ARTICLE IN PRESS

Journal of Retailing and Consumer Services 12 (2005) 373383

www.elsevier.com/locate/jretconser

Measuring service quality of banks: Scale development and validation

Osman M. Karatepea,, Ugur Yavasb, Emin Babakusc
a

School of Tourism and Hospitality Management, Eastern Mediterranean University, Gazimagusa, Turkish Republic of Northern Cyprus,
Via Mersin 10, Turkey
b
Department of Management and Marketing, College of Business, East Tennessee State University, Johnson, TN 36714, USA
c
Department of Marketing and Supply Chain Management, Fogelman College of Business and Economics, The University of Memphis,
Memphis, TN 38152, USA

Abstract
By employing a multi-stage, multi-phase, and multi-sample approach, this paper reports on the construction of a service quality
scale. Customer perceptions of service quality of retail banks in Northern Cyprus serve as the study setting. The parsimonious 20item four-dimensional scale consisting of service environment (four items), interaction quality (seven items), empathy (ve items),
and reliability (four items) exhibits sound psychometric properties. Scale development procedures and managerial applications of
the derived scale are discussed.
r 2005 Elsevier Ltd. All rights reserved.
Keywords: Service quality; Banking; Scale development; Northern Cyprus

1. Introduction
A deliberate attempt to study services marketing and
service quality issues dates back to the mid-1960s
(Rathmell, 1966). However, interest on the topic has
gained considerable momentum within the past two
decades or so. This is not surprising. On the one hand,
delivery of high service quality to customers offers rms
an opportunity to differentiate themselves in competitive markets. On the other hand, high service quality
results in customer satisfaction and loyalty, greater
willingness to recommend to someone else, reduction in
customer complaints, and improved customer retention
rates (see, for example, Bitner, 1990; Danaher, 1997;
Headley and Miller, 1993; Levesque and McDougall,
1996; Magi and Julander, 1996; Zeithaml et al., 1996).
Today, service quality is considered a critical measure of
Corresponding author. Tel.: +90 392 630 1116;
fax: +90 392 365 1584.
E-mail addresses: osman.karatepe@emu.edu.tr (O.M. Karatepe),
raxyavas@mail.etsu.edu (U. Yavas), ebabakus@memphis.edu
(E. Babakus).

0969-6989/$ - see front matter r 2005 Elsevier Ltd. All rights reserved.
doi:10.1016/j.jretconser.2005.01.001

organizational performance and continues to compel the

attention of practitioners and academics (Lassar et al.,
2000; Yavas and Yasin, 2001).
Unlike goods quality, which can be measured with
some objectivity, service quality is abstract and elusive.
The unique features of services such as inseparability of
production and consumption, intangibility, and heterogeneity make measurement of quality a very complex
issue. In the absence of objective measures, rms must
rely on consumers perceptions of service quality to
identify their strengths and/or weaknesses, and design
appropriate strategies. This makes development of
psychometrically sound and managerially useful instruments to measure service quality imperative.
The purpose of this paper is to develop and test a
service quality instrument by using the retail banking
services in Northern Cyprus as a case in point. This
objective is consistent with growing sentiments for
developing context-specic (e.g., industry and/or culture-specic) service quality measures in light of the
difculties involved with universal/global measures
(Aldlaigan and Buttle, 2002; Babakus and Boller,
1992; Robinson, 1999; Winsted, 1997). The stages

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outlined in Churchills (1979) now-classic paradigm for

developing better measures of marketing constructs are
employed in accomplishing this objective. In the past,
Churchills (1979) paradigm has been used to develop
not only measures of other marketing constructs
(Webster, 1990, 1993) but service quality measures as
well (Aldlaigan and Buttle, 2002; Parasuraman et al.,
1988).
In the next section, we provide a review of the relevant
literature. This is followed by the method and results of
an empirical study. We conclude the paper with a
discussion of the implications of the results and
suggestions for future research.

