Information Systems Frontiers 6:4, 325340, 2004

C 2004 Kluwer Academic Publishers. Manufactured in The Netherlands.

An Integrated Framework for Service Quality, Customer

Value, Satisfaction: Evidence from Chinas
Telecommunication Industry
Yonggui Wang
International Business School, Nankai University, Tianjin,
China 300071 & Department of Management Sciences, City
University of Hong Kong, China
E-mail: msygwang@cityu.edu.hk

Hing-Po Lo and Yongheng Yang

Department of Management Sciences, City University of Hong
Kong, 83 Tat Chee Avenue, Kowloon Tong, Hong Kong, China
E-mail: mshplo@cityu.edu.hk
E-mail: msyhyang@cityu.edu.hk

Abstract. Service quality, customer satisfaction and customer

value have become the priority of both manufacturers and service
provider in the increasingly intensified competition for customers
in todays customer-centered era. However, findings regarding
service quality, customer satisfaction and customer value are
rather divergent and related studies are fragmented, especially
for the complicated interrelationships among them. Thus, less
is known about the relative impacts of quality-related factors
on customer value and customer satisfaction up to now and the
moderating role of customer value in the relationship between
service quality and customer satisfaction has been neglected.
Further, it is very difficult to find related studies, supported by
evidence, that focus on service quality, customer satisfaction and
customer value, and their influences on customer behavior intentions in the telecommunication industry. In this paper, much
attention is paid to the measurement model of service quality in
Chinas mobile communication market based on the well-known
SERVQUAL model, but with reasonable modification on the basis of focus group discussions and expert opinions to reflect the
specific industry attributes and the special culture of China. By
taking a disaggregated approach, the key drivers of service quality, customer value and customer satisfaction are first identified
and the impact of customer perceived sacrifice on customer value
is emphasized. Then attention is given to the systematic study of
the dynamic relationships among them, especially the moderating effect of customer value on the relationship between service
quality and customer satisfaction, which is followed by the examination of their influences on behavior intentions of customers.
Results are based on the development of structural equation models using Partial Least Square technique.
Key Words. service quality, customer value, customer satisfaction, behavioral intentions, moderating effect, telecommunication industry, China

1. Introduction
It has been well known that customer-perceived service
quality, customer value and satisfaction have been the
most important success factors of business competition for either manufacturers or service providers (e.g.,
Buzzell and Gale, 1987; Zeithaml, 1996; Bolton and
Drew, 1991; Parasuraman et al., 1988, 1991, 1997).
Such factors are becoming the priority of managers
in the increasingly intensified competition for customers in the customer-centered era of today and future (Zeithaml, 1988; Bolton and Drew, 1991; Ravald
and Gronroos, 1996; Woodruff, 1997; McDougall and
Levesque, 2000; Lapierre, 2000; Oh, 1999). However,
many different conclusions have been made regarding service quality, customer satisfaction and customer
value and related studies are rather fragmented, especially for the complicated interrelationships among
them. Furthermore, for the extant studies focusing on
the relationships among service quality, customer value
and satisfaction, few empirical studies take an disaggregated approach and examine the decomposed effects
of service quality on customer value and customer satisfaction. Thus, less is known about the relative impacts of quality-related factors on customer value and
customer satisfaction up to now. So the key drivers of
To

whom correspondence should be addressed.

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Wang, Lo and Yang

customer perceived service quality, customer value and

customer satisfaction still need more extensive in-depth
studies. In addition, although attention has been given
to the rather neglected aspect in the discussion of customer evaluation of services and products recently, i.e.,
customer value, its possible role as a moderating variable between quality and satisfaction appears to have
received even less attention, which is in fact should be
one of the most important points to help us understand
the complicated relationships among them. For example, even for the model proposed by Oh (1999) based
on the so called a holistic perspective, the moderating
role of customer value is neglected. As an exception,
Caruana et al. (2000) make the moderating role of customer value as the focus. However, in their paper, a
single-item measure is used for the complex construct
customer value, although the shortcomings of singleitem measure are discussed by themselves and many
other related studies.
Therefore, this study makes several contributions to
relevant studies as follows. First, by taking a disaggregated approach, the impacts of service quality on both
customer value and customer satisfaction are decomposed, which helps to understand how service-related
factors may influence customer value and customer satisfaction, and provides researchers and managers more
practical guidance to improve them. Second, in the
identification of the key drivers of customer value, we
try not to only combine both product-related factors and
service-related factors but also include one more important factor, i.e., customer perceived sacrifice, which
helps to integrate extant research and provides a more
comprehensive picture about how customer value can
be influenced. Third, in the discussion of the complicated relationship among customer perceived service
quality, and customer satisfaction, not only the mediating role but also the moderating role of customer value
are explored by using the PLS-based product indicator approach based on multiple-items measures of all
constructs involved. Fourth, the influences of service
quality, customer value and customer satisfaction on
behavioral intentions of customers are combined and
examined in an integrated framework. Furthermore, in
this paper, unlike others, we attempt to conceptualize
factors of service quality (tangible, reliability, responsiveness, assurance and empathy)1 as antecedents to
customers overall evaluation of service quality, rather
than as dimensions or components of the construct, and
much effort has been made to replicate and extend the
extant studies of service quality. Tangibles, relia-

bility, responsiveness, assurance, empathy and

network quality are identified as the quality-related
factors by modifying the famous SERVQUAL scale
of service quality based on extensive literature review,
group discussions and expert opinions to reflect the
specific attributes of mobile communication market of
the telecommunication industry and the special culture
of China. In addition, by collecting data from the generally neglected but important industry, i.e., telecommunication industry of China, it helps to verify the
generalizability of relevant research findings in a developing country, China. Therefore, this study necessarily
complements related studies in both the academic and
practical spheres, and helps to test relevant findings as
reported in the literature, which adds valuable insights
to the development of theory (Easley et al., 1994).
The remainder of the paper is organized as follows.
The following section provides the theoretical background of customer perceived service quality, customer
value and customer satisfaction. The next section develops related hypotheses and presents the integrated
framework that shows the hypothesized relationships,
which is followed by the methodology and measures
of the survey in this study. Then both the measurement
model and the hypothesized relationships are empirically tested based on the evidence from Chinas mobile communication market. Results are reported and
discussed, and limitations and directions for future research are indicated.

