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Service Quality in ICBC

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The development of computer technology and information network technology has brought massive challenges to financial services organizations. Online banking, which provides financial services to customers via Internet, plays an increasingly important role and still has tremendous potential for development. At the same time, the global and local competition between financial institutions has become more intense. Therefore, as the biggest commercial bank in China, it is very important for the managers of the Industrial and Commercial Bank of China (ICBC) to build a long-term customer relationship.

This project has five objectives to achieve:

The first objective is to test whether there is a difference between customer expected and perceived service quality in ICBC online banking services. Secondly, the study aims to examine the relationship between customer perceived service quality and customer satisfaction in ICBC online banking services. The third objective is to examine the relationship between customer perceived service quality and customer loyalty in ICBC online banking services. The fourth objective is to examine the relationship between customer satisfaction and customer loyalty in the online banking services of ICBC, investigate the current situation and give some evaluations. Finally, find out how the dealing with customer complaint in ICBC customer service department influences customer loyalty.

Based on the objectives, after decides the type of investigation and research approach, five pairs of hypotheses are formulated to test the relationship between variables. The results of this study indicate that there are high positive relationship between customer perceived service quality, customer satisfaction and loyalty. There is also a medium positive relationship between handle customer complaint and customer loyalty. According to these, the ICBC online banking must establish a long term strategy to improve the perceived service quality, satisfying their customer, handling customer complaint promptly in order to achieve more loyal customers.

Declaration of Originality

I declare that this thesis entitled “Examining the Service Quality, Customer satisfaction and Loyalty in Online Banking Services of Industrial and Commercial Bank of China” has been composed by myself and has not been presented or accepted in any previous application for a degree. The work, of which this is a record, has been carried out by myself unless otherwise stated and where the work is mine, it reflects personal views and values. All quotations have been distinguished by quotation marks and all sources of information have been acknowledged by means of references including those of the Internet.

Chapter 1 Introduction

1.1 Overview

In the past twenty years, the pace of change in financial services sector has been dramatic. The development of computer technology and information network technology has introduced a new virtual economy based on the Internet. As the Internet provides new communication channels to banking industry, the number of online banking websites increased rapidly (Aladwani, 2001). Online banking, an important part of the Internet economy, plays an increasingly important role and still has tremendous potential for development.

Mols (2000) indicated that the introduction and customers’ adoption of online banking will bring a massive change in the relationship between retailing banks and customers. At the same time, the global and local competition between financial institutions has become more intense. As a result, building long-term customer relationships becomes ever more important as a part of financial institutions’ strategy. How to satisfy customers and gain customer loyalty has become one of the best means of obtaining competitive advantage.

Since China’s accession to the WTO, many foreign banks have begun to do business in China. They not only brought advanced management methods and business philosophy, but also made the financial market in China more competitive. As a consequence of this competition, China’s commercial banks lost a large number of high-end customers in a short period of time. Faced with the loss of customers and the future trend of the growth of profit changing from deposits and loans to intermediary business, China’s commercial banks began to recognize the importance of improving customer satisfaction and loyalty and stepped up their efforts to compete with their foreign counterparts (www.financialnews.com.cn).

Due to the increasingly competitive marketing environment, enterprises must be customer oriented (Kotler, 1997). With regarding to banking industry, the service quality is considered as the most important competitive weapon (Staford, 1996). Therefore, how to improve service quality and satisfy customer become a very important marketing strategy in banking industry. Service quality has been many researchers’ interest in recent years by the impellent of Parasuraman et al. (1985). There have been many researches identified the key factors impact on the service quality of traditional banks (Jun and Cai, 2001).

However, there are few studies on the customer perceived service quality of online banking services (Broderick and Vachirapornpuk, 2002). Customer loyalty even received less attention than service quality and customer satisfaction (Caruana, 2000). The concepts of service quality, customer satisfaction and loyalty are linked together (Caruana, 2000). As illustrated by Caruana (2000:611), “service quality as an antecedent construct and service loyalty as an outcome variable of customer satisfaction”.

Therefore, it is important for banks to know the current performance of their services and understand the relationship between service quality, customer satisfaction and loyalty. In Fecikova’s (2004:57) words: “Customer satisfaction has become an important issue for commercial and public service organisations.” The standards to judge a company’s win or lose are based on how many customers they can keep. Thus, how to satisfy customers and maintain loyal customers have become important marketing strategies of Chinese online banking industry.

However, no matter how well the services are designed and delivered, mistakes will happen. The majority of customers will participate in private word-of-mouth activities regarding their consumptive activities (Day and Landon, 1977). The valence of these word-of-mouth activities may be negative, neutral, or positive. When there is a difference between customer expectation and the actual performance of products or services, the negative feelings will result in complaint behaviour. Therefore, how to handle customer complaints, restore the confidence of customers and reduce the loss of customers has also been an important task to companies in the services process.

1.2 Research Objectives

There are some marketing and financial literatures on the services and customer relationship of traditional banks, but few researches are done on the services quality and customer loyalty of online banking. This study presents an analysis of the service quality, customer satisfaction and loyalty of the Industrial and Commercial Bank of China (ICBC), focuses on the relationship between services quality and customer satisfaction and loyalty, and how handle customer complaint influence customer loyalty.

This project has five objectives to achieve:

  • The first objective is to test whether there is a difference between customer expected and perceived service quality in ICBC online banking services.
  • Secondly, the study aims to examine the relationship between customer perceived service quality and customer satisfaction in ICBC online banking services.
  • The third objective is to examine the relationship between customer perceived service quality and customer loyalty in ICBC online banking services.
  • The fourth objective is to examine the relationship between customer satisfaction and customer loyalty in the online banking services of ICBC, investigate the current situation and give some evaluations.

Finally, this study aims to find out how the dealing with customer complaint in ICBC customer service department influences customer loyalty of ICBC online banking.

