The impact of financial services quality and fairness on customer satisfaction

The impact of financial servicesquality and fairness on customer

satisfactionHoun-Gee Chen

Department of Business Administration, National Taiwan University,Taipei, Taiwan

Julie Yu-Chih LiuDepartment of Information Management, Yuan Ze University,

Chung-Li, Taiwan

Tsong Shin SheuDepartment of Industrial Eng. and Management,

Nan Kai University of Technology, Tsao Tun, Taiwan, and

Ming-Hsien YangCollege of Management, Fu-Jen Catholic University,

New Taipei, Taiwan

Abstract

Purpose – Customer satisfaction in the banking industry has long been measured as a function ofservice quality by using a variation of the SERVQUAL instrument. The purpose of this paper is tobuild a broader understanding of the determinants of customer satisfaction throughout the financialservices industry by incorporating the perceptions of fairness in service delivery (FAIRSERV) andoutlining why and how FAIRSERV is important to customer satisfaction.Design/methodology/approach – The authors conduct a cross-sectional questionnaire survey,including samples of 420 customers from the financial services industry in Taiwan. PLS-Graph is usedto evaluate the measures of reliability as well as validities, and to test the hypotheses.Findings – The results show that fair service not only has a significant impact on customersatisfaction, but also plays a role equivalent to service quality in determining customers’ trust andperceived value, which in turn lead to customer satisfaction.Research limitations/implications – The impact of FAIRSERV on customer satisfaction should beemphasized. Future studies examining the impact of service quality on customer satisfaction shouldincorporate the concept or instruments of fair service as a major contributor.Practical implications – The results imply that financial institutions must carefully implementpolicies and practices to ensure that perceptions of fairness are propagated throughout the organization.Originality/value – The paper proposes a complementary component to service quality indetermining the perceived value and satisfaction. The paper emphasizes the significance of fairness onservice, and provides additional insights into the impacts of FAIRSERV on customer satisfaction.

Keywords Taiwan, Financial services, Service quality, Trust, SERVQUAL, Service fairness,Customer satisfaction, Perceived value

Paper type Research paper

1. IntroductionService quality, customer value, and satisfaction are some of the most importantfactors of business competition for manufacturers and service providers alike(Zeithaml et al., 1996; Parasuraman et al., 1988; McDougall and Levesque, 2000).With the increasingly intense competition for customers in today’s service industry,these factors are high management priorities (Parasuraman, 1997; Wang et al., 2004;

The current issue and full text archive of this journal is available atwww.emeraldinsight.com/0960-4529.htm

Managing Service QualityVol. 22 No. 4, 2012

pp. 399-421r Emerald Group Publishing Limited

0960-4529DOI 10.1108/09604521211253496

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The impact offairness

Olorunniwo and Hsu, 2006). Researchers generally agree that service quality leads tohigher levels of customer perceived value and customer satisfaction. Financialexecutives and banking strategies are becoming more focussed on service quality toincrease customer satisfaction and business success in the financial services industry(Arasli et al., 2005; Al-Hawari et al., 2009). Until recently, no study has challenged theassumption that service quality dominates the determination of customer satisfactionin the provision of services.

Carr (2007) argued that managers cannot simply create services, provide them athigh-quality levels, and hope for the best; instead, he argued that service evaluationsresult from a comparison of services against the norms of fairness and the treatment ofsimilar customers, a fairness of service consideration. The FAIRSERV construct,which is a derivative of that claim, was developed from the insight that consumerreactions to services are, at least in part, based on equity theory (Adams, 1965). Thismeans that consumers are interested in equitable and favorable treatment. Forexample, the reactions of bank customers to loan officer decisions on their loanapplications are affected by their perceptions of whether they have been treated fairlyby the organization (Kulik and Holbrook, 2000). Thus, consumer evaluations of servicefairness and service quality influence their reactions to service. The relationship ofservice fairness, service quality, customer perceived value, and customer satisfactionhas recently appeared in tourism research (Huang and Su, 2010). However, theconjecture about the relationship has not been empirically tested in a financial servicescontext. Furthermore, prior studies have not examined the relationship between fairservice and the crucial factor of trust. Considering that customers entrust their moneyand property to the financial sector, customer trust should play a critical role in servicefairness models of customer satisfaction in the financial services industry.

The objective of this study is to build an understanding of how service fairnessperceptions, as measured by FAIRSERV, fit into the nomological net of servicequality. Specifically, in addition to the direct link between perceived service fairnessand consumer satisfaction, this study first argues that fair service perceptionslead to higher levels of trust and consumer perceived value, which in turn affectconsumer satisfaction. Second, this study argues that fair service has a positive effecton consumer-perceived service quality, as measured by the common metric ofSERVQUAL. The former argument indicates that trust and consumer perceived valueare mediators of fair service to customer satisfaction, and the latter emphasizes thatfair service is an antecedent of perceived service quality. The survey responses of 420customers of financial service institutions support the hypotheses that fair serviceperceptions have a positive effect on individuals’ perceptions of service quality, trust,customer perceived value, and satisfaction. Specifically, fair service plays a roleequivalent to service quality in determining customer perceived value and attitudesin the financial industry. These results suggest that future studies examining theeffects of service quality on customer satisfaction should incorporate the concept orinstruments of fair service as a major contributor.

2. Background2.1 Equity theory and FAIRSERVEquity theory argues that people are motivated by comparing the ratio of their inputsto received outcomes with that of others (Adams, 1965). Two different types of inequity,undervalued outcomes, and overvalued outcomes, cause distress that people striveto reduce (Walster et al., 1978). People’s perceptions of equal distribution have a

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significant effect on their relationship with service providers (Chebata and Slusarczyk,2005). People seldom attempt to obtain the best services, but instead seek fair servicesand consistent treatment. Unfair treatment is a crucial factor leading to customercomplaints (Ambrose et al., 2007). Perceived fairness influences customer loyalty tovendors in service recovery situations (Chebata and Slusarczyk, 2005). This suggeststhat consumers are more satisfied if they receive a service similar to what othercustomers receive. Based on equity theory, Carr (2007) proposed a new construct calledFAIRSERV to the quality evaluation process of customers’ service.