2. Theoretical Background
2.1. Customer perceived service quality
Although more research findings concerning quality
have appeared in the past two decades, it is still worth
noting here that there are several distinct conceptualizations of quality (Holbrook, 1994). In marketing and
economics, quality often has been viewed as dependent on the level of product attributes. In operations
management, quality is defined as having two primary
dimensions, fitness of use2 and reliability (To what extent is the product free from deficiencies?).3 In service
literature, quality is viewed as an overall assessment
(Parasuraman, Zeithaml and Berry, 1988). The most
comprehensive definition of quality is the one proposed
by Garvin (1988) with the following eight attributes:
performance, features, conformance, reliability, durability, serviceability, aesthetics and customer-perceived
quality.4 However, since this study focuses on Chinas

Service Quality, Customer Value, and Satisfaction

mobile communication market within the telecommunication industry, durability and aesthetics may not be
relevant. As for the attribute performance, network
quality is used, since almost all the participants in the
focus groups and the pilot study believed network quality is one of the most important factors associated with
the quality of mobile communication service. Other attributes can find their counterparts in related studies of
customer perceived service quality.
In fact, with the role of customers changing gradually, customer perceived service quality has been given
increasing attention for its specific contribution to the
competitiveness of business and there have been a variety of studies on different issues concerning service
quality over recent years. Traditionally service quality
has been defined as the difference between customer
expectations and perceptions of service (Parasuraman,
Berry and Zeithaml, 1988, 1991). These researchers
believe that measuring service quality as disconfirmation (the difference between perceptions and expectations) is valid and allows service providers to identify
several gaps in the service provided. However, most
of these studies have proved a poor fit for the disconfirmation model. As a result, their SERVQUAL scale
had been criticized by more and more researchers for
its use of gap scores, measurement of expectations,
positively and negatively worded items, the generalizability of its dimensions, and the defining of a baseline
standard for good quality (Cronin and Taylor, 1992;
Brown, Churchill and Peter, 1993; Oliver, 1993). Further, 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 found that
this outperforms the SERVQUAL scale in terms of
both reliability and validity (Babakus and Boller, 1992;
Brown, Churchill and Peter 1993; Dabholkar et al.,
2000). Therefore, we will adopt the latter and measure
service quality with customer perceptions only.
2.2. Customer value
Driven by demanding customers, keen competition and
rapid technological change, more and more firms are
searching for new ways to achieve, retain, upgrade and
leverage competitive advantages. As some researchers
have concluded (Day, 1990; Slater, 1997), creating superior customer value is a major goal for market-driven
firms. In fact, delivering superior customer value is
inevitably becoming one of the most important suc-

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cessful factors for any firm now and in the future,

due to its significant impact on behavior intentions of
customers. As a result, many firms are transforming
their focus from looking internally within the organization for improvement by way of quality management,
downsizing, business process reengineering or lean
production and agile manufacturing to pursuing superior customer value delivery (Day, 1990; Gale, 1994;
Naumann, 1995; Butz and Goodstein, 1996; Woodruff,
1997). Therefore, learning about customer value and
related knowledge, which can provide sufficient customers voice to guide managers how to respond, is
playing an ever important role in a firms increasingly
competitive environments.
Although the significance of customer value is
widely recognized, the growing body of research about
customer value is quite fragmented and the definition
of customer value is divergent. Zeithamml (1988) considers value as the customers overall assessment of
the utility of a product based on the perception of what
is received and what is given. Dodds et al. (1991) argue that buyers perceptions of value represent a tradeoff between the quality or benefits they receive in the
product relative to the sacrifice they perceive in paying
the price. Gale (1994) considers it as market perceived
quality adjusted for relative product price. Butz and
Goodstein (1996) define it as an emotional bond established between a customer and a producer after the customer has used a salient product or service produced by
that supplier. Woodruff (1997) defines customer value
as a customer perceived preference for and evaluation
of those product attributes, attribute performances, and
consequences arising from use that facilitate achieving the customers goals and purposes in use situations. This is based on customer perspectives of value
derived from empirical research into how customers
really think about value. However, it is obvious that
there are some areas of consensus among the different concepts mentioned above. For example, customer
value is inherent in or linked through use to certain
products or services; customer value is something perceived by customers rather than objectively determined
by sellers or other stakeholders, and those perception
processes typically involve a trade-off between what
customers receive, such as quality, benefits, and utilities, and what they sacrifice, such as price, opportunity
cost, and maintenance and learning cost. In this study,
we concur with the majority of researchers who define
customer value in terms of get (benefit) and give (sacrifice) components (Woodruff, 1997; Slater, 1997; Day,

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1990; Zeithaml, 1988) although some researchers argue that perceived value is made only of benefits (Hunt
and Morgan, 1995; Hamel and Prahalad, 1994).

is another important quality-related factor that drives

customer perceived service quality. Thus we can have
the hyptheses as follows.

2.3. Customer satisfaction

Consumer satisfaction has long been recognized in
marketing thought and practice as a central concept
as well as an important goal of all business activities
(Anderson et al., 1994; Yi, 1990). Consumer satisfaction has different levels of specificity in various studies.
Although satisfaction with, say, a product attribute, a
sales-person, and a consumption experience may be
useful, at a more fundamental level, it should be seen
as satisfaction with a product, whether a commodity or
service.
There are at least two different conceptualizations of
customer satisfaction. One is transaction-specific, the
other is cumulative (Boulding et al., 1993; Andreassen,
2000). On the one hand, from a transaction-specific
perspective, customer satisfaction is viewed as a postchoice evaluative judgment of a specific purchase occasion (Oliver, 1977, 1993). Up to now, behavioral
researchers have developed a rich body of literature
focusing on the antecedents and consequences of this
type of customer satisfaction at the individual level (Yi,
1990). On the other hand, cumulative customer satisfaction is an evaluation based on the overall purchase
and consumption experiences with a product or service
over time (Fornell et al., 1996; Johnson and Fornell,
1991; Anderson et al., 1994), which is more fundamental and useful than transaction-specific consumer
satisfaction in predicting subsequent consumer behaviors and a firms past, present and future performance. It
is the cumulative customer satisfaction that motivates
a firms investment in customer satisfaction. So here
our theoretical framework treats customer satisfaction
as cumulative.