1.3 Structure of Project

This project is divided into five chapters. Chapter 1 is the overview and introduction of the research. In Chapter 2, the writer introduces the development and history of online banking services and its development in ICBC. After that, the writer reviews the relevant theories of service quality, customer satisfaction and loyalty, and customer complaint, explains how they were measured and the relationship between them, which are mainly based on previous findings.

Using these theories, Chapter 3 illustrates the research questions and methodology of this research, the structure of questionnaire was also introduced in this section. Chapter 4 explains the findings of this research, discussing the current situation of ICBC online banking services, examining the relationships between these variables and give some recommendations. In the final Chapter, the writer summarizes the research, discusses the findings and introduces a number of limitations of this study. This section also contains opinions and suggestions on developing the online banking in the future.

Chapter 2 Review of the Literature

2.1 Introduction

This chapter first introduces the overview of Chinese online banking services and the development of ICBC online banking.

Secondly, the writer clarified what the service quality, customer satisfaction, customer loyalty and customer complaint have been covered in the previous study, indicates which factors would affect them and what kind of methods were used to measure them. In this part, the characteristics of online services and customer’s adoption of online banking services are also addressed.

Finally, the relationships between these four concepts are reviewed. Bloemer et al. (1999) suggested that although the previous studies indicate that there are obvious relationships between service quality, customer satisfaction and customer loyalty, however, how strength the relationships are still not clear (Bloemer er al., 1999). Therefore, based on the literature review, the writer presents a research model for this study as well.

2.2 Background of Chinese Online Banking Services

2.2.1 Overview

Online banking services are broadly defined as the ability to carry out bank transactions electronically, usually via the internet. It is an important part of the Internet economy. All business transactions are done via the banks’ websites (en.wikipedia.org). Online banking refers to several kinds of services through which bank customers can gain information and services such as money transfer, bill payment, short loan, investment, buy insurance and so on, via a page on Internet without leaving their homes or organizations (Sathye, 1999).

There are several studies indicated that online banking services are the most profitable products to banks (Robinson, 2000). By eliminating the infrastructure costs associated with branch-based retail banking services. Online banking is able to offer instant service and lower service charges than their competitors. Online banking is the cheapest channel for banks to deliver services (Robinson, 2000; Giglio, 2002).

Research shown that the cost of an average online banking transaction is only 10 percents of the cost of a similar average branch transaction (Kolodinsky et al., 2004). Through provide services online, banks can reduce their expenditure on hard ware and staff in branch (Karjaluoto et al., 2003). At the same time, online banking service delivery channel can also help banks to retain current customers who use online banking services from any location. As Internet has become such an efficient and world-wide used communication medium, it has also become a widely used retail channel (Cho, M. and Park, S., 2001).

Furthermore, online banking provides banks opportunities to attract more customers from exiting Internet users (Rotchanakitumnuai and Speece, 2003). From the customers view, online banking services are convenient and can saving time compared with traditional retail banking services. Verma et al. (2004) suggested that customers are willing to pay more for online banking services to gain both offline value and online benefit. They can use online banking services when connect to Internet without the limitation of time and location.

As illustrated by Bainbridge (2008), Traditional banking was impacted greatly by the commercialization of the Internet in the early 1990s. As the Internet became more generally accessible, traditional banks began to realize its potential to deliver services to their customers while reducing long-term operational costs. Upon realizing this, they began to offer limited services online. In 1995, the first pure online bank, the Security First Network bank was founded in the United States. It provided services such as direct access to account, bill payment and check viewing, which are quite common today (Christopher, 2008). In the following twenty years, online banking services have developed rapidly and have now become a significant part of the business for commercial banks.

As in other countries, Chinese commercial banks are undergoing rapid change due to advances in information technology. Eight months after the first online bank founded in the United States, in June 1996, the Bank of China set up websites and started to provide Internet banking services to the community. One year later, China Merchant Bank launched the first fully online banking “All in one Net”. It became the first fully Internet bank in China (data.chinabyte.com).

Subsequently, more and more Chinese domestic banks have set up online banking services to penetrate the market and gain competitive advantage (Li, 2002). In 2000, the Industrial and Commercial Bank of China launched online banking business in 31 cities in China. As the nation's largest commercial bank, the opening of its online banking business aroused widespread interest. In 2002, HSBC launched its online banking services in China (data.chinabyte.com).

The number of costumers and the trading volume of online banking have increased rapidly. At the end of 2007, the trading volume of corporate online banking reached 245.8 trillion RMB, which increased 163.1% compared to 2006. In the total transaction volume, corporate online banking accounts for 93.6% which is 230 trillion RMB. However, the growth of Personal Online banking was even faster in recent years. The trading volume reached 15.8 trillion RMB at the end of 2007 which is almost four times of 2006’s 4.1 trillion RMB. The number of business customers reached 0.84 million and individual customers reached 65 million at the end of 2006 (iresearch.com.cn).

At the same time, the range of services provided by online banking has also increased. Before 2000, some of the banks only provided information services. Now they provide services such as enquiry, investment advice, money transfers, buying and selling of securities, online payments and, in some banks, small loans, housing mortgage loans and other credit facilities.

As the 21st century is a customer-oriented century, how to create and maintain customer has became an important part of marketing strategy of banking industry. As information technology advanced and communication channels diversified, customers can use a variety channels to acquire more complete information and choices, to achieve their own best interests.

As illustrated by, customer’s role in consumer economy has changed from the recipient to products or services to the decision maker. Most banks also aware that customers are becoming a dominant position, however, how to use information technology and limited sources to achieve the best and most efficient service quality to satisfy customers, gain loyalty customers, ensure the source of profit, these have became the focus of the operation of Chinese banks.

2.2.2 Introduction of Industrial and Commercial Bank of China

As the largest one of four big stated-owned commercial banks which dominate the financial markets in China. The ICBC is the leader in online banking services and is constantly introducing advanced online banking products and services to the public. The following figure illustrates its repaid growth in online banking.

