Introduction
Perspectives
The antecedents of
service quality and
product quality and
their influences on bank
reputation: evidence
from the banking
industry in China
Yonggui Wang
Hing-P. Lo and
Yer V. Hui
The authors
Yonggui Wang is Associate Professor at Nankai
University, China and PhD Candidate in the Department of
Management Sciences, at the City University of Hong Kong,
Kowloon, Hong Kong, China.
Hing-P. Lo is Head and Professor of Management Sciences
Department and Yer V. Hui is Professor and Associate
Dean of School of Graduate Studies, both at the City
University of Hong Kong, Kowloon, Hong Kong, China.
Keywords
Service quality, Product quality, Banking, China
Abstract
Although an increasing number of studies is being performed
in the field of service management, less work is being done
on an integrated framework of service quality and product
quality, especially that supported with evidence from
developing countries. As a result, little is known about the
distinction between service quality and product quality, their
respective antecedents, and their distinctive contributions to
performance in service industries in the developing world.
Generalization of related findings from developed countries
is not necessarily appropriate. Unlike most related studies
that are based on evidence from developed countries,
focuses attention on the distinction between, and respective
antecedents of, service quality and product quality in the
Chinese context. Gives much emphasis to the importance of
a positive bank reputation. The findings are based on
structural equation models developed by AMOS.
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Managing Service Quality
Volume 13 . Number 1 . 2003 . pp. 72-83
# MCB UP Limited . ISSN 0960-4529
DOI 10.1108/09604520310456726
72
Delivering quality service and product to
customers is essential for success and
survival in today's competitive banking
environment. The provision of products and
services of high quality enhances reputation,
improves customer retention, attracts new
customers through word of mouth, and
increases financial performance and
profitability (Julian and Ramaseshan, 1994;
Zeithaml, 1996). However, although a
considerable amount of research has been
done in the field of service quality (Bolton
and Drew, 1991; Parasuraman et al., 1988,
1991) and in the field of product quality
(Garvin, 1988), there has been less research,
if any, that has taken service quality and
product quality into consideration
simultaneously, and there has been a
tendency to ignore the distinction between
service quality and product quality, and their
respective antecedents and consequences, in
service industries. Furthermore, much of this
focus on service quality and product quality
in service industries has been conducted in
developed countries (Herbig and Genestre,
1996; Yavas et al., 1997) even though
services are among the fastest-growing
sectors in emerging countries. This rapid
growth makes any attempt to generalize such
research findings from developed countries
to emerging countries problematical.
Moreover, perhaps due to the prevailing
sellers' market conditions in the emerging
economies, studies of service-related issues
have long been neglected (Yavas et al.,
1997). Banks, in particular, have no
recognized publicly available standard scale
by which to measure the perceived quality
(both service quality and product quality) of
The authors wish to acknowledge the assistance of
the National Natural Science Foundation of China
(70202002), the National Natural Science
Foundation of China and the China-Canada
University Industry Partnership Program (NSFC-
CCUIPP) (70142023), the National Social
Science Foundation of China (02CJL004), the
Foundation of Outstanding Younger Scholars of
Nankai University (B27847), the Sumitomo
Foundation of Japan (018006), and a grant from
the City University of Hong Kong. In addition,
valuable suggestions for further improvement of
the manuscript were received from the Editor,
Dr Jay Kandampully, and two reviewers. The
authors acknowledge their assistance.
 The antecedents of service quality and product quality
Yonggui Wang, Hing-P. Lo and Yer V. Hui
bank service in general and related issues are
still subject to continued debate (Yavas et al.,
1997; Bahia and Nantel, 2000). This lack of
measurable quality standards exists despite
the strategically important role of banking
services in any nation's economy, and
despite the significance of quality-related
issues as has been widely recognized
throughout the world.
In China, over the past two decades, the
centralized banking monopoly has been
broken up, and a relatively open and free
competitive market has come into being. The
four state-owned banks (Bank of China,
Industrial and Commercial Bank of China,
Agricultural Bank of China, and China's
Construction Bank) are now struggling to
become ``real' banks with full responsibility
for their own bottom line of profitability. The
four specialized banks began competing each
other in 1985 when restrictions limiting each
to its own designated sector were lifted, and
competition intensified in 1994 when China
established three policy banks to take over
from the four specialized banks the task of