2. Relevant literature
A canvassing of the growing body of literature on
service quality suggests that two schools of thought
dominate the extant thinking. One is the Nordic school
of thought based on Gronrooss (1984) two-dimensional
model. And the other is the North American school of
thought based on Parasuraman et al.s (1988) vedimensional SERVQUAL model. Considering other
signicant conceptual and empirical works in the area,
it appears that service quality encompasses (1) customers experiences with the tangibles, reliability, responsiveness, assurance, and empathy aspects of the services
delivered by a rm (Parasuraman et al., 1988); (2)
technical and functional quality (Gronroos, 1984); (3)
service product, service environment, and service
delivery (Rust and Oliver, 1994); and (4) interaction
quality, physical environment quality, and outcome
quality (Brady and Cronin, 2001).
Our review of this body of literature points out two
major limitations. First, as noted by Babakus and Boller
(1992), there is a need to develop industry-specific
measures of service quality. This is particularly important from a managerial perspective (Shemwell and
Yavas, 1999). Because many of the questions in existing
instruments (notably SERVQUAL batteries) intended
to be applied across situations/services just do not apply
in a specic context and force researchers to drastically
alter the items (Babakus and Boller, 1992; Babakus and
Mangold, 1992; Carman, 1990; McAlexander et al.,
1994). However, as Shemwell and Yavas (1999) cogently
argue, the more specic the scale items are in a service
quality instrument and the more applicable they are to a
managers own contextual circumstance, the better s/he
will be able to use the information. Thus, instead of
taking an existing instrument and trying to t it to the
context, a better approach is to develop an instrument
specically for the focal service. While many studies in
banking measure service quality by replicating or
adopting Parasuraman et al.s (1988) SERVQUAL
model (see, for example, Angur et al., 1999; Athanasso-

poulos, 1997; Blanchard and Galloway, 1994; Donthu

and Yoo, 1998; Lloyd-Walker and Cheung, 1998;
Marshall and Smith, 1999; McDougall and Levesque,
1994; Newman and Cowling, 1996; Yavas and Benkenstein, 2001), a few studies address this weakness and
present new models or approaches to the measurement
of service quality in general and in banking in particular.
For instance, Mersha and Adlaka (1992) applied the
Delphi technique to a sample of MBA students to
generate attributes of poor and good service quality.
They then converted the 12 attributes thus identied
into scales and analyzed students perceptions of service
quality in ve services, one of which was retail banking.
The authors concluded that the list of attributes they
generated was similar to the ve dimensions of
SERVQUAL (i.e., tangibles, reliability, responsiveness,
assurance, and empathy). In another study, Avkiran
(1994) developed a multi-dimensional instrument for
measuring customer-perceived quality in retail branch
banking. Using SERVQUAL as a starting point and
then adding items that he extracted from a qualitative
study commissioned to establish quality service standards, Avkiran (1994) followed an iterative process and
identied staff conduct, credibility, communication, and
access to teller services as the nal dimensions of service
quality. The scale developed by Bahia and Nantel (2000)
based on expert opinions revealed six dimensions of
service quality. These were termed: effectiveness and
assurance, access, price, tangibles, service portfolio, and
reliability.
More recently, Aldlaigan and Buttle (2002), based on
the technical and functional service quality schema
proposed by Gronroos (1984), developed a scale to
measure service quality perceptions of bank customers.
Their study resulted in SYSTRA-SQ, which consists of
service system quality, behavioral service quality, service
transactional accuracy, and machine service quality.
As can be inferred from the statement of its purpose,
our study builds upon these works and, by applying an
iterative procedure, develops a service quality instrument specically for retail banking in Northern Cyprus.
Such a comprehensive effort to develop a new scale to
measure service quality in the particular setting was also
encouraged by a number of bank managers in Northern
Cyprus whom we contacted during the initial phases of
the current study. After examining the copies of existing
instruments we provided them, the managers clearly
indicated the need for a tailor-made measure for the
Northern Cyprus context.
Second, there is a need to develop service quality
measures that are country/culture specic. This is
because, as is the case with other marketing and
management constructs and measures (Benkhoff, 1997;
Hofstede, 1990; Yavas, 1997), quality constructs/measures in general (Yavas and Konyar, 2002), and service
quality constructs/measures in particular (Mattila,

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1999a) that are developed in one culture (notably a