FAIRSERV consists of four dimensions: distributive fairness, procedural fairness,interpersonal fairness, and informational fairness. Distributive fairness representscognitive, affective, and behavioral reactions to outcome distributions from a source(Cohen-Charash and Spector, 2001). When customers perceive a particular outcome tobe unfair, their emotions, cognitions, and ultimately their behavior are negativelyaffected. The perceptions of distributive fairness influence employee attitudes to theirsupervisors and organizations (Aryee et al., 2002; Ramaswami and Singh, 2003).Procedural fairness describes the fairness of the policies and processes that contributeto outcomes embodying normatively acceptable principles (Lind and Tyler, 1988). Forexample, no customer is allowed to skip to the head of the queue when waitingfor services. The perception of procedural fairness helps maintain long-termrelationships between exchange parties (Maxham and Netemeyer, 2002). Interpersonalfairness relates to the showing of concern for people regarding the manner in whichoutcomes are distributed (Greenberg, 1993). All customers should be treated with thesame level of sincerity, respect, and courtesy. Informational fairness is providinginformation/knowledge on procedures that demonstrate regard for customer concerns(Greenberg, 1993). For example, making brochures describing services or explainingservices in detail are equally viable methods.

Consumers evaluate services not only using personal standards (i.e. tangibles,reliability, responsiveness, assurance, and empathy), but also through principles ofdistributive, procedural, interpersonal, and informational fairness (Carr, 2007). Someresearchers suggest that individual judgments of a firm’s service-related outcomesshould increase as the firm achieves higher levels of fairness (Smith et al., 1999;Ambrose et al., 2007). Prior research has shown that suppliers’ fairness mediates therelationship between supplier performance and reseller satisfaction (Yilmaz et al.,2004). Both fairness and system success factors influence user satisfaction andcontinuance intention on web-based learning systems (Chiu et al., 2007). Fair treatmentreceived from the exchanging party also influences the customer satisfaction andloyalty intentions of online shoppers (Chiu et al., 2009). Carr (2007) also argued thatcustomer perceptions of the level of service fairness have a positive effect on theirperceptions of service quality. In other words, service fairness is directly related tocustomer satisfaction and there is a positive association between perceived servicefairness and service quality (Figure 1). The FAIRSERV measure adopted in this studyconsists of 16 items (four items for each fairness dimension) (Carr, 2007).

2.2 TrustTrust has been widely discussed in marketing literature, and is part of manybehavioral models, including models of buyer-seller relationships and consumermarkets, as a key mediator between an organization and customers (Nooteboomet al., 1997; Kumar, 1996). Trust is also regarded as the willingness of a party to bevulnerable to the actions of another party based on the expectation that the trustee will

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perform a particular action of importance to the trustor, irrespective of the ability tomonitor or control the other party (Mayer et al., 1995). Previous studies have shownthat transaction complexity and transaction cost can be reduced significantly if buyerstrust sellers (Gefen, 2000). Trust is a central construct for determining customerattitudes and behaviors (Verhoef et al., 2002). Customer perceptions of trust affectcustomer satisfaction (Harris and Goode, 2004), the customer evaluations of a retailer,and ultimately, repurchase intentions (Zboja and Voorhees, 2006). A trusting personbelieves that a trusted person or party is more likely to act in a upright manner(Kulik and Holbrook, 2000), which is particularly important when the services requiredare related to money transaction or management. Because business functions in thefinancial sector involve customer property, retirement funds, insurance, or life savings,customers are more susceptive and longing to trust for financial service. Chenet et al.(2010) demonstrated that customers differentiate between service providers in financialsectors based on trust.

Trust is also an essential factor that enables people to build relationships under thecondition of uncertainty and risk of fraud (Pavlou etal., 2007). For example, underconditions of limited or asymmetric information, customer intentions to purchaseproducts online depend on their trust (Lee et al., 2011). Considering the possibilityof selling fake or defective products, buyers have stronger intentions to completetransactions under uncertain or complex conditions with whom they trust in onlineretailing (Grabner-Krauter, 2002) or auctions (Pavlou and Gefen, 2005). Hennig-Thurauet al. (2002) found that the psychological benefit of trust is more important than socialbenefits in consumer relationships with service firms. In other words, in addition toservice quality, customer satisfaction is determined by trust and customer perceivedvalue (Harris and Goode, 2004).

2.3 Customer valueUnderstanding a customer’s value is important to improve customer relationships inservice delivery (Sigala, 2006b; Kang et al., 2007). Perceived value is the customers’perspective or assessment of the product attributes and performance in the purchaseprocedure or use situation (Woodruff, 1997; Eggert et al., 2006). Dodds et al. (1991)argued that perceived customer value is the customer’s overall assessment of the utilityof a product or service based on the perception of what is received and what is given up(price and non-monetary cost). This subjective perception is formed from a personalevaluation of product attributes and performance, consequences in use situations, andthe customers’ goal achievement (Zeithaml et al., 2006; Sigala, 2010). Regardless of thedefinition of perceived value, research consistently suggests that perceived value is a

Servicesatisfaction

Service quality

Fairinterpersonal

Servicefairness

Fairdistribution

Fairinformation

Fairprocedure

Figure 1.Fair service model

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more powerful predictor than perceived service quality in service evaluation (Boltonand James, 1991; Naumann, 1995; Cronin et al., 1997). Many marketing researchershave argued that creating superior customer value should be the primary goal ofmarketing-driven firms (Slater, 1997; Eggert et al., 2006). The capacity of offering newand superior customer value determines a firm’s success (Sigala, 2006b; Kang et al.,2007). Much research has indicated that perceived value has a strong, direct effect oncustomer trust and satisfaction (Anderson et al., 1994; Mohr and Bitner, 1995;McDougall and Levesque, 2000). Customer value perception increases customersatisfaction and loyalty to the business (Lam et al., 2004), which in turn increasescustomer purchase intention (Eggert and Ulaga, 2002).

