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The Service Industries Journal
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Zone of tolerance for banks: a diagnostic model of service quality
Halil Nadiri
a
; Jay Kandampully
b
; Kashif Hussain
c
a
Department of Business Administration, Eastern Mediterranean University, Famagusta, Turkey
b
Department of Consumer Sciences, The Ohio State University, Columbus, OH, USA
c
School of Tourism and
Hospitality Management, Eastern Mediterranean University, Famagusta, Turkey
First Published:2009
To cite this Article Nadiri, Halil, Kandampully, Jay and Hussain, Kashif(2009)'Zone of tolerance for banks: a diagnostic model of service
quality',The Service Industries Journal,29:11,1547 — 1564
To link to this Article: DOI: 10.1080/02642060902793425
URL: http://dx.doi.org/10.1080/02642060902793425
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Zone of tolerance for banks: a diagnostic model of service quality
Halil Nadiri
a
, Jay Kandampul ly
b
and Kashif Hussain
c
a
Department of Business Administration, Eastern Mediterranean University, Famagusta, Turkey;
b
Department of Consumer Sciences, The Ohio State University, Columbus, OH, 43210, USA;
c
School of Tourism and Hospitality Management, Eastern Mediterranean University,
Famagusta, Turkey
(Received 24 April 2007; final version received 11 June 2007)
Service quality has become an increasingly important factor for success and survival in
the banking sector. Provision of high-quality service aids in meeting several
requirements such as customer satisfaction and its consequent loyalty and market
share, soliciting new customers, financial performance, and profitability (Cui, C.C.,
Lewis, B.R., & Park, W. (2003). Service quality measurement in the banking sector
in South Korea. International Journal of Bank Marketing, 21(4), 191 –201.). This
paper presents the bank service quality measurement in its extended form. It deals
with the concept of ‘zone of tolerance’ in judgments of service quality proposed by
Zeithaml, Berry, and Parasuraman (1993, The nature and determinants of customer
expectations of service. Journal of the Academy of Marketing Science, 21(1),
1–12.). The ‘zone of tolerance’ is recognized in the service quality literature as
representing a range of expectations and an area of acceptable outcomes in service
interactions. The present study describes the zone of tolerance for young customers’
service expectations and determines the customer satisfaction level for banks. The
study focusses only on the youth market to formulate long-term strategies because
young customers tend to keep themselves up to date with latest technological
developments. A conceptual model BANKZOT is presented in this study, and the
results demonstrate that evaluation of services can be scaled according to different
types of expectations – ‘desired’ and ‘adequate’ – and that customers use these two
types of expectations as a comparison standard in evaluating bank services. The
findings reveal that young customers have a narrow zone of tolerance with regard to
the services provided by the banks. The results with respect to gap analysis reveal
that there was a shortfall in the service quality provided by the banks in the sample,
with the largest gap being found in tangibles and empathy of service quality
dimensions. The results of exploratory factor analysis reveal that the SERVQUAL
model is found to be uni-dimensional in this study. The results, managerial
implications, and future research implications are discussed in detail.
Keywords: service quality; customer satisfaction; zone of tolerance; banks; university
students
Introduction
The int ense compet ition in the financial serv ice sector makes marketing management
a legitimate banking activity (Kara, Kaynak, & Kucukemiroglu, 1994). This intense
competition in the banking s ector forces financial institutions to involve in scanning
their competitive business environment more c losely and to try to design and
implement proactive marketing strategies to combat threats from competing
ISSN 0264-2069 print/ISSN 1743-9507 online
# 2009 Taylor & Francis
DOI: 10.1080/02642060902793425
http://www.informaworld.com
Corresponding author. Email: halil.nadiri@emu.edu.tr
The Service Industries Journal
Vol. 29, No. 11, November 2009, 1547 – 1564
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financial institutions. In recent years, the banking sector has directed their strategies
towards increasing c ustomer satisfaction a nd loyalty through improved service
quality (Levesque & McDougall, 1996). Today, service quality has become an
increasingly important factor for success and survival in the banking sector. Provision
of high-quality service helps in meeting several esse ntial re quire ments for financi al
institutions to successfully compete in the market, for example, customer satisfaction
and the resulting loyalty, market share, financial performance, and profitability (Cui,
Lewis, & Park, 2003). The key to competitive advantage in today’s environment lies
in delivering high-quality service that results in satisfied customers (Shemwell, Yavas¸,
& Bi lgin, 1998). Given the fact that service quality is positively related to customer
loyalty, service quality has a direct e ffect on company profits (Baker & Crompton,
2000; Zeithaml & B itner, 2000). Research has indicated that service quality leads
to customer satisfaction, entices customers to r eturn, and encourages customers to
provide positive recommendation. In effect, customer satisfaction increases profitabil-
ity, m arket s hare, and return on investment (Barsky & Labagh, 1992; Fornell, 1992;
Hackl & Westlund, 2000; Halstead & Page, 1992; LeBlanc, 1992; Legoherel, 1998;
Stevens, Knutson, & Patton, 1995). It is, therefore, apparent that banks need to
focus on enhancing the quality of service continuously if they are to gain and maintain
competitive advantage.