Figure 2.1 ICBC Online Banking Trading Volume

We can see form the figure above, in 2000, ICBC's online banking trading volume amounted only RMB 2.03 trillion, in 2002 this number grew to RMB 8.77 trillion which is almost 4 times of 2000. In the following five years, the ICBC online banking trading volume kept a rapid growth rate. In 2005, it went beyond RMB 46 trillion, growing 23 times compared to that in 2000. By the end of 2007, ICBC online trading volume jumped to RMB 102.88 trillion, which is more than 50 times of 2000.

At the same time, the customers of ICBC online banking grew rapidly. At the end of 2007, ICBC Online banking has had 980,000 business customers and 39.08 million individual customers (icbc.com.cn). As illustrated in figure 2, the individual customers of ICBC online banking kept an continued rapid growth from 0.2 million in 2000 to 48.5 million in June of 2008.

Currently, ICBC online banking provides a variety of services; customers can transfer money, pay bills, buy stocks or bonds, change foreign currency and so on. It has been very successful and has won various awards in China. It is also widely recognized and respected in the international banking sector. In every year from 2003 to 2006, ICBC was granted the “Best Personal Internet Bank of China” award by Global Finance. All these have established ICBC as a leader in e-banking in China and have put it among the top financial players in the international arena (icbc.com.cn).

2.3 Introduction to Service

2.3.1 Definition of Service

According to Kotler and Keller (2006:374), “services are intangible, inseparable, variable and perishable products”. Therefore, services require more quality control than products. Financial services are services directed specifically at people’s money or wealth, they are concern with organizations, individuals and their finances (Ennew and Waite, 2007). Nowadays there are a whole range of finance services, such as banking services, credit cards, insurance, foreign exchange, stock and bonds trading and so on.

2.3.2 Characteristics of Service

In the earlier marketing literature, Gummesson (1987) suggested that “services are something that can be bought and sole but which you cannot drop on your foot.” Basically, services are process or experiences (Bateson, 1977; Bowen and Schneider, 1988; Parasuraman et al., 1985). We cannot own a bank account as we own a car, but we have the right to use the bank account doing various financial transactions on our behalf by banks.

According to Kotler and Keller (2006), services have for distinctive characteristics which are intangibility, inseparability, variability and perishability. Most services are intangible (Beteson, 1977). They cannot be counted, measured and verified before sale to assure quality. Thus the company may find it difficult to understand the consumers’ evaluation of service quality (Zenthaml, 1981).

Ennew and Waite (2007) suggested that services are heterogeneity because service performance different from customer to customer. The performance of services may be totally different from the customer’s perception. Those characters of services indicate that quality of services is more difficult to evaluate than products.

Although these are widely used in services marketing, many researchers have different thoughts. Loverloch and Gummesson (2004) argue that this framework has weaknesses, such as intangibility which is ambiguous, they suggested that many services also involve some tangible elements and outcomes. Vargo and Lush (2004) also highlight the inability of this framework to distinguish between goods and services.

2.4 Introduction to Service Quality

2.4.1 Definition of Service Quality

Marketing literature has provided many definitions of service quality. Before 1980’s, most research of quality focused on how to define and measure the quality of tangible products. As the service industry developed vigorously, more and more scholars did lots of exploration and study about service quality. However, due to the characteristics of intangible, heterogeneous, perishable and indivisibility, service is hard to define, measure and control (Crosby, 1979).

According to the American Society for Quality (Miller, C., 1993), “quality is the totality of features and characteristics of a product or service that bear its ability to satisfy stated or implied needs”.

Levitt (1972) suggested that services quality refers to the results of services can meet the standards set by the customers. Sasser and Olsen (1978) defined services quality from materials, equipment and personnel. This classification suggests that service quality not only including the final results, but also including the provision of services.

Gronoroos (1982) firstly proposed the concept of perceived service quality, he suggested that service quality generated from the comparison between expected service quality and the experienced service quality. According to Lewis and Boom (1983), service quality is the consistency of the transfer of service and expectations of service. Customer’s perceptions of quality usually come from their comparison between expected and perceived quality.

The result of this comparison is, when the perceived quality is higher than expected quality, customer will get good quality of service or satisfaction with it (Parasuraman, et. al, 1985). Six years later, they pointed out that service quality is a psychological assessment that is measured by customers according to the gap between the expectation and actual service quality (Parasuraman, et. al, 1991).

However, Stewart, Hope and Muhlemann (1998) suggested that service quality should be distanced by who provide the service and how they provide it. The former is evaluated after the service, while the latter is evaluated in the process of deliver service. Sarsser et al. (1998) argued that service quality should be defined through three factors which are materials, equipment and person. They suggested service quality not only include the results, but also include the provision of services. Service level and service quality are similar, service level can be divided into expected service level and perceived service level (Sarsser et al., 1998).

In recent years, the definition of service quality improved towards customer factor. Harrison (2000) described that service quality is basically concerned with meeting customer’s need and requirements and how well the service level delivered meets customer expectations. Zeithaml and Bitner (2000) argue that there are two levels of customer expectations, desired service and adequate service. The former is defined as the “wish for” level of service performance, while the latter is defined as the basic service expectations. According to Kim et al. (1998), financial institutions always provide generally undifferentiated services to customer. Therefore, service quality becomes the most important factor.

2.4.2 Dimensions of Service Quality

Marketing literature provide many views of the measurement dimensions of services quality. Sasser et al. (1978) suggested that there are three different dimensions of service performance: levels of material, facilities, and personnel. Gronroos (1982) divided service quality into two types: technical quality and functional quality. The former refers to what customers are actually receiving from the service , the latter refers to the process in which the service is delivered. Lehtinen and Lehtinen (1982) argued that service quality has three dimensions physical quality, such as equipment; corporate quality, such as company’s image; interactive quality, which means the interaction 74bb1v8140customers.