In summary, the literature suggests that perceived value is a critical mediatorbetween the product or service consumed and customer attitudes and behaviors suchas trust and satisfaction. Customer value is inherent in, or linked through use to,certain products or services. Customer value is something perceived by customersrather than objectively determined by sellers or other stakeholders, and theseperception processes often involve the total package received from the sellers or serviceproviders. Therefore, perceived value is not only influenced by the service qualityperceived by customers, as suggested in existing literature, but also the fairness ofservice provided by service providers (Carr, 2007).

2.4 Customer satisfactionCustomer satisfaction has long been recognized as a central concept and a critical goalof all business activities ( Yi, 1990; Morgan et al., 2005). A preponderance of evidencesupports the significant relationship between a company’s financial performance andthe satisfaction of its customers (Morgan et al., 2005). Customer satisfaction increasesfavorable behavioral intention regarding the service providing units. For example,research shows that satisfied customers stick with some specific firms (Zeithaml et al.,1996), and are more willing to provide feedback (Olorunniwo and Hsu, 2006) and makerecommendations (word of mouth) (Gray, 2006). Customer satisfaction is often definedas a judgment based on one or a series of consumer service interactions (Yi, 1990).Oliver (1981) argued that satisfaction is based on comparison with pre-consumptionstandards. Recent research into the parameters that influence levels of consumersatisfaction and retention in financial services often focusses on service quality(Arasli et al., 2005; Al-Hawari et al., 2009). The service quality literature also suggeststhat perceived service quality performance is the most powerful predictor of customersatisfaction (Dabholkar et al., 2000; Santouridis et al., 2009). Conversely, Oliver andSwan (1989) suggested that perceived justice should be considered in capturingconsumer satisfaction. Equity or fairness has been suggested as a standard formeasuring employee satisfaction (Carr, 2007). Thus, this study assumes that simplyescalating service quality may not be the best approach to strengthen consumersatisfaction. Instead, fairness and the association customer attitude might be a majorinfluence on consumer satisfaction.

2.5 Service qualityService quality is the most important factor in deciding whether customers patronize afinancial institution on a long-term basis (Lymperopoulos et al., 2006). Consequently,the banking strategies of small and large banks in the USA are becomingmore customer focussed, with an emphasis on service quality (Tallon, 2010). Servicesin the financial sector can be associated with specific banking products or essentially

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be a type of banking products (e.g. balance inquiry and credit certification). The serviceliterature views service quality as an overall assessment of product or serviceattributes (Parasuraman et al., 1988), of which the SERVQUAL metric is a principlemeasuring device. Literature on the validity of the SERVQUAL measure is substantial(Brown et al., 1993; Teas, 1993; Kettinger and Lee, 2005; Jiang et al., 2002). SERVQUALis a second-order construct that measures the gap between customer expectationsand customer perception of delivery in five components: tangibility, reliability,responsiveness, assurance, and empathy. Researchers generally agree that servicequality leads to perceived value, trust, and customer satisfaction (Harris and Goode,2004; Verhoef et al., 2002; Olorunniwo and Hsu, 2006).

Some researchers suggested different measuring or delivering approaches ofservice quality for different industries, cultures, or countries ( Jabnoun and Khalifa,2005; Glaveli et al., 2006; Sigala, 2006a). Olorunniwo and Hsu (2006) claimed that thedimensions of service quality for retail banking are responsiveness, tangibility,reliability, knowledge, and accessibility. Glaveli et al. (2006) applied differentdimensions of service quality to the bank customers of five Balkan countries. Kleinet al. (2009) emphasized different effects of dimensions of service quality on usersatisfaction in different contexts. Previous research suggested that SERVQUAL withonly four dimensions is a useful diagnostic tool for service quality of informationsystem, and demonstrated the significant link between SERVQUAL score and userinformation satisfaction ( Jiang et al., 2000). Although no standard instrument formeasuring service quality exists in the banking sector, most banking industry studieshave adopted SERVQUAL as the fundamental measure of service quality (Arasli et al.,2005; Olorunniwo and Hsu, 2006; Kumar et al., 2009).

The SERVQUAL framework also reveals the existence of a gap between the practiceof service providers and perception of service receivers. Therefore, it is important toknow how to increase service perceptions in addition to placing effort and moneyinto raising service quality. Previous literature suggests that customer perceptionsalone can better predict customer satisfaction than does the gap between perceptionand expectation (Brady et al., 2002; Glaveli et al., 2006). The model proposed in thisstudy adopts customer perception, called “perceived service quality,” as the measure ofservice quality.

3. Integrated research modelFAIRSERV posits an important set of service evaluations. Service customers areinterested in procedures employed to distribute service resources. This meansthey want the procedures to be unbiased and consistently applied, not unduly favoringany individual or group. Unfortunately, this explicit evaluation of the equity of serviceencounters has not been well incorporated into the consumers’ reactions toward themeasurement of service quality. Of critical concern to this study is the effect ofFAIRSERV on the existing measurement framework of service quality. Based on thisdiscussion, Figure 2 shows the proposed research model, in which dotted linesrepresent the well-established links in existing literature. This study argues thatFAIRSERV not only has a direct effect on customer satisfaction but also casts anindirect influence through customers’ perceived service quality, trust, and customervalue. The dotted lines in the proposed model are neither hypothesized nor testedbecause they are not the focus of this study (meaning that they are not directly relatedto FAIRSERV). Nevertheless, to enhance the external validity of this study, they areretained for control purposes. The following discussion provides more detailed

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hypotheses. The defined hypotheses imply the mediation effect of trust and customervalue between fair service and customer satisfaction.

