December 3-4,2012(Tehran, iran)

An empirical study on the effects of servicequality on customer retention in industrial

goods sector

naser azad1 & samira aliakbari2 & seyed hamidreza ghasemian3

1member of scientific commission, group of business management of Islamic AzadUniversity (branch of south Tehran), Dr.naserazad@yahoo.com

2 (Corresponding author), Department of business management, university ofpayame noore Shahre rey, s.aliakbari89@gmail.com,.

3Departmrnt of business management, university of payame noore Shahre rey, hamidghmn@yahoo.com

Abstract:

This study is the first to evaluate service quality and its effects oncustomer retention in industrial goods sector with new view and newmethodology in Iran. So the authors used the variables of SERVQUAL model andGARVIN quality framework for investigating the service quality of JEMCOCompany that is one of two leading electrical machinery manufacturers in Iran.In the present study's proposed service quality model, main dimensions were assame as dimensions of SERVQUAL model but sub dimensions were combination ofSERVQUAL statements and GARVIN quality framework items that were adapted forindustrial goods sector with considering experts confirmation. The statisticspopulation included all customers of JEMCO Company in 2011 that were scatteredin whole Iran and finally 100 customers chose by using simple random samplingmethod. The way of SPSS statistical analysis software is used. Data analysisincluded multiple regression analysis. Results indicated the role of servicequality on customers’ retention in industrial goods sector. The findingsshowed that all 5 dimensions of service quality (tangibles, reliability,assurance, responsiveness and empathy) in industrial goods sector affected onretention of customers.

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Key words: Service quality, customer loyalty, industrial goods, customerretention.

1- Introduction

The service dominant logicposited by Vargo and Lusch defineservices as the application ofspecialized competencies (knowledgeand skills) through deeds,processes, and performances for thebenefit of another entity or theentity itself [1]. Researchers inthe customer service fields arguethat superior customer service canbe competitive advantage for anyorganization [2],[3],[4],[5].International Organization forStandardization has defined quality“as the ability of a service tosatisfy customers" [6]. Reeves andBednar (1994) summarized differentdefinitions of quality as follows:(a) quality as excellence, (b)quality as value, (c) quality asconformance to specification, and

(d) quality as meeting or exceedingcustomer's expectations [7]. Ingeneral, quality is recognized by asa basic value capable of generatinga competitive advantage throughproduct/service differentiation. Itspositive effect makes servicequality a fundamental issue as itinfluences customer's loyalty [8].Steenkamp (1989) has cited Customerretention has lasting impact on themarket share of the organization.Canadian scholar Barnes (1997)emphasize that loyal customer wouldkeep recommending to others whichhelps the organization to earn morecustomers. Steenkamp (1989)mentioned quality as aid thatretains the customer which assiststo uphold share in the market [9].Due to increasing consumer

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awareness, customers tend to makevaried requests and they expect moreservices from enterprises. It’snecessary for enterprises to knowhow to attract new customers whilekeeping existing ones. Luo (2001)pointed out that acquiring newcustomers costs 3-10 times more thanholding onto existing customers. Ifan enterprise is unable to keepexisting customers, it will have topay more to find new ones. Reichheldand Sasser (1990) also observedthat, as little as a 5% reduction incustomer churn can boostenterprises' net profits by as muchas 25% to 85% (depending on thetypes of industry). Hence, it'sextremely important for enterprisesto maintain client loyalty, both ona cost basis and profit basis [10].Due to current discussions about thevalue of customer loyalty[11],[12],[13]. Most organizations believethat retaining a customer is moreimportant than attracting newone[14],[15],[16],[17]. Inindustrial goods sector this issueis more substantial because somesuppliers have a few customers andthey cooperate with their customersfor long time. Hence most of thetimes retaining main customers isvital for enterprises. However, thiscurrent research empiricallyinvestigated the service quality inJEMCO Company that is one of two bigcompanies that are manufacturer ofelectrical machines in Iran.Therefore, the current studyintended to evaluate the dimensionsof perceived service qualityassociated with industrial goodssector with considering SERVQUALmodel and GARVIN quality framework.Meanwhile effects of dimensions of

service quality on retention ofcustomers were tested.

