Service gaps and customer retention

Prepared by

Research For Strategic Decision (SYL 401)

June 2014 Examination

Post Graduate Diploma In Marketing

SRILANKA INSTITUTE OF MARKETING

Contents Page No.

1.Intoduction.. 03

2.Background of the Problem.. 04

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3.Establishment of the Problem... 04

4.Significance of the Study 05

5.Objectives of the Study.. 05

6.Literature Review.. 06

7.Operationalization of Variables 07

8.Monitoring Factors of Independent Variables 08

9.The approach to Data collection & Analysis 08

10.Conceptual Framework. 10

11.Time Plan.. 11

12.References. 12

1.Introduction

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Amana Takaful PLC is a public quoted company which was established in December 1998.In its
14 year existence it has grown consistently in the Industry. In the past few years it has had a
growth rate of 30-40 percent averagely. This is comparatively a high rate considering the
Insurance Industrys 15-18 percent growth rate year on year.
However the market share of the Organization has been static over the past 5-6 years despite the
growth rate. This indicates theres a problem in retaining customers as far as Amana Takaful Plc
is concerned. It has had a 30-40 percent renewal loss year on year which has contributed
immensely to the stagnant market share of ATP.
Amana Takaful Plc has two separate divisions, that is the Life division and the General division.
General division is the Core business of Amana Takaful Plc which was 1.3 billion in 2012.

xxx.

2. Background of the problem

The transcendent effect of the encroachment of financial service providers into banking and
insurance services has created the need to increasingly pursue additional methods of providing

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value-added services to their client base. Insurance service providers now need to differentiate
their services and the processes in order to be in the top of the mind choices in their clientele, as
they are in a volatile, highly competitive and turbulent environment. According to Jones (1986),
technology creates a virtual revolution in the manner in which customers may now self-educate
themselves of the products and services offered by particular companies resulting the need for
quality assurance among service providers is now thought to be crucial to survive.

Over the last ten years, abundance of research has focused on the topic of service quality, which
is increasingly being recognized as one of the key strategic values of organizations in the
services sector (Lewis, 1991) since service quality brings many advantages to organisations. It
allows the company to differentiate itself from its competitors by increasing sales and market
shares, providing opportunities for cross-selling, improving customer relations and thus,
enhancing the corporate image. It results in the satisfaction and retention of customers and
employees, thus reducing turnover rates. It is also suggested that improving organizational
service performance may imply the need for increased effort at socializing new employees
during the initial training period (Van and Schein, 1979). Organizational socialization has been
characterized by a number of academic scholars as essentially the process by which employees
learn, appreciate, and internalize an organizations goals, values, social knowledge, and expected
behaviors (Wagner and Hollenbeck, 1996) and so much has been discussed about the importance
of service quality and the need to improve on it.

3. Establishment of the problem

According to Parasuraman et al. (1988), there is severe competition in the market which is now
more complex and volatile. In addition to this, the Service sector in many developing countries is
undergoing change in order to keep up with world trends (Yavas et al., 1997). The rapidly
changing and highly competitive environment of which, Insurers are forced to operate within are
pushing them to rethink their attitude towards customer satisfaction and optimization of service
quality. Insurance is a high involvement industry where customers, whether at the retail or
corporate level, have always been important for the Services (Brostoff, 2001).

The situation is not exceptional in the Insurance industry of Sri Lanka. It has become paramount
importance for the Insurers to accomplish customer satisfaction if to be survived in the industry.
As Insurers are becoming more and more customer oriented, the level of success depends on the
extent of satisfaction by the customers of the Company. This extent of satisfaction should be
known by the respective Insurance service providers in order to appraise their services.
Therefore, in light of the need to retain customers, intense understanding of customers expected
and perceived service quality should be ascertained. In fulfilling this requirement, an assessment
of the service quality has become a vital importance.

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4. Significance of the study
Insurance Companies in Sri Lanka are consequently put into lot of pressures due towards
increase in competition. Various strategies are formulated to retain the customer and the key of it
is to increase the service quality level. Service quality is particularly essential in the Insurance
services context because it provides high level of customer satisfaction, and hence it becomes a
key to competitive advantage. In addition, service quality has a significant impact on a
Companys success and performance. Nowadays, service quality has received much attention
because of its obvious relationship with costs, financial performance, customer satisfaction, and
customer retention. Different meaning could be attached to the word quality under different
circumstances. It has been defined in a different way by various scholars. Some of the prominent
definitions include "Quality is predictability", conformance to specification or requirements,
fitness for use and "customer's opinion". These initial efforts in defining quality originated
largely from the manufacturing sector. A solid foundation in defining and measuring service
quality was emanated in the mid eighties by Gronroos (1984) and Parasuraman et al. (1985).
They were amongst the earliest scholars laid down the foundation for the definitions as well as
development of service quality.