It is, therefore, imperative to reliably assess, measure, and seek ways to enhance the
quality of service. According to the SERVQUAL model (Parasuraman, Zeithaml, &
Berry, 1988), service quality can be measured by identifying the gaps between customers’
expectations of the service to be ren dered and their perceptions of the actual performance
of the service. Despite numerous criticism’s of SERVQUAL, Zeithaml, Berry, and Para-
suraman (1993) contend that the instrument provides a useful method for quantifying
desired service levels, minimum service levels, and customer perceptions of actual
service. Further, Parasuraman (2004) discussed the concept of ‘zone of tolerance’ of
service as the difference between desired service (what the customer hopes to receive)
and adequate service (what the customer will accept as sufficient) this concept has
direct relevance to various service sectors to assist the firm manage service more effi-
ciently. The service level that a customer believes the firm will actually deliver is referred
to as the predicted service. However, rather than having a single ‘ideal’ level of expec-
tation, customers have a range of expectations. Parasuraman (2004) refers to this range
of expectations as the ‘zone of tolerance’, where ‘desired service’ is at the top, and ‘ade-
quate service’ at the bottom, of the scale. According to Parasuraman (2004), if the service
delivered falls within the zone, customers will be satisfied and if the service is better than
their desired service level, customers will perceive the service as exceptionally good, and
be delighted. However, if the service falls below the zone of tolerance, customers will not
only be unsatisfied but will feel cheated and will take their custom elsewhere.
The zone of tolerance provides a range within which customers are willing to accept
variations in service delivery. There are relatively few studies that have focussed on pre-
scribing norms in measuring zone of tolerance for service quality. However, a few studies
reveal that the zone of tolerance framework allows one to assess customer expectations in
a manner not afforded by the traditional SERVQUAL framework (Walker & Baker, 2000).
By incorporating two service expectation levels, desired and adequate, practitioners
should be better able to assess their level of delivered service quality and determine
more precisely where resources are needed. Therefore, this method gives managers a
more useful tool than the traditional SERVQUAL (desired expectations only) format
for formulating effective marketing strategy. Incorporating the zone of tolerance
1548 H. Nadiri et al.
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framework will help practitioners better identify key service components and deliver on
them more consistently (Walker & Baker, 2000). The concept of zone of tolerance is
quite useful as a way into exploring the dynamic aspects of the relationship between
service process and service output (Johnston, 1994). Kennedy and Thirkell (1988) see it
as a middle condition in the outcome of the disconfirmation model. A poor-quality
service will cause dissatisfaction, while a good-quality service causes delight. An accep-
table quality (confirmation rather than disconfirmation) results in satisfaction. Other
authors like DeCarvalho and Leite (1999) and Caruana, Ewing, and Ramaseshan (2000)
support the use of zone of tolerance for measurement and improvement of service
quality. Cavana, Corbett, and Lo (2007) report that zones of tolerance provide information
about the areas and attributes that need to be improved. Yap and Sweeney (2007) also
support the zone of tolerance concept. Teas and DeCarlo (2004) report that the zone of
tolerance provides diagnostic value by capturing the range of service within which a
firm meets customer expectations. Therefore, the zone of tolerance can also provide
insight into the relative importance of each dimension of SERVQUAL (tangibles,
reliability, responsiveness, assurance, and empathy). Moreover, the gap model (between
perceptions and expectations) proposed by Parasuraman, Berry, and Zeithaml (1991)
provides a means of analyzing the situation, so that practical steps can be taken to
improve service quality.
In order to develop long-term strategies, this study is focussed on the youth market
because young customers are regarded as prospective targets for current marketing
activity and a potentially lucrative segment to form longer-term marketing relationships
(Jenkinson, 2000). Young customers are also more in tune with the technology lead
service changes in the banking sector such as ATMs, credit cards, telephone
banking, online/Internet banking, etc. Therefore, young customers are the future
generation of bank users and hence this segment of the market is considered to be
very important.
The present study explores the zone of tolerance and customer satisfaction level within
young customers in banks. Considering the wide recognition and validation of the
SERVQUAL instrument, we chose SERVQ UAL for the present study. This study
finding contributes theoretically and would be useful for practicing managers. However,
within the banking literature the youth market has been less researched within the
service quality context, hence the relevance of this study. We are unable to identify pre-
vious studies of the youth market that focussed on the zone of tolerance in the banking
sector hence the importance and contributions of this study to the present body of knowl-
edge. Zone of tolerance management is important for the banks in that it enables managers
to identify and improve banks’ Customer Relationship Management strategies.
The first section of this paper examines the literature that assisted the authors to
develop the conceptual framework for this research. The paper then pr esents the method-
ology of the study, including a conceptual model and a sound method for measuring the
zone of tolerance in banks. The findings of the study are then presented, followed by a
discussion of the implications and final conclusions.