Some researchers have argued that the level of service fairness has a positive effecton perceived outcomes (Seiders and Berry, 1998). For example, Smith et al. (1999)documented that distributive fairness is positively related to customer satisfaction.Distributive justice also affects customer attitudes on performance evaluation(Ambrose et al., 2007). Maxham and Netemeyer (2002) demonstrated that perceivedjustice has a significant influence on customer satisfaction with service encounters orcomplaint handling. Oliver and Swan (1989) proposed that perceived justice is animportant factor in predicting consumer satisfaction that is not explained by theexpectancy disconfirmation paradigm of measuring service quality. Justice perceptionof an institution affects customers’ reactions to the products or services provided by theinstitution (Ambrose et al., 2007). These studies suggest that the perceptions ofprocedural fairness also enhance customer satisfaction (Seiders and Berry, 1998; Ruizet al., 2008). Blodgett et al. (1997) argued that interaction and information fairness arepositively related to a customer’s perceived outcomes. Based on equity theory and theliterature, this study proposes the following hypothesis:

H1. Service fairness is positively associated with customer satisfaction.

Carr (2007) argued that people take fairness into consideration when assessing theoverall service quality of an organization. Equity theory suggests that individualconsumers want a “fair” level of service quality which, in turn, increases the individuals’perceived levels of service quality. When consumers perceive unbiased and consistentservice as the operative norm of a service provider, they feel greater levels of satisfaction.Empirical evidence from Carr (2007) supports the notion of a positive link betweenservice fairness and the customer perceived service quality in a specific informationsystem context. Based on this discussion, this study hypothesizes the following:

H2. Service fairness is positively associated with customer perceived service quality.

Trust is a key element in the emergence and maintenance of various social exchangerelationships, including the consumer-organization relationship (Konovsky and Pugh, 1994)

H1

H3

H2

Interpersonal

Informational

Procedural

Distributive Servicefairness

Perceivedservice quality

Trust

Customerperceived value

Satisfaction H4

Figure 2.Proposed research model

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and financial business relationship (Chenet et al., 2010). As a result, many researchershave examined how trust emerges in the individual-organization relationship.Researchers in related fields have identified the outcomes of organizational justice as amajor source leading to trust (Lind and Tyler, 1988; Pearce et al., 1994). Procedural anddistributive justice also influences people’s trust and decision making (Folger andKonovsky, 1989). Much effort has been devoted to the relationship between justice andtrust in the domain of organizational management (Konovsky and Pugh, 1994). It isgenerally believed that fair treatment leads to the development of trust, based on theunderlying equity theory. Despite substantial evidence for the link between fairness andtrust in organizational management, there is no such evidence in the domain of serviceevaluation. In service industries, customers’ trust in a party can be captured by theirwillingness to rely on that party (Mayer et al., 1995) and their belief in the quality andreliability of the services or products offered by that party (Henning-Thurau et al., 2002).

The services/products of financial sectors involve customers’ belongings andproperty, such as mortgages, insurance, stock transfer, and trust funds. Thus, customersshould be more sensitive to service fairness in this context, and heavily weigh the equityof each procedure or final funding decision. When perceiving lack of fairness, customersshould lower their willingness to rely on the institution and lower their confidence in thereliability of the products and services offered by the institution. Therefore, perceptionsof fairness have a significant effect on customer trust in financial sectors. Customer trusttoward an organization is strongly related to service justice (Ambrose et al., 2007).Although there is little empirical evidence in the marketing literature, the empiricalevidence in other areas and the functional characteristics of financial service supports apositive link between customer perceived fairness and trust toward the providerorganizations. Therefore, this study proposes the following hypothesis:

H3. Service fairness is positively associated with customer trust.

Relatively few studies have investigated the relationship between service fairness andthe customer’s perceived value of the service. However, how employees react toorganizational justice is one of the most actively researched areas in the literature ofhuman resource management (Greenberg, 1987; Colquitt et al., 2001; Aryee et al., 2002).Reactive content theories are conceptual approaches to justify how people respond tounfair treatment (Adams, 1965; Walster et al., 1978). These theories state thatpeople respond to unfair relationships with negative emotions (anger and a lack oftrust). They are then motivated to escape the situation through an act to redress theexperienced inequity. These negative states motivate behavioral changes on the part ofthe employees involved (Greenberg, 1984; Ramaswami and Singh, 2003). Employeesperceiving an inequitable state may react behaviorally by altering their performancelevels, or cognitively by attempting to justify the outcomes received (Walster et al.,1978). In a business context, customers’ perceived fairness on price plays a significantrole in determining customer perceived value (Hanzaee and Yazd, 2010). Unfairtreatment leads to customer complaints and negative reactions (Ambrose et al., 2007).When the level of perceived fairness increases, individual judgments of the serviceoutcome should increase (Ambrose et al., 2007). Customer assessments of productattributes or service delivery reflect customer value (Sigala, 2006b). Based on thisdiscussion, this study proposes the following hypothesis:

H4. Service fairness is positively associated with the customers’ perceived value.

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4. Research methods4.1 SampleWe conducted a cross-sectional questionnaire survey on the customers from thefinancial industry in Taiwan to test our framework. The financial industry includes theinstitutions involved with money, such as banks, security traders, financial planners,post offices, and insurance companies. Their major business scope includes moneymanagement service, such as saving, loaning, investing, insuring, and security tradingservices. The post offices in Taiwan also provide some business services related tofinance, for example, money saving and saving insurance. The data were collectedfrom customers in the financial sectors by handing out the questionnaires to customersas they entered the institutions. Respondents were assured of confidentiality. Of the550 customers inquired, 432 customers immediately agreed to respond. Of the 432responses, 12 questionnaires were discarded due to missing observation. Therefore, atotal of 420 valid responses were obtained, yielding a response rate of over 76 percent.Table I shows the demographics of the final sample.

