SERVICES MARKETING

Measuring Service Quality in the Context of Indian Retail

-- Sathyanarayanan R S, 
Lecturer, 
Xavier Institute of Management and Entrepreneurship, 
Bangalore.
The author can be reached at 
snarayanan22@gmail.com

Offering quality service in retail is highly imperative for retailers, as competition is getting stiffer day-by-day and customers are becoming more demanding and discerning. Creating unique customer experience is essential for retailers to woo customers and retain them in the long run. If the service quality is good, the probability of customers remaining loyal and patronizing a store through word-of-mouth is high. Hence, retailers should focus on improving customer service quality by carefully analyzing the perception and expectation of customers towards the store on various dimensions of retail service quality, and taking appropriate actions to improve the situation.

In the era of shorter product life cycles, faster imitation, and rapid commoditization, creating unique customer experience proves to be a real value creator and differentiator for the customers and the store. Take a cursory glance at the retail outlets around us today. All seem alike from both inside and outside. Swanky shopping complexes, sophisticated interiors, glitzy ambience, mellifluous background music, glamorous lighting, proliferation of brands and offers, form the common features of many outlets today. One can hardly make out any difference between two stores, which are alike on these platforms. Then, what could be the real differentiator? It is the people inside the store and the quality of customer service that ultimately keeps customers coming to a shop again and again. When customers are treated the way they expect them to be treated (as they are emotional beings), then the probability of their visiting and patronizing the store is higher. They also become the store's advocates who market the store to others through word-of-mouth.

That Which Cannot be Measured Cannot be Improved

Since quality customer service plays a pivotal role in influencing shopping behavior, retailers should know and understand the tools that are available for measuring service quality in the context of retailing.

This article explores some of the tools for measuring retail service quality, and the means for diagnosing the validity and relevancy of these tools in the context of Indian retail. The article also throws light on the five dimensions (related to the five Ps of retail service) for measuring retail service quality.

Introduction - Retailing in India

Can you envisage the upshot of robust economic growth, higher disposable income, growing consumer confidence, burgeoning middle class, easy availability of credit and a vibrant young India? The result! A strong proclivity to shop, spend and splurge.

Welcome to the world of retailing! Sprawling malls, swanky outlets, mushrooming global, national and private brands, high propensity to spend and splurge, especially by the growing middle, rich and super rich classes. Retailing in India is definitely both an evolution and a revolution.

Some Basic Facts

India is the fifth largest retail destination in the world and is expected to grow to $573 bn by 2012-13. According to A T Kearney's eighth Global Retail Development Index (GRDI), India is one of the most attractive emerging markets for investments in the retail sector. The Indian retail sector accounts for 10% of country's GDP and 8% of employment. A report titled "Booming Retail Sector in India" published in 2008 by market research and analytics company, RNCOS, had predicted that organized retailing in India would reach $50 bn by 2011. However, organized retailing is still in a nascent stage in India compared to that in many other countries. It accounts for only 5% of the total retail market in India, though it is expected to grow to 6-7% by 2012-13.

A nation of shopkeepers, India has the highest density of retail outlets in the world, spanning 12 million small and medium sized outlets. Retailing in India is characterized by the so-called kirana stores, haats and melas, which have a prominent presence in the rural hinterlands and small towns of the country. At the same time, the Indian retail growth story is witnessing a paradigm shift. With the proliferation of malls and branded retail outlets, the sector is ushering in a strong transition from traditional outlets to modern outlets. A recent report by Technopak stated that the retail market is expected to be about $535 bn by 2013. The report also projected that modern retailing will show an impressive CAGR of more than 40%.

Rural India, which accounts for 60% of the nation's 1.2 billion population, offers bigger opportunities and poses greater challenges for Indian retailers. A study conducted by ASSOCHAM titled "The Rise of Rural India," stated that the rural retail market is currently estimated at $112 bn or 40% of the total Indian retail market. The rural market has already witnessed the entry of major players like ITC's Choupal Sagar, Godrej's and Pantaloon's Aadhar stores, DCM Shriram's Hariyali Kisaan Bazaar and Tata's Kisan Sansar, which sell diverse products under one-roof catering to the varied needs and wants of rural consumers. RNCOS' report had projected that the rural retail market would account for 50% of the total market by 2012.