The nature of zone of tolerance
Berry and Parasuraman (1991) found that the customers’ service expectation exis ts at two
levels, the desired level and the adequate level. The desired service level describes the
service that the customer hopes to receive. This level is made up by a mix of what the cus-
tomer believes ‘can be’ and ‘should be’. The adequate level describes what the customer
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finds acceptable. This level reflects the customer evaluation of what the service ‘will be’,
or in other words the customer’s predicted service level. Between these two levels there is
a zone of tolerance, which is a range of service performance that the customers finds sat-
isfactory. A level below the zone of tolerance will lead to customer frustration and
decrease customer loyalty, hence resulting in dissatisfaction. A level above the tolerance
zone will lead to positively surprised customers and strengthen loyalty, hence resulting in
satisfied customers. To illustrate this Berry and Parasuraman (1991) describes a customer
at a bank. The customer wishes to have a check cashed in 3 min (desired service level).
However, due to past experiences the customer knows that factors such as number of
customers in the waiting line, time of the day etc. might increase the number of
minutes to be served. This results in the customer being willing to tolerate a total trans-
action time of 10 min (adequate service level). This means that the customer will be
satisfied with the speed of the service if the total transaction time is between 3 and
10 min (zone of tolerance). It is, therefore, considered a good strategy for service compa-
nies to aim to please customers by promising what they can deliver, then delivering more
than what was promised.
Parasuraman, Zeithaml, and Berry (1994) modified their SERVQUAL model to
measure two aspects of service quality:
.
the gap between perceived service and desired service – referred to as ‘measure of
service superiority’ (MSS);
.
the discrepancy between perceived service and adequate service (or minimum
service) – referred to as ‘measure of service adequacy’ (MSA).
Parasuraman et al. (1994) suggest three alternative service quality measurement
formats. These were as follows:
.
The first was a three-column format that generates separate ratings of desired, ade-
quate, and perceived service using three identical, side-by-side scales. This requires
computation of the ‘perceived – desired difference’ (for MSS) and the ‘perceived –
adequate difference’ (for MSA). Its operationalization of service quality is, thus,
similar to that of SERVQUAL – although it does not repeat the battery of items.
.
The second was a two-column format. In contrast to SERVQUAL, this format gen-
erates direct ratings of the service-superiority gap (MSS) and the service-adequacy
gap (MSA) using two identical scales.
.
The third was a one-column format. This format also generates direct ratings of the
service-superiority gap and the service-adequacy gap. However, the questionnaire
is split into two parts – with Part I containing one set of scales (for MSS) and Part
II containing the same set of scales (for MSA). Thus, this format involves repeating
the battery of items (as in SERVQUAL).
The three-column format SERVQUAL is the largest development by Parasuraman
et al. (1994), and it is claimed that this can be used for managers for diagnostic purposes
and it offers the opportunity for using the perception items separately for predicting
purposes. Despite the potential diagnostic value, there have been very few reported
empirical studies using this instrument (Cavana et al., 2007).
Zeithaml et al. (1993) proposed that customer expectation (as a comparison standard)
can be considered from two perspectives: narrow and broad. According to the narrow
perspective, customer expectation is a belief in the future performance of a product.
According to the broad perspective, expectation is multidimensional and associated
with different levels of performance. The authors then classified expectations into
1550 H. Nadiri et al.
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desired and adequate categories. They defined desired service as the level of service that
customers hope to receive. This is a mixture of what customers believe the level of per-
formance can be and should be (Zeithaml et al., 1993). They claimed that this corresponds
to customer evaluation of service quality. The adequate service expectation was defined as
the lower level of performance that consumers will accept. The authors noted that this
level of expectation is comparable to minimum tolerable expectation. This was termed
‘predictive expectation’, and is associated with customer satisfaction. The area between
desired service and adequate service was called the zone of tolerance, and represents
the range of service performance that customers will tolerate.
Zeithaml et al. (1993) also report that as follows:
... as conceptualised in the customer satisfaction/dissatisfaction literature, assessments of
customer satisfaction results from a comparison of predicted service with perceived
service. Predictive service, however, is not the comparison standard that customers use in
service quality assessments. Instead, service quality assessments are a function of two other
comparisons. Consistent with the services marketing literature, service quality assessments,
called Gap 5 in the Gaps Model of service quality (Parasuraman, Zeithaml, & Berry,
1985), involve comparisons with desired and adequate, rather than predicted service. (p. 18)
The inherent nature of services makes consistent service delivery difficult across
employees in the same firm and even by the same service employee from day to day.
The extent to which the customers are willing to accept this variation is the zone of toler-
ance (Lovelock & Wright, 1999). Therefore, service performance that is above the
minimum tolerable level will ensure satisfaction. More importantly, consumers will tolerate
services that are equivalent to their minimum tolerable expectation. In the view of Zeithaml
et al. (1993), consumers will tolerate service performance if it is equal to the ‘adequate’
service level. Therefore, a zone of tolerance occurs when the service performance is
between the desired expectation and the adequate expectation. In addition, the ‘bottom
line’ for satisfaction occurs when the perceived service performance is equal to the ade-
quate service expectation.
In summary, assessment of desired and adequate expectations might be valuable in
determining and monitoring service performance and customer satisfaction. In addition,
this information can be used as an internal benchmark to enhance the existing level of
service quality. This study, therefore, draws on Zeithaml et al.’s (1993) model in develop-
ing its methodology.
Methodology
A conceptual model for measuring the zone of tolerance in banks
The present study proposes a conceptual model called ‘BANKZOT’ for measurement of
the zone of tolerance in the banking sector (Figure 1). This model expands upon previous
work (described above) by incorporating two levels of expectations – desired and adequate.