extending policy loans and the four
specialized banks were officially named
commercial bank. As a result, the previous
situation (in which they controlled about 80
percent of banking business in China) is
changing, and this requires significant
changes in attitude, management style, and
methods of handling business if they are to
remain competitive. By the end of 2000,
China had ten shareholding banks, more than
90 urban commercial banks, and 3,000 urban
credit cooperatives. In addition, China is
expected to approve the establishment of ten
private commercial banks in a move that is
designed to prepare the sector for intensified
foreign competition in the near future (South
China Morning Post, 2000). However, despite
many fundamental banking reforms, domestic
banks are still lagging behind on many fronts
compared with their foreign counterparts ±
including capitalization, overseas networks,
modern management expertise and
experience and so on ± which results in a
relative weakness in service quality and
product quality as delivered to domestic
customers.
With China's accession to the World
Trade Organization (WTO), it is inevitable
that China's domestic banks will meet
increasing foreign competition, and it has
become imperative that they focus on
73
Managing Service Quality
Volume 13 . Number 1 . 2003 . 72-83
continuously improved product quality and
service quality if they are to build positive
reputations and increase profits. For
example, immediately upon China's
accession to the WTO, foreign financial
institutions are likely to offer auto-financing
to Chinese customers. Already, foreign
banks are permitted to conduct local-
currency business with foreign clients in four
cities (Dalian, Shanghai, Shenzhen and
Tianjin), and foreign-currency business is
allowed without geographic restrictions.
Furthermore, foreign banks will be able to
conduct local-currency business with
Chinese corporations in 2004, and will be
free to conduct local-currency business with
corporate and private individuals in 2007.
Consequently, competition in China's
banking industry is already extremely
intense. There is competition among
domestic and foreign banks for able
managers and skilled staff who are aware of
innovative products and services of high
quality, and competition for customers who
are becoming increasingly knowledgeable of
such products and services. This has
produced an urgent need for Chinese banks
to distinguish service quality from product
quality, and to identify specific important
drivers and their different roles in building a
positive reputation if the banks are to attract
new customers and retain old customers
effectively.
Against the background of a lack of research
in this area, this study addresses the distinction
between service quality and product quality,
and combines them into an integrated model
simultaneously within the specific context of
China's banking environment. In particular,
this paper aims to extend the study of quality
and the key influences concerned into the
setting of a new country, and uses a survey of
China's bank customers to investigate the
respective antecedents of service quality and
product quality and their different roles in
building a positive bank reputation. To
provide more direct and useful information for
both academics and managers with respect to
service-quality and product-quality issues, the
present paper deliberately conceptualises
service-quality factors (such as reliability and
responsiveness) as being antecedents to
customers' overall evaluation of service quality,
rather than conceptualising them as
dimensions or components of the construct.
Furthermore, the present study attempts to
 The antecedents of service quality and product quality
Yonggui Wang, Hing-P. Lo and Yer V. Hui
develop structural equation models by using
AMOS to study related effects simultaneously.
The paper is organized as follows. The first
section gives a brief description of the
background of China's banking industry.
Then follows some theoretical background
and the development of related hypotheses.
Next, the survey method and data collection
of the study are presented, followed by the
results of the empirical analysis. Finally,
conclusions are drawn, implications are
noted, and limitations and future directions
are discussed.
Theoretical background and hypotheses
In the field of services marketing, the present
authors are of the opinion that service quality
receives excessive emphasis, with product
quality being relatively neglected, even
though the latter is very important in
influencing the purchasing behaviors of
customers. It is therefore necessary to
distinguish product attributes from service-
process attributes, and to differentiate the
specific contributions made by each to bank
reputation.
Service quality
Over the past several years, there have been
a variety of studies on different issues
pertaining to service quality. Traditionally,
service quality has been defined as the
difference between customer expectations
of service to be received and perceptions of
the service actually received (GroÈ nroos
1984; Parasuraman et al., 1988, 1991).
These researchers posited that measuring