Hypothesis 1(a). Tangibles is a significant driver of

customer perceived service quality.
Hypothesis 1(b). Reliability is a significant driver of
customer perceived service quality.
Hypothesis 1(c). Responsiveness is a significant
driver of customer perceived service quality.
Hypothesis 1(d). Assurance is a significant driver of
customer perceived service quality.
Hypothesis 1(e). Empathy is a significant driver of
customer perceived service quality.
Hypothesis 1(f). Network quality is a significant
driver of customer perceived service quality.

3. Integrative Framework and Hypotheses

3.1. The key drivers of customer
perceived service quality
As Dabholkar et al. (2000) have suggested and tested,
factors associated with service quality (e.g. reliability, responsiveness, tangibles, assurance and empthy)
are antecedents to customer perceived service quality
rather than as dimensions or components of the construct. At the same time, results of focus group discussions and our pilot study show that network quality

3.2. The key benefit versus sacrifice drivers of

customer value
Based on the discussions of the definition of customer
value, it is clear that factors influencing the benefits
customers receive or sacrifices customers have to make
will cause different evaluations of customer value, even
though different customers may form different opinions over time. For example, product related factors
such as product quality, and product customization,
quality-related factors such as responsiveness, flexibility, reliability and technical competencies and relationship related factors such as image, time/effort/energy
and solidarity are all customer value drivers or sources
(Lapierre, 2000; Bolton and Drew, 1991; Zeithaml,
1988). In this study, we use quality-related factors
to represent most of the positive benefit drivers of
customer value since most of them have already
been included in the quality-related factors as mentioned above. Thus the following hypotheses can be
proposed.
Hypothesis 2(a). Tangibles is a significant driver of
customer value.
Hypothesis 2(b). Reliability is a significant driver of
customer value.
Hypothesis 2(c). Responsiveness is a significant
driver of customer value.
Hypothesis 2(d). Assurance is a significant driver of
customer value.
Hypothesis 2(e). Empathy is a significant driver of
customer value.
Hypothesis 2(f). Network quality is a significant
driver of customer value.

Service Quality, Customer Value, and Satisfaction

On the other hand, as we have discussed above, customer value is related not only to what customers can
get, but also to what they have to give up; in other words,
customer perceived sacrifice. For example, Lapierre
(2000) identifies the key drivers of customer perceived
value and clarifies sacrifice as one of the two key factors
(the other is benefits). Sacrifice refers to what is given
up or sacrificed to acquire a product or service (Heskett, Sasser and Hart, 1997; Zeithaml, 1988). However,
not only is price considered an element of sacrifice,
but other non-monetary factors are also believed to be
closely related to sacrifice. In fact, many customers
count time rather than dollar cost as their most precious asset. Therefore, generally speaking, it is clear
that there are two broad kinds of sacrifice: monetary
costs and non-monetary costs. The former can be assessed by a direct measure of the dollar price of the
service or product and the latter can be defined as the
time, effort, energy, distance and conflict invested by
customers to obtain products or services or to establish
a relationship with a supplier (Ruyter et al., 1997).
Hypothesis 3. Customer perceived sacrifice is a key
driver of customer value.

3.3. The key quality-related drivers

of customer satisfaction
As for the key quality-related drivers of customer satisfaction, Oliver (1993) first suggests that service quality
is the antecedent to customer satisfaction regardless of
whether these constructs are measured for a given experience or over time. Up to now, other researchers
have found empirical support for the point of view
mentioned above (Anderson et al., 1994; Fornell et al.,
1996; Spreng and Mackoy, 1996). Therefore, similar
to the identification of the key quality-related drivers
of customer value, we can also propose that qualityrelated factors are the key drivers of customer satisfaction. For example, a customer who obtain a reliable
product/service in the proper time and place supported
by quick responses of a product/service provider when
he/she have any inquiry or problem tends to exhibit
higher satisfaction. Therefore, the following hypotheses can be formed.
Hypothesis 4(a). Tangibles has a significantly positive
influence on customer satisfaction.
Hypothesis 4(b). Reliability has a significantly positive
influence on customer satisfaction.

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Hypothesis 4(c). Responsiveness has a significantly

positive influence on customer satisfaction.
Hypothesis 4(d). Assurance has a significantly positive
influence on customer satisfaction.
Hypothesis 4(e). Empathy has a significantly positive
influence on customer satisfaction.
Hypothesis 4(f). Network quality has a significantly
positive influence on customer satisfaction.

3.4. Relationships among customer service quality,

customer value and customer satisfaction
The expectany/disconfirmation paradigm provides the
theoretical basis for the link between customer perceived service quality and satisfaction (Yi, 1990). And
as mentioned above, this link is surported by other studies, wherein customer satisfaction is a consequence of
service quality. On the other hand, utility theory, which
lies at the foundation of modern microeconomic theory, argues for an association between quality and value
and this is also supported by many other studies (Dodds
et al., 1991; Oh, 1999). Thus the following hypotheses
can be proposed.
Hypothesis 5. Customer perceived service quality contributes positively to customer satisfaction.
Hypothesis 6. Customer perceived service quality contributes positively to customer value.
Like service quality, perceived value should also
be positively related to consumer satisfaction (Fornell
et al., 1996). This is reasonable, and it has been shown
that consumer satisfaction depends on value to some
extent (Caruana et al., 2000; De Ruyter et al., 1997;
Rust and Oliver, 1994). For example, Rust and Oliver
(1994) note that value, like quality, is an encounter
specific input to satisfaction, which implicates the positively link between customer value and satisaction.
Bojanic (1996) finds strong positive association between customer value and satisfaction in four lodging markets segmented by price. At the same time,
the service management literature argues as well that
customer satisfaction is the result of a customers perception of the value (Hallowell, 1996; Fornell et al.,
1996). Therefore, customer value is viewed as another
key driver of consumer satisfaction. Thus the following
hypothesis can be proposed.
Hypothesis 7. Customer value contributes postively to
customer satisfaction.