Desired expectations represent the level of bank service that a customer hopes to receive –
a blend of what a customer believes ‘can be’ and ‘should be’ offered. This differs from
Parasuraman et al.’s (1988) conceptualization – which referred only to what the service
‘should be’. Adequate expectations represent a lower level of expectations. They relate
to what a bank customer considers an ‘acceptable’ level of performance. Desired expec-
tations are deemed to remain relatively stable over time, whereas adequate performance
expectations might vary with time. The difference between these two levels of service
quality expectations is deemed the zone of tolerance for banks. The zone of tolerance
can be defined as ‘the extent to which customers recognize and are willing to accept
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heterogeneity’ (Zeithaml et al., 1993, p. 6). The zone of tolerance in the model is tested
using the dimensions of SERVQUAL.
Sampling
North Cyprus has six international universities where there are students from 67 different
countries, mainly from Far East Asia, the Middle East, Europe, and Africa. Hence, the
youth market can be considered to have some representation of the international setting
to which the North Cyprus banks are exposed. Within such an international atmosphere,
students present marketers with the opportunity to reach consumers at a critical point in
their life cycle that may result in long-term marketing relationships. Students will
develop many of their opinions and preferences during their years in higher education,
which they will keep throughout their lives (Jenkinson, 2000) and they may be considered
potential future customers (Arnold, 1998). Thus, the present study focusses university stu-
dents as young customers. Therefore, the sample of the study consisted of university stu-
dents studying in the six universities; namely Eastern Mediterranean University, Near
East University, Cyprus International University, Girne American University, Middle
East Technical University, and Lefke European University located in the Gazimag
˘
usa,
Lefkos¸a, Kyrenia, Gu
¨
zelyurt, and Lefke regions of North Cyprus, respectively. The data
was collected in February and March 2006. The sample was selected on the basis of a
non-probability convenience sampling technique (Aaker, Kumar, & Day, 1995). A total
of 1000 questionnaires were distributed to university students. Of these, 885 questionnaires
were returned. In all, 755 questionnaires were found to be useful, which represents a 75.5%
response rate from the original sample of 1000.
Data collection
The questionnaire was based on service expectations (‘adequate’ and ‘desired’) and service
perceptions. It had a three-column format. The meaning of service expectations was briefly
explained to all of the respondents before they began to evaluate the questionnaire. There
were 23 items in all – 22 items for measuring service quality according to the SERVQUAL
scale (adapted from Parasuraman et al., 1991), and 1 item for measuring customer satisfac-
tion (see Table 4 for items). A pilot test was conducted using 85 student resp onses. As a
result of the pilot study, the instrument was reworded for measuring service quality and
Figure 1. Zone of tolerance for banks (BANKZOT).
Note: Adapted from Zeithaml et al. (1993, p. 5). Mean values are presented in parenthesis.
1552 H. Nadiri et al.
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the zone of tolerance within the banking sector. A demographic item asking for the ‘uni-
versity name’ was eliminated from the questionnaire in order to avoid response bias. This
modified instrument is called ‘BANKZOT’ in this study. A seven-point Likert type scale
(Likert, Roslow, & Murphy, 1934) was used for data collection with ‘1’ being ‘strongly
disagree’ and ‘7’ being ‘strongly agree’. The survey instrument was back-translated
(Aulakh & Kotabe, 1993) for Turkish Cypriot national students. The survey instrument
was provided in English to nationalities other than Turkish.
Data analysis
Descriptive measures such as means, standard deviations, and frequencies were calculated.
University students’ service expectations (adequate and desired) and service perceptions
were measured using the BANKZOT instrument described above. Particular measures rel-
evant to this study were defined as follows.
.
The zone of tolerance for banks was calculated as the difference between the desired
service and the adequate service.
.
The MSS was calculated as the difference between the desired service and the per-
ceived service.
.
The MSA was defined as the difference between adequate service and perceived
service.
BANKZOT dimensions were calculated with a ‘gap analysis’ as the difference
between perceptions and expectations using paired t-tests. Psychometric properties of
the scale (such as reliability) were tested, and the dimensionality of the scale was con-
firmed through an exploratory factor analysis.
Findings
Dimensions of the model
The results of explor atory factor analysis demonstrated that BANKZOT instrument failed
to form its five assum ed dimensions – tangibles, reliability, responsiveness, assurance,
and empathy. BANKZOT is found to be uni-dimensional. These results are consistent
with the previous research findings on SERVQUAL (Angur, Nataraajan, & Jahera,
1999; Babakus & Boller, 1992; Babakus & Mangold, 1992). This study maintains the
framework of BANKZOT as its five dimensions and further reports the dimensionality
problem for the following reasons: first, the primary purpose of this study was to demon-
strate attitude differences in the zones of tolerance rather than to examine the factor
structure of the dimensions, and second, because the Cronbach alphas were comparable
to those found by other researchers, it was exceeding 0.70, a level suggested by Churchill
(1979) and Nunnally (1978), thus the five-dimensional framework was employed.