1-1: Review Of LiteratureAlthough numerous researchers

have studied about service qualityand satisfaction [8]. one key issuethat industrial goods must addressis the lack of concern with servicequality in industrial goods sector.

1-2: Industrial goodsclassification

Industrial goods can beclassified by how they enter theproduction process and theirrelative cost lines. We candistinguish three groups ofindustrial goods: material andparts, capital items and suppliesand business services. Capital itemsare long –lasting goods thatfacilitate developing or managingthe finished product. They includetwo groups: installations andequipment. They are usually boughtdirectly from the producer, with thetypical sale preceded by a longnegotiation period. The producer’ssale force includes technicalpersonnel. Producers have to bewilling to design to specificationand to supply post sale services.Advertising is much less importantthan personal selling [18].

1-3: Service QualityFor Zeithaml perceived quality

represents the customer's answer tothe excellence/superiority of aproduct. According to Gronroos andParasuranam researches, servicequality is the result of thecomparison of the perceptions amongthe received service and the

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expected service. For Gronroos thisquality has two dimensions, thetechnical one, which depends on thebenefits the service offers to thecustomer, and the functional one,which depends on the way thosebenefits are provided [8].Parasuraman and his colleagues)2005) cited Service quality has beenone of the most significant andwidely studied issues in themarketing and service literature.Parasuraman, Zeithaml, & Berry(1985) mentioned that Servicequality is a comparison of customerexpectations about real serviceperformance. During the last fewdecades, many studies have beenconducted on service quality becauseaccording to Parasuraman and hiscolleagues (2005) consumers’perceptions of service quality canaffect consumer loyalty andbehavioral intentions. For example,Parasuraman and his colleagues(1985) identified 10 determinants ofservice quality (i.e., reliability,responsiveness, competence, access,courtesy, communication,credibility, security,understanding/ knowing the customer,and tangibles). In a followingstudy, Parasuraman, Zeithaml, andBerry (1988) proposed a theoreticalmodel, SERVQUAL, which contains thefive dimensions of service quality(i.e., tangibles, reliability,responsiveness, assurance, andempathy). The SERVQUAL model hasbeen broadly used by researchers tomeasure various sectors such asbanks, hotels, and leisure sports.According to Parasuraman and hiscolleagues (2005), service qualityhas been shown to invoke customersatisfaction, loyalty, andbehavioral intentions [19].

Parasuraman and his colleagues(1988) found 5 dimensions aredetailed as below: (1) Reliability: It means thecapability to perform the alreadypromised service reliably andcorrectly. (2) Responsiveness: It means thewilling to help consumers andimmediate service delivery.(3) Assurance: It means theknowledge and politeness ofemployees and their capability todeliver trust and confidence.(4) Empathy: It means the capabilityto show empathy on consumers'personalizing.(5) Tangibles: It means physicalequipment of service, employees'manners, tools and equipmentprovided for service, namelylocales, equipment and personnel forservice delivery [20].

Evaluating service qualityoffered to customers is essential,and several evaluation models havebeen developed. The most known andused models are SERVQUAL, SERVPERF,TQS and ISQM. The widely used modelis SERVQUAL developed by Parasuramanand his colleagues (1985).TheSERVQUAL model consists of 22 itemson service attributes, which aregrouped along the five dimensions oftangibles, reliability, assurance,responsiveness, and empathy. On theother hand, the SERVPERF modeldeveloped by Cronin and Taylor(1992) includes these 22 items ofSERVQUAL. What are additional in theSERVPERF model are the overallratings of satisfaction, perceivedservice quality and purchasingintention. The main differencebetween SERVQUAL and SERVPERF is thefocus of SERVPERF underlying the

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fact that customer satisfaction isthe result of (mostly) servicequality [21].

1-4: Quality FrameworkGarvin proposed eight critical

dimensions or categories of quality

that can serve as a framework forstrategic analysis: Performance,features, reliability, conformance,durability, serviceability,aesthetics, and perceived quality[22]. The definitions of thesedimensions are given in table 1.