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Wang, Lo and Yang

However, besides the above-mentioned relationships, customer value play an important moderating
role in the service quality-customer satisfaction relationship as well, which is tested and concluded by
Caruana et al. in 2000 although single-item measure is
used for the construct of customer value. Just as what
Ruyter et al. (1997) point out in discussing the findings
of their combined service quality/satisfaction model,
who find that an increase in service quality leads to an
increase in satisfaction, the reverse need not necessarily be the case. Low service quality may result in high
satisfaction. Customers may not always buy the highest
quality service. That is, convenience, price, availability may enhance satisfaction without actually affecting customer perceptions of quality. Similarly, there
is experiential evidence in practical business world.
Customer perceived service quality may be somewhat
lower, however, the prices are very competitive, the
value received is higher and favorable level of satisfaction can be achieved. Thus we can form the hypothesis
as follows.
Hypothesis 8. Customer value moderates the relationship between customer perceived service quality and
customer satisfaction.

3.5. Impacts on behavior intentions of customers

Although research examining the effects of customer
value and customer satisfaction on behavior intentions
has received very limited attention in the marketing
literature, Rust and Olivers (1994) call did not go
unanswered. Bagozzis model suggests that initial service evaluation leads to an emotional reaction, which,
in turn, drives behavior. It has also been suggested that
customer value leads to favorable behavior intentions
(Chang and Wildt, 1994; Cronin, et al., 2000; Gale,
1994). Similarly, customer satisfaction drives favorable behavior intentions (Anderson and Fornell, 1994;
Andreassen, 2000; Hallowell, 1996). Therefore, the
following hypotheses can be proposed.
Hypothesis 9. Customer perceived service quality has
a positive influence on the behavior intentions of
customers.
Hypothesis 10. Customer value has a positive influence
on the behavior intentions of customers.
Hypothesis 11. Customer satisfaction has a positive influence on the behavior intentions of customers.

Based on the comprehensive literature review and

the in-depth discussions mentioned above, an integrative framework for customer perceived service quality, customer value and customer satisfaction, and their
impacts on behavioral intentions of customers is presented as Fig. 1, in which the relevant hypotheses to be
examined empirically are shown.

4. Methodology
4.1. Sample and procedures
In order to collect enough data of high quality to
test our hypotheses, a face-to-face customer survey
was conducted by adopting the availability sampling
technique based on the measurement refinement results of the pilot study with customers of both China
Mobile and China Unicom, the two monopoly companies in China that compete with each other in the
mobile communication market. Subjects were asked
to assess items of different constructs such as factors viewed as antecedents of service quality, customer
sacrifice, customer perceived service quality, customer
satisfaction, and customer value in terms of their perceptions, based on a seven-point scale. The descriptors ranged from strongly disagree, somewhat disagree, slightly disagree, neutral, slightly agree,
somewhat agree and strongly agree. A total of 348
were considered valid and were used to develop structural equation models with a PLS-Graph.
The reason for us to choose mobile communication market in China is as follows. First, this is one
of the most important service markets but often neglected by most of previous studies. This service may
not only have significant influences on the life quality of people, but also affect the operational activities
of firms since it cannot be imagined if there were no
mobile communication between managers and managers, managers and employees, employees and employees, and so on. Second, over the last decade, the
centralized telecommunication monopoly in China has
been changed and a relatively open and free competitive market is gradually coming into being. As a result, many functional and fundamental changes have
taken place in telecommunication reforms and more
and more attention has been paid to the improvement
of customer perceived service quality, customer value
and customer satisfaction in order to build superior
competitive advantages by way of effective customer

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331

Fig. 1. Service quality, customer value, satisfaction and behavioral intentions of customers: an integrated framework.

acquisition and retention with the increasingly intensified domestic competition. Furthermore, with Chinas
entry into WTO, it is inevitable for Chinas domestic
telecommunication companies to meet ever-keener foreign competition as a result of the agreement that joint
ventures can be established freely in Beijing, Shanghai
and Guangzhou, with a maximum foreign equity of
25% for the first year following Chinas entry. It has
become imperative for domestic firms to focus on the
improvement of service quality in order to deliver superior customer value, achieve higher customer satisfaction and keep customers or attract potentially profitable
new customers, which signifies the significance and urgent need of this study. Third, Chinas telecommunication industry has been growing fastest in the world
over the past 20 years and the mobile communication
market has been the most active and has attracted much
attention all over the world among so many markets in
Chinas telecommunication industry. For example, the
annual increase in GSM users in China has been over
200% since 1990, a potential market that is attracting
many giant global corporations to compete there (Tianjin Daily). Up to now, there are nearly 0.1 billion GSM

users of China Mobile, a newly established company

formed from a restructuring of China Telecom in 1999,
which has taken up all the mobile business of the latter,
making it the largest mobile communication network
in the world. Furthermore, it has been forecasted that
mobile communication users in China will amount to
0.3 billion in the next few years. Therefore, such a
study is very useful for those foreign firms that intend
to compete in Chinas mobile communication market
in the near future. Besides, such a choice also makes
it possible for us to verify the generalizability of relevant findings of extant studies in a rather new context,
a developing country.
4.2. Measurements
Many of the instruments used to measure the constructs
involved in this study are adapted from existing literature and others are developed based on the extant conceptual studies and and focus group discussions, which
are refined by a pilot study of 80 customers in China.
Specific items were developed for each qualityrelated factor, i.e., tangibles, reliability, responsiveness, assurance, empathy, and network