Demographics
Table 1 shows that most of the respondents were males (58.9%). Majority of respondents
were between the ages of 21 and 25 (78.5%). With respect to education, 93.6% of the
respondents were the students of undergraduate programs. In terms of field of study,
18.3% were engineering students. According to respondents’ academic year, most of
students were in their second year of uni versity education (34.4%). With respect to resp on-
dents’ marital status, 90.9% were single. In terms of respondents’ nationality, 36.8% were
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Turkish Cypriots, and 63.2% were categorized as foreigners, which were from various
other countries (including Far East Asia, the Middle East, Europe, and Africa).
Evaluation of respondents’ bank usage and services
Table 2 shows that most of the respondents use only one bank (78.5%) to keep their bank
accounts. A total of 99.5% of respondents agree that they receive benefits from their banks.
In terms of duration – usage of bank service, 32.8% of respondents have been using their
Table 1. Demographic breakdown of the sample (n ¼ 755).
Frequency (F) Percentage (%)
Gender
Female 310 41.1
Male 445 58.9
Total 755 100.0
Age
16–20 162 21.5
21–25 593 78.5
Total 755 100.0
Program of study
Undergraduate 707 93.6
Masters 43 5.7
Doctorate 5 0.7
Total 755 100.0
Field of study
Business and economics 118 15.6
Engineering 138 18.3
Arts and sciences 78 10.3
Law 64 8.5
Architecture 55 7.3
Communication and media studies 88 11.4
Educational sciences 69 9.1
Computer science and technology 99 13.1
Tourism and hospitality management 46 6.1
Total 755 100.0
Academic year
First year 142 18.8
Second year 260 34.4
Third year 203 26.9
Fourth year or above 150 19.9
Total 755 100.0
Marital status
Single 686 90.9
Married 17 2.3
Engaged 52 6.9
Total 755 100.0
Nationality
Turkish Cypriots 278 36.8
Foreigners 477 63.2
Total 755 100.0
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banks for 2 years. Among all banks, Bank A seems to be the most popular (45.3%). More
or less all of the banks offer similar services, listed in Table 2, but the most frequently used
among 47.5% of respondents was credit cards.
Table 2. Evaluation of respondents’ bank usage and services (n ¼ 755).
Frequency (F) Percentage (%)
Number of banks in use
One 593 78.5
Two 136 18.2
Three 17 2.2
Four or above 9 1.2
Total 755 100.0
Benefits from banks
Yes 751 99.5
No 4 0.5
Total 755 100.0
Duration of usage
1 year or less 176 23.3
2 years 248 32.8
3 years 165 21.9
4 years or above 166 22.0
Total 755 100.0
Name of the banks
Bank A 342 45.3
Bank B 166 22.0
Bank C 27 3.6
Bank D 26 3.4
Bank E 6 0.8
Bank F 6 0.8
Bank G 36 4.8
Bank H 4 0.5
Bank I 22 2.9
Bank J 14 1.9
Bank K 13 1.7
Bank L 20 2.6
Bank M 1 0.1
Bank N 1 0.1
Bank O 61 8.1
Total 755 100.0
Banks’ offered services used
Credit card 359 47.5
Advisory 23 3.0
Loan borrowing 6 0.8
Insurance 10 1.3
Current account 185 24.5
Savings account 69 9.1
Check account 21 2.8
Transfer payments 46 6.1
Foreign exchange services 18 2.4
Specialized travel services 1 0.1
Others 17 2.3
Total 755 100.0
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Zone of tolerance for banks (BANKZOT)
The results in Table 3 demonstrate that the mean of the desired service level was higher
than the mean of the adequate service level, and that the mean of perceived service level
was higher than the mean of the adequate service level. The respondents’ perceived
service (as received) was, therefore, within the zone of tolerance for banks. When the
zone of tolerance was examined with MSS and MSA, the results demonstrated a
narrow zone of tolerance (Figure 2), as perceived service level was close to the adequate
service level. The same relationship was found in terms of BANKZOT dimensions: tan-
gibles, reliability, responsiveness, assurance, and empathy. It can, therefore, be concluded
that the respondents had a narrow zone of tolerance on each dimension of BANKZOT.
Table 3. Zone of tolerance for banks (BANKZOT).
Means Cronbach alpha
Adequate service expectations 4.37 0.92
Tangibles 4.31 0.80
Reliability 4.28 0.79
Responsiveness 4.41 0.81
Assurance 4.42 0.82
Empathy 4.31 0.80
Desired service expectations 5.73 0.94
Tangibles 5.72 0.83
Reliability 5.73 0.85
Responsiveness 5.74 0.86
Assurance 5.74 0.84
Empathy 5.74 0.83
Perceived service received 4.53 0.95
Tangibles 4.49 0.82
Reliability 4.52 0.84
Responsiveness 4.56 0.84
Assurance 4.64 0.83
Empathy 4.43 0.87
MSA
20.16 0.94
Tangibles 20.34 0.82
Reliability 20.39 0.86
Responsiveness 20.36 0.84
Assurance 2 0.41 0.92
Empathy 20.30 0.77
MSS
†
1.40 0.93
Tangibles 1.23 0.89
Reliability 1.21 0.88
Responsiveness 1.18 0.87
Assurance 1.10 0.86
Empathy 1.31 0.91
Zone of tolerance
‡
1.56
Tangibles 1.57
Reliability 1.60
Responsiveness 1.54
Assurance 1.51
Empathy 1.61
Measure of service adequacy (adequate service level and perceived service level).