Parasuraman et al (1985) suggested there are ten dimensions of service quality, which are reliability, responsiveness, competence, access, courtesy, communication, credibility, security, understanding the customer and tangibles. After further study, they improved these to five dimensions: reliability, responsiveness, empathy, assurances, tangibles (Parasuraman et al., 1988). Figure 2.3 illustrates the structure of their finding.

Source: Parasuraman et al., (1985,1988)

Brady and Cronin (2001) presented a service quality model of three dimensions: interaction quality, physical environment quality and outcome quality. Interaction quality refers to the interaction between customer and employee in the process of service delivery. It is impacted by attitude, behavior and expertise. Physical environment refers to customer’s evaluation of physical facilities or building design. Outcome quality indicates the result of services (Brady and Cronin, 2001).

2.4.3 Importance of Service Quality

With the development of world economy and the pace of globalisation, most markets have been very competitive, in order to survive, companies need to provide good quality services to satisfy and retain loyalty customers (Fecikova, 2004). According to Broderick and Vachirapornpuk (2002), not only the technology changes overtime, customer expectation and perception of online services also changes continuously. Therefore, service quality will become a very important issue to online banks.

Nowadays, as the process of globalization has made the market competition in financial industry more and more intense. Customers have been considered as the most importance to service industry (MacDonald et al, 2000). At the same time, customers’ expectations of service quality are constantly increase, while their tolerance of poor services is constantly decline (Smith and Lewis, 1989). Therefore, it is increasingly difficult for the company to success in the competitive market.

Only the company which provide better services than others can gain competitive advantage in the market and gain more customers (Gronroos, 1990). Easingwood and Storey (1993) suggested that service quality is the most important factor for the success of financial industry. Therefore, providing high quality services to customers is important for a bank to success and survival in today’s competitive market (Wang et al., 2003).

2.4.4 Measuring Service Quality

As service quality directly relates with customer satisfaction, more and more company concern measuring service quality an important task. According to Baggs and Kleiner (1999:36), “The measurement of customer service is the most important variable that a company has to manage. Customer service includes the overall picture that an organisation presents to the public.” Due to the characteristics of intangible, heterogeneous, perishable and indivisibility, service is hard to measure and control (Crosby, 1979).

Gronoroos (1984) suggested that service quality should be measured by compare the customer perception and expectation of services. However, most of service quality studies have been focused on the development of instruments to measure service quality directly. Cronin & Taylor (1992) argue and change this method to a comparison of performance with ideal standards, or from performance perceptions only.

Their performance is mostly based on employees. Customers’ evaluation of service quality is influenced by their interactions with the employees. Recently, most researchers agree that services comprise of an outcome, which is an achievement of some end by the customer, and a process, which is the interaction customer-service provider (Blanchard &Galloway 1994).

Recent research suggested that to measure service quality, not only the performance of service should be measured, the process of the service delivery should be considered as well. To check the influences for service process to their perceptions; Rust and Oliver (1994) presented the three component model to indicate the influence of service process to service quality.

From the figure 2.4, it clearly be seen that there are three factors deciding the perceived service quality, they are service product, service delivery and service environment. This theory support the importance of service delivery, for actual outcome quality only one of the three factors.


SERVQUAL model is the most widely used method to measure service quality both in academic research and business analysis. Parasuraman et. al (1985) formulated a service quality model which highlighted the requirements for deliver high service quality. The model identifies five gaps that may cause unsuccessful services delivery.

There are five gaps in this model. Gap 1 is the gap between consumer expectation and management perception. Gap 2 is the gap between management perception and service quality specification. Gap 3 is the gap between service quality specification and service delivery. Gap 4 is the gap between service delivery and external communication. Gap 5 is the gap between perceived service and expected service.

Source: Parasuraman et al. (1985:44).

Based on this research, Parasuraman et. al (1985) identify ten factors which determine the services quality. These determinants were:

  1. Tangibles
  2. Reliability
  3. Responsiveness
  4. Competency
  5. Courtesy
  6. Communication
  7. Credibility
  8. Security
  9. Access
  10. Understanding the customer

Parasuraman et al. (1988) furthered the service delivery process and established a SERVOQUAL service quality analytical framework which includes five factors: Tangibles, Reliability, Responsiveness, Assurance, and Empathy(Zeithaml et al, 1990).

  1. Tangibles. All physical elements of the provision of service by banks. It includes the building, decoration, equipment, personnel, publications, visible materials, etc.
  2. Reliability. He extent to which repeated use of the product or service satisfies customers' requirements of it. It creates a level of trust by the customer in the services and products provided by banks and it directly affects customer perceptions of brand, economic strength, the levels of professionalism of staff and the quality of products.
  3. Responsiveness. The speed the company responds to the requirements of customer. Typically, this is a function of the willingness of bank staff to provide the necessary services when requested by customers. It not only embodies the attitude of a bank’s service and work efficiency, but also demonstrates the difference in quality compared with the inter-bank service.
  4. Assurance. This is the customer's feeling that bank staff are fully capable of dealing with problems in the course of their work.
  5. Empathy. This is a measure of the extent to which the supplier identifies the customers' problems as also being their own problems and the willingness with which they take those problems on board for resolution. Typically it would include providing customers with personalized product portfolios in line with their personal needs and aspirations.

Based on these five factors, they developed a 22 items scale to measure service quality. The following table illustrates the details.

ries. Carman (1990) suggested adding certain dimensions which are differentially important in different industry. Cronin and Taylor (1992) argued that SERVQUAL model was not appropriate in their study of banking and fast food industries. Another criticism is about the process orientation, meaning that the SERVQUAL focuses on the process of service delivery rather than outcomes of the service encounter. Richard and Allaway(1993) suggested that process and outcome is a better predictor of consumer choice than process.