service quality as ``disconfirmation'' (the
difference between perceptions and
expectations) is valid, and that such a model
allows service providers to identify certain
defined gaps in the service provided.
However, several subsequent studies have
found a poor ``fit'' for the disconfirmation
model in certain settings. As a result, the
SERVQUAL scale (Parasuraman et al.,
1988), has been criticized by an increasing
number of researchers on several grounds,
including:
. the use of gap scores;
. the measurement of expectations;
. positively and negatively worded items;
. the generalizability of its dimensions; and
74
Managing Service Quality
Volume 13 . Number 1 . 2003 . 72-83
. the defining of a baseline standard for
good quality (Cronin and Taylor, 1992;
Brown et al., 1993).
Furthermore, problems of reliability,
discriminant validity, and variance restriction
exist because of the computed difference
scores. As a result, some researchers have
tried to combine expectations and
perceptions into a single measure to alleviate
these problems, and have found that such a
measure actually outperforms the
SERVQUAL scale in terms of both reliability
and validity (Babakus and Boller, 1992;
Brown et al., 1993; Dabholkar et al., 2000).
On the basis of these findings, the present
paper adopts such a single-measure scale, and
measures service quality by customer
perceptions only through the SERVPERF
model (Cronin and Taylor, 1992).
Furthermore, as Dabholkar et al. (2000)
have established, it is better to consider
factors associated with service quality (such as
reliability and responsiveness) as being
antecedents to customer perceptions of
service quality rather than as dimensions or
components of the construct. As Dabholkar
et al. (2000) have shown, such an approach
offers greater understanding of the evolving
service-quality construct. For example,
satisfaction was originally defined in terms of
disconfirmation and, later, disconfirmation
was considered an antecedent to satisfaction
(Oliver, 1981). In addition, although
satisfaction was originally equated with
emotion, emotion has also later been viewed
as another antecedent to satisfaction in
attempts to ``fine tune'' the construct
(Westbrook and Oliver, 1991).
As a result of the above discussion, the
present study proposes the following
hypotheses:
H1a. ``Tangible'' has a positive impact on
customer perceptions of service
quality.
H1b. ``Reliability'' has a positive impact on
customer perceptions of service
quality.
H1c. ``Responsiveness'' has a positive
impact on customer perceptions of
service quality.
H1d. ``Assurance'' has a positive impact on
customer perceptions of service
quality.
 The antecedents of service quality and product quality
Yonggui Wang, Hing-P. Lo and Yer V. Hui
H1e. ``Empathy'' has a positive impact on
customer perceptions of service
quality.
Product quality
Although there has been an increasing
number of research findings on the subject of
product quality in the past two decades, it is
still worth noting that there have been several
distinct conceptualisations of product quality.
For example, in marketing and economics,
quality has usually been viewed in terms of
product attributes. In contrast, in operations
management, quality has been defined as
having multiple dimensions ± such as fitness
of use (whether the product or service does
what it is supposed to do, and whether it
possesses features that meet the needs of
customers), reliability (to what extent the
product is free from deficiencies) and so on.
In the service literature, quality has been
viewed in different terms again ± as an overall
assessment (Parasuraman et al., 1988).
Among these different conceptions of
quality, the most comprehensive definition of
product quality has been that proposed by
Garvin (1988) which posits the following
eight attributes: performance, features,
conformance, reliability, durability,
serviceability, aesthetics, and customer-
perceived quality. In brief:
(1) Performance means a product's primary
operating characteristics.
(2) Features refer to the additional features
(or the ``bells and whistles'') of the
product.
(3) Conformance represents the extent to
which a product's design and operating
characteristics meet the established
standards.
(4) Reliability indicates the probability that a
product will operate properly over a
specified period of time under stated
conditions of use.
(5) Durability means the amount of use the
consumer gets from a product before it
physically deteriorates or until a
replacement is preferable.
(6) Serviceability refers to the speed,
competence, and courtesy of repair.
(7) Aesthetics refers to how a product appeals
to the five senses.
(8) Customer-perceived quality indicates
the customer's perception of a product's
quality, based on the reputation of
the firm.
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Managing Service Quality
Volume 13 . Number 1 . 2003 . 72-83
Because this study focuses on the retail
banking industry, durability and aesthetics
might not be relevant. In contrast, some
attributes (such as serviceability, reliability
and customer-perceived quality) which have
been taken into consideration in the famous
SERVPERF model or modified SERVQUAL