†
Measure of service superiority (desired service level – perceived service level).
‡
Desired service level – adequate service level.
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Table 4. Distribution of respondents’ values between expectations and perceptions.
Expectations means
(SD)
Perceptions means
(SD)
Gap
mean
t-
value Reliability
Tangibles 0.82
The bank has modern looking equipment 5.83 (1.41) 4.53 (1.56) 21.30 18.56
The bank’s physical facilities are visually appealing 5.73 (1.20) 4.50 (1.42) 21.23 19.15
The bank’s employees are neat appearing 5.68 (1.39) 4.44 (1.56) 21.24 16.76
Materials associated with the service are visually appealing at the bank 5.62 (1.35) 4.51 (1.48) 21.11 15.43
Reliability 0.84
When the bank promises to do something by a certain time, it does so 5.77 (1.31) 4.65 (1.51) 21.12 17.80
When you have a problem, the bank shows a sincere interest in solving it 5.85 (1.34) 4.63 (1.55) 21.22 17.97
The bank performs the service right the first time 5.70 (1.32) 4.54 (1.51) 21.16 16.31
The bank provides its services at the time it promises to do so 5.77 (1.33) 4.48 (1.54) 21.29 17.95
The bank insists on error-free records 5.56 (1.45) 4.31 (1.49) 21.25 17.45
Responsiveness 0.84
Employees of the bank tell you exactly when services will be performed 5.71 (1.41) 4.75 (1.57) 20.96 13.73
Employees of the bank give you prompt service 5.77 (1.46) 4.48 (1.49) 21.29 17.01
Employees of the bank are always willing to help you 5.79 (1.40) 4.57 (1.58) 21.22 16.56
Employees of the bank are never too busy to respond to your requests 5.67 (1.39) 4.44 (1.65) 21.23 15.77
Assurance 0.83
The behavior of employees of the bank instills confidence in customers 5.69 (1.34) 4.71 (1.51) 20.98 14.08
You feel safe in your transaction with the bank 5.75 (1.40) 4.71 (1.53) 21.04 14.14
Employees of the bank are consistently courteous towards you 5.75 (1.40) 4.60 (1.52) 21.15 15.52
Employees of the bank have the knowledge to answer your questions 5.79 (1.41) 4.52 (1.63) 21.27 16.95
Empathy 0.87
The bank gives you individual attention 5.71 (1.36) 4.59 (1.58) 21.12 15.16
The bank has operating hours convenient to all its customers 5.81 (1.32) 4.41 (1.50) 21.40 19.54
The bank has employees who give you personal attention 5.76 (1.30) 4.40 (1.61) 21.36 18.36
The bank has your best interest at heart 5.64 (1.37) 4.37 (1.66) 21.27 16.45
Employees of the bank understand your specific needs 5.80 (1.38) 4.38 (1.73) 21.42 18.05
Customer satisfaction
I am satisfied with the bank service quality 4.89 (1.59)
Note: SD, standard deviation, all the standard deviations are in parenthesis; gap mean is defined as perception mean – expectation mean.
t-test two-tailed with p , 0.05 and paired samples correlations with p , 0.05; overall reliability of the scale is 0.95 (perceptions).
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The reliability (internal consistency) of each service level (expected and perceived)
exceeded the suggested level of 0.70 (Churchill, 1979; Nunnally, 1978), which suggests
that the ‘measures [were] free from random error and thus reliability coefficients estimate
the amount of systematic variance’ (Churchill, 1979, p. 4). The high alpha values indicated
good internal consistency among the items, and the high alpha value for the overall scale indi-
cated that convergent validity was met (Parasuraman et al., 1991). The results obtained in this
study are, therefore, reliable.
Distribution of respondents’ values between expectations and perceptions
Table 4 demonstrates that respondents had relatively high expectation scores (mean
5.75) regarding tangibles, reliability, responsiveness, assurance, and empathy of
BANKZOT dimensions. The following items were rated high: ‘modern looking equip-
ment’, ‘promise to do something by a certain time’, ‘sincere interest in solving problems’,
‘provide its services at the time it promises to do so’, ‘employees give you prompt service’,
‘employees are always willing to help you’, ‘safe transaction’, ‘employees are consistently
courteous’, ‘employees have the knowledge to answer your questions’, ‘convenience of
operating hours’, ‘personal attention’, and ‘understanding specific needs’. However, rela-
tively low expectation scores (mean 5.65) were found for ‘materials associated with
service are visually appealing’, ‘error-free records’, and ‘your best interest at heart’.
This indicates that respondents were more sensitive about all the dimension s of
BANKZOT. As shown in Table 4, a relatively high respondent perception score (mean
4.70) was found for ‘employees tell you exactly when the services will be performed’,
‘employees instill confidence in customers’, and ‘safe transactions’ among BANKZOT
dimensions. However, there was a relatively low perception score (mean 4.50) for ‘phys-
ical facilities’, ‘employees are neat appeari ng’, ‘provides its services at the time it prom-
ises to do so’, ‘error-free records’, ‘prompt service’, ‘employees are never too busy to
respond to your requests’, ‘co nvenience of operating hours’, ‘personal attention’, ‘best
interest at heart’, and ‘understanding specific needs’.
