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Benchmarking: an International Journal Benchmarking: an International Journal A SERVQUAL Approach to Identifying the Influences of Service Quality on Leasing Market Segment in the German Financial Sector Journal: Benchmarking: an International Journal Manuscript ID BIJ-12-2016-0194.R1 Manuscript Type: Original Article Keywords: german, leasing market, finance, marketing, Service Quality Page 1 of 24 Benchmarking: an International Journal 1Benchmarking: an International Journal 2 3 A SERVQUAL Approach to Identifying the Influences of Service Quality on Leasing 4 Market Segment in the German Financial Sector 5 6 7 Abstract 8 9 Purpose – The purpose of this paper is to determine the nature of the relationship between 10 service quality and desired customer behaviours in the leasing market using an appropriate 11 service quality measurement model. We take a step further by recognising the possible 12 differences in influence of service quality in private and corporate customers, and those 13 business dealings with low, medium and high lease values. 14 15 Design/methodology/approach – We use deduction method to test the SERVQUAL in the 16 German leasing market and the relationship between customer satisfaction and desired 17 behavioural outcomes. The developed questionnaire is based on the 22 item scale of the 18 SERVQUAL approach. Samples are selected based on convenience sampling. 19 Findings – We found differences in the levels of inflence by SERVQUAL dimensions on 20 corporate and private customers as well as among those customers with different leasing 21 contract values. From the regression analyses, it is clear that ‘assurance’ from the leasing 22 company is the most common SERVQUAL dimension that has significant impact on overall 23 service quality perceptions and obtaining customers satisfaction and loyalty (behavioural 24 25 outcomes). 26 Originality/Value –We recognised that all financial services are not created equally to meet 27 customer demands. Hence, the customer expectations of service quality from these services 28 will be different. We contributed to the marketing literature by studying customer perceptions 29 of service quality by specifying financing aspects of financial services, i.e. leasing. We 30 further contributed to the literature of SERVQUAL model in financial services by dividing 31 customers into two different types of customers and those with diverse leasing contract 32 values. We found that priorities given on service quality dimensions by them are different. 33 These concepts were never considered in the literature. This also implies that future studies 34 35 on financial services marketing need to recognise such differences in the research. 36 37 Keywords 38 SERVQUAL, Leasing Market, Germany, Service Quality 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 1 Benchmarking: an International Journal Page 2 of 24 1Benchmarking: an International Journal 2 3 1. Introduction 4 5 ‘Leasing’ is one of the capital financing products offered by financial institutions. According 6 7 to the standard terms of operating lease, it is a service where the financial institutions act as a 8 leaser and the customer, leasee receives the right to use the leased asset over a specified 9 period of time. The first rental payment would be made when the lease is initiated and the 10 subsequent payments will be made periodically at agreed dates in the future (McConnell and 11 12 Schallheim, 1983). The leaser would profit from the interests payments included in the 13 periodic instalments made by the leasee. Unlike other types of unsecured financing products 14 that are offered by financial institutions, the leasors retains the ownership title of the asset and 15 even if the leasee were to default, it is simple for the leaser to repossessed the asset, thus, it is 16 17 one of the least risky financing products. Financing products are the main sources of income 18 and the sustainability of financial institutions depend on them. 19 20 Nevertheless, from our analyses of the prior literature, we found that financial and banking 21 services have been defined as a simple concept as all of these services have equally 22 distributed importance for customers and investments. Due to the nature of the risks involved 23 24 in financing service options, customers’ perceived service quality determinants would be 25 different from financial transaction support services. Hence, there is a need to recognise such 26 distinctions in financial service marketing literature. Furthermore, in recent years, service 27 organisations including financial institutions are required to provide high customer service 28 29 quality in order to be successful in today’s highly competitive business environment. It has 30 become more important after the 2008 global financial crisis where the general public lost 31 their trust in the financial system. This crisis has led many scholars to study in the area of risk 32 33 management, institutional quality and financial regulations. However, limited research has 34 been done from quality management perspective, which will allow us to understand how we 35 can create customer loyalty and trust amid crises by meeting their needs and expectations. In 36 this paper, we choose to study the influence of service quality on customer loyalty in the 37 38 German leasing service market mainly for three reasons. 