model, can be considered to be important
factors in determining the quality of bank
offerings. In addition, according to our
qualitative study of customer focus groups,
customers tend to consider factors such as
product variety, product access or
convenience and diverse product features as
being important when they evaluate the
product quality of banks ± a finding that
corresponds with the key dimensions of
banking product quality as reported by Jun
and Cai (2001). Our survey results also
indicate that the main reason for customers
planning to switch to a new bank is that the
new bank provides a greater variety of bank
products.
Taking all of the above into account,
product-quality attributes are simply defined
based on expert opinion and the comments of
focus group discussions in this study as
product availability (reflecting both product
features and product variety) and product
convenience.
The following hypotheses are therefore
proposed:
H2a. Product availability has a positive
impact on overall product quality.
H2b. Product convenience has a positive
impact on overall product quality.
It should be noted here that almost all of the
dimensions of quality as articulated in
previous studies of the banking industry have
been included in our characterizations of
``service quality'' and ``product quality''
(Bahia and Nantel, 2000; Johnston, 1997).
For example, for the six dimensions identified
by Bahia and Nantel (2000) in their study of
service quality in retail banking, ``access'' and
``service portfolio'' can be represented by our
construct of product quality as proposed
above, whereas ``reliability'', ``tangible'' and
``effectiveness and assurance'' can find their
counterparts in the SERVPERF model.
Therefore, allowing for the distinction of
service quality from product quality (as
described above), we have combined almost
all the key dimensions of quality, and propose
to study them in an integrated model.
 The antecedents of service quality and product quality
Yonggui Wang, Hing-P. Lo and Yer V. Hui
Bank reputation
It is widely accepted that quality products and
services produce benefits not only by lowering
costs through reduced waste and decreased
deficiencies in product and service, but also
by increasing competitiveness through the
establishment of a good reputation and the
attraction and retention of customers. In
addition, based on our qualitative study
findings from focus groups, it is apparent that
bank reputation also plays an important role
in the determining the purchasing and
repurchasing behaviors of customers.
Customer loyalty is similarly enhanced
(Barich and Kotler, 1991; Andreassen and
Lindestad, 1998), especially in the retail
banking industry where quality cannot be
evaluated accurately before purchase
(Nguyen and Leblanc, 2001). It is also widely
acknowledged that a positive reputation is a
strategic factor that can be employed to earn
above-average profits (Weigelt and Camerer,
1988). As Nguyen and Leblanc (2001) have
concluded, reputation can be used as an
effective means of predicting the outcome of
the service-production process, and can,
perhaps, be considered the most reliable
indicator of the ability of a service firm to
satisfy a customer's desires.
As a result, interest in reputation has grown
in the past decade, and the concept of
corporate reputation has been studied by
researchers in the fields of economics,
organizational theory and marketing.
Economists have analysed issues of reputation
in relation to product quality and price
(Shapiro, 1983). Organizational scholars have
examined reputation as being a social
identity, and have portrayed it as being an
important and intangible resource which can
significantly contribute to a firm's
performance, and even its survival (Fombrun
and Shanley, 1990, Hall, 1993; Rao, 1994).
Researchers in marketing have considered
reputation under the rubric of ``brand equity''
or ``customer equity'' (Aaker, 1996; Rust
et al., 2001), and have associated it with the
credibility of the firm.
Different types of ``reputation'' have been
studied. These have included being a tough
competitor, providing a good place to work,
and having quality products (Gatewood et al.,
1993; Shapiro, 1983). However, in essence,
reputation is a result of the past actions of a
firm, and can be viewed as a mirror of the
firm's history of communicating to its target
76
Managing Service Quality
Volume 13 . Number 1 . 2003 . 72-83
group information about the quality of its
products and services in comparison with
those of competitors, thus reflecting what
stakeholders think and feel about a firm and
indicating that an organization is highly
esteemed, worthy, and meritorious (Weigelt
and Camerer, 1988; Hall, 1993; Fombrun
and Shanley, 1990).
In assessing the resource base of a firm,
reputation should be considered as a key
asset. Indeed, it is valuable, distinctive,
difficult to duplicate, and non-substitutable,
and provides the firm with a sustainable
competitive advantages (Wang and Lo, 2002;
Hall, 1993). Furthermore, a positive
reputation can be a source of future rents and
profits, and can act as a barrier to imitation
(Barney 1991; Hall 1993). Reputation plays
an especially important strategic role in