4.2 ConstructsThe proposed research model includes five constructs. All constructs were adoptedfrom the literature, as described, and translated into Chinese. Translations werechecked in a pilot study of 60 MBA students. The pilot test resulted in only minor edits.The FAIRSERV construct was adopted from Carr (2007). FAIRSERV consists of fourdimensions, including interpersonal fairness, information fairness, proceduralfairness, and distributive fairness. The SERVQUAL construct was adopted fromCarr (2007), consisting of five dimensions, including tangibles, reliability,responsiveness, assurance, and empathy. Appendix lists the measuring items. Eachitem was scored using a five-point Likert-type scale. Participants were asked toindicate their level of agreement with each statement/item, from 1 (total disagreement)to 5 (total agreement).

Customer perceived value was measured using questionnaire items of Harris andGoode (2004) in this study. Many scholars have identified customer perceived value asa comparison between total benefit and total sacrifice (Dodds et al., 1991). In theadopted metric, customer perceived value is an overall assessment of service utilitybased on what is exchanged (Dodds et al., 1991).

Trust is viewed as the willingness of a party to be vulnerable to the actions ofanother party based on the expectation that the trustee performs a particular actionimportant to the trustor, regardless of the trustor’s ability to monitor or control thatother party (Mayer et al., 1995). In this study, the construct of trust was adopted fromHarris and Goode (2004). This measurement has proven applicable to studies oncompany brands and faith in the integrity, service, and brands of the company (Harrisand Goode, 2004).

Satisfaction has multiple definitions in the literature. Yi (1990) regarded satisfactionas an attitude-like judgment based on customer interactions with service providers.Consumers compare pre-consumption expectations and then evaluate how they feelabout the services provided. This study measured satisfaction by adopting thequestionnaire items of Carr (2007).

4.3 Partial least squares (PLS)The measurement and structural models were analyzed using PLS analysis (Chin et al.,2003), a regression-based structural equation modeling (SEM) technique widely used in

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top-tier journals (Henseler et al., 2009). PLS was adopted in this study because of itsflexibility for distributional assumptions and its strength in handling complexpredictive models and constructs with few items (Hair et al., 2011). The PLS assessesthe measurement model by estimating the loadings of indicators on constructs andthen iteratively estimating the causal relationships among constructs.

This study uses PLS Graph version 3.01 to test the measures and the hypotheses(Chin, 2003). The PLS tool applies a bootstrap approach to estimate the significance(t-values) of the items (Chin et al., 2003). The reliability and validity of the constructscan be demonstrated through measures of internal reliability, convergent validity, and

Items Choices Number %

Types of financial institutions Commercial banks 162 38.6Post offices 110 26.2Credit unions 60 14.3Security trader 61 14.5Insurance companies 15 3.6Others 12 2.9

Gender Male 195 46.4Female 216 51.4No response 9 2.1

Age Under 20 7 1.721-25 112 26.726-30 97 23.131-40 109 26.041-50 50 11.951-65 42 10.0Above 65 1 0.2No response 2 0.5

Education Under senior high school 28 6.7Senior high school 48 11.4University 220 52.4Master 117 27.9No response 7 1.7

Marriage Married 169 40.2Single 249 59.3No response 2 0.5

Occupation Student 45 10.7Working professionals 329 78.3Enterprise owner 23 5.5Housewife 10 2.4Un-employee 1 0.2Others 12 2.9

Frequency of visiting the institution Every day 54 12.9Several times/week 69 16.4One time/week 104 24.8One time/two weeks 72 17.1One time/month 66 15.7One time/two months 9 2.1One time/three to six months 25 6.0One time/above six months 16 3.8No response 5 1.2

Table I.Demographics (n¼ 420)

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discriminant validity (Hair et al., 2011). The convergent validity of a construct can beexamined by construct reliability, composite reliability (CR), and average varianceextracted (AVE) by constructs. Construct reliability can be verified by Cronbach’s a(40.7 recommended). Internal reliability can be examined by estimating CR (40.7recommended) (Hair et al., 2011). The AVE reflects the variance captured by indicators,and a value 40.5 is recommended (Hair et al., 2011). Discriminant validity, the degreeto which the measures of two constructs are empirical distinct, can be verified with noparticularly high bivariate correlation (40.8) and with the square root of AVE beinggreater than the correlations of the constructs (Hair et al., 2011).

The PLS-SEM algorithm optimizes measurement model parameters beforeestimating the path coefficients in the structural model. Hair et al. (2011) indicatesthat if researchers first examine the measurement model and modify the measurementmodel to an acceptable fit, the PLS-SEM findings should be similar to the CB-SEMfindings. Simulation studies also show that the differences between CB-SEM and PLS-SEM estimates are at very low levels (Hair et al., 2011)[1].

5. Conclusion and managerial implications5.1 Data analysis resultsTable II shows the descriptive statistics, reliability, and correlation coefficients of majorvariables. For each variable, values of mean and standard deviation are provided toillustrate their central tendency and diversity of dependence. The correlationcoefficient presents the association between two measured constructs. A high bivariatecorrelation (40.8) between two predictive constructs indicates the possibility of amulticollinearity problem. The correlation matrix in Table II shows that all bivariatecorrelations, ranked from 0.54 to 0.62 (at po0.01), are o0.8 and less than the squareroot of AVE (in the diagonal of the correlation matrix) of each corresponding construct.This indicates an acceptable level of discriminant validity (Hair et al., 2011).