Another attempt to determine service quality was that of Cronin and Taylor (1992), SERVPERF model. Cronin andTaylor (1992) support the performance-only measures, rather than the expectations-perceptions gap, and they state that performance explains more of the variation in service quality than does SERVQUAL. SERVPERF examines mainly the relationships between service quality, customer satisfaction, and purchase intentions and not service quality ( Baggs &Kleiner 1996). Cronin &Taylor (1992) who felt the expectations of the customer should not be considered when measuring service quality. The findings of Cronin &Taylor (1992) indicated that the SERVPERF method of measuring service quality to be the most accurate measure amongst the four tested.

However, Philip and Hazlet (1997) argue that the SERVQUAL conceptual framework has covered much ground in allowing researchers to derive a greater understanding of the concept of service quality and the factors that influence it.

Oppewal and Vriens (2000) suggested the use of conjoint experiments to measure retail banking service quality. They presented four dimensions which are accessibility, competence, accuracy and friendliness, tangibles.

In conclusion, both two models have the advantage and disadvantage and it is difficult to choose one of them. Although SERVQUAL model obtain many criticisms, it has been widely known and was thought applicable.

To survive in the highly competitive online banking industry, providing high quality services are very important to banks (Mefford, 1993). Therefore, banks are required to understand customer’ judge about the service quality in order to improve the service quality in order to retain and attract more customers to achieve the goal of gain more profit. Jun and Cai (2001) argued that there are numerous studies in service quality of traditional banks but very few in online banks. They divided online banking services into three categories.

  • Customer service quality.
  • Online systems quality.
  • Banking service product quality.

Josepy et al. (1999) presented six factors of quality in electronic banking services such as online banking service and ATM.:

  1. Convenience/accuracy
  2. Feedback/complaint management
  3. Efficiency
  4. Queue management
  5. Accessibility
  6. Customization

2.5 Customer Satisfaction

2.5.1 Definition of Customer Satisfaction

Customer satisfaction is one of the most important issues to most business organizations. Cardozo (1965) firstly defined customer satisfaction as customer perception of product performance, he pointed out that customer satisfaction will increase re-purchase activities. Cadotte et al. (1987) pointed out that customer satisfaction is a rational process of evaluation, they believes that before buying customers will create a standard according to the consumer experience.

After the purchase, customer will compare the actual product performance and the standard, draw a positive or negative feeling which will affect customer satisfaction. Oliver (1997) defined customer satisfaction as pleasure fulfillment. According to Kotler & Keller (2006, P144), “satisfaction is 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.”

Customer dissatisfaction results when performance falls short of expectation. If performance matches or exceeds expectations, on the other hand, the customer is impressed. The level of customer satisfaction is determined customers’ views of an organization’s products and/or services in light of their experiences with that organization in comparison with what they have experienced or heard about other organizations (Szwarc, P., 2005).

According to the theories above, we can describe customer satisfaction from the following three aspects:

  • Customer satisfaction relates to and is generated by good products and/or services. It concerns all aspects of the product or service concerned.
  • The actual level of satisfaction is judged by customers as a result of the product/service matching or exceeding expectations.
  • Customer satisfaction does not occur until after purchase. Only when customers use the product/services can they make judgments about them.

The improvements brought by increased customer satisfaction include increased market share, higher profitability and better customer loyalty (Anderson, E.W. and Sullivan, M.). Generating customer satisfaction is not easy. Companies must ensure that they identify the specific features of their products or services which are considered most important by customers if they are to raise the level of customer satisfaction.

2.5.2 Benefit of Customer Satisfaction

Consumer satisfaction becomes the focus of interest because the role of the customers active response have been heightened (Cho, M. and Park, S., 2001). As the customers’ level of satisfaction is regarded to affect their purchase, more and more companies have focused on how to improve it (Oliver, 1980). Patterson (1997) suggested that the level of customer satisfaction is highly associated with customers’ repurchase action.

The higher customer satisfaction will result in a higher intent to repurchase behaviour (Rust and Williams, 1994). Satisfied customers are more likely to return to the company, however, dissatisfied customers are more likely to go to other companies next time. According to Kotler and Keller (2006), highly satisfied customers may generally stays loyal longer, buy more existing products and the new produces the company introduced. They may talks about the company and its products favourably, pay less attention to other competing companies and are less sensitive to price.

2.5.3 Measurement of Customer Satisfaction

Customer satisfaction is a key factor to retain customer. Companies must measure customer satisfaction if they want to achieve it (Ho, 1995). Nowadays more and more companies are measuring customer satisfaction regularly. As a critical factor in raising satisfaction levels, many firms have placed new emphasis on listening to their customers in an effort to better understand them (Griffin, A., and Hauser, J.R., 1993).

A common way to measure customer satisfaction is to subdivide satisfaction into different classifications and to measure by having respondents ‘score’ the level of satisfaction against each classification (Funston, R., 1992). There are several approaches to measure customer satisfaction. Customer satisfaction index is a product of the early 1990s, the main index is the Swedish Customer Satisfaction Index (SCSI, 1989), the American Customer Satisfaction Index (ACSI, 1994) and the European Customer Satisfaction Index (ECSI, 1998). Later, customer satisfaction index was accepted and used worldwide.

According to Oliver (1993), effective dimensions and emotions have been included in recent models. Nowadays, more and more government and organizations have bulid up their own customer satisfaction index systems, such as Swiss Index of Customer satisfaction (SWICS), German Barometer, Korean Customer Satisfaction Index (KCSI) and so on. Although these customer satisfaction index models are similar in measurement model, they have obvious differences in structure and selected variables..

Not like traditional banks, the services provided by online banking are based on virtual economy. According to Jayawardhena and Foley (2000), Website factors such as design structure, download speed, content, interactive action and security have plays important influences on customer satisfaction.

The Swedish Customer Satisfaction Index (SCSI)

Fornell (1992) set up a systematic and long-term customer satisfaction index based on 1989 to 1991 Swedish National Satisfaction Survey, which is called the National Customers Satisfaction: The Swedish Experience, also known as the Swedish Customer Satisfaction Index. In SCSI, perceived quality and value were consolidated into one variable which is perceived value.