service markets because the pre-purchase
evaluation of service quality is necessarily
vague and incomplete.
From the above discussion, it is apparent
that reputation is a function of financial
performance, production quality, service
quality, management effectiveness ± or some
combination of these various factors that
appeal in one way or another to a firm's
multiple constituencies (Rao, 1994). The
following hypotheses are therefore proposed:
H3a. Overall service quality has a positive
impact on bank reputation.
H3b. Overall product quality has a positive
impact on bank reputation.
Methodology
Sampling and procedures
To collect enough data to test our hypotheses,
a face-to-face survey was conducted after a
pilot study had identified and refined
measurement items used in this study. In
total, five bank branches were chosen
randomly in one big city in northern China,
with their customers acting as respondents to
the survey. Stratified sampling was then used
to select approximately equal numbers of
customers for each chosen branch. Subjects
were asked to assess their perceptions of
various items of different constructs,
including factors viewed as antecedents of
service quality and product quality, overall
service quality, overall product quality, and
bank reputation. Assessments were based on a
 The antecedents of service quality and product quality
Yonggui Wang, Hing-P. Lo and Yer V. Hui
seven-point scale in which the descriptors
ranged from:
(1) much worse than expected; to
(2) somewhat worse;
(3) slightly worse;
(4) neutral;
(5) slightly better:
(6) somewhat better; and
(7) much better than expected.
In total, more than 350 respondents were
asked to answer the questionnaire when they
visited the chosen bank branches to undertake
transactions. Of the 350,292 of the responses
were considered valid and were used in this
study after inadequate responses had been
discarded ± which made a valid response rate
of 83.4 percent. Of these, 11 percent had
maintained a relationship with the bank for
less than one year, 34 percent for a period of
one year to three years, and 55 percent for
more than three years. Table I provides a
summary of the profile of the valid
respondents.
Measurements
Specific items were developed for each factor
(tangible, reliability, responsiveness,
assurance, empathy, product availability,
product convenience, overall service quality
and overall product quality) either by
modifying SERVPERF or from our
qualitative analysis, as shown in Table II.
Tangible, reliability, responsiveness,
assurance and empathy were all measured by
related parts of SERVPERF with small
wording changes. Product availability was
created by using three items from focus group
comments by asking them to evaluate the
three most popular product categories
(savings, cards and personal loans) in terms of
product variety and product features. Product
convenience was created in a similar way. As
for the overall measure of service quality,
Parasuraman et al. (1988) maintained that
Table I Profile of valid respondents
Period of transaction relationship with the bank
Age (years) Less than one year
Less than 20 years old 6 5
21-35 15
36-45 4 28
46-60 7 14
More than 60 0 5
Total 32
Managing Service Quality
Volume 13 . Number 1 . 2003 . 72-83
this could be obtained in the form of an
average score of the five related dimensions,
whereas others advocated measuring overall
service quality directly. Among the latter
writers, only a few have used multi-item
measures (for example, Dabholkar et al.,
2000), whereas most have used a single-item
measure (for example, Babakus and Boller
1992; Bolton and Drew, 1991), which makes
it impossible to ascertain the reliability of the
construct. In the present study, four items
were used to evaluate overall service quality
whereas three items were used to evaluate
overall product quality. For bank reputation,
two items were used, upon which customers
were asked to assess the bank branch
reputation by overall perceptions of their total
experience in the branch and comparative
perceptions with other branches.
Analysis results
Assessments of measurement properties
The structural equation model consisted of
each item in the multi-item scales. Following
the two-step approach recommended by
Anderson and Gerbing (1988), the adequacy
of each multi-item scale in capturing its
construct was assessed using the
measurement model of all constructs by
checking uni-dimensionality, internal
consistency reliability, convergent validity,
and discriminant validity ± before testing the
hypotheses via the causal model.
The fit indices and the p-values for all factor
loadings showed that the measurement model
was acceptable. The standardized factor
loadings for all items were above the
suggested cut-off of 0.60, and all were
significant, most of them being above 0.80
with a minimum of 0.701. This shows strong
evidence of convergent validity. Furthermore,
the residuals and modification indices
indicated that the scales exhibited satisfactory
One to three years More than three years Total
0 11
46 47 108
66 98
40 61
9 14
98 162 292
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Yonggui Wang, Hing-P. Lo and Yer V. Hui Volume 13 . Number 1 . 2003 . 72-83