All item loadings are above 0.70 with statistical significance (see Figure 3),except the fifth indicator (T5) of trust. This indicates our measurement achieveda high reliability. Items with extremely low loading factor (o0.4) should be eliminatedbefore further analysis. After eliminating indicator T5, the AVE of all constructsranged from 0.6 to 0.84, exceeding the threshold of 0.5. The CR of each constructranged from 0.92 to 0.95, exceeding the threshold of 0.7. The statistical resultsin Table II confirm that the constructs adopted in this study had acceptableconvergent validity, and the indicators are applicable to the context of financial serviceindustry.

Constructs Mean SD CR AVE a FS SQ TRU CPV SAT

Fair service (FS) 3.64 0.70 0.96 0.84 0.94 0.92Perceived service quality (SQ) 3.64 0.64 0.95 0.79 0.93 0.52* 0.89Trust (TRU) 3.60 0.66 0.92 0.60 0.89 0.54* 0.52* 0.77Customer perceived value (CPV) 3.50 0.72 0.92 0.75 0.89 0.54* 0.52* 0.60* 0.87Satisfaction (SAT) 3.74 0.73 0.95 0.81 0.92 0.62* 0.53* 0.58* 0.59* 0.90

Notes: CR, composite reliability; AVE, average variance extracted; a, Cronbach’s alpha.The italicentries on the diagonal are the square root of AVE. All correlations are significant at *po0.01(using Kendall t coefficient)

Table II.Descriptive statistics

and correlations

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Figure 3 shows the results of hypotheses testing. The path coefficient indicates thestrengths of the relationships between the independent and dependent variables. TheR2 value represents the amount of variance in a variable that can be explained by itsindependent variables, indicating the predict power of the model (Chin and Newsted,1999). These results provide support for the hypothesized influence of service fairnesson customer satisfaction (coefficient¼ 0.43, p-valueo0.001), customer perceived levelof service quality (coefficient¼ 0.70, p-valueo0.001), customer trust toward theorganization (coefficient¼ 0.24, p-valueo0.001), and customer perceived value ofthe organization’s services (coefficient¼ 0.46, p-valueo0.001). Therefore, the resultsof the study support all the proposed hypotheses. The perceived service quality isalso positively associated with a higher level of customer trust (coefficient¼ 0.25,p-valueo0.001), customer perceived value (coefficient¼ 0.38, p-valueo0.001), andcustomer satisfaction (coefficient¼ 0.14, p-valueo0.01).

The R2 values in Figure 3 show that service fairness and perceived service qualitytogether explain more than 59 percent of the variance in customer perceived value.These two variables, together with customer perceived value, explain more than66 percent of the variance in customer trust. The considered antecedent variablescombined explain more than 71 percent of the variance in customer satisfaction. Evenwithout considering the effect through perceived service quality, the total effect (0.59) ofservice fairness on customer satisfaction is substantially higher than the total effect(0.28) of perceived service quality on customer satisfaction. The total effects of servicefairness on trust and customer perceived value (0.43 and 0.46, respectively) are higherthan the total effects of perceived service quality on trust and customer perceived value(0.41 and 0.38, respectively). Table III summarizes the strength of the relationshipamong various constructs in the structural model, and describes the prediction ofendogenous latent variables based on rules of thumb for model evaluation – R2 valuesof 0.75, 0.50, or 0.25 for endogenous variables in the structural model can be describedas substantial, moderate, or weak, respectively (Hair et al., 2011).

Notes: *Significant at p-value < 0.01; **significant at p-value < 0.001

0.14*

0.43**

0.16*

0.21**0.46**

0.25**

0.93**

0.92**

0.90**

0.92**

Responsiveness

Empathy

Interpersonal

Informational

Procedural

Distributive

Tangiblility

Reliability

Assurance

Servicefairness

Perceivedservicequality

TrustR2 = 0.66

Customerperceived

value

Satisfaction

0.84*

0.92*

0.92*

0.82*

0.24**

0.70**

0.38**

R2 = 0.49 R2 = 0.59

R2 = 0.71

0.41**

0.93*

Figure 3.Analysis results ofresearch model

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5.2 Theoretical and practical implicationsAlthough previous literature has provided a fundamental understanding of thesignificance of fairness based on equity theory, the customer attitude resulting fromservice fairness remains unclear. The findings of this study have several implicationsfor researchers. First, service fairness (coefficient¼ 0.43) has a direct effect oncustomer satisfaction with the control of the perceived service quality variable(coefficient¼ 0.70). Consumers are pleased with service of equity as well as quality.Therefore, future studies attempting to examine the effects of service quality oncustomer satisfaction should incorporate the concept of service fairness as a majorcontributor. Second, FAIRSERV has an indirect effect on customer satisfaction throughtrust, customer perceived value, and perceived service quality. These findings provideadditional insights into the effects of FAIRSERV on customer satisfaction, and indicatethat Carr’s (2007) study may have underestimated the eventual magnitude of the effectof FAIRSERV on customer satisfaction. FAIRSERV not only has a significant effect onfinal customer satisfaction, but also plays a critical role in determining customer trustand perceived value, which in turn lead to other customer behaviors and satisfaction.Third, although service quality can increase customer satisfaction both directly andindirectly as service fairness can, service fairness has a substantially stronger effect oncustomer satisfaction in the financial services industry when considering servicequality and service fairness together. Fourth, this study confirms the establishedrelationships in the literature, adding to a comprehensive model rather than detractingfrom it.

This study has three practical implications for managers of financial sectors. First,to elicit customer satisfaction, managers must not only provide high service quality butalso service fairness. The results of this study show an almost equal role of thesetwo factors in the financial services context. Managers must ensure not only thatquality service is provided, but also that this provision is equal for all customers.Considering that service fairness has a substantially stronger direct effect on customersatisfaction than service quality, financial service managers should not chase theescalation of service quality onto front desk employees or high-cost equipment. In otherwords, managers must develop operations strategies that focus on fairness to enhancecustomer satisfaction. For example, organizations could structure the initial serviceencounter to enhance perceptions of fairness.