Table 1: Garvin Quality Framework (1987)

1. Performance: Performance refers to a product's primary operatingcharacteristics. For an automobile, performance wouldinclude traits like acceleration, handling, cruising speed,and comfort. Because this dimension of quality involvesmeasurable attributes, brands can usually be rankedobjectively on individual aspects of performance. Overallperformance rankings, however, are more difficult todevelop, especially when they involve benefits that notevery customer needs.

2. Features: Features are usually the secondary aspects of performance,the "bells and whistles" of products and services, thosecharacteristics that supplement their basic functioning.The line separating primary performance characteristicsfrom secondary features is often difficult to draw. What iscrucial is that features involve objective and measurableattributes; objective individual needs, not prejudices,

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affect their translation into quality differences.3. Reliability: This dimension reflects the probability of a product

malfunctioning or failing within a specified time period.Among the most common measures of reliability are the meantime to first failure, the mean time between failures, andthe failure rate per unit time. Because these measuresrequire a product to be in use for a specified period, theyare more relevant to durable goods than to products orservices that are consumed instantly.

4. Conformance: Conformance is the degree to which a product's design andoperating characteristics meet established standards. Thetwo most common measures of failure in conformance aredefect rates in the factory and, once a product is in thehands of the customer, the incidence of service calls.These measures neglect other deviations from standard, likemisspelled labels or shoddy construction that do not leadto service or repair.

5. Durability: A measure of product life, durability has both economic andtechnical dimensions. Technically, durability can bedefined as the amount of use one gets from a product beforeit deteriorates. Alternatively, it may be defined as theamount of use one gets from a product before it breaks downand replacement is preferable to continued repair.

6. Serviceability:

Serviceability is the speed, courtesy, competence, and easeof repair. Consumers are concerned not only about a productbreaking down but also about the time before service isrestored, the timeliness with which service appointmentsare kept, the nature of dealings with service personnel,and the frequency with which service calls or repairs failto correct outstanding problems. In those cases whereproblems are not immediately resolved and complaints arefiled, a company's complaints handling procedures are alsolikely to affect customers' ultimate evaluation of productand service quality.

7. Aesthetics: Aesthetics is a subjective dimension of quality. How aproduct looks, feels, sounds, tastes, or smells is a matterof personal judgment and a reflection of individualpreference. On this dimension of quality it may bedifficult to please everyone.

8. Perceived Quality:

Consumers do not always have complete information about aproduct's or service's attributes; indirect measures may betheir only basis for comparing brands. A product'sdurability for example can seldom be observed directly; itmust usually be inferred from various tangible andintangible aspects of the product. In such circumstances,images, advertising, and brand names - inferences aboutquality rather than the reality itself - can be critical

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1-5: Hypotheses This study has presented a

main hypothesis and fivesubsidiaries hypotheses according tothe literature and theoreticalbackground.A: main hypothesisHA: service quality has effect onretention of customers.B: subsidiaries hypotheses H1B The dimension of tangibles haseffect on retention of customers.H2B. The dimension of reliabilityhas effect on retention ofcustomers.H3B. The dimension of assurance haseffect on retention of customers.H4B. The dimension of responsibilityhas effect on retention ofcustomers.H5B. The dimension of empathy haseffect on retention customers.

2- Methodology2-1: Sample, Measurement, DataAnalysis

We adapted the originalSERVQUAL instrument for use in theindustrial goods sector. Meanwhilewe intended to evaluate the impactof service quality on retainingcustomers. The original 22 questionswere extended to 26 questions. In

this study the main tool forgathering data was questionnaire.The measurements for service qualitywas rated on a five point Likertscale with 1 strongly agree (verymuch) and 5 strongly disagree (verylittle).In this study the Questionsof questionnaire consist of 26closed-questions that evaluatedimensions of service quality(tangibility, reliability,assurance, responsibility andempathy) and measures effects ofthese dimensions on retainingcustomers. for each mentionedvariables respectively designed4,8,5,4 and 5 questions, that totalscore acquired from questions,indicate that each of dimensionshave effect on retaining thecustomers. The factor tangibilitywas extracted from the first 4questions, reliability from the next8 questions, assurance from next 5questions, responsibility from thequestions 18-21 and empathy isderived from the question 22-26.Meanwhile the questions2,12,17,21 and 26 have been appliedfor analyzing effects of dimensionsof SERVQUAL model on retention ofcustomers through multipleregressions. The statisticspopulation includes all customers of