The American Customer Satisfaction Index¼ˆACSI¼‰

The ACSI model was launched in 1994 (Fornell et al, 1996). It was developed by the University of Michigan's Ross School of Business to measure the perceived satisfaction customers feel with companies, industries or national economies (Anderson and Fornell, 2000).  It shows the driver of satisfaction on the left side of the model and includes customer expectations, perceived quality, and perceived value. On the right side, it shows levels of satisfaction which include customer complaints and customer loyalty.

Each of these components requires several questions to be asked to enable evaluation of each section. Based on this model, we can relate the effects of the left side components to the levels of satisfaction on the right. The arrows in the model indicate the impact of each component on the others. By measuring the strength of the “impacts” from left to right, it is possible to choose the components which give greatest customer satisfaction.

Figure 2.6 The ACSI Model

The American Customer Satisfaction Index (ACSI), (www.theacsi.org)

According to this model, it is necessary to discuss perceived quality and customer expectations. As illustrated by Zeithaml et al (1990), the factors which have an impact on quality of service can be divided into two groups, Perceived Service Performance and Expected Service Performance.

Expected Service Performance reflects the requirements of the customer; Perceived Service Performance reflects the experience of the customer with the products or services. Quality of service is essentially the extent to which the Perceived Service Performance matches the Expected.

The European Customer Satisfaction Index (ECSI)

Gronholdt et al. (2000) suggested that the ECSI model is a well-established instrument for measuring customer satisfaction and its related constructs. At present, this model includes the constructs of image, customer expectations, products and services, customer services, customer perceived value, customer satisfaction and loyalty. The ECSI divided customer perceived quality into two parts, product quality and service quality (Kristensen et al, 2000).

In this model, company image was supposed to have direct influence on customer expectation, satisfaction and loyalty. However, later research in Denmark suggested that company image only impact on customer expectation and satisfaction. In this model, company image is determined by the performance of company in the whole society not merely in market. That is, reputation is not only related to final reports, but more important. However, European nations have different opinions on the relationships among constructs though they have very similar models (Yang et al, ).

In SCSI and ACSI, customer expectation was supposed to have a positive influence to perceived value and quality. However, many evidence showed that expectation has limited effect on other constructs in the model. Therefore, ECSI did not posit any relations between them. In ACSI, customer loyalty was measured by post purchase behaviour. In ECSI, it was extended to include word-of-mouth.

2.6 Customer Loyalty

2.6.1 Definition of Customer Loyalty

Oliver (1999) defines loyalty as “a deeply held commitment to re-buy or re-patronize a preferred product or services in the future despite situational influences and marketing efforts having the potential to cause switching behavior”. Loyal customers provide more repeat business and are less likely to be tempted to other companies (Hamel, G.,1996). Peltier and Westfall (2000) argue that customer loyalty can be seen as from the attitude, intent and possibility of awareness, it should be measured by multiple indicators.

They also suggested that the possibility of re-purchase and recommendation are two important factors to measure customer loyalty (Peltier and Westfall, 2000). Palmer (2005) identified customer loyalty from measuring view as that a customer non-randomly repeats purchasing from a seller, with behavioral and attitudinal dimensions.

There are some factors suggested to impact on customer loyalty. Services quality has played a key role in loyalty, customer satisfaction, switching cost, company reputation and trust. Veloutsou et al. (2004) suggested that customer satisfaction, perceived quality and reputation are main drivers of bank brand loyalty.

As online banking provide services via internet, people consider company reputation and trust a lot when choosing online banking services. As illustrated by Andreassen and Lindestad (1998), company reputation is considered as a perception of quality associated with the name of the brand.

2.6.2 Benefit of Customer Loyalty

Fecikova (2004) suggested that customers’ loyalty is a function of satisfaction. Loyal customers are more likely to purchase your services again, encourage other people to buy and even spend more money on your services. They will bring long-term profit to the companies. Loyalty is considered as the most important factor in services marketing as it is the final effect on customers repurchasing behaviour (Caruana, 2000).There is a positive impact of customer loyalty on profitability (Storbacka, 1994).

Loyalty is important and more dominant in the service sector (Gremler & Brown, 1999) since service loyalty depends more on the development of interpersonal relationships as opposed to loyalty with tangible goods (Macintosh & Lockshin, 1998).

Loyal customers can be and should be the foundation for marketing strategy. Beyond the profit they generate, loyal customers provide the basis for brand development and improvement. The brand that losses sight of its loyal customers has lost its direction, and is vulnerable to losing market share (Reichheld and Sasser, 1990).

It is commonly accepted that there is a positive relationship between customer loyalty and profitability (Bowen & Chen, 2001). The findings of Reichheld and Sasser (1990) research should be mention as a classical example, which depict that when a company retains a 5% of its customers, profits increase by 25% to 85%. This is justified because new customer acquisition costs more than customer rention, and loyal customers generate more profits (Levesque & McDougall, 1996).Thus the firm can utilise potential customer relationship economic opportunities in a favourable way (Storbacka et al, 1994).

In the past, Lewis (1991) pointed out that the reasons consumers switched delivery channel from traditional to electronic self-service was the dissatisfaction with their present services. These might include the slow speed of service in branches, inconvenient branch opening hours or places and the small number of branch staff available to serve customers, etc. While a number of recent studies focussing on customer satisfaction with bank services, indicate that early adopters and heavy users of internet banking were more satisfied with this service compared to other customers (Polatoglu and Ekin, 2001).

2.6.3 Measurement of Customer Loyalty

The theoretical models of customer loyalty would be discussed bellow. Customer loyalty is difficult to define. Dick and Basu (1994:100) suggested that there are two main factors determine on customer loyalty, “a more favorable attitude towards a brand and repeat patronage”. They argue that low relative attitude with low repurchase behavior to a company will indicate low customer loyalty, but low relative attitude with high repurchase behavior will result in forged customer loyalty (Dick and Basu, 1994). They also point out that service quality is a recognized premise to customer loyalty because service quality will influence customers’ attitude a lot (Dick and Basu, 1994).