The purpose of this research is to identify the most critical determinants of perceived service
quality satisfaction of the customers of Amana Takaful Plc service delivery, based on an
administration of the SERVQUAL scale (Parasuraman et al., 1988) to a group of consumers
involved in dealing with the services provided by the Company. More specifically, SERVQUAL
responses are to be compared with metric measures of satisfaction and service excellence.
Therefore, the research question pertinent to this research is; Does Amana Takaful PLC (ATP)
offer appropriate services to its customers by understanding their requirements and desires?

5. Objectives of the study

The objectives of the study are formulated as follows based on the broader research question
state above.
1) To assess the quality of services offered by Amana Takaful PLC (ATP) to its customers
2) To identify the service areas which needs to be improved.
3) To Evaluate Customer Expectation Variation in Service according to the Socio-Economic
Profiles.

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6. Literature review
As revealed by Parasuraman et al (1985), the unique characteristics differentiate services from
physical goods are; intangibility, inseparability, heterogeneity, and perishability.

Service
According to Gronroos (2001), goods are most tangible (an object) while services are more of an
act (a deed, performance or an effort) and one of the most important and unique characteristics of
services is that services are process, not things, which means that a service firm has no product,
only interactive processes.

Quality
Jurans (1988) definition fitness for intended use and that quality is meeting or exceeding
customer expectations. Deeming on the other hand the customers definition of the quality is the
only definition that matters.

Service Quality
Authors have defined service quality in numerous ways such as; Gronroos (2001) distinguishes
between "technical qualities" (what is delivered) and "functional quality" (how it is delivered)
and Lehtinen (1983) views service quality in terms of "process quality" and "output quality".
Process quality is judged by the customer during service. Output quality is judged by the
customer after the service is performed.

Characteristics of Service Quality

Service quality is based on multiple dimensions (Parasuraman et al, 1985). Gronroos (2001)
identified two service quality dimensions, the functional aspect and the technical aspect. The
functional aspect concern how service is provided while the technical aspect concern what
service is provided. The what is received by the customer as the outcome of the process in
which the resources are used, i.e. the technical or outcome quality of the process? However the
customer also perceives how the process itself functions, i.e. the functional or process quality
dimensions.

Customer Service and Service Quality

Customer service encompasses the entirety of the activities intended to achieve service quality in
firms. There are two conceptualizations of customer service. The physical distribution approach
describes customer service as the entirety of the ordering system; information collection, use and
dissemination, and delivery to consumers (Brady and Cronin, 2001). Customer service comprise
activities such as ordering service, provision of information to customers, delivery of orders to
consumers, and post-service support such as warranties. The marketing approach is an expansion
of the physical distribution approach by adding activities done as part of sales and the means of
motivating repeat purchases.

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SERVQUAL instrument
The original SERVQUAL instrument identified ten components of service quality. In a further
study conducted Parasuraman et al. (1985), these ten components were collapsed into five
dimensions: Reliability which is the ability to perform the service in an accurate and dependable
manner; Tangibles which refers to the appearance of physical factors such as equipment,
facilities and personnel; Empathy involves providing individual attention and care to customers;
Responsiveness is the willingness to provide help and prompt service to customers; and
Assurance refers to the knowledge and courtesy of employees and their ability to convey trust
and confidence. Four or five items are used to measure each dimension and the instrument is
administered twice in different forms, so that both customer expectations and perceptions can be
measured separately.

Customer Expectations
When customers avail of a service, they have initial expectations of the service experience.
Customer expectations become the bases of evaluating the service experience (Parasuraman et
al., 1985).

Customer Perceptions
In measuring service quality, the literature provides consideration of customer perceptions.
Schlesinger and Graf (1993) identified interaction, physical quality, and corporate quality as
factors influencing customer perceptions. As such, the evaluation of customer perceptions
towards service quality requires the focus on the delivery process as well as the outcome of
service delivery.

7. Operationalization of variables

Dimension Focus Statements

Encompasses physical facilities, equipment,
Tangibles 04
and appearance of personnel
Ability to perform the promised service
Reliability 05
dependably and accurately
Responsivenes Reflect the willingness to help customers and
04
s provide prompt service
Involves knowledge and courtesy of employees
Assurance 04
and their ability to inspire trust and confidence

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 Which is caring, individualize or customized
Empathy attention the organization provides its 05
customers

8. Monitoring Factors of Independent Variables.

Tangibility-Using state of the art technology, Physical appearance and surroundings, well
dressed and well mannered employees will attract customers and retain them as well.