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Wang, Lo and Yang

quality, either by modifying SERVQUAL or from our

focus group discussions. Tangibles, reliability, responsiveness, assurance and empathy were each
measured by related parts of SERVQUAL with small
wording changes. Network quality was created using
two items from focus group comments by asking customers to evaluate the quality of their chosen network
based on their overall experience and the call quality of
their chosen network. As for customer perceived sacrifice, three items were used to evaluate the price charged,
time required and effort needed to receive the chosen
service, which were adapted from the work of Croinin,
et al. (2000). For behavior intentions, three items simliar to those reported and used throughout the service
marketing literature were adopted (Croinin and Taylor,
1992; Zeithaml et al., 1996; Cronin et al., 2000).
Customer perceived quality, customer value and
customer satisfaction often consist of single item measures in previous studies, especially for the last two
constructs (Babakus and Boller, 1992; Bolton and
Drew, 1991; Boulding et al., 1993; Croin and Taylor,
1992; Spreng and Mackoy, 1996; Oh, 1999; Caruana,
et al., 2000). However, there are many shortcomings
to meaure a construct with a single item (Churchill,
1979). For exmaple, it often fails to capture the richness and complexity of a theoretical construct or latent variable that is not directly measurable (Fornell
et al., 1996). Furthermore, since all survey variables
are believed to be measured with certain degree of errors (Fornell et al., 1996), single-item scales cannot
assess or average out the variance due to random errors, specific items, and method factors (Yi, 1990). As
a result, the reliability of single-item scales is difficult to assess and, even if assessed in some studies
using the only available test-retest reliability estimate,
most estimates of this kind are so low and indicate that
the scales should be used with caution (Yi, 1990). In
contrast, some studies employing multi-item scales to
measure perceived quality and consumer satisfaction
show that multi-item scales are significantly more reliable than the single-item scales (Dabholkar et al., 2000;
Dabholkar et al., 1996; Spreng and Mackoy, 1996;
Cronin et al., 2000). In this study, therefore, we try
to integrate distinct conceptualizations of constructs
discussed above and measure them with multi-item
scales. Based on our preliminary pilot study and literature review, three items are retained to evaluate customer perceived service quality, customer value and
customer satisfaction respectively in the final survey

stage, which are shown in Table 1. For customer perceived service quality, repondents were asked to give
their assessment in term of excellent overall service,
service of a very high quality, and superior service
in every way, which were adapted from the work of
Dabholkar et al. (2000) and similar to other overall service quality indicators used elsewhere in the literature
(Cronin and Taylor, 1992). For customer value, three
items were included in the survey to ask customers to
evaluate whether overall, the chosen service is value
for money, the chosen service is worth what is given
up such as time, energy and effort (Cronin et al., 2000)
and comparing with offerings of major competitors,
the transaction with the mobile communication service
provider is a good choice. For customer satisfaction,
three items were used with endpoints completely satisfied/completely dissatified, very pleased/very displeased and absolutely delighted/absolutely terrible
(Wrestbrook, 1980; Dabholkar et al., 2000).

5. Empirical Results
There are two types of estimation techniques for an
SEM. The first type is the maximum likelihood (ML)
based covariance structure analysis method that is documented in software such as LISREL, AMOS and EQS
(Bollen, 1989; Joreskog, 1970). Another type is the partial least squares (PLS) based variance analysis method
(Chin, 1998; Fornell and Cha, 1994; Wold, 1986),
which is implemented in such programs as LVPLS and
PLS-Graph. Although the PLS method is not as popular
as the ML method in the SEM field, it does provide a
way to avoid problems of improper solutions and factor
indeterminacy as well as the violations of distributional
assumptions (Fornell and Cha, 1994) which may be
associated with the ML method. As for the testing of
moderator effects, although traditional techniques such
as analysis of variance (ANOVA, MANOVA, MANCOVA, ANCOVA) or moderated multiple regression
(MMR) are frequently used, however, they may not
be able to detect such interaction effects under conditions of measurement errors. For example, according to what has been concluded by Chin et al. (2003),
studies using analysis of variance approaches fail to
report effect size estimates on the one hand while the
regression and path analysis techniques, which do provide beta path coefficients, have few significant terms,
small effect sizes and low statistical power. By

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333

Table 1. Confirmatory factor analysis results and relevant composite reliability

Constructs
and Items
Tangible
1. The physical facilities are visually appealing
2. Materials associated with the mobile service are visually appealing
3. The employees are well dressed and neat in appearance
Reliability
4. When the service provider promises to do something by a certain time, it does so
5. When customers have a problem, the service provider shows a sincere interest in solving it
6. The service provider deliver its services at the times it promises to do so
7. The service provider always performs the service right the first time
Responsiveness
8. The employees tell me exactly when services will be performed
9. The employees give me a prompt service
10. The employees are always willing to help me
11. The employees are never too busy to respond to my requests
Assurance
12. The employees instill confidence in customers
13. Customers feel safe in transactions with the service provider
14. The employees are consistently courteous with customers
15. The employees have knowledge to answer customers questions
Empathy
16. The service provider gives customers individual attention
17. The service provider has customers best interest at heart
18. The employees understand customers specific needs
19. The service provider has operating hours and location convenient to all its customers
20. The employees give their personal attention
Network quality
21. The quality of the specific chosen network is always good
22. The call quality of the specific chosen network is always good
Customer perceived service quality
23. The mobile communication provider always deliver excellent overall service
24. The offerings of the service provider are of high quality
25. The mobile communication provider deliver superior service in every way
Customer perceived sacrifice
26. Please give your evaluation in terms of the price charged by the provider
27. Please give your evaluation in terms of the time require to obtain the offerings
28. Please give your evaluation in terms of the effort needed to receive the chosen offerings.
Customer value
29. Overall, the chosen offerings are value for money
30. The chosen offerings are worth what is given up such as time, energy and effort
31. Comparing with major competitors, the transaction with the provider is a good choice
Customer satisfaction
32. I am completely satisfied with the services delivered by the service provider
33. I feel very pleased with delivered services
34. I feel absolutely delighted
Behavioral intentions of customers
35. I would like to repurchase the offerings from the service provider
36. I would like to recommend the mobile communication service to others
37. I would like to keep close relationship with the service provider

comparison, the PLS method has been gaining interest

and used in recent years because of its ability to model
latent constructs under conditions of non-normality
and small to medium sample sizes, which is prefer-

Loading

T-value

0.84
0.88
0.72

30.28
73.76
14.92

0.79
0.88
0.80
0.84

28.74
54.04
17.40
35.88

0.89
0.85
0.93
0.89

56.57
53.00
110.35
53.96

0.90
0.86
0.86
0.79

73.34
43.51
48.19
20.52

0.82
0.89
0.84
0.86
0.83

28.01
59.05
29.99
50.35
30.58

0.94
0.96

84.37
195.88

0.89
0.76
0.81

58.17
19.41
27.26

0.87
0.72
0.69

20.08
18.83
17.67

0.92
0.95
0.89

57.92
166.08
89.06

0.89
0.83
0.80

83.65
65.36
19.46

0.87
0.81
0.79

73.26
56.21
49.72

Composite
reliability
0.86

0.84

0.91

0.87

0.90

0.90

0.86

0.81

0.87

0.87

0.83

able to techniques such as regression assuming error

free measurement. Therefore, in this paper, the PLS
method is used to estimate the models using the survey
data.

