Development and Application of an Analytical Framework for the Measurement of Customer Service Quality in the Banking Industry of Cyprus

Abstract

The main objectives of this study are to demonstrate the significance of customer service quality in the banking sector of Cyprus in order to enable managers in banking organisations to identify the determinants of customer perceptions of service quality and ultimately to provide a method to measure the levels of service quality offered. Therefore, the objectives of this thesis are: • To evaluate the SERVQUAL model and assess whether it can be applied in the context of the Cypriot banking industry, and consequently establish a reliable and valid service quality measurement instrument for Cypriot banks, and • To identify the level of service from banks in Cyprus and detect ways to improve the service quality offered. This study evaluates SERVQUAL dimensions, and more specifically the perceptions side of the instrument, and modifies it through an extensive and in-depth analysis of the literature review published on the topic of service quality and through interviews with bank experts and quality specialists so as to assess its applicability to the banking industry in Cyprus. As a result of this analysis, a modified version of the perceptions’ side of SERVQUAL was constructed as a measurement scale of service quality in the banking sector of Cyprus. Data were collected through customer surveys conducted outside bank branches. Subsequently, the collected data were analysed through tools such as factor analysis, multiple regression analysis, and internal consistency measurement. This analysis helped to prove the validity and reliability of the modified instrument used to measure service quality and revealed the dimensional structure of the service quality construct in the Cypriot banking sector. The major findings of this study suggest a four-dimensional construct derived from 23 items in the questionnaire. These dimensions are employee proficiency, convenience, professionalism and assurance. All four factors are positive and significant predictors of service quality. This result is different from the SERVQUAL and the SERVPERF models as both indicate five dimensions composed of 22 items. The reliability and validity of the scale(s) in this study were fully supported. These results lead to several implications for both researchers and practitioners. For theorists, the results of this study can be used as foundations for further studies, for questionnaire scale development, to further support the use of a single scale and to raise the issue of the non-existence of the ‘tangibles’ dimension, which is not fully discussed in the literature and should be tested in future studies as well. For managers and practitioners this study offers much support for the importance of employees and for a continuous investment in service quality programmes. It also suggests incorporating service quality measurement into branch performance measurement. Finally, the results obtained in this study pose significant challenges to managers and support the idea that practitioners should have a comprehensive view of service quality in banking organizations to accurately measure customer perceptions of service quality.