The sector is also witnessing growing competition with the presence of many big players like the Rahejas, Future group, Reliance Retail, Aditya Vikram Birla (More), RPG, Piramal, etc. The attractiveness of the sector has also attracted global retail giants like Wal-Mart, Marks & Spencer and Tesco, which have forayed into India through joint ventures with Indian stalwarts like Bharti, Reliance Retail and Trent (retail arm of the Tata group) respectively.

Drivers of India's Retail Growth - Demand Side

Economic Growth

Robust economic growth with an average GDP growth rate of 6 to 6.5% since 1991 has been an important driver for the growth of the retail sector in India. Indian economy was the 12 largest in the world in 2008, and is poised to become the fourth largest in purchasing power parity terms by 2030.

Sound Financial System

The Indian economy is comparatively more insulated from and resilient towards global economic meltdowns or catastrophes. The retail sector however did get affected by the recent global financial crisis and subsequent slowdown in the Indian economy, forcing retailers to rethink their expansions plans, business practices, etc. The accompanying credit crunch forced out players like Subhiksha, a supermarket chain based out of south India, which had expanded to a large nationwide network of low-price food and grocery stores.

Favorable Demographic Profile

Two-thirds of the Indian population is under 35 years of age, and the median age is 23 years as against the world median age of 33 years. India is home to 20% of the global population under 25 years of age. As a result, 60% of the Indian population is projected to be in the working age group (15 to 60 years) up to the year 2050.

Among the other factors that are conducive to the growth of the retail sector are - higher disposal income, urbanization, increasing number of dual income households, easy availability of credit, changing lifestyle and mindset of Indian consumers. The Indian consumer has moved to an era of instant gratification - from save now and spend later to spend now and save later. The spending pattern has shifted from basic to discretionary. Consumers are also now exposed to more media and brands.

Further, consumers are more optimistic about the future. According to "Nielsen Global Consumer Confidence Index," Indian consumers have been judged as the world's most optimistic. Growth of IT, ITES and other services and also the manufacturing sector, have fuelled the growth of retailing.

Supply Side Drivers

On the supply side, the availability of funds through various routes such as initial public offerings, private equity, venture capital funds, loans from financial institutions, etc., and also low cost and skilled manpower have facilitated the growth of retail.

Also, though Foreign Direct Investment (FDI) is still not allowed in multi-brand retailing, liberalization measures which have permitted 100% FDI in cash and carry formats and 51% FDI in single brand retailing, have encouraged many foreign retail firms to establish base in India. Many Indian business houses such as the Future group, Reliance, Aditya Vikram Birla, Tatas and Raheja groups have also forayed into the retail business.

Among other developments, increasing investments in supply chain and cold storage facilities, growing investments in mall and land development and the development of tier II and III cities which are more attractive in terms of property prices, substantial consumer base, etc., have also encouraged increased investments into retailing.

Foreign companies which have got into the retailing business have done so through various routes such as:

• Franchising - Pizza Hut, Dominos, Subway
• Cash & Carry Wholesale - METRO, Best Price Modern Wholesale
• Joint Venture - McDonald's
• Manufacturing - UCB (United Colors of Benetton), Bata
• Distribution - Mango, BOSS

The Indian Retail Environment - A Ring Side View

The retail environment in India poses great opportunities as well as challenges. Since its inception, the sector has witnessed a roller-coaster ride in tune with the changing global and domestic undercurrents. To cash in on the boom spurred by robust economic growth and burgeoning consumer demand, the sector saw the emergence of many players in multiple formats cutting across different segments and categories.

On the other hand, the sector has also witnessed onslaught from severe political and community backlash against some retailers like Reliance Fresh (especially in Uttar Pradesh and Jharkhand), global meltdown and subsequent slowdown in the Indian economy in the year 2009, spiraling real estate prices, credit crunch, etc. These negative influences have forced many retailers to rethink their expansion strategies and business practices.