Table II Constructs and composite reliability

Constructs and items Loading Composite reliability
Tangible 0.86
The physical facilities are visually appealing 0.737
Materials associated with the mobile communication service are visually appealing 0.772
The employees are well dressed and neat in appearance 0.742
The complementary equipment for automatic transactions, inquiries and product bulletin is adequate 0.875

Reliability 0.89
When the service provider promises to do something by a certain time, it does so 0.856
When customers have a problem, the service provider shows a sincere interest in solving it 0.864
The service provider delivers its services at the times it promises to do so 0.799
The service provider always performs the service right the first time 0.759

Responsiveness 0.87
The employees tell me exactly when services will be performed 0.808
The employees give me a prompt service 0.770
The employees are always willing to help me 0.844
The employees are never too busy to respond to my requests 0.794

Assurance 0.87
The employees instil confidence in customers 0.907
Customers feel safe in transactions with the service provider 0.838
The employees are consistently courteous with customers 0.823
The employees have the knowledge to answer customers' questions 0.764

Empathy 0.88
The service provider gives customers individual attention 0.854
The service provider has customers' best interests at heart 0.839
The employees understand customers' specific needs 0.704
The service provider has operating hours and locations convenient to all its customers 0.786
The employees give their personal attention 0.772

Overall service quality 0.89

Excellent overall service 0.825
Service of a very high quality 0.807
The average score of overall evaluation of tangible, reliability, responsiveness, empathy, assurance is adequate 0.780
Superior service in every way 0.764

Product convenience 0.88

It is convenient and easy to get or use the bank's product mix in terms of difference kinds of savings 0.907
It is convenient and easy to get or use the bank's product mix in terms of all kinds of banking cards 0.875
It is convenient and easy to get or use the personal finance product mix including private loans 0.751

Product availability 0.91

Product variety and features for different kinds of savings are adequate 0.907
Product variety and features for different kinds of banking cards product are adequate 0.839
Product variety and features for personal finance products including private loans are adequate 0.701

Overall product quality 0.80

Product quality is adequate in terms of variety and features 0.808
Product quality is adequate in terms of product convenience 0.782
Overall product quality is adequate based on experiences 0.757

Bank reputation 0.81

Bank's reputation is adequate based on the overall ewxperiences 0.816
Banks reputation after comparing with that of other competitors is adequate 0.802
Note: All loadings are significant at 0.01 level

78
 The antecedents of service quality and product quality
Yonggui Wang, Hing-P. Lo and Yer V. Hui
uni-dimensionality. The composite reliability
for internal consistency was demonstrated
because values for all constructs were above
the suggested threshold of 0.70 (see Table II).
In fact, the composite reliability of all
constructs in this study were above 0.80, with
some of them (for example, reliability,
empathy, and product convenience) being
about 0.9. In addition, the discriminant
validity of the scales was evaluated for all
possible paired combinations of the
constructs and all 2 differences were
significant, demonstrating good discriminant
validity for all scales.
Structural equation models for
hypotheses testing
According to our hypotheses, a preliminary
model was developed (see Figure 1).
However, the preliminary model had a GFI of
0.792, AGFI of 0.755, and CFI of 0.883
(which were below the recommended
minimum levels), and an RASEA of 0.077
(which was above the maximum level of
0.05). This indicated that further
modification might be required. By checking
modification indices, we found that there
were strong relationships between reliability
and overall product quality, and between
tangible and overall product quality.
Another focus group was organized with
three bank branch managers, two experts, and
ten customers. This concluded that both
reliability and tangible are important factors
of product quality when customers assess the
latter as a whole. In fact, when speaking of
bank product quality, Chinese customers
Figure 1 Structural equation model with proposed relationships
79
Managing Service Quality
Volume 13 . Number 1 . 2003 . 72-83
have a strong tendency to emphasize
reliability ± for example, they speak of the
importance of being able to get their money
back if they want, or the importance of
nothing going wrong when they obtain or use
a bank product. They also tend to take some
visible factors into consideration ± such as
promotion materials, introductory bulletins
for bank products, and service facilities. We
therefore modified our model by adding these
two new relationships. The consequent
goodness-of-fit indices are shown, and
compared with those in the preliminary
model, in Table III.
It is clear that the fit statistics for the revised
model were more favourable than those in the
preliminary model. Accordingly, each
hypothesis was tested via the path coefficients
of the revised structural equation model. This
demonstrated that most of the preliminary
hypotheses were supported by significant path
coefficients (see Table IV). As Table IV
shows, assurance had the most important
positive impact on customer perceived service
quality (the standardized path coefficient was
0.534), with responsiveness coming the
second (standardized path coefficient of
0.228), and tangible the third (standardized
path coefficient of 0.197). These results
indicate that H1a, H1c and H1d were strongly
supported. However, in neither the
preliminary model nor the revised model was
there any empirical support for the positive
impact of reliability or empathy on customer
perceived service quality (as proposed by H1b
and H1e). This result differs from the findings
of Parasuraman et al. (1988, 1991). In their
 The antecedents of service quality and product quality Managing Service Quality
Yonggui Wang, Hing-P. Lo and Yer V. Hui Volume 13 . Number 1 . 2003 . 72-83