western culture) may not be applicable in a different
cultural setting. Drawing attention to this limitation of
extant research, Mattila (1999b) argues that the denition of service quality depends on consumers cultural
heritage, particularly on variations along power distance
and communication context. Malhotra et al. (1994)
share this view and posit that the cultural differences
(e.g., individualism/collectivism, power distance) between countries are likely to have varying effects on
the denition of service quality. This is shown to be true
in a research by Winsted (1997) who compared Japanese
and US consumers. Focusing on provider behaviors as
indicators of service encounter quality, Winsted (1997)
not only identied new quality dimensions that had not
been a part of service quality concept until then, but also
demonstrated that the number and meanings of service
quality dimensions varied between US and Japanese
consumers. For instance, the authenticity dimension,
which refers to genuineness of service providers
behaviors, was an important component of service
quality for Japanese consumers while this dimension
did not surface in the case of the US consumers. Despite
some cross-cultural commonalities (Espinoza, 1999), the
weight of evidence suggests that culture plays a
signicant role on the denition of the service quality
construct (Kettinger et al., 1995). In recognition of this,
calls are made to develop culture-specic measures of
service quality (Winsted, 1997). Indeed, Imrie et al.
(2002) recently stated that managers should avoid
employing the SERVQUAL scale globally and instead
they should develop a new, culturally bounded
measure of service quality (p. 17).
Our study develops a service quality measure specically for the Turkish (Northern Cyprus) setting. It
should be noted that this is not the rst study dealing
with service quality measurement issues in Turkey and
Northern Cyprus. Yet it differs from previous studies in
one very important respect. While all previous studies
took an existing instrument as is (or translated it into
Turkish) (Akan, 1995; Johns et al., 2004; Karatepe and
Avci, 2002; Kozak et al., 2003; Yavas and Bilgin, 1996;
Yavas and Arsan, 1995), the present study develops a
measure that represents the rst comprehensive effort to
understand how service quality assumes meaning in this
cultural context. It should also be added that several
previous studies dealing with service quality in banking
(Yavas and Bilgin, 1996) and other service industries
(Johns et al., 2004; Karatepe and Avci, 2002) in the
Turkish/Northern Cyprus setting failed to replicate the
ve-dimensional structure purported in the SERVQUAL scale. Even those few studies which were able to
replicate the ve-dimensional structure reported other
psychometric problems. For instance, while Kozak et
al.s (2003) study which examined service quality of
airlines in Northern Cyprus was able to partially

375

support the ve-dimensional structure of SERVQUAL,

their study failed to provide evidence for discriminant
validity. Likewise, Yavas and Arsan (1995) tested the
dimensionality of the SERVQUAL scale in banking and
found a ve-factor solution. Yet, most of the items did
not load on their underlying dimensions. At a time when
service quality becomes a pressing issue in Turkish
banking (Babakus et al., 2003), our study can provide
managers with a much needed specic instrument. Also,
our study addresses the voids in the literature and adds
to the compendium of knowledge in the area.

3. Study
3.1. Step 1: qualitative study (item generation)
To generate items that comprise the domain of service
quality in retail banking services, a team of interviewers
conducted one-on-one interviews with a judgmental
sample of 86 bank customers. The interviews were audio
tape-recorded. In these interviews, based on their
experiences and prior dealings with banks, participants
were asked to talk about their expectations from bank
services.
To code the qualitative data thus obtained, similar to
prior studies (Brady and Cronin, 2001; Richins, 1997), a
content analytic approach was employed. In the rst
stage, after listening to the tapes, three independent
coders prepared paragraphs/eld notes. All three coders
agreed on the overall content of each paragraph/eld
note. In the second stage, the same coders generated a
total of 56 items and agreed on 43 of these items yielding
an inter-judge reliability coefcient of .91. After a closer
scrutiny, three coders agreed that 12 of the 43 items
highly overlapped. After elimination of highly redundant items, this reexamination resulted in a total of 31
items. In the nal stage, three coders were asked to
categorize the 31 items into groups based on content
similarities of items. The three coders, working individually and then as a group, identied ve distinct
categories. Transcripts and items in each category were
further examined by a team of researchers to assign a
higher-level meaning to each category. This exercise led
to the identication and labeling of the following
dimensions of service quality: service environment (four
items), interaction quality (eight items), reliability (ve
items), empathy (10 items), and technology (four items).
Table 1 presents a listing of these items.
Service environment refers to the appearance of the
service providers and appearance of the interior and
exterior of the bank facilities. Interaction quality
encompasses attitudes and behaviors of the service
providers and their interaction style with customers.
Empathy is dened as individualized attention given to
customers and willingness of the bank personnel to help

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Table 1
Item-to-total correlations and varimax-rotated factor loadings (First stage, n 115)
Items

Item-to-total correlations

Factor loadings
F1

F2

F3

F4

F5

0.32

0.57

0.61
0.65
0.61
0.42

Q01.
Q02.
Q03.
Q04.
Q05.
Q06.
Q07.
Q08.
Q09.
Q10.

The exterior of this bank is visually appealing

The interior of this bank is visually attractive
Employees of this bank have neat appearances
The interior of this bank is spacious
The ATMs of this bank are technologically well-equipped
There is an adequate number of employees in this bank
There is an adequate number of ATMs in this bank
The computerized system in this bank functions properly
Employees of this bank have the knowledge to respond to problems
Employees of this bank are polite to customers

0.48
0.56
0.49
0.36
0.36
0.28
0.34
0.42
0.61
0.49

0.30
0.55
0.81

0.66
0.69
0.68
0.42
0.33

0.39

0.40

Q11.
Q12.
Q13.
Q14.
Q15.