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JEMCO company that were scattered inwhole Iran and finally 100 customerschose by using simple randomsampling method. In the presentstudy's proposed service qualitymodel, we have combined SERVQUALmodel with Garvin’s qualityframework. So we have mentioned 22statements for the SERVQUALdimensions. Main dimensions are assame as five dimensions of SERVQUALmodel but sub dimensions arecombination of SERVQUAL statementsand GARVIN quality framework itemsthat are adapted for industrialgoods sector with consideringexperts confirmation. Thiscombination has been appeared morein the questions of reliability andassurance dimensions in thequestionnaire. The variables ofproposed combined model are given inTable 2.

Table 2: The proposed combined model includes SERVQUAL and GARVINvariables adapted with industrial goods sector

A: Tangibles:1) Physical It includes sight of sales environment, constructions and

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evidence: installation, especially for services sector.

2) Modern equipment: It is for facilitating customer relationships.3)professionalappearance :

Employees who have a neat and professional appearance and visualappealing facilities.

4) Classified andupdate documents:

It causes processes be faster.

B: Reliability:5) Commitment: Staff commitment to do what they promise.6) problem solving : Staff desire for solving customer issues.7) Fast Handling: Handling the customer inquiry after first request.8) Durability: A measure of product life.9) Serviceability: Serviceability is the speed, courtesy, competence, and ease of

repair.10) Perceivedquality:

In such circumstances, images, advertising, and brand names -inferences about quality.

C: Assurance:12) Knowledgeable: Knowledgeable employee to answer customer’s questions.13) Etiquette: Courteous and respectful employees.14) Support: Such as installation, providing spare parts, repair services and

instruction.15) Security: Making customers feel safe in their transaction such as guaranty

and warranty.D: Responsiveness:

16) Time saving: Rendering services in shortest time.17) Timely: Rendering services in due date.18) Description: Readiness to respond to customer’s requests Describing the

services by sales force.E) Empathy:

19) customizing: Special and individual attention to customers.20)convenientbusiness hour :

Coordinating with customers time work.

21) Union benefits: Leading the benefits to customers.22) understanding : Employees who understand the needs of their customers.

2-2: Factor Analysis To test the sampling adequacy,Kaiser-Meyer-Olkin measure of

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sampling adequacy was calculated andit was 0.647. It indicates that thesample is good enough for sampling.The overall significance ofcorrelation matrix was tested withBartlett test of sphericity(significant at 0.00). This supportsthe validity of applying the factoranalysis. The factor analysis isgiven in table 3.

Table 3: Factor analysisresult

KMO and Bartlett'stest

Result

Kaiser-Meyer-OlkinMeasure of SamplingAdequacy

0.647

Bartlett's Test ofSphericity (Sig.)

0.000

2-2-1: Reliability TestCronbach’s alpha coefficients

has been utilized to measure thereliabilities and internalconsistencies of the scales used.According to Cronbach (2004) whenmeasuring the difference, it isappropriate to undertake Cronbach’salpha tests on the reliability andinternal consistency of the scale.Cronbach’s alpha can be interpretedas a correlation coefficient, itranges in value from 0 to 1 [23].From the reliability analysis inTable 4, The result of reliabilitythat is under 0.6 is considered tobe poor, while in the range of 7.0,the result can be acceptable and ifthe result show range between 0.8,it is considered as a good result[24].