Table III Fit statistics for revised model and preliminary model
GFI AGFI NFI CFI

Preliminary model 0.792 0.755 0.828 0.883
Revised model 0.854 0.824 0.889 0.947
studies, reliability was found to be the most
important factor in influencing service
quality. This might be due to the fact that
service quality and product quality were
combined together into an integrated model
in our study, and were considered
simultaneously in our study, whereas
Parasuraman et al., focused on service quality
alone. The other possible explanation of the
insignificant influence of empathy on overall
service quality is that most customers in
China might not be as mature and critical as
those in developed countries as a result of the
deep influence of the long-term monopoly in
the banking industry in China. At present,
they place more value on basic service
qualities (such as assurance and
responsiveness). However, the situation is
changing, and will change more rapidly and
fundamentally in the near future now that
China has become a member of the WTO and
as more foreign competition is brought in. In
the long run, empathy will inevitably become
one of the most important factors of service
quality as customers in China become more
demanding.
Furthermore, the significant path
coefficient of product availability in Table IV
shows that H2a was strongly supported (the
standardized path coefficient was 0.217 and
significant) ± which indicates that product
availability was one of the key drivers of
overall product quality. And this corresponds
with the fact that some bank customers
planned to switch to another bank because
2
/df RMSEA they preferred that bank's broader product
variety and features. In contrast, we did not
2.71 0.077
find any evidence to support H2b. This
1.809 0.053
insignificant impact of product convenience
on overall product quality might perhaps have
been a result of the geographical over-
expansion of branches of the four major
commercial banks in China at the beginning
of the 1990s, which has meant that it is really
rather easy to find a branch in the big cities of
China. In these circumstances, product
convenience loses its ability to drive product
quality significantly.
It is also of interest that the current study
found reliability to be one of the key drivers of
product quality (although, as noted above, we
did not find any evidence to support the
influence of reliability on customer perceived
service quality). This implies that more
reliable bank offerings produced higher
perceived product quality. Based on our
preliminary model and the revised model,
tangible was the most important influencing
factor of product quality, followed by
reliability and product availability.
Finally, our structural equation models also
indicate the significant influence of overall
service quality and overall product quality on
bank reputation (the standardized path
coefficients being 0.549 and 0.469
respectively) ± which means that H3a and
H3b are also supported.
In addition, the magnitude of R2 values for
latent endogenous variables shows that our
revised model has strong explanation power.
For example:
. overall product quality and service quality
explain 83.6 percent of the variance in
reputation;

Table IV Results of hy[otheses testing

Standardized
Hypotheses Relationships path coefficient p-values Results
H1a Overall service quality tangible 0.197 0.001 Supported
H1b Overall service quality reliability 0.285 0.332 Not supported
H1c Overall service quality responsiveness 0.228 0.048 Supported
H1d Overall service quality assurance 0.534 0.000 Supported
H1e Overall service quality empathy 0.049 0.635 Not supported
H2a Overall product quality product availability 0.217 0.026 Supported
H2b Overall product quality product convenience 0.232 0.322 Not supported
H3a Bank reputation overall service quality 0.549 0.000 Supported
H3b Bank reputation overall product quality 0.469 0.000 Supported
New added Overall product quality reliability 0.303 0.006 Supported
New added Overall product quality tangible 0.413 0.000 Supported