Employees of this bank are experienced

Employees of this bank instill condence in customers
Employees of this bank are understanding of customers
Employees of this bank serve customers in good manner
There is a warm relationship between employees of this bank and customers

0.65
0.70
0.58
0.59
0.60

0.62
0.67
0.84
0.82
0.86

0.31
0.34

Q16.
Q17.
Q18.
Q19.
Q20.

This bank does not make its customers stand in a queue for a long time
Employees of this bank enact transactions on a timely manner
Employees of this bank always help customers
Employees of this bank provide individualized attention to customers
Employees of this bank are willing to solve customer problems

0.48
0.68
0.68
0.69
0.64

0.33
0.64
0.58
0.59

0.40

0.75
0.76
0.45
0.41
0.43

Q21.
Q22.
Q23.
Q24.
Q25.

Employees of this bank provide error-free service

This bank is nancially dependable
Employees of this bank carry out customer transactions condentially
Employees of this bank provide customers with precise information
This bank informs customers about its nancial operation accurately

0.56
0.19
0.48
0.64
0.48

0.53

0.46

0.41

0.36
0.47

0.59
0.44
0.51
0.56

Q26.
Q27.
Q28.
Q29.
Q30.
Q31.

This bank has convenient working hours

Employees of this bank provide equal treatment to all customers
Employees of this bank know customers needs.
Employees of this bank are sensitive to customers needs
Employees of this bank meet customer requests quickly
The internet banking services of this bank are widespread

0.15
0.45
0.56
0.74
0.69
0.06
Eigenvalue
% of variance explained
Coefcient alpha

0.32
0.57
0.59

10.50
35.01
0.91

0.43
0.63
0.58
0.43
0.50

2.48
8.28
0.73

0.35

0.33

1.78
5.95
0.82

0.51

1.70
5.66
0.73

0.31

1.57
5.22
0.44

Note: Items 14 represent service environment. Items 5, 7, 8, and 31 refer to technology. Items 915 and 30 represent interaction quality. Items 6,
1620, and 2629 represent empathy. Items 2125 refer to reliability. The factor loadings less than .30 are not shown. Reliability coefcients
(coefcient alpha) are based on the a priori designation (as designated by coders) of the items to their respective dimensions.

customers and resolve their problems in a timely

manner. Reliability refers to dependability of service
and accuracy of records and information. Finally,
technology dimension was dened as the quality of
ATMs and the proper functioning of computerized
systems.
3.2. Step 2: quantitative study: first stage
Data for the initial renement of the 31-item
instrument were obtained from a sample of 115
customers of a large bank as they exited the bank after
completing a transaction there. Every third customer
leaving the premises was approached to collect the data.
This sample size, relative to the number of initial scale

items, compares favorably with sample sizes used by

other studies in the early stages of scale development
(Parasuraman et al., 1988; Webster, 1990). The majority
of the respondents (75 percent) were between the ages of
1746 and male (65 percent). Little over one-half had
college and 35 percent high school degrees. The sample
prole, in terms of age and education composition, was
representative of the banks customer population.
The questionnaire administered to the respondents
consisted of two parts. The rst part was designed to
measure customers assessments of their banks service
quality with respect to the items identied during the
qualitative phase of the study. There is a debate in
literature on whether the expectations, or the perceptions, or the gap between the two constitute a better

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measure of service quality. In this study, service quality

was measured using perceptions-only approach.
Specically, service quality items were transformed into
Likert-scales and the respondents were asked to indicate
their perceptions of their bank on each item using a vepoint scale ranging from 5 strongly agree to
1 strongly disagree.
The choice of performance-only scores was based on
the widely discussed methodological and theoretical
concerns associated with the use of expectations scores
(Babakus and Boller, 1992; Cronin and Taylor, 1992,
1994; Parasuraman et al., 1994; Robinson, 1999) as well
as the difference (gap) scores (Brown et al., 1993; Teas,
1993, 1994). Indeed, after a thorough review of the prior
literature and evidence from three new studies they
conducted, Brady et al. (2002) authoritatively declared
that the performance-only measures of service quality
are superior to other approaches.
The second part of the survey included three singleitem measures relating to overall service quality, overall
customer satisfaction, and purchase intention. Responses to overall service quality item were elicited on
a ve-point scale ranging from 5 very good to
1 very poor. Responses to customer satisfaction
item were elicited on a ve-point scale ranging from
5 extremely satised to 1 extremely dissatised. Finally, responses to purchase intention item
were elicited on a ve-point scale ranging from
5 very high to 1 very low.
Churchill (1979) suggests that purication of an
instrument should start with the computation of
coefcient alphas. This was done for the ve dimensions
identied by the coders. The coefcient alphas ranged
from .44 to .91 across the ve dimensions (Table 1).
Following reliability analysis, exploratory factor analysis (principal components with varimax rotation) was
applied to the data. As shown in Table 1, this analysis
resulted in a ve-factor solution. However, items
representing technology dimension did not emerge as a
viable factor as indicated by low factor loadings and/or
high cross-loadings. In light of factor analysis results
and poor reliability (.44), the technology dimension was
discarded altogether. In addition, one item each from
interaction quality and reliability dimensions and ve
items from empathy dimension were deleted due to high
cross-loadings or factor loadings below .50. The four
factors thus retained were: service environment (four
items), interaction quality (seven items), empathy (ve
items), and reliability (four items).
Conrmatory factor analysis using LISREL (Joreskog and Sorbom, 1993) was then applied to the fourfactor measurement model to further test dimensionality
as well as convergent and discriminant validity. As
shown in Table 2, the results of the conrmatory factor
analysis demonstrated a moderate t of the four-factor
measurement model to the data on the basis of a number

