims to supply the information about the real situation of rural enterprises financing. Moreover, this paper also illustrates information on the banking system’s restructuring and the ways banks provide credit for rural enterprises to overcome the financing constraints. Undoubtedly, the article shows useful information on financing of rural enterprises based on using data from two surveys of rural enterprises.

g. Title: Deteriorating Bank Health and Lending in Japan: Evidence from Unlisted Companies under Financial Distress

Authors: Fukuda, Shin-Ichi, Kasuya, Munehisa, and Nakajima, Jouchi (2006)

Country: Japan

Data collection: The data are taken from Tokyo Shoko Research (TSR) Database Service about 3644 Japanese unlisted firms.

Summary: This study aims to investigate the impacts of banks’ weakened financial conditions on loans outstanding to medium size firms in Japan. The paper examines the determinants of lending to unlisted Japanese companies in the late 1990s and the early 2000s. Moreover, the study indicates that the bank health, regulatory capital adequacy ratios and ratios of non-performing loans had opposite impacts on lending. In the case of regulatory capital adequacy ratios, its deterioration had a perverse impact on the bank’s lending.

h. Title: An Investigation of the Relationships among Consumer Satisfaction, Loyalty, and Market Share in Kuwaiti loan services

Authors: Al-Wugaya, A., Pleshko, L.P., and Baqer, S.M. (2007)

Country: Kuwaiti

Data collection: the paper used the survey of nearly 700 customers using Kuwaiti loan services.

Summary: This research aims to investigate the relationship among customer satisfaction, loyalty, and market share of loan services in Kuwaiti. Based on the research result, the authors indicate that the relationship between customer satisfaction and market share is not supported in banking industry. However, customer loyalty is pointed out to be related to market shares. Moreover, customer loyalty is not derived from customer satisfaction but rather on other factors like price, special deals or bank – customer relationship.

i. Title: Provisioning of Rural Credit: an Indian Perspective

Authors: Mishra, S., Mohanty, A.R., and Choudhury, S. (2009)

Country: India

Data collection: the survey covering 90,000 rural households in 6,552 villages in India was conducted from January to December 2003 by the National Sample Survey Organization.

Summary: The paper aims to analysis rural credit provisioning measures as well as the rural credit delivery scenario in India through different rural financial institution. The study indicates that rural credit delivery still has been suffered from low levels of access to credit by the farming community, declining share of agricultural loan as a share of the total credit uptake, inadequate coverage of small and marginal farmers and exclusion of tenant farmers and share croppers.

j. Title: The Incidence of Loan Collateralization in Small Business Lending Contract: Evidence from the UK.

Authors: Cowling, M. (1999)

Country: the UK

Data collection: the data were used as random samples of 272 small businesses from a survey conducted by Association of British Chambers of Commerce.

Summary: The paper aims to investigate the relationship between small firms and banks focusing on the incidence of loan collateralization. The study indicates that age of the small firms and close relationship with the banks that helps to reduce the incidence of loan collateralization, which implies that relationship banking can bring tangible benefits to small businesses.

2.4.2 Limitations of previous research

General speaking, everything has its own advantages and disadvantages. There is no doubt that previous research has provided readers comprehensive knowledge about sectors it mentioned especially in customer satisfaction as well as credit facilities provided in different countries in general and in Vietnam in particular. However, the previous papers also show their limitations as there were a few studies specializing in credit facilities provided by Vietnamese banks. Further the real situation of credit services in Vietnam including outstanding loans, loan structures well as the quality of credit facilities has not been comprehensively researched. Accordingly, the customer satisfaction on credit facilities was not paid much attention by previous scholars. Therefore it can be said that the previous studies do not provide adequate information about customer satisfaction on credit facilities in Vietnamese banks.

2.5 Criticism of SERVQUAL Model

It can be denied that although SERVQUAL has grown popularly and widespread applied it still has been subjected to a number of theoretical and operational criticisms as below.

Under theoretical aspects, first of all SERVQUAL is criticized due to its inappropriate base on an expectations disconfirmation model rather than an attitudinal model of service quality. Secondly, it does not build on extant knowledge in economics, statistics and psychology (Francis Buttle (1996). Cronin and Taylor (1992; 1994) said that SERVQUAL is paradigmatically flawed because of its ill-judged adoption of this disconfirmation model. Moreover, they stated that perceived quality is best conceptualized as an attitude. They criticized Parasuraman et al. for their hesitancy to define perceived service quality in attitudinal terms, even though Parasuraman et al. (1988) had earlier claimed that service quality was similar in many ways to an attitude.

Another criticism has been proposed by Anderson (1992), he indicated that SERVQUAL fails to draw on previous social science research, particularly economic theory, statistics, and psychological theory. Parasuraman et al.’s work is highly inductive in that it moves from historically situated observation to general theory. Andersson (1992) reckoned that Parasuraman et al. renounces the principle of scientific continuity and deduction.

For theoretical aspects, Francis Buttle (1996) also presented a related set of criticism of SERVQUAL including factors involved in Gaps model, process orientation and dimensionality. In Gaps model, there is little evidence shows that the customer assess quality in terms of Perception – Expectation gaps. For process orientation: SERVQUAL has been criticized for concentrating on the process of service delivery rather than focusing on the outcomes of the service encounter such as technical dimensions (Kang and James, 2004). In other words, the SERVQUAL measurement does not adequately explain a technical attribute of service (Ravichandran K., et al, 2010). Dimensionality: SERVQUAL’s five dimensions are not universals; the number of dimensions comprising service quality is contextualized; items do not always load on to the factors which one would a priori expect; and there is a positive inter correlation between the five RATER dimensions (Buttle ,1996).

Under operational aspects, many scholars have argued that the components of SERVQUAL fail to fully evaluate customer perception on service quality in certain industries (Cronin & Taylor, 1992; Finn and Lamb, 1991). Two attributes of service was proposed by Gronroos (1984) which have been identified as dimensions of service quality relied on the conceptualization of service quality as between expectation of service and perceived service. Rust and Oliver (1994) extended Grunions’ model by providing a three-component model explaining service quality through service product, service delivery and service environment. Whereas Brady and Cronin (2001) suggested three service quality dimensions including service outcome, consumer-employee interaction and service environment. It can be said that the conceptualization of service product/service outcome and service delivery/consumer – employee interaction is consistent with the idea of technical attribute as well as functional attribute derived from Gronroos’ model. (Ravichandran K., et al, 2010).

2.5 Chapter Summary

To conclude, first of all SERVQUAL Model measuring the customer satisfaction as well as its theories and concepts have been presented. After that this chapter has reviewed many academic previous researches about critical factors determining customer satisfaction in di