In general, there are three distinctive approaches to measuring loyalty: behavioral measurements, attitudinal measurement and composite measurements.

Behavioral measurements address consistent, repetitious purchasing behavior. It suffers somewhat from the fact that repeat purchases are not always the result of a psychological commitment toward the brand (TePeci, 1999).

Attitudinal measurements address the emotional and psychological attachment to the brand. This may result from public relations activity or from recommendations by word-of-mouth. They are concerned with the sense of loyalty, engagement and allegiance and there are instances where this exists in non-customers.

The third approach, composite measurements of loyalty, combines the first two dimensions and measures loyalty by customers’ product preferences, propensity to brand-switching, frequency of purchase, recency of purchase and total amount of purchase (Pritchard and Howard, 1997). The two-dimensional composite measurement approach has been applied and supported as a valuable tool to understand customer loyalty in several fields, such as retailing, recreation, upscale hotels and airlines (Pritchard and Howard, 1997).

Fonrell (1992) pointed out that customer loyalty can be measured by repurchase willing and the tolerance of price. Gronholdt et al. (2000) suggested that customer loyalty is composed of four indicators, including the customer’s willing to re-purchase, tolerance of price, recommend the company or products to others and their willing of cross-purchase.

However, Ingrid (2004) argued that customer loyalty is composed of three indicators, which are pay more money to buy the company’s products or services, encourage other people to bye the company’s products or services and believe the purchase of the company’s products are valuable.

In this project, the composite approach was selected to measure customer loyalty. For this study, loyal customers are customers who recommend ICBC online banking to others, continue use it, and regard ICBC as their first choice for new financial services products.

2.7 Customer Complaint Behaviour

Customer communication is considered as a very important factor in service marketing. The majority of customers will participate in private word-of-mouth activities regarding their consumptive activities (Day and Landon, 1977). The valence of these word-of-mouth activities may be negative, neutral, or positive.

When there is a difference between customer expectation and the actual performance of products or services, the negative feelings will result in complaint behaviour. In order to restore the confidence of customers and reduce the loss of customers, enterprises bound to act on the complaints to make up the deficiencies in the services process.

The research of customer complaint behaviour began in the 1979s, early scholars including Landon (1977) and Best & Andreasen (1977). According to Oliver (1987), customer complaint behaviour was considered as a mechanism that can be taken when customers are dissatisfied with the consumer experience, it can be used to alleviate the level of cognitive dissonance. Nyer (1999) suggested that complaint behaviour is a mechanism for customers to vent anger and frustration, and to seek the compensation of the failure of consumer experience.

Day and Landon (1977) proposed a two-level hierarchical classification of complaint behaviour. The first level is divided into action and no action. Then the action level is divided into public actions and private actions. Public actions including seeking refund from the company, restitution to the consumer association or court, private actions including boycott the company, word-of-mouth communication to relatives and friends. The following figure illustrates the structure of this model.

Day (1980) presented a different view of the second level. He suggested that customers can be divided into three categories in accordance with the purposes of their complaint. There are seeking compensation, expressing dissatisfaction and personal boycott. Singh (1988) argued that customers complaint behaviour can be divided into three categories: direct complain, complain in private and to a third party. Davidow and Dacin (1997) improved Singh’s classification, they suggested that customers complaints behaviour can be divided in two dimensions, one dimension is whether the complaints object is in their cycle, the other dimension is whether the complaints object are directly related to the purchase. They divided complaints behaviour to four types, complain to seller, complain to relatives or friends, complain to third party and boycott.

Deal with complaints is also called service recovery, it referred to when the service errors occur, the service provider taken some remedial actions to handle the customer complaints. Previous studies found that people rarely complain even they were dissatisfied with the services. However, they still would like to know how other complaints were handled. Sasser et al. (1990) proposed that remedial services is the way of companies to solve customers complaint and improve the service, if they did well, the negative experience of customers will be strengthened, but if they did properly, customers till establish the trust to company.

Tax and Brown (1998) defined deal with complaints as a management process, firstly the company should fine the failure services, analysis the reason, then take appropriate methods to solve the problem on the basis of quantitative analysis. However, the study of Bejou and Palmer (1998) about service failure and customer loyalty showed that no remedy to the failure of services will reduce customer loyalty.

2.8 Relationships among Service Quality, Customer Satisfaction and Customer Loyalty

According to previous marketing literatures, there is a high positive correlation between service quality and customer satisfaction and loyalty.

2.8.1 Services Quality and Satisfaction

Earlier studies found that customer satisfaction and service quality are linked together. Service quality is considered as one of the most important factors to drive customer satisfaction and repeat patronage intentions (Bloemer, et al, 1998). There is no doubt that excellent services would made customer more satisfied.

Boulding et al. (1993) found positive relationships between service quality and repurchase intentions and willingness to recommend to others. Bloemer, et al (1998) pointed out that measuring customer satisfaction can only tells whether the customer is satisfied or not, it can not tell enterprises what to do with it. However, measuring service quality can tell what aspects of service have problem and need to be improved.

2.8.2 Services Quality and Loyalty

Zeithaml et al. (1996) highlighted the importance of services as it is an important determinant factor of customer loyalty. Parasuraman et al. (1988) pointed out that service quality is related to customer behaviour, service quality determine the customer’s final behaviour. If the company provide excellent services, the customer will have positive intention. Otherwise, the customer will have negative intention (Parasuraman et al., 1988).

Abratt and Russell (1999) suggested that more and more studies support that service quality is a key determination of customer relationship and loyalty. Excellent service will bring customer loyalty to service companies (Reichheld, 1990). If a company can continually provide excellent services to customers, their willing to re-purchase will increase. This means the improvement of service quality can improve the possibility of re-purchase behaviour and the customer loyalty. Storbacka et al, (1994) argue that it is also possible to keep dissatisfied customers loyal due to high switching cost.