377

of t statistics (w2 391.65, df 164, GFI .74,

AGFI .67, NFI .73, NNFI .78, CFI .81,
IFI .81, SRMR .092, RMSEA .11). Furthermore, the magnitudes of the factor loading estimates
ranged from .37 to .92 where a majority of the factor
loadings were higher than .70. And all t-values were
greater than 2.00. Pairwise conrmatory factor analyses
and w2 difference tests revealed that the dimensions are
distinct. Hence, conrmatory factor analyses results
provide evidence regarding convergent and discriminant
validity of the measure (Anderson and Gerbing, 1988).
Also, as reported in Table 2, internal consistency
reliability estimates exceeded the .70 cut-off value
recommended by Nunnally (1978).
Additional assessment of the scale was undertaken
using composite scores for each dimension, which were
calculated by averaging scores across items representing
that dimension. The correlations among the four
dimensions of the scale ranged from .37 (service
environment and interaction quality) to .62 (empathy
and interaction quality). The correlations between
service quality composite dimension scores and the
overall service quality (range between .50 and .60),
customer satisfaction (range between .49 and .60), and
purchase intention (range between .40 and .58) provided
further evidence for the viability of the scale. Collectively, the results from the initial sample are highly
encouraging regarding the reliability, convergent, and
discriminant validity of the scale. Hence, the entire scale
was used without further alteration during the second
stage of the quantitative study.
3.3. Step 3: quantitative study: second stage
To further evaluate the 20-item scale and its psychometric properties, a large-scale study was undertaken.
Prior to data collection, managements of 10 banks were
contacted and permission was sought to interview their
customers on the premises right after completing a
transaction. Eight banks granted permission to the
research team. The number of respondents to be drawn
from each bank was determined proportional to the
number of customers of each of the banks. And, again
every third customer leaving the premises was approached to collect the data. To get a representative
sample of customers, data collection took place during
all operating hours. After a 3-month period, usable
responses were obtained from a total of 1220 customers.
This sample size is much larger than the sample sizes
used in similar scale development studies (Parasuraman
et al., 1988, 1991; Webster, 1990) and well exceeds the
1000 observations sample size guideline recommended
for factor analysis (Tabachnick and Fidell, 1996) as well
as the 10 to 1 ratio of sample size to number of scale
items guidelines suggested by Nunnally (1978). Eightyfour percent of the respondents were between the ages of

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Table 2
Scale items, reliabilities and conrmatory factor analysis results (rst stage, n 115)
Scale items

Standardized loadings

T-values

Service environment (SERENV)

The exterior of this bank is visually appealing
The interior of this bank is visually attractive
Employees of this bank have neat appearances
The interior of this bank is spacious

0.80
0.92
0.44
0.37

9.31
11.18
4.67
3.91

0.59
0.78
0.67
0.73
0.84
0.84
0.87

6.78
9.69
7.84
8.86
10.89
10.83
11.42

Interaction quality (INTQUAL)

Employees of this bank have the knowledge to respond to problems
Employees of this bank are polite to customers
Employees of this bank are experienced
Employees of this bank instill condence in customers
Employees of this bank are understanding of customers
Employees of this bank serve customers in good manner
There is a warm relationship between employees of this bank and
customers

0.73

0.91

Empathy (EMP)
This bank does not make its customers stand in a queue for a long
time
Employees of this bank enact transactions on a timely manner
Employees of this bank always help customers
Employees of this bank provide individualized attention to customers
Employees of this bank are willing to solve customer problems