Second, all four dimensions of fair service add to the determination of fair service.This result provides four categories of treatment that management can target in

SQ Trust CPV Satisfaction

Service fairness 0.7** (H2) 0.24** (H3) 0.46** (H4) 0.43** (H1)Perceived service quality (SQ) 0.25** 0.38** 0.14*Trust 0.16*Customer perceived value (CPV) 0.41** 0.21**R2 0.49 0.66 0.59 0.71Prediction of variablesa Weak Moderate Moderate Moderate

Notes: aR2 values of 0.75, 0.50, or 0.25 for endogenous latent variables can, as a rule of thumb, bedescribed as substantial, moderate, or weak, respectively; *Significant at p-value o 0.01; **Significantat p-value o 0.001Source: Hair et al. (2011)

Table III.Path analysis results(hypotheses testing)

411


financial sectors. Service resources need to be distributed in a fashion that is perceivedto be equitable. Special treatment of any particular segment or group would lead tounfavorable consideration from the customers. Policies and procedures should also bevisible and well communicated. Deviations from practice can result in ill perceptions.Information needs to be equally available to all customers. Materials and functionsdesigned to assist the customer should be readily present and accessible. Lastly,personal treatment of customers must appear to be equal. These factors all indicatethat employees should be trained to improve their interpersonal skills. In other words,practitioners should provide training to their employees to enhance the customerperceptions of the dimensions of FAIRSERV. For example, when employees mustdecline customers’ applications for mortgage loans, they should treat customerswith dignity, show how fairly cases are processed, and provide sufficient informationfor the decision. These suggestions highlight the need for managers to monitor theperformance of delivering service fairness.

Third, similar to service quality, the effect of fairness on customer satisfaction ispartially mediated by trust and customer perceived value. Therefore, practitionersshould focus on good policy for building a trustworthy image of the financial sectorand delivering customer value to effectively increase satisfaction. For example, afinancial organization could raise perceived value by offering a higher interest rate orlower transfer fees to customers with higher savings or more frequent businesscontact, instead of adopting a low-profit policy (high interest rate or low transfer fee toall customers) to attract customers from other organizations. Additionally, financialcompanies could release information about the company to enhance customer trust,especially where some financial institutions have failed.

5.3 ConclusionOne major contribution of this work is that it is the first study to examine Carr’s fairservice relationships in the financial industry. In addition to examining the direct linkbetween fair service and consumer satisfaction, this study identifies two importantconstructs that partially mediate the effect of fair service on satisfaction. Until recently,no researcher has proposed a complementary component to service quality indetermining the customer’s perceived value and satisfaction. Carr (2007) claimed thatconsumers’ reactions to services are, at least in part, based on the equity theory.This means that consumers are interested in equitable as well as favorable treatment.This study examines the relationships implied by the claim in a network of existingrelationships established in prior research. More specifically, in addition to a direct linkbetween the metric of service fairness and consumer satisfaction, this study tests therelationship between service fairness and trust and perceived value. The findings ofthis study partially explain how service fairness increases customer satisfaction.The results also imply that fair service leads to the perception of service quality, ratherthan the gap between perception and expectation of service quality.

Based on a survey of 420 customers of financial institutions in Taiwan, the analysisresults support our hypotheses that fair service has a positive, direct influence oncustomer satisfaction (H1), customer perceived level of service quality (H2), customertrust toward the organization (H3), and customer perceived value of the organization’sservice (H4). These results highlight the following contribution of this study. First, inaddition to the effect of service fairness on customer satisfaction, this study proposesand confirms two variables (customer trust and customer perceived value) partiallymediate service fairness to customer satisfaction. Second, for service quality research,

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compared to service quality, service fairness has a stronger effect on these mediatorsand customer satisfaction when the service quality has reached an acceptable level.Third, the analysis results confirm the following well-established relationshipssuggested in previous research: service quality and customer satisfaction, servicequality and trust, service quality and customer perceived values, trust and customersatisfaction, and customer perceived value and customer satisfaction. Thisconfirmation enhances the validity of the existing studies and the external validityof the findings of this study.

5.4 Limitations and future researchA potential limitation of this study is that all of the items included in the paper weremeasured using a five-point Likert-type scale. The use of only one type of measure forall concepts might introduce a mono-method bias, and thus decrease the evidence ofthis empirical study. Another possible limitation is that our sample was obtained froma survey of financial service institutions in Taiwan. People in different cultures maypay less attention to fairness. Consequently, if the findings and the managerialimplications of this result are to be used in other regions with different cultures,additional surveys must be completed to validate the consistency of these researchresults. Moreover, the results coming from the financial service industry might not beapplicable to other service businesses. In other service fields, building a broaderunderstanding of the effect of fairness service on the factors related to customersatisfaction should create new possibilities in terms of understanding how to increasesatisfaction. We believe that this study opens new avenues for further research of theseissues. Finally, this study is a positivist research, which is commonly implemented bytesting with quantitative analysis and surveys. Interviews could be used to follow upin determining the reasons behind these relationships.

Following the addition to a comprehensive model to both of service quality andservice fairness perceptions, future research should examine how to promote bothimportant aspects. Furthermore, it could be interesting to further empiricallyinvestigate the effect of service fairness on service quality, customer relationship, orother mediators in the setting of health care service or some other professional services.Another future direction is to adopt the multigroup analysis with demographiccharacteristics of the respondent to the proposed model. For example, it mightbe interesting to inspect whether the model holds equally well for men vs women,less educated vs better educated respondents, and discuss reasons for any differenceobserved.

Note

1. We also adopted AMOS 19.0 to measure the goodness of fit (GFI) for the measurement model.Despite GFI being (0.88) slightly below the recommended level of 0.9, all other fit indexesmeet the recommended levels (Gefen et al., 2000) in that w2/df¼ 2.72 (o3), AGFI¼ 0.85(40.8), NFI¼ 0.93 (40.9), NNFI¼ 0.95 (40.9), CFI¼ 0.95 (40.9), and RMSEA¼ 0.06(o0.08). The results display an acceptable fit, and no modification was made to themeasurement model.