39 According to the 2017 Global Leasing Market Report (Gleeson, 2017), German and UK are 40 41 the largest and most leasing market in Europe and are the most established in the world after 42 the United States and China. Both UK and Germany accounted for 46.9% of the European 43 market and 15.6% of the world market. The Germany’s leasing market has a growth of 8.42% 44 45 in comparison to 2014 with additional new business volume US$63.84 billion. Being a 46 mature market means it has strong competition from commercial banks, saving banks, public 47 banks and credit finance companies. Secondly, it is made up largely of small and medium- 48 sized enterprises (SMEs) which have withdrawn from increasing investments in productive 49 50 physical stocks after the crisis in 2008. Hence, providing high service quality is important for 51 customer retention in such a highly competitive market. 52 53 The newly implemented German and European Union (EU) regulations such as increasing 54 capital adequacy, liquidity and securitisation requirements mean escalating the cost of 55 providing leasing services to households, and small and medium sized businesses (SMEs), 56 57 which are rated at relatively higher risk than corporate customers. In an environment where 58 the financial regulations limiting leasing companies to extend their services to new customers 59 60 2 Page 3 of 24 Benchmarking: an International Journal 1Benchmarking: an International Journal 2 3 and the demand for the facilities from SMEs decreases, these companies need to develop a 4 broad range of comprehensive supports and service quality not only to attract new customers 5 6 but also to create customer loyalty. Therefore, considering the increased importance of 7 service quality in the leasing market, measuring service quality and understanding its impact 8 on customer satisfaction and other behavioural outcomes, has become a crucial factor for 9 success and profitability in this market sector. 10 11 Thus, the objectives of this paper are to determine the nature of the relationship between 12 service quality and desired customer behaviours in the leasing market using an appropriate 13 14 service quality measurement model. To achieve this research objective, we have developed a 15 structured approach as follows: Firstly, a critical review of the related relevant literature is 16 made in Section 2. Secondly, method of collecting primary survey data and SERVQUAL 17 18 data descriptions are explained in Section 3. Descriptive data analysis and regression results 19 are discussed in Section 4. Based on the analysis, we provide the discussions of the data 20 along with their implications in Section 5 and the limitations and future research in Section 6. 21 22 2. Literature review 23 2.1. Background of the German leasing market 24 25 In the 21 st century, service is the dominant market sector in many countries around the world. 26 27 The UK was the largest European leasing market in 2015, with new volumes worth €76.9 28 billion, followed by Germany (Euro 53.2 billion) and France (Euro 43.6 billion) (Leaseurope, 29 2015). In Germany, the service sector plays a critical role in the overall economic 30 development. According to the OECD (Organization for Economic Co-operation and 31 32 Development, 2016), the contribution of the service sector to the country’s GDP is 68.9%, 33 followed by production industry 25.7%, construction 4.8% and agriculture 0.6%. The total 34 assets of banking sector to GDP decreased from 332.9% in 2010 to 276.8% in 2014 (EC, 35 36 2015). After the 2008 financial crisis, the regulations on the financial sector was tightened. 37 This contributed to the sector’s resilience to vulnerabilities and systemic shocks. Similarly, 38 the demand for financing from SMEs, households and corporations has decreased. However, 39 the German financial institutions face the issues of low profitability due to their strong 40 41 reliance on net interest income. In other words, their main revenue generation stream comes 42 from capital financing products. Despite these negativities in the financial sector, the German 43 leasing market is one of the most mature in the world. As described by Gleeson (2017), 44 45 different forms of leasing options are dominated in the markets: 46 “…hire purchase stills plays a secondary role accounting for only 13% of 47 48 equipment finance compared to finance leasing of 48% and operating leasing of 49 39%. In 2015 the share of leasing as a financing tool for investment became 50 larger and the equipment and construction industries adopted leasing more 51 frequently.