0.52

5.76

0.76
0.88
0.78
0.83

9.22
11.55
9.67
10.59

Reliability (REL)
Employees of this bank provide error-free service
Employees of this bank carry out customer transactions condentially
Employees of this bank provide customers with precise information
This bank informs customers about its nancial operation accurately

0.67
0.57
0.89
0.64

7.70
6.24
11.23
7.17

Model t statistics

Coefcient alpha

0.85

0.76

w2 391.65, df 164, GFI 0.74, AGFI 0.67, NFI 0.73,

NNFI 0.78, CFI 0.81, IFI 0.81, SRMR 0.092, RMSEA 0.11

Note: Each item is measured on a ve-point scale ranging from 5 strongly agree to 1 strongly disagree. All loadings are signicant at the .01
level.

17 and 46. The majority of the respondents (66 percent)

were male. Forty-two percent of the respondents had
college and 45 percent high school degrees. The
demographic breakdown of the sample is representative
of retail bank customers in Northern Cyprus.
Similar to the process employed in the rst stage, we
rst computed coefcient alphas. As shown in Table 3,
these coefcients ranged from .81 to .92. In addition, all
corrected item-to-total correlations ranged from .46 to
.75. In light of these results, there was no compelling
reason to delete any items. Conrmatory factor analysis
was employed to examine dimensionality, convergent,
and discriminant validity. The results of the conrmatory factor analysis demonstrated a reasonable t of the
four-factor measurement model to the data on the basis
of a number of t statistics (w2 1354.60, df 164,
GFI .90, AGFI .87, NFI .92, NNFI .92,
CFI .93, IFI .93, SRMR .047, RMSEA .077).
The magnitudes of the standardized loadings ranged
from .50 to .83 and all t-values were higher than 2.00,
indicating convergence of items with their respective
underlying dimensions. As can be seen from Table 3, the

overwhelming majority of the standardized loadings

were above .70. Pairwise conrmatory factor analyses of
the dimensions provided support for discriminant
validity of the scale (Anderson and Gerbing, 1988).
The scale was subjected to further validity assessment
using composite scores for each dimension, which were
calculated by averaging scores across items representing
that dimension. As can be seen from Table 4, the
correlations among the underlying dimensions ranged
from .52 (service environment and reliability) to .76
(interaction quality and empathy). The correlations
among the dimensions (intra-construct correlations) of
the scale are consistently higher than their correlations
with customer satisfaction and purchase intention (interconstruct correlations). Hence, the scale meets a
fundamental requirement for convergence and discrimination in measurement (Bagozzi, 1981).
Fig. 1 provides a partial nomological network and the
results of additional analysis to address nomological
validity issues. The literature suggests that perceived
quality has a direct inuence on purchase intention
(Zeithaml et al., 1996) as well as an indirect effect via the

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379

Table 3
Scale items, reliabilities and conrmatory factor analysis results (second stage, n 1220)
Scale items

Standardized loadings

T-values

Service environment (SERENV)

The exterior of this bank is visually appealing
The interior of this bank is visually attractive
Employees of this bank have neat appearances
The interior of this bank is spacious

0.72
0.80
0.67
0.71

26.78
31.08
24.30
26.25

0.70
0.81
0.72
0.79
0.82
0.83
0.80

27.60
33.92
28.58
32.28
34.68
34.78
33.32

Empathy (EMP)
This bank does not make its customers stand in a queue for a long time
Employees of this bank enact transactions on a timely manner
Employees of this bank always help customers
Employees of this bank provide individualized attention to customers
Employees of this bank are willing to solve customer problems

0.50
0.69
0.83
0.81
0.77

17.80
26.44
34.69
33.62
30.65

Reliability (REL)
Employees of this bank provide error-free service
Employees of this bank carry out customer transactions condentially
Employees of this bank provide customers with precise information
This bank informs customers about its nancial operation accurately

0.73
0.69
0.82
0.68

27.93
26.25
33.00
25.36

Coefcient alpha
0.81

Interaction quality (INTQUAL)

Employees of this bank have the knowledge to respond to problems
Employees of this bank are polite to customers
Employees of this bank are experienced
Employees of this bank instill condence in customers
Employees of this bank are understanding of customers
Employees of this bank serve customers in good manner
There is a warm relationship between employees of this bank and
customers

0.92

0.83

0.81

w2 1354.60, df 164, GFI 0.90, AGFI 0.87, NFI 0.92,

NNFI 0.92, CFI 0.93, IFI 0.93, SRMR 0.047,
RMSEA 0.077

Model t statistcis

Note: Each item is measured on a ve-point scale ranging from 5 strongly agree to 1 strongly disagree. All loadings are signicant at the .01
level.