Figure 2. Zone of tolerance for banks.
1558 H. Nadiri et al.
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It should be noted that all the perception scores for all service items in this study were
lower than the expectation scores – implying that all serv ice items suffered from a service
quality shortfall. The largest gap scores (mean 21.30) were found with respect to tan-
gibles and empathy of BANKZOT dimension s such as ‘modern looking equipment’, ‘con-
venience of operating hours’, ‘personal attention’, and ‘understanding specific needs’.
The paired sample t-tests (between the respective expectation and perception means of
all the items) showed that they were significantly different. The overall negative mean
differences indicate that an expected service quality was not experienced by the respon-
dents, and that service quality provided by the banks did not meet expectations. Neverthe-
less, the shortfall did not seem to undermine the overall service quality and customer
satisfaction. The results in Table 4 show just a reasonable score for customer satisfaction
(mean ¼ 4.89). It is, therefore, concluded that the dimensions of BANKZOT are a good
predictor of customer satisfaction for North Cyprus banks.
The results in Table 4 also demonstrate that the overall reliability of the scale had an
alpha coefficient of 0.95 – which is deemed acceptable (Churchill, 1979; Nunnally, 1978).
The Cronbach alphas for tangibles, reliability, responsiveness, assurance, and empathy
were also found to be 0.82, 0.84, 0.84, 0.83, and 0.87, respectively at the aggregate
level – which exceeds the minimum standard 0.70 (Churchill, 1979; Nunnally, 1978).
Results of exploratory factor analysis
The results in Table 5 demonstrate that exploratory factor analysis using varimax rotation
was employed to explore the dimensionality in the data set. The results failed to provide
Table 5. Results of exploratory factor analysis.
Items (eigenvalue 10.76 and percentage of variance 48.94) Factor loadings
Employees of the bank have the knowledge to answer your questions 0.76
Employees of the bank give you prompt service 0.76
Employees of the bank are consistently courteous towards you 0.75
The bank has employees who give you personal attention 0.75
Employees of the bank are always willing to help you 0.75
Employees of the bank understand your specific needs 0.74
The bank has operating hours convenient to all its customers 0.72
The bank performs the service right the first time 0.71
The bank provides its services at the time it promises to do so 0.71
The bank has your best interest at heart 0.70
The bank gives you individual attention 0.70
The bank’s employees are neat appearing 0.70
Employees of the bank are never too busy to respond to your requests 0.69
Employees of the bank tell you exactly when services will be performed 0.68
You feel safe in your transaction with the bank 0.68
The bank’s physical facilities are visually appealing 0.67
The bank insists on error-free records 0.67
When you have a problem, the bank shows a sincere interest in solving it 0.67
The behavior of employees of the bank instills confidence in customers 0.66
When the bank promises to do something by a certain time, it does so 0.66
Materials associated with the service are visually appealing at the bank 0.65
The bank has modern looking equipment 0.59
Note: Kaiser Meyer –Olkin measures of sampling adequacy: 0.95. Bartlett’s test of sphericity: 9976.60;
p , 0.000. Principal component analyses with a varimax rotation.
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BANKZOT’s five distinct dimensions: tangibles, reliability, responsiveness, assurance, and
empathy. The factor loadings of all these dimensions were found to be uni-dimensional –
had eigenvalue greater than 1, percentage of variance explained was 48.94%, and all the
factor loadings were found to be greater than 0.50 (Hair, Anderson, Tatham, & Grablowsky,
1979) – which demonstrates BANKZOT be uni-dimensional in this study. The Kaiser
Meyer– Olkin statistic was found to be 0.95 and Bartlett’s test of sphericity value was
9976.60 (p , 0.000), which is an acceptable level as described by Norusis (1985).
With regard to the earlier-mentioned criticism in the literature, it has been argued that
the nature of the service quality construct (especially wit h respect to the number of dimen-
sions) might be industry specific. In particular, the suitability of the five dimensions of
SERVQUAL in different service activities has been questioned by several researchers,
for instance, the SERVQUAL scale has often been found uni-dimensional (Angur et al.,
1999; Babakus & Boller, 1992; Babakus & Mangold, 1992) and sometimes with even
10 dimensions (Carman, 1990) or two-dimensions (Ekinci, Prokopaki, & Cobanoglu,
2003; Karatepe & Avci, 2002).
Discussion and implications
The importance of this study can be viewed from two dimensions: theoretical and practical
implications. It fills an important gap in the bank service quality literature by proposing the
BANKZOT model. The proposed model can be effectively used as a diagnostic tool in
Banks. The objective of this study was to describe the range of zone of tolerance for
young customers’ service expectations and to determine young customer’s satisfaction
levels with regard to Banks. The findings demonstrate that the BANKZOT model proposed
in the study is reliable. The concept of zone of tolerance helps managers to analyze the
effectiveness of service quality and to identify problem areas that need improvement
(Lo, Cavana, & Corbett, 2002).