80
 The antecedents of service quality and product quality
Yonggui Wang, Hing-P. Lo and Yer V. Hui
. tangible, responsiveness, and assurance
account for 90 percent of the variance in
overall service quality; and
. tangible and reliability explain 68.6
percent of the variance of overall product
quality.
Conclusions and implications
Our models disclose that both service quality
and product quality have a significant
influence on bank reputation. The models
also distinguish specific antecedents of service
and product quality, even though it is
sometimes difficult, in practice, to draw a
clear line between products and services in
the banking industry. It is therefore important
for any retail bank in China to take effective
measures to improve both service quality and
product quality if they are to build and
enhance their reputations and thus attract a
larger share of profitable customers and
maintain a sustainable competitive advantage
in the long run.
Although these findings are based on
evidence from the banking industry in China,
they are helpful in other service industries as
well (such as retailing, insurance and the
mobile communications industry). However,
the following should always be kept in mind.
First, in view of the fact that services and
products almost always co-exist, managers
can benefit by making a distinction between
services and products, and by acknowledging
their respective antecedents and the
distinctive contributions to the building of a
positive reputation. It is widely agreed in all
manufacturing industries, and in most service
industries, that improvement in service
quality will certainly contribute to a positive
reputation. However, product quality should
also become a priority of managers if they are
to build a strong reputation for their firms.
This is because customers value products as
well as services in the course of accumulating
a judgment over time about quality ± which
determines the effectiveness of the reputation-
building activities of a firm, especially in
service industries (Nguyen and Leblanc,
2001). Therefore, managers must try to
distinguish the specific roles that service
quality and product quality play in building a
reputation and, when available resources are
scarce, emphasize whichever of these has
stronger influence.
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Managing Service Quality
Volume 13 . Number 1 . 2003 . 72-83
Second, although our findings agree with
most of the previous research findings in the
field of service quality, we did not find any
significant support for the impact of reliability
and empathy on overall service quality.
Comparatively, we find that there is a
significant relationship between reliability and
overall product quality, and a stronger
influence of tangible on overall product
quality than that on overall service quality.
Therefore, both managers and researchers
should be more careful in taking the five
dimensions of SERVPERF or SERVQUAL
as key drivers of service quality when they are
considering service quality and product
quality simultaneously in one model in
practice. For example, if they identify service
quality as the key driver of bank reputation to
be improved given the relative poor level of
performance, it is hardly convincing if they
plan to make any investment in the
improvement of reliability since it contribute
less, if nothing, to overall service quality
perceived by customers based on the evidence
of our model. Furthermore, as we have
confirmed, not all the antecedents contribute
equally to quality, and their contributions
might be subject to variation in different
industries and different countries at different
times. For example, in the retail banking
industry in China, assurance and
responsiveness are the two most important
drivers of overall service quality, and tangible
and reliability are the two most significant
drivers of overall product quality currently.
These should therefore be the focus of
management activities nowadays.
Third, with respect to product quality
improvement ± a field usually neglected in
service industries ± more attention should be
given to reliability, tangible factors and
product availability. Increasing attention has
been paid to service quality and related
factors in recent times, and it is not unusual to
find major competitors providing similar
services by imitating one other ± while
neglecting factors such as product availability.
For example, although the competition
among domestic banks is intense, and
although they are struggling to improve their
services, some banks have begun to realize a
weakness in terms of product availability ±
that is, in product variety and features ± when
they benchmark their products against the
best of foreign competitors. Product
availability and product convenience should
 The antecedents of service quality and product quality
Yonggui Wang, Hing-P. Lo and Yer V. Hui
be the important antecedents of product
quality and they sometimes interact with each
other, although we find no significant support
for the influence of product convenience on
overall product quality. As noted above,
intense competition among domestic banks
by the opening of new branches has made it
convenient enough for customers to get what
they want from the nearest bank branch. And
nearly all domestic banks provide similar
product choices (such as saving, cards and
personal loans) at any branch. However, if
some domestic banks could get ahead of their
competitors in other ways (such as safe and
convenient Internet banking services) to
deliver superior service to their customers,
this would not only strengthen product
availability (variety and features), but also
improve convenience in a new direction
beyond the mere geographical sense.
Therefore, if managers were to become
convinced that product quality plays an
important role in the process of building a
positive reputation, they could identify the
key antecedents and take measures to
improve them. In doing so, to maximize the
expected influences, they should keep an eye
on the potential interactions among the
identified key antecedents ± as described
above.
Limitations and future directions
Although we have successfully distinguished
service quality from product quality, and have
differentiated their respective antecedents and
their distinctive contributions to reputation
building in banks, the present study
nevertheless has certain limitations. For
example, in contrast to most other studies, we
conclude that, in the retail banking industry,
reliability has a strong influence on overall
product quality but not on service quality ±
because customers link reliability with
product quality and choose banks on the basis
of products of high quality and high
reliability, rather than factors such as
empathy. This finding complements related
studies and provides managers with new
insights. However, because of our sample size
and the regional distribution of the
population concerned, there is some doubt as
to whether our findings can be generalized.
Such generalization requires further in-depth
studies with larger samples and a variety of
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Managing Service Quality
Volume 13 . Number 1 . 2003 . 72-83
service industries. In addition, with the
increasingly important role of customer value
in consumers' purchasing and repurchasing
decisions, the specific contributions of service
quality, product quality, and reputation to
superior customer value are worthy of further
studies. Finally, the extension of our study to
include business customers would also
represent a potentially interesting challenge.
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