Service Quality and WOM (Word-of-Mouth): A Study of the Indian Banking Sector

Introduction

Regulatory changes in the banking industry have been phenomenal and have reduced or eliminated barriers to cross-border expansion, creating a more integrated global banking market. Structural changes have resulted in banks being allowed a greater range of activities, enabling them to become more competitive with non-bank financial institutions. Technological changes have caused banks to rethink their strategies for services offered to both commercial and individual customers.

Kangis and Voukelatos (1997) had suggested that in the future, the blurring of identity between banks, insurance companies, and of other possible competitors that will enter in the market, will accelerate, and that customers will shop around more than ever and profitability will come under pressure. The result of this “shopping around” culture, according to Kangis and Voukelatos (1997), will be a higher mobility among customers buying financial products. The authors went on to say that differentiation would continue to lead the marketing strategy of banks, but it would be centred neither on products, as they would be about the same, nor on price, as price differentials would be minimal. It is within this rapidly changing environment as foreseen by Kangis and Voukelatos (1997) that service quality issues are compelling the attention of all banking institutions, and retail banks are striving towards increasing customer satisfaction through improved service quality. This is because it is a well-known fact that high quality service stimulates WOM (word-of-mouth) communications by current customers, enhances customers' perception of value, boosts the morale and loyalty of employees and customers alike and lends credibility to advertising and the field sales force (Berry & Parasuraman, 1991).