The measurement of a zone of tolerance is a reliable new method for determining
service variations in banks. The findings reveal that young customers using banks have
a narrow zone of tolerance – which indicates that these customers are not likely to
accept heterogeneity in services quality provided by the banks. The results also confirm
that evaluation of services can be scaled according to two different types of expectations
– desired and adequate. In other words, customers use two different types of expectations
(desired and adequate) as a comparison standard for the evaluation of serv ices. This
finding confirms that expectations can be antecedents of customer satisfaction. The prop-
osition of Zeithaml et al. (1993) with respect to the use of ‘desired expectation’ and
‘adequate expectation’ as a comparison standard was supported by the results.
The findings with respect to gap analysis reveal that the customers’ perceived service
quality provided by banks suffered from a shortfall, implying that these customers’ expec-
tations of service quality were not met in tangibles, reliability, assurance, responsiveness,
and empathy services. Similar findings were drawn by Lam and Zang (1998), Ekinci et al.
(2003), and Kozak, Karatepe, and Avci (2003) in their studies. Overall evaluation of
service quality in banks was determined largely by the tangibles and empathy.
Accord ing to this study, a gap analysis measurem ent scale is an indicator for measur-
ing customer satisfaction. As previously noted, s ome scholars have argued that measure-
ment of expectations does not provide appropriate informa tion for estimating service
quality; they argue that a performance-only measure (such as SERVPERF) is a better
predi ctor of service qu ality (Babakus & Boller, 1992; Boulding, Kalra, Staelin, &
Zeithaml, 1993; Cronin & Taylor, 1992). In general, prev ious studies do suggest that a
1560 H. Nadiri et al.
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SERVPERF measurement is sufficient. However, it has been acknowledged that such an
approach limits the explanatory power of service quality measurement (Parasuraman
et al., 1994) because the assessment of desired and adequate expectations might be valu-
able in determin ing and monitoring service performance and customer satisf action. In
addition, this information m ight be used as an internal benchmark to enhance the level
of service quality.
Managerial implications
The results of the present study have a number of practical implications for bank managers
who are seeking to identify the range of tolerance and customer satisfaction level of their
customers. Findings of this study are important for bank managers who should note that
young customers are likely to become more demanding in terms of the level of bank
service they consider to be adequate. In reality, it is unlikely to fulfill all the ideal
service quality requirements for the customers. Therefore, it is necessary for the managers
to manage customer expectation by the adequacy level of expectation so as to widen the zone
of tolerance (Kettinger & Lee, 1997). Banks should improve/strengthen their Customer
Relationship Management. Further, bank managers should pay attention to intangible
components of their offer if they are to improve quality of services. Finally, the gap
raises some issue s about how managers should monitor quality and prioritize resources
to anticipate young customers’ needs more effectively. Questions might also be asked
about the extent to which bank managers are really aware of the needs of their customers
and what methods are they use to assess the ongoing changing needs of customers. Man-
agers should ensure that employees are well trained and understand the level of service that
the bank expects to provide for their customers. Ensuring that employees are well trained,
and giving attention to other factors that are required for the provision of a high level of
service quality might incur increased costs, but will provide improved customer
satisfaction.
Limitations and avenues for future research
This research has certain limitations: first, this study examined a relatively specific group
of customers – the youth market, comprising university students. Although this segment
of the market is important to study, other segments of young customers who may have
different expectations, should not be ignored. Secon d, measurement of customer satisfac-
tion was carried out using a single-item scale, and it was therefore not possible to estimate
its reliability. Therefore, a study of further applications of the expectat ion scale in differ-
ent samp les with more items measuring customer satisfaction wo uld better establish its
external validity. Third, this study examined the influence of five factors (tangibles,
reliability, assurance, responsiveness, and empathy) on customers’ zones of tolerance
for banks. As proposed by Zeithaml et al. (1993), there might be other factors that
determine the width of the zone of tolerance – such as situational factors, advertising,
price, repurchase intention, and word-of-mouth recommendation. Subsequent empirical
research should address the impact of these factors on customer expectations.
Finally, many issues raised by Zeithaml et al. (1993) remain to be explored – for
example, how marketing strategies can be designed to manage adequate service-level
expectations, the role of predicted service in influencing how consumers evaluate service
quality, and how the banking sector can use the zone of tolerance concept to formulate mar-
keting strategies effectively.
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Conclusion
This empirical study finding provides numerous valuable contributions to the present body
of literature in banking industry. Considering the increasingly competitive nature of the
global market the terms ‘satisfaction’ and ‘quality’ have been central in banks’ manage-
ment, and their importance is likely to increase as competition among banks continues
to grow. Nevertheless, banking research has been instrumental in assisting practitioners
with valuable knowledge to assist them with their constant pursuit to gain competitive
advantage and market leadership. One of the important suggestions to bank managers
based on the present study using the BANKZOT scale (a modified version of SERVQ-
UAL) is that bank managers should keep service levels above the customers’ desired
expectations if they are to please them. In addition, the use of an expectation scale (incor-
porating ‘gap theory’) provides diagnostic information about the level of service perform-
ance from the customers’ perspective. The use of a zone of tolerance method provides
useful information to managers for developing quality improvement strategies. Although
this study was conducted in North Cyprus we believe that Banks in other countries will
benefit from these research findings.
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