Table 4: Reliabilitytests result

Cronbach’salpha

Result

HA 0.883 Goodscale

2-2-2: Data analysisRegression is a technique that

can be used to investigate theeffect of one or more predictorvariables on an outcome variable.Multiple regression is important forthis research as the result ofregression is an equation thatrepresents the best prediction ofdependent variable from severalindependent variables. Hence,multiple regression analysis wasapplied to identify whichindependent variables (five servicequality dimensions) are significantto predict the outcome of thedependent variable (customerretention).For data analyzing weused the multiple regression. Forhypotheses test, H0: & H1:.Hypothesis H0 that means thedependent & independent variablesare not related together andhypothesis H1 that means thedependent & independent variablesare related together. Table 5 showsthe R-Square and Durbin- Watsontest. The results of Durbin- Watsontest for all the hypotheses areacceptable that are between 1.5 and2.5. R-Square test result for mainhypothesis is 0.583 and can beaccepted for the regressionanalysis. The Durbin- Watson testresult for main hypothesis is 2.211,an indicator that theautocorrelation is almost reaching

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to zero or there is a significantdifference between the dependent andindependent variables (noautocorrelation). From the ANOVA inTable 6, it appears that the fivepredictor variables are not allequal to each other and could beused to predict the dependentvariable, customer retention as isindicated by F value of 136.927 andstrong significance level of 0.000(p < 0.05). Further as shown inTable 7, the result shows that allof the variables are significant (p< 0.001).The VIF value of less than10 for all variables show that theproblem of ulticollinearly have notexisted and all the data aremutually exclusive. An examinationof t-values for the five variablesindicated that the most importantvariables in predicting customerretention evaluation were“responsibility”, followed by“empathy”. It appears that thiselectrical manufacturer should makemore efforts to improve its servicequality along these two criticalfactors if they are interested inretain their customers. As for theinterpretation, the test indicatesthat all of the service qualitydimensions have the significantinfluence apparently towards theconsumer retention. By examining thet statistic for all the independent

variables it shows that all of thevariables has significantrelationship due to good significantlevel (p < 0.05) with the customerretention, indicating that the nullhypothesis (H0: H1B, H2B, H3B, H4B,H5B, HA) is inappropriate and can berejected.

Table 5: R2 and Durbin-Watson test result

Durbin WatsonRESULT R2

1.7910.144H1B

1.7330.150H2B

1.9370.244H3B

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2.2240.597H4B

2.1700.194H5B

2.2110.583HA

Table 6: ANOVA test result

SignificantF

0.00016.543H1B

0.00017.312H2B

0.00031.587H3B

0.000145.177H4B

0.00023.374H5B

0.000136.927HA

Table 7: Result of coefficients

Collinearity StatisticsStandardized CoefficientsVariableVIFTolerance

Sig.tBeta

1.0001.0000.0004.0670.380H1B

1.0001.0000.0004.1610.387H2B

1.0001.0000.0005.6200.494H3B

1.0001.0000.00012.0490.773H4B

1.0001.0000.0004.8350.441H5B

1.0001.0000.00011.7020.763HA

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3- Conclusion and iscussionAccording to this matter that

the SERVQUAL model has used more inservice organizations and consumergoods sector, so industrial goodsmanufacturers have to define theirspecific factors based on thedimension of SERVQUAL model due totheir conditions. Because of thisresearch can be usable in industrialgoods sector and due to this matterthat the technical quality of theindustrial goods are combined withtheir service quality, we have usedfrom the combination of factors ofSERVQUAL model and Garvin qualityframework. This combination has beenappeared more in the questions ofreliability and assurance dimensionsin the questionnaire. It seems thatthe factors that have been existedin the questionnaire of thisresearch can be generable formeasuring of service quality of themost of industrial goods. Accordingto the literature of this research,the effects of service quality onretention and loyalty of customershas been explained. According to thehypothesis of this research, indesigning of questions of thequestionnaire, five specialquestions have been designed forretention item. The results of thisresearch showed that the servicequality has affected on retention ofcustomers in JEMCO Company. And five

subsidiaries hypotheses that areincluded the analyzing of theeffects of five dimensions ofSERVQUAL model (tangibles,reliability, assurance,responsibility and empathy) onretention of the customers of JEMCOCompany confirmed. Those industrialgoods manufacturers that areinterested in evaluating theirservice quality and its affect ontheir customers’ retention can usethis research. Although thecustomers of this case study werescattered in whole Iran, butaccording to this matter that theproducts of this company were onlycapital industrial goods, futureresearch can evaluate servicequality and customer retention ofthe other kinds of the industrialgoods.

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