Amidst the gloom, the sector has still managed to make some headway. By hindsight, the economic slowdown provided an opportunity to clean up the inefficiencies and consolidate one's business. Rentals were renegotiated, expansion plans were questioned and business practices were realigned. The entry of global giants like Wal-Mart, Tesco and Marks & Spencer provided the much needed fillip in terms of foreign investments and best business practices. FDI is allowed up to 100% for cash and carry wholesale and export trading and 51% for single brand retailing after seeking prior governmental approval. Nonetheless, under the present FDI guidelines for retail trade, no FDI is allowed for multiple brands, even if the retailer is also the manufacturer of the products.

As competition is becoming more severe by the day with the entry of new players, retailers seek new ways to create, disseminate and differentiate their value offerings. In order to stay in the race and to boost the bottom line, retailers are increasingly seeking refuge in private labels, as the margins are relatively high when compared to that of the manufacturers' brands.

Measuring Service Quality

Service quality is defined as a `global judgment or attitude relating to the overall superiority of the service' (Parasuraman, Zeithamal, Berry, 1988). In order to measure service quality, Parasuraman, Zeithamal and Berry developed a tool called SERVQUAL. It has become one of the most widely used tools across different industries for studying service quality.

However, little is known about service quality perceptions in India (Jain and Gupta, 2004) because the focus of research has primarily been on the developed countries (Herbig and Genestre, 1996). Angur, Nataraajan, and Jahera (1999) examined SERVQUAL in the retail banking industry and reported a poor fit of the scale to the empirical data.

In spite of this, many researchers have used this without analyzing the relevancy of the scale in the Indian context, where service quality perception and expectations differs from industry to industry and segment to segment. In this context, retailing is no exception. Parasuraman et al (1988) argued that regardless of the type of service, consumers evaluate service quality using similar criteria, which can be grouped into five dimensions: tangibles, reliability, responsiveness, assurance, and empathy. Service quality in retailing is different from any other product/service environment (Gagliano and Hathcote, 1994). For this reason, Dabholkar, Thrope, and Rentz (1996) developed the Retail Service Quality Scale (RSQS) for measuring retail service quality.

RSQS has a five-dimensional structure of which three dimensions comprise two sub-dimensions each. The applicability of the scale was encouraging. Dabholker, Thorpe, and Rentz (1996) replicated their own study and found all RSQS dimensions and sub-dimensions to be valid in the US (Exhibit and Annexure). Mehta, Lalwani and Han (2000) found the RSQS five-dimensional structure appropriate for measuring the service quality perceptions of supermarket consumers in Singapore. According to Kim and Jin (2002), RSQS is a useful scale for measuring the service quality of discount stores across two different cultural contexts of the US and South Korea, though they reported empirical support for a four and not a five-dimensional structure. Boshoff and Terblanche (1997), in a replication of the Dabholkar, Thorpe and Rentz (1996) study, report highly encouraging results for the RSQS applicability in the context of department stores, specialty stores, and hypermarkets in South Africa.

Subhashini Kaul (2007) in a study titled "Measuring Retail Service Quality: Examining Applicability of International Research Perspectives in India" evaluated the validity of RSQS which was developed in the US in the Indian context (culture and format) and found that RSQS dimensions are not valid in India. The study indicated that RSQS can be used to improve the overall service quality and for tracking overall improvement over a period of time. However, the different dimensions of service quality are not clearly identifiable. Therefore, further research has been called for to improve the RSQS tool for application in India.

Hence, there is need for further study on the retail service quality measurement tools for use in the Indian context.

In the context of retailing, service quality perception of a store may likely be influenced by many variables such as product, people, process, policy, and physical evidence of the store. Also, the service quality perception and expectation of customers in a lifestyle store may be different from the service quality perception and expectation of a value store. Hence, there is a need for customizing service quality measurement tools across different formats.