Table 4
Means, standard deviations and correlations of study variables
(Second stage, n 1220)
Variables:

Service environment (SERENV)

Interaction quality (INTQUAL)
Empathy (EMP)
Reliability (REL)
Customer satisfaction (CSAT)
Purchase intention (PINTENT)

1.00
0.60
0.54
0.52
0.51
0.50

1.00
0.76
0.71
0.65
0.65

1.00
0.70 1.00
0.62 0.61 1.00
0.65 0.62 0.71 1.00

Mean
Standard deviation

3.54 3.94 3.70 3.91 3.95 3.84

0.87 0.77 0.80 0.71 0.69 0.79

Note: Composite scores for each measure were obtained by averaging

scores across items representing that measure, except for customer
satisfaction and purchase intention. The scores range from 1 to 5. A
higher score indicates a more favorable response. All correlations are
signicant at the .01 level.

mediating role of customer satisfaction (Brady and

Robertson, 2001). Using this simple nomological network, we tested a structural model with the four

composite dimension scores as indicators of service

quality. The results in Fig. 1 show that the model ts the
data rather well (w2 18.66, df 8, p :017;
SRMR .011, GFI .99, AGFI .99, NFI 1.00,
NNFI 1.00, CFI 1.00, RMSEA .033), and both
the direct and indirect effects of service quality on
purchase intentions are signicant. That is, the standardized regression coefcients from: (1) service quality to
customer satisfaction (g1 :74; t 22:5); (2) service
quality to purchase intention (g2 :45; t 13:5); and (3)
customer satisfaction to purchase intention (b :41;
t 14:6) are all statistically signicant. Furthermore, it
makes theoretical sense that service quality has its
strongest effect on customer satisfaction since satisfaction is a mediator between service quality and purchase
intention. In addition, 55 percent of the variance in
customer satisfaction is accounted for by service quality,
and 64 percent of the variance in purchase intention is
explained by service quality and customer satisfaction
jointly. Finally, an examination of standardized loadings in Fig. 1 suggests that interaction quality is the
most important indicator of service quality (l2 :88),

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CSAT

SERENV

PINTENT

1=.66***
= 0.41 (t=14.6)

1= 0.74 (t=22.5)

INTQUAL

2=0.88 (t=25.9)

SQUAL

CUSTSAT

PURCINT

3=0.85 (t=25.2)
2 = 0.45 (t=13.5)

EMP
4=0.81 (t=24.2)

REL

Proportion of variance explained (R2) in:

Customer satisfaction (CUSTSAT): 0.55
Purchase intention (PURCINT):
0.64
Model fit statistics:
2
=18.66 (df=8, p=0.017)
SRMR=0.011
GFI=0.99
AGFI=0.99
NFI=1.00
NNFI=1.00
CFI=1.00
RMSEA=0.033

Fig. 1. Assessing nomological validity of the service quality measure: the relationships among service quality (SQUAL), customer satisfaction
(CUSTSAT), and purchase intention (PURCINT) constructs. Note: Since customer satisfaction and purchase intention were measured using single
items, their error variances were set to zero in the structural model. Hence, their standardized loadings on their respective latent constructs were 1.00
by denition. T-values are shown in parentheses except for the loading of service environment (SERENV), which was initially xed to 1.00 to set the
metric for the underlying service quality construct.

followed by empathy (l3 :85), reliability (l4 :81),

and service environment (l1 :66).

4. Discussion
This study developed a 20-item survey instrument to
measure bank customer perceptions of service quality in
Northern Cyprus. The results showed that service
quality could be conceptualized and measured as a
four-dimensional construct consisting of service environment, interaction quality, empathy, and reliability.
The scale exhibited high internal consistency reliability
and met rigorous conceptual and empirical criteria for
construct validity including content, convergent, discriminant, and nomological validity.
Our results showed that interaction quality is the most
important dimension of service quality followed by
empathy, reliability, and service environment. The
number of distinct dimensions, their meaning, and their
order of importance show some similarities and
differences with prior conceptualizations including
Gronroos (1984), Parasuraman et al. (1991), Brady
and Cronin (2001), Rust and Oliver (1994), and
Aldlaigan and Buttle (2002). There is a clear convergence in terms of conceptual meaning between our
service environment dimension and the tangibles
dimension of SERVQUAL. This dimension is the least
important indicator of service quality in this study as

well as previous studies using SERVQUAL (e.g.