Reliability-Delivering service at promised time, Interest shown to solve problems etc.

Responsiveness-Prompt to answer querries,telephone,and respond fast on demand.willing to

help faster than the competitors.

Assurance- Knowledgeable employees, keeps customers records and problems and assures
privacy and confidentiality at all times.

Empathy-Customers confidence,conveiniance and helpfulness at all times. Understands

customer requirements and the situations.

9. The Approach to Data Collection and Analysis

Population
Total motor insurance claims of ATP 904 Motor Claims - year 2012

Sample
Fixed interval random sampling method 150 to be selected with a fixed interval of 6

Data Collection methods

Secondary Sources
ATP Claim Registry
Literature Review
Insurance Board of Sri Lanka
Journals
Central Bank Annual Report 2011

Primary Sources
Questionnaire
22-items Likert scale (5 point) measuring the gap of five dimensions
Rank data for demographic variables

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Data Analysis tools
The following will give how data is to be analyzed.

Reliability Data Analysis

The purpose of the reliability analysis is to determine whether data are trustworthy or not. Hair et
al. (1998) suggest that a series of diagnostic measures are to be used to assess internal
consistency
Reliability investigation through Cronbachs Alpha as a method that is frequently used
that assessing the consistency of the entire scale. Due to its heavily usage it is generally
agreed that Cronbachs Alpha should exceed 0.70 to have reliability.

SERVQUAL Data Analysis

For each dimension of service quality above, SERVQUAL measures both the expectation and
perception of the service on a scale of 1 to 5, 22 questions in total. Then, each of the five
dimensions is weighted according to customer importance, and the score for each dimension
multiplied by the weighting. Following this, the Gap Score for each dimension is calculated by
subtracting the Expectation score from the Perception score. A negative Gap score indicates that
the actual service (the Perceived score) was less than what was expected (the Expectation score).
The Gap score is a reliable indication of each of the five dimensions of service quality. Using
SERVQUAL, service providers can obtain an indication of the level of quality of their service
provision.

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10. Conceptual Framework.

8. Conceptual Framework

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11. Time Plan.

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12. Reference
1) Brady M.K., Cronin, J. J . Jr, (2001), Some new thoughts on conceptualizing perceived
service quality, Journal of Marketing, Vol.56, pp. 55-68.

2) Brostoff, S. (2001), "Insurers vow to keep agents as key distribution component",

National Underwriter, Vol. 105 No.29.

3) Gronroos, C. (1984), "A service quality model and its marketing implications", European
Journal of Marketing, Vol. 18 No. 4, pp. 36-44.

4) Gronroos, C. (2001), "The perceive service quality concept-a mistake? Managing Service
Quality, Vol. 11 No. 3, pp.150-152.

5) Jones, G.R. (1986), "Socialization tactics, self-efficacy and newcomers adjustment to

organizations", Academy of Management Journal, Vol. 29 No.2, pp.262-79.

6) Juran, J.M. (1998). Jurans Quality Control hand book, McGraw-Hill, New York, 4th
Edition.

7) Lehtinen, J R (1983) Customer oriented service system, Service Management Institute

Working Paper, Finland: Helsinki.

8) Lewis, B.R. (1991), Customer care in service organizations, Management Decision,

Vol. 29 No. 1, pp. 31-4.

9) Parasuraman, A., Zeithaml, V., Berry, L. (1985), "A conceptual model of service quality
and its implications for future research", Journal of Marketing, Vol. 49 pp.41-50.

10) Parasuraman, A., Zeithaml, V., Berry, L. (1988), "SERVQUAL: a multiple item scale for
measuring consumer perceptions of quality", Journal of Retailing, Vol. 64 No.1, pp.12-
40.

11) Parasuraman, A., Zeithaml, V., Berry, L. (1988), "SERVQUAL: a multiple item scale for
measuring consumer perceptions of quality", Journal of Retailing, Vol. 64 No.1, pp.12-
40.

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 12) Schlesinger, L.A. and Heskett, J.L. (1991), Breaking the cycle of failure in services,
Sloan Management Review, Vol. 32, pp. 17-28.

13) Van Mannen, J., Schein, E.H. (1979), "Towards a theory of organizational socialization",
Research in Organizational Behavior, JAI, Vol. 1 pp.209-64.

14) Wagner, J.A., Hollenbeck, J.R. (1996), Management of Organizational Behavior,

Prentice-Hall, Englewood Cliffs, NJ,

15) Yavas, U., Bilgin, Z. and Shemwell, D.J. (1997), Service quality in the banking sector in
an emerging economy: a consumer survey, International Journal of Bank Marketing,
Vol. 15 No. 6, pp. 217-23.

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