334

Wang, Lo and Yang

tors associated with service quality explained 83.6% of

the variance in overall service quality, quality-related
factors, customer perceived sacrifice and service quality accounted for 67.2% of the variance in customer
value, quality-related factors, customer perceived service quality and customer value explained 71% of the
variance in customer satisfaction and after the moderating effect of customer value was included, the variance explained in customer satisfaction was up to about
76%, which is shown in Table 4. Furthermore, customer perceived service quality, customer satisfaction
and customer value explained 67.8% of the variance in
the behavior intentions of customers in Chinas mobile
communication market.

5.1. Assessment of measurement properties

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 internal consistency reliability, convergent
validity and discriminant validity, before testing the
hypotheses via the causal model.
Firstly, the composite reliability for internal consistency was demonstrated, since values for all constructs
were above the suggested threshold of 0.70, with a minimum of 0.81 (see Table 1). Secondly, the standardized
factor loadings for all items were above the suggested
cut-off 0.60 (Hatcher, 1994), with a minimum of 0.69,
and all were significant (P < 0.005), showing strong
evidence of convergent validity. At the same time, as
shown in Table 2, the average variance extracted (AVE)
of each construct in our model was more than 0.60,
which meets the criterion of a constructs AVE; i.e.
it should be, at least, higher than 50% to guarantee
more valid variance explained than error in its measurement (Fornell et al., 1994; Fornell and Larcker,
1981). Thirdly, apart from the above-mentioned convergent validity, the constructs should also show high
discriminant validity. According to Fornell and Cha
(1994) and Fornell and Larcker (1981), this can be evidenced by the fact that the square root of the AVE
of each construct is generally higher than the correlations between it and any other constructs in the model,
which is presented in Table 2. That is, the constructs are
both conceptually and empirically distinct from each
other. Furthermore, the magnitude of R square values
for latent endogenous variables show that our model
has strong predictive power. For example, the six fac-

5.2. Hypotheses testing of direct effects

In order to test the direct effects, a structural equation
model was developed by using PLS-Graph and the results are shown in Table 3. It can be seen in Table 3
that nearly all the standardized path coefficients (excluding responsiveness) relating the six factors associated with quality to customer perceived service quality have the expected positive sign and are statistically
significant. Among them, network quality and empathy are significant at p < 0.01 level, while tangible,
assurance and reliability are significant at P < 0.05
level, which shows that hypothesis 1a, 1b, 1d, 1e and
1f are strongly supported with hypothesis 1c as an exception. In other words, in Chinas mobile communication market, both empathy and network quality are the
two most important drivers of customer perceived service quality ( = 0.356 and t = 2.51, and = 0.265
and t = 3.06 respectively) with tangible, assurance and
reliability coming second ( = 0.203 and t = 2.09,

Table 2. Correlation coefficients and the square root of AVE for all constructs in the study

1. Tangibles
2. Behavior intentions
3. Customer value
4. Network quality
5. Customer satisfaction
6. Reliability
7. Responsiveness
8. Assurance
9. Empathy
10 Customer perceived sacrifice
11 Customer perceived service quality

10

11

0.82
0.55
0.57
0.48
0.61
0.63
0.64
0.68
0.49
.60
0.72

0.81
0.66
0.48
0.62
0.54
0.53
0.71
0.57
.57
0.56

0.86
0.56
0.43
0.45
0.60
0.56
0.66
.51
0.49

0.89
0.50
0.45
0.49
0.39
0.42
.35
0.66

0.87
0.69
0.59
0.73
0.54
.66
0.68

0.81
0.56
0.62
0.48
.57
0.76

0.90
0.62
0.56
.60
0.67

0.84
0.64
.67
0.82

0.88
.67
0.58

0.78
.69

0.81

Notes: Interrelations are included in the lower triangle of the matrix, and the square root of AVE is on the diagonal.

Service Quality, Customer Value, and Satisfaction

335

Table 3. Assessment of direct effects by using PLS-GRAPH

Hypotheses
H1a

H2a
H2b
H2c
H2d
H2e
H2f
H3
H4a
H4b
H4c
H4d
H4e
H4f
H6

Customer perceived
service quality
Customer perceived
service quality
Customer perceived
service quality
Customer perceived
service quality
Customer perceived
service quality
Customer perceived
service quality
Customer value
Customer value
Customer value
Customer value
Customer value
Customer value
Customer value
Customer satisfaction
Customer satisfaction
Customer satisfaction
Customer satisfaction
Customer satisfaction
Customer satisfaction
Customer value

H9

Behavior intentions

H10
H11

Behavior intentions
Behavior intentions

H1b
H1c
H1d
H1e
H1f

Standardized
path coefficient

Constructs and relationships

T -values

Assessment

Tangible

0.203

2.09

Reliability

0.269

2.27

Responsiveness

0.055

0.45

no

Assurance

0.198

2.27

Empathy

0.356

2.51

Network quality

0.265

3.06

0.301
0.023
0.006
0.141
0.523
0.251
0.375
0.139
0.296
0.045
0.410
0.041
0.203
0.137

2.55
0.059
0.01
0.94
4.26
3.64
2.36
1.51
5.18
0.54
4.29
0.26
3.66
2.38

Tangible
Reliability
Responsiveness
Assurance
Empathy
Network quality
Customer sacrifice
Tangible
Reliability
Responsiveness
Assurance
Empathy
Network quality
Customer perceived
service quality
Customer perceived
service quality
Customer value
Customer satisfaction

s
no
no
no
s
s
s
s
s
no
s
no
s
s

0.106

1.32

no

0.474
0.418

6.22
5.30

s
s

Significant

at P < 0.025 level.