Parasuraman et al., 1991). Empathy and reliability
dimensions in the current and SERVQUAL scales are
also conceptually similar. In the present study, empathy
was found slightly more important than the reliability
dimension whereas SERVQUAL studies consistently
identied reliability as the most important indicator of
service quality. Interaction quality appears to overlap
with the combined SERVQUAL dimensions of responsiveness and assurance.
Additionally, interaction quality identied in the
current study is similar to that of Gronrooss (1984)
functional quality. Several dimensions reported in our
study are similar to those of Aldlaigan and Buttle
(2002). For example, their behavioral service quality is
similar to our interaction quality, and our reliability is
similar to their service transactional accuracy. Finally,
service environment dimension in Rust and Oliver
(1994) and physical environment quality in Brady and
Cronin (2001) are conceptually similar to our service
environment dimension.
A common theme emerging from these comparisons is
that the meaning of service quality may have some
universal aspects as demonstrated by the similarities in
the underlying dimensions. However, signicant variations may exist regarding the complexity (i.e., the
number of underlying dimensions) of service quality
concept and the importance attached to each dimension
from one context to another. A comparison of the

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current study with those that were conducted in the

banking sector in Turkey (a very similar culture and
similar customer demographics) using SERVQUAL
(Yavas and Arsan, 1995; Yavas and Bilgin, 1996)
reveals that the service quality measure developed in
this study provides a more specic view since it was
guided by items suggested by bank customers in the rst
place. The items in Yavas and Bilgin (1996) produced a
three-dimensional depiction of service quality with no
apparent identication with the presumed SERVQUAL
dimensions. While Yavas and Arsan (1995) found a vedimensional structure, the items did not load on the
appropriate factors designated in SERVQUAL. Our
study produced a viable measure of retail banking
service quality within the cultural context of Northern
Cyprus.
The technology dimension of service quality was
initially considered based on the qualitative stage of the
study. However, it did not emerge as a viable dimension
in the later stages when subjected to empirical criteria.
This result is potentially due to the fact that technologybased services (e.g., video-banking, internet-banking,
telephone-banking) are not widely available and, wherever available, internet sites are not easy to navigate.
Furthermore, the use of technology in this sector is
hampered by poor electrical infrastructure. Frequent
power outages render ATMs useless and cause frustration among customers. Also down-times and other
glitches in computer systems are common occurrences
in Northern Cyprus. However, bank consumers are
aware of the benets that technology can provide and
this dimension of service quality will assume a more
distinct meaning in the future as technology infrastructure improves in the country. Hence, future studies
should pay attention to technology as a potentially
critical dimension of service quality.
The current study provides some useful insights for
managerial action. First, bank managers can rely on this
industry-specic scale in order to measure service
quality delivered to their customers. By examining
performance scores on each attribute within and across
dimensions, improvement needs can be identied.
Second, from a strategic standpoint, bank managers
can determine the relative importance of the four service
quality dimensions in predicting customer satisfaction
and customer loyalty. By doing so, bank managers can
determine which service quality dimension(s) they
should pay most attention to. Third, multi-branch bank
organizations can use the current scale to evaluate
service quality delivered to customers in different
branches and track the relative performance of various
branches over time. Fourth, bank managers can employ
the service quality scale to identify distinct customer
clusters or segments with varying perceptions about
service quality. Cluster proles can provide valuable
information on how to approach each segment for

381

quality improvement initiatives. Focusing marketing

efforts on the most unhappy cluster(s), for instance, may
provide immediate relief for reducing defection rates
(Brady and Cronin, 2001). Fifth, the service quality scale
can also be administered to frontline employees and
their customers simultaneously to compare customer
perceptions of service quality with frontline employee
perceptions. Finally, from a competitive standpoint,
bank managers can use the existing scale to assess their
strengths/weaknesses relative to competitors across
service quality dimensions.

5. Concluding comments
It should be underscored that given the premise that
replication research is the mainstay of the scientic
method and that empirical generalizations are central to
knowledge development, our results can hardly be
considered conclusive. Certainly more studies are
needed to further validate the four-factor service quality
measure derived in this study. In addition, while we
followed well-established procedures throughout our
study, at the qualitative stage, employment of the
approach advocated by Zimmer and Golden (1988)
might have been better. It is conceivable that using the
same coders also as judges during the coding process in
selecting and developing the items may have partially
confounded our item pool.
This study provides full support for neither the North
American nor the Nordic school of thought regarding
the dimensionality of service quality or the meanings of
quality dimensions. However, the dimensions identied
in this study show similarities to other service quality
measures such as SERVQUAL and SYSTRA-SQ. This
suggests that there may be some potentially universal
facets of service quality and that perhaps we may not
need to develop specic measures from scratch for each
context. Instead, existing knowledge base may provide a
useful starting point for adaptations to new contexts.
Future research can shed further light on these issues.

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