2.8.3 Customer Satisfaction and Loyalty

According to the studies of customer relationship management, customer satisfaction is regarded closely related to customer loyalty to a certain product and brand (Anderson et al., 1994). There is a positive relationship between customer loyalty and profitability. Fornell (1992) suggested that higher customer satisfaction will lead to higher customer loyalty. Completely satisfied customers are more likely to be loyalty than merely satisfied customers (Stauss and Neuhaus, 1977).

In many industries, managers are placing increased emphasis on customer satisfaction in order to strength customer loyalty (Yang and Chen, 2000). Reichheld and Sasser (1990) found that when a company retains just 5 percent more of its customers, profits can increase significantly. This increased profit comes from reduced marketing costs, increased sales and reduced operational costs.

The findings support the theory that customer satisfaction is related to customer loyalty, which in turn is related to profitability. The service profit chain (Heskett et al, 2003) hypothesizes that: Customer satisfaction - customer loyalty - profitability. As argues by Yi (1990, p104), “Many studies found that customer satisfaction influences purchase intentions as well as post-purchase attitude”.

However, the ability of customer satisfaction scores to predict such loyalty has not been adequately demonstrated (Higgins, 1997). Kotler and Keller (2006) suggested that the relationship between customer satisfaction and customer loyalty is not proportional. They suppose customer satisfaction is rated on a scale from one to five. At a very low level customers ate likely to abandon the company and even bad-mouth it. At level two or four, customers are fairly satisfied but still easy to switch when meet a better offer. At level five, the customers are very likely to repurchase and good mouth about the company.

Service management literature argues that customer satisfaction is the result of a customer’s perception of the value received in a transaction or relationship. Loyalty behaviour, including relationship continuance, increased scale or scope of relationship, and recommendation (word of mouth advertising) results from customers’ beliefs that the quantity of value received from one supplier is greater than from others.

2.8.4 The Influence of Customer Complant

No matter how well the services are designed and delivered, mistakes will happen. According to a study of customer dissatisfaction, customers are dissatisfied with their purchases about 25 percent of the time but only about 5 percent complain. The other 95 percent thought it is not worth to complain or they are not sure how to complain (Kotler and Keller, 2006). Ganesh et. al suggested that customers whose complains are resolved satisfactorily always been more loyalty than customers who were never dissatisfied.

According to Bolton (1998), an effective solution to customer complaints will impact on customer satisfaction and loyalty a lot. He suggested if the dissatisfy customers experience excellent handling of complaints, they will be more satisfied and would like to come again. Bejou and Palmer (1998) suggested that if there are something wrong happened in services process, the companies excellent dealing with customer complaints can make customer fell reliable and result in higher customer loyalty.

2.9 Research Model of this Study

By comprehensive the previous literatures and the characteristics of Chinese online banking services, the writer presented a model of this study.

Figure 2.9 Research Model of this Study

Source: this study.

2.10 Conclusion

This chapter first introduced the overview of Chinese online banking services and the development of ICBC online banking. Since the duration of protection provided by WTO organization will finish, it is both an opportunity and a challenge for the most profit e-service bank--China construction Bank, More and more foreign banks will have the chance to share this daily bills payment market. ICBC will face more competitors from that time.

Secondly, the writer clarified what the service quality, customer satisfaction, customer loyalty and customer complaint behaviour have been covered in the previous study, indicated which factors would affect them and what kind of methods were used to measure them. In this part, the characteristics of online services and customer’s adoption of online banking services are also addressed.

Thirdly, the relationships between these four concepts were reviewed. Finally, the writer presented a research model of this study.

Chapter 3 Methodology

3.1 Introduction

In this chapter, the detailed methodology of this study is presented. The main purpose of this research is to examine the customer satisfaction and loyalty in online banking services of Industrial and Commercial Bank of China (ICBC). Firstly, the purpose of the study is introduced.

Then the writer discusses the research approach and type of investigation, as well as the research questions and hypothesis formulation. After that, the study looks at the measurement of variables and research instruments such as data collection, questionnaire design, as well as the pilot study and sampling attained with the key attentions of the chapter. Furthermore, the data analysis plan is also given.

3.2 Purpose of the Study

In the past twenty years, the development of computer technology and information network technology has change the financial services sector dramatically by introduced the online banking. Online banking services have shown improvements such as lower cost and convenience of use compared to traditional banking services as they have developed rapid in recent years. Furthermore, as the 21st century is a customer-oriented century, how to create and maintain customer loyalty has became an important part of marketing strategy in the banking industry.

The significant growth in both trading volume and customers in online banking services have also attracted researchers. Many researches have been done and positive results been in the fields of customer satisfaction and loyalty. However, online banking services in China only have ten years history. The researches into Chinese online banking services are very limited. Although ICBC is the biggest national owned commercial bank in China and famous for its rapid development of online banking services, the services quality, customer satisfaction and loyalty to its online banking services are still not clear.

As a result, the purpose of this study is to examine the service quality, customer satisfaction and loyalty in ICBC online banking services. It will test whether there is a difference between customer expectation and perceived service quality in ICBC online banking services, examine the relationship between customer perceived service quality, customer satisfaction and customer loyalty, find out how the handle methods of customer complaint influence customer loyalty of ICBC online banking services, investigate the current situation and give some evaluations.

3.3 Research Approach and Type of Investigation

3.3.1 Research Type and Approach

As illustrated by Sekaran (2003:3), research is an “organized, systematic, critical, scientific, inquiry or investigation into a specific problem, undertaken with the purpose of finding answers or solutions to it”. Briefly, it is a process of finding solutions to a problem through analysis the factors and study (Sekaran, 2003). There are two types of business research, applied research and basic research. The former is used to solve a problem faced by the managers, while the latter is intended t

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