at P < 0.01 level.
Significant at P < 0.1 level.
Significant

= 0.198 and t = 2.27, and = 0.269 and t = 2.27

respectively). As for the key drivers of customer value,
the standardized path coefficients show that network
quality, empathy and tangibles have a significantly positive influence on customer value in Chinas mobile
communication market, while we find no evidence to
support the influence of reliability, responsiveness and
assurance, which implies that hypothesis 2a, 2e and 2f
are strongly supported but hypothesis 2b, 2c and 2d
are not supported. On the other hand, customer perceived sacrifice has a significantly negative impact on
customer value, which indicates that hypothesis 3 is
strongly supported. Among the key drivers of customer
value, empathy and network quality are the two most
important positive drivers ( = 0.523 and t = 4.26,

and = 0.251 and t = 3.64 respectively) while customer perceived sacrifice is the most important negative driver ( = 0.375 and t = 2.36). In contrast,
our structural equation model shows no evidence of
the relationship between empathy and customer satisfaction, and responsiveness and customer satisfaction
while the influence of reliability, assurance, tangible,
and network quality on customer satisfaction is found
to be significant, which indicates that hypothesis 4a, 4b,
4d, and 4f are strongly supported and hypothesis 4c and
4e are not supported. Among these quality-related factors, assurance is the most important driver of customer
satisfaction ( = 0.410 and t = 4.29), and reliability
comes the second ( = 0.296 and t = 5.18). For the
impacts on behavior intentions of customers, results in

336

Wang, Lo and Yang

Table 3 show that hypothesis 10 and 11 are strongly

supported, which implies significant influences of customer value and customer satisfaction on behavior intentions of customers. Comparatively speaking, the
impact of customer value is a little larger than that
of customer satisfaction, and the path coefficients are
0.474 (t = 6.22) and 0.418 (t = 5.30) respectively. By
contrast, we find no evidence to support hypothesis 9,
which implies that the impact of customer perceived
service quality on behavior intentions is not supported.
However, this does not mean that customer perceived
quality is not important, and it can also exert indirect
impact on behavior intentions of customers by affecting customer value and customer satisfaction, which
will be reported later.
5.3. Hypotheses testing of the moderating effect
After examining the direct effects, lets begin to check
the moderating effects. In doing so, two structural equation models were developed. One is the main-effects
model excluding interaction terms and the other is
the interaction model including the interaction effect.
Since PLS does not make any distributional assumptions and traditional parametric tests are inappropriate,
a bootstrapping method of sampling with replacement
was used and standard errors computed on the basis
of 500 bootstrapping runs. During the process of interaction model building, as in regression analysis, the
predictor and moderator variable are multiplied to obtain the interaction terms. As suggested by Chin et al.
(2003), we standardized the indicators prior to multiplying them. The results of both main-effects model
and interaction model are reported in Table 4, which
shows only highly related constructs.
It is obvious that customer perceived service quality contributes positively and significantly to customer

satisfaction not only in the main-effects model but

also in the interaction model, and path coefficient
is 0.382 (t = 6.29) and 0.317 (t = 3.99) respectively,
which implies that hypothesis 5 is strongly supported.
Similarly, the impact of customer value on customer
satisfaction is also statistically significant both in the
main-effects model and the interaction model, and
the path coefficient is 0.450 (t = 8.50) and 0.452
(t = 4.39) respectively, which implies that hypothesis
7 is strongly supported. Furthermore, by checking the
interaction effect, we find that the path coefficient is
0.177 and t = 2.32. At the same time, as recommended by Chin et al. (2003), the overall effect size
can be calculated as follows:
f2

R 2 (Interaction-model) R 2 (Main-effects-model)
[1 R 2 (Interaction-model)]

We find that the value of f 2 in our model is 0.190, which

is larger than the suggested threshold of 0.15 (Cohen,
1988). So we can make the conclusion that a medium
moderating effect is detected. Therefore, as hypothesized, customer value moderates the relationship between perceived quality and customer satisfaction and
thus hypothesis 8 is strongly supported.

6. Conclusions and Implications

By taking a disaggregated approach, we find that not all
quality-related factors contribute to customer perceived
service quality, customer value and customer satisfaction equally, which provides more useful and practical
suggestions for researchers and managers in improving

Table 4. Assessment of main effects and moderating effects by using PLS-GRAPH

Main-effects model

Interaction model

Hypotheses

Exogenous variables

Path coefficients

T -value

Path coefficients

T -value

H5
H7
H8

Customer perceived service quality

Customer value
Customer perceived service
quality X customer value
R square

0.382
0.450

6.29
8.50

0.317
0.452
0.177

3.99
4.39
2.32

Significant

at P < 0.025 level.

at P < 0.01 level.

Significant

0.7133

0.7591

Service Quality, Customer Value, and Satisfaction

service quality, creating and delivering superior customer value, and achieving high customer satisfaction.
Furthermore, in addition to the direct interrelationships
among customer perceived service quality, customer
value and customer satisfaction (including the mediating role of customer value between customer perceived service quality and customer satisfaction), the
moderating effect of customer value on the relationship between customer perceived service quality and
customer satisfaction is detected based on our structural equation models. Besides, we find that only the
impacts of customer value and customer satisfaction on
behavior intentions of customer are statistically supported. However, it is found that customer perceived
service quality may influence behavior intentions of
customers indirectly by affecting customer value and
customer satisfaction.
On the one hand, such findings can be used to explain the competitive behaviors of the two monopoly
mobile communication firms in China, China Mobile
and China Unicom. Although there are at present only
two players in Chinas mobile communication market,
the competition between them is more intense than
ever. They compete not only in the improvement of
customer perceived service quality based on network
quality via a large amount of investment in network extension and upgrading, but also in customer retention
and acquisition via direct and indirect price reduction
to lower customer perceived sacrifice and to deliver
superior customer value. The rationale of this is supported by our research since network quality is one of
the most important drivers of overall service quality,
customer value and customer satisfaction while customer perceived sacrifice (including price) has a significantly negative impact on customer value, and thus influences customer satisfaction and behavior intentions
of customers indirectly and negatively. Furthermore,
the competition in the mobile communication market
will, inevitably, grow much more intense in the next
few years, following Chinas formal entry into WTO
in December 2001, since a general agreement was arrived at that Chinas telecommunication service sector,
like other sectors, would allow foreign companies to
compete gradually. Thus, more foreign giants will increasingly be involved. Therefore, firms expecting to
build and maintain competitive advantages in this market must try their best to improve service quality, deliver superior customer value, achieve higher customer
satisfaction, and turn behavior intentions of customer
into the true purchasing behavior.