Five Ps of Measuring Retail Service Quality

The five Ps of measuring service quality are product, people, physical evidence, process and policy.

Product Dimension

Under the product dimension, key variables that may influence service quality in retailing can be:

• Stock-out situation in the store hamper its image
• Display of merchandise - Uncluttered, visually appealing, easy to reach, packages not tampered.
• Choice - Various brands and designs, different price points and packages (varying sizes and quantities), etc.
• Quality of the products (quality/price perception)
• Best deals (discounts and other offers given by the store)

People Dimension

People dimension is considered to be one of the key determinants of service quality in retailing. Under the people dimension, key variables that may influence the quality of service can be in the form of:

• Employees being courteous, helpful and caring
• Knowledgeable about products, policies, layout and services of the store
• Actively listening to customer's queries and complaints
• Showing patience in answering customers' queries
• Quick in solving customers' problems
• Proactive in assessing customer's shopping requirements
• Prompt in providing service
• Good communication skills
• Good linguistic skills (knowing multiple languages) to service diverse customers
• Positive body language (smile, eye contact, posture, etc)
• Employees looking tidy and professional
• Keeping promises made by the store
• Reinforcing confidence in the minds of customers about the store.

Physical Evidence or Tangible Dimension

Tangibles play a key role in service quality perception. Shoddy buildings, poor ventilation and lighting and unhygienic premises may distort customers' perception about the image of the store and its services. Some of the variables that influence service quality perception of tangibles or physical evidence in a retail set-up are - adequate aisle space, adequate parking space, visually attractive and appealing exteriors and interiors, proper lighting, ventilation and air-conditioning, safety (fire extinguishers, alarms, emergency exits, etc.), modern computers/equipment, facilities such as washrooms, trial rooms, ample billing counters, etc.

Policy

The policy aspects encompass hassle-free exchange or return of goods, free home delivery, convenient store timings, convenient modes of payment (including cash, debit/credit cards) and customer attraction as well as retention policies such as loyalty cards, offers and gifts.

Process

The process dimension includes aspects such as safe and hassle-free billing without any errors, minimal waiting time in the queue with express counters for shoppers who buy less number of items, simple layout making it easier for customers to shop around, and clear signs and instructions for easy identification and access to different sections in the store.

Conclusion

Today, consumers have become more demanding. What satisfied their demands yesterday no longer satisfy them today. Either they want something new or something with enhanced value (value addition) in the products and services that they buy. The balance of power is now very much tilted in favor of customers. Today, they have more choices in terms of products, brands, variants, prices, etc. Their perception towards quality keeps changing, as they see and gain new experience from the service offered by multinational retailers both in India and abroad. Companies have to benchmark their service frequently with the best, not only in the same industry, but also from other industries.

Acquiring, managing and retaining customers is both a science and an art. It is highly imperative for retailers to build a strong customer base through innovative products and services, if they were to make profits and enhance their market share. Differentiation is the critical element. An organization should always put the customers first, anticipate their product and service needs, proactively deliver on time and keep the promises made.

With competition getting tougher and with customers becoming more demanding, it becomes imperative for retailers to create perceived value differentiation in the minds of customers. In order to create value differentiation, retailers should ask themselves a series of questions such as:

• Why should consumers shop from us and what draws them towards our store?
• How do they perceive our outlet/s against those of our competitors?
• What compelling reasons should we create for our customers to shop from us every time?
• What are the key customer touchpoints that will result in enhanced shopping experience?

These questions are of strategic importance to retailers from the customer-centric viewpoint, if they are to build a strong loyal customer base. There is a high correlation between customer retention and profitability. A happy or satisfied customer acts as a positive referral or brand ambassador for any organization, which helps retailers to acquire new customers with minimum marketing cost.

Offering quality service in a retail set-up increases the chances of customers visiting the store again. Available research states that consumers satisfied with service quality are more likely to remain loyal (Wong and Sohal, 2003).The store should understand customers' key touchpoints in a retail environment and provide quality service, which ultimately culminates in increased customer satisfaction and loyalty.