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Appendix

Please based on the service you received from the financial unit to answer the ensuing questions : from “total disagreement” (1) to “total agreement” (5)

Section 1-1. Service FairnessInterpersonal Fairness 1. Employees in the financial unit are polite 2. Employees in the financial unit are respectful 3. Employees in the financial unit treat customers with dignity 4. Employees in the financial unit are courteous Informational Fairness

5. Employees in the financial unit give timely and specific explanations 6. Employees in the financial unit give thorough explanations 7. Employees in the financial unit provide reasonable explanations 8. Employees in the financial unit tailor their explanations to customer needs

Procedural Fairness

9. The Process of wording with employees in the financial unit is generally fair 10. The activities of the employees in the financial unit are conducted without bias 11. The processes involving employees in the financial unit attempt to meet all customer needs 12. The procedures used by employees in the financial unit are consistent across customers

Distributive Fairness 13. Employees in the financial unit help all customers get the outcomes they need without

favoring any one group 14. Employees in the financial unit produce desired results for all customers without bias of any

kind 15. Employees in the financial unit deliver good outcomes for all customers regardless of who

they are 16. In general, employees in the financial unit deliver reasonable results for all customers

Section 1-2. Satisfaction, Trust, and Perceived Customer Value Satisfaction

1. I am satisfied with my interactions with employees in the financial unit 2. My encounters with employees in the financial unit have satisfied me 3. I am satisfied with assistance I have received from employees in the financial unit 4. The level of support I receive from employees in the financial unit is satisfactory to me Perceived customer value

5. Products of this financial unit are excellent value for money 6. Services of this financial unit are excellent value 7. I am happy with the value for money I get at this financial unit 8. The goods I purchase from this financial unit are worth every cent

Trust

9. This financial unit is interested in more than just selling me goods and making a profit 10. There are no limits to how far this financial unit will go to solve a service problem I may

have 11. This financial unit is genuinely committed to my satisfaction 12. Most of what this financial unit says about its products is true 13. I think some of this financial unit claims about its service are exaggerated 14. If this financial unit makes a claim or promise about its product, it’s probably true

419


About the authors

Houn-Gee Chen earned his PhD from the University of Wisconsin-Madison, 1988. Prior to joiningNational Taiwan University, he was a faculty member at University of Notre Dame and NationalTsing Hua University. His research interests include ecommerce, management informationsystems, information technology, project management, and software quality. He has publishedover 70 articles in refereed journals such as Decision Sciences, Communications of ACM, IEEE

Transactions, Journal of MIS, Journal of AIS, Information & Management, Database, J. of

Information Science, Computers & Operations Research, amongst others.Julie Yu-Chih Liu is an Associate Professor at the Department of Information Management,

Yuan-Ze University, Taiwan. She received the PhD degree in Computer Science and Engineeringfrom Southern Methodist University. She was a counselor to various information system projectsin the Army Headquarters of Taiwan, and took charge of a series of projects for informationsystems in the Army and the Industrial Technology Research Institute. Her research interestsinclude project management, databases, and software quality and development. She haspublished numerous papers in Information and Management, Information & Software

Technology, IEEE Transactions on Engineering Management, International Journal of Project

Management and IEEE Transactions on Fuzzy Systems. Julie Yu-Chih Liu is the correspondingauthor and can be contacted at: [email protected]

Tsong Shin Sheu is the Vice President at Nan Kai University of Technology. He received aPhD in Industrial Engineering and Engineering Management from National Tsing HuaUniversity, Taiwan and his current research interests include service quality management and

2 Please based on the image you perceive from the financial unit to answer the “expected service” questions and the “actual perception questions”: (note to reader, two columns provided for responses)1. This financial unit has up-to-date equipment 2. The physical facilities of this financial unit are visually appealing 3. Service providers in this financial unit are visually appealing 4. This financial unit has operating hours convenient to all customers 5. When this financial unit promises to do something by a certain time, it does so 6. When you have a problem, this financial unit shows a sincere interest in solving it 7. This financial unit performs the service right the first time 8. This financial unit provides their services at the time they promise to do so 9. Employees in this financial unit tell customers exactly when services will be performed

10. Employees in this financial unit give prompt service to customers 11. Employees in this financial unit are always willing to help customers 12. Employees in this financial unit are never too busy to respond to customers’ requests 13. The behavior of employees in this financial unit instills confidence in customers 14. Customers feel safe in their transactions with this financial unit 15. Employees in this financial unit are consistently courteous with customers 16. Employees in this financial unit have the knowledge to answer customers’ questions 17. This financial unit gives customers individual attention 18. The employees of this financial unit understand the specific needs of customers 19. This financial unit has customers’ best interests at heart

15. In my experience this financial unit is very reliable 16. I feel I know what to expect from this financial unit Section 2. Service Quality

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statistical analysis. He has published numerous academic articles on these topics in journals suchas Industrial Management & Data Systems and Journal of Design and Manufacturing.

Ming-Hsien Yang is a Professor at the Department of Information Management and GraduateInstitute of Business Administration, College of Management, Fu Jen University, Taiwan andPresident of the Chinese Society for Information Management. He was a senior manager inseveral enterprises, Chair of the Department of Information Management and Dean of College ofManagement at Fu Jen Catholic University. His current research interests include collaborativecommerce, strategic information management, business reengineering, relationshipmanagement, and social entrepreneurship. He has published numerous papers in European

Journal of Operational Research, International Journal of Production Economics, IIE

Transactions, The Journal of Computer Information Systems, International Journal of

Technology Management, etc.

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The impact of financial services quality and fairness on customer satisfaction