337

On the other hand, our research enables firms to

compete more effectively and efficiently. According to
our research, as both China Mobile and China Unicom
have been doing, priority should be given to how to
reduce customer perceived sacrifice and improve network quality, since mobile communication customers
in China perceive these as the key factors influencing their evaluation of customer value, customer satisfaction, or service quality, which, in turn, drive them
to make actual purchasing decisions. Also, attention
must be given to another important factor, that is, tangibles since this influences not only service quality,
but also customer value and customer satisfaction. At
the same time, firms should devote themselves to factors such as empathy in order to improve customer
value, even though empathy is not significant in customers perception of customer satisfaction. Nevertheless, empathy plays a part in superior customer value,
which helps customers make their purchasing decisions, and also fosters higher customer satisfaction
indirectly. Similarly, Chinas mobile communication
service suppliers should not neglect reliability, since reliability contributes positively and significantly to customer satisfaction, despite its not being a significantly
influential factor of customer value.
Moreover, based on what has been achieved on the
interrelationships among customer perceived service
quality, customer value and customer satisfaction, the
integrated framework developed in this study enable us
to show the existence of significant moderating role of
customer value in addition to the direct influence of customer perceived service quality on customer value and
that of customer value on customer satisfaction, which
represent an important addition in our understanding
of the interrelationships among these three constructs.
The negative regression coefficient for the interaction
between quality and value implies that this factor can
have a negative impact on satisfaction, which corresponds with what Caruana et al. (2000) argue for. This
has important implications for management as well
since all the three constructs have increasingly played
key roles in competition and are believed to have a
significant effect on customer retention and ultimately
long term profitability. It indicates that although customers may believe that a firm provides high levels of
service quality, it does not necessarily follow that satisfaction will be high and they will conduct a transaction
with that firm. For example, if prices are perceived to be
high, this may still result in a negative effect on satisfaction. Therefore, satisfaction does not depend on service

338

Wang, Lo and Yang

quality alone and higher levels of quality are considered worthwhile to the extent that customers believe
that value is being enhanced. The results also provide
a basis for understanding the role of low price or low
cost strategy in customer satisfaction and intense competition since customer value will be perceived higher
with reduced customer perceived sacrifice and similar
quality level, while the contribution of perceived quality to customer satisfaction should become a little less
as a result of the negative moderating effect of customer value. Finally, although our empirical models
were developed based on the data collected in Chinas
mobile communication market, these findings can also
be applied to other industries.

7. Limitations and Directions

of Future Research
This research has successfully applied what has been
found in service market literature to one sector of the
telecommunication industry in China. It has also provided a comprehensively integrated framework for understanding the dynamic relationships among qualityrelated factors, customer perceived service quality,
customer perceived sacrifice, customer value, customer satisfaction and behavior intentions of customers. However, these results need to be interpreted
within the limitations of the study. For example, a limitation of this study is its cross-sectional design, which
means that an important step for further research is
the collection and analysis of longitudinal data. Secondly, although constructs of customer perceived service quality, value and satisfaction are conceptualized
separately and steps have been taken to reduce multicollinearity, they are related and some effects may still
be present. So the coefficient of the interaction term for
value must be interpreted with caution since the moderator is correlated to both satisfaction and customer
perceived service quality. Thirdly, the findings need to
be confirmed by further evidence from other regions
given the difference in values and cultures among different regions. Furthermore, the results should also be
tested by evidence from other industries. Finally, further research should extend our integrative framework
and take other variables such as corporate reputation,
customer loyalty and other performance measures into
consideration to provide practical managers more useful suggestions to acquire new customers and retain
existing customers.

Acknowledgment
We wish to acknowledge the National Natural Science Foundation of China and China-Canada University Industry Partnership Program (NSFC-CCUIPP)
(70142023), National Natural Science Foundation of
China (70202002), the National Social Science Foundation of China (02CJL004), the Sumitomo Foundation
of Japan (018006), and the Research Grants Council
of the HKSAR, China (Cityu 1129/02E). We gratefully acknowledge the three anonymous reviewers for
their valuable advice about further improvement of this
manuscript. We also wish to thank Dr. Wynne Chin of
the University of Houston for kindly permitting us to
use his PLS-Graph package.

Notes
1. Tangibles refers to the appearance of physical facilities, equipment, personnel, and written materials; reliability refers to the
ability to perform the promised service dependably and accurately; responsiveness refers to the willingness to help customers and provide prompt service; assurance refers to the employees knowledge and courtesy, and their ability to inspire trust
and confidence; empathy refers to giving caring, individualized
attention to customers (Parasuraman et al., 1988).
2. It refers to whether the product or service does what it is supposed
to do and possesses features that meet the needs of customers.
3. It represents to what extent the product is free from deficiencies.
4. Performance means a products primary operating characteristics; features refer to the additional features or the bells and
whistles of the product; conformance represents the extent to
which a products design and operating characteristics meet the
established standards; reliability indicates the probability a product will operate properly over a specified period of time under
stated conditions of use; durability means the amount of use the
consumer gets from a product before it physically deteriorates or
until replacement is preferable; serviceability refers to the speed,
competence and courtesy of repair; aesthetics shows how a product appeals to our five senses and customer-perceived quality
indicates a customers perception of a products quality based on
the reputation of the firm.

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Yonggui Wang is an associate professor of International Business School, Nankai University, China. He

received his second Ph.D. degree from City University of Hong Kong. He specializes in Service Operation Management & Marketing, Corporate Strategy &
Dynamic Competitive Advantages, and Customer relation Management and Business Statistics with about
ten academic papers published in leading journals such
as Journal of Engineering and Technology Management, The Journal of Management Development, International Journal of Managing Service Quality and
so on.

Hing-Po Lo is Head and an associate professor of the

Department of Management Sciences, City University
of Hong Kong. As an applied statistician, he has been
championing the application of statistics through teaching, research, and consultancy for thirty years. In particular, he specializes in the use of statistical modeling
in Marketing Research and Transportation.

Yongheng Yang is an associate profesor of Quality Management in the Department of Marketing at Nanjing
University. He received his Master degree in Business
Administration from Nankai University, and PhD in
Service Operation from City University of Hong Kong.
His research interests include business statistics, service quality management, operations management, and
information system modeling.