ABSTRACT - Sweeping changes have intensified competition among the emerging private businesses in the People’s Republic of China and will change the face of small business marketing there. While the notion of value-added services continues to elude the average Chinese consumer, it won’t be long before local businesses must lear to give themselves a competitive edge by Asurprising@ their customers. This paper compares how PRC subjects perceive fifteen service-oriented attributes relative to their counterparts in the U.S.A. and France. A theoretical background is proposed to explain possible causes for these differences. A strategic framework is offered to help PRC marketers move forward.

Citation:

Kenny K. Chan and Rajendar K. Garg (1998) ,"", in AP - Asia Pacific Advances in Consumer Research Volume 3, eds. Kineta Hung and Kent B. Monroe, Provo, UT : Association for Consumer Research, Pages: 45-51.

Asia Pacific Advances in Consumer Research Volume 3, 1998      Pages 45-51

SERVICE ORIENTATION IN CHINA: A CROSS-CULTURAL COMPARISON OF CONSUMER EXPECTATION

Kenny K. Chan, Lingnan College, Hong Kong and California State UniversityBChico, U.S.A.

Rajendar K. Garg, Indiana University, U.S.A.

ABSTRACT -

Sweeping changes have intensified competition among the emerging private businesses in the People’s Republic of China and will change the face of small business marketing there. While the notion of value-added services continues to elude the average Chinese consumer, it won’t be long before local businesses must lear to give themselves a competitive edge by "surprising" their customers. This paper compares how PRC subjects perceive fifteen service-oriented attributes relative to their counterparts in the U.S.A. and France. A theoretical background is proposed to explain possible causes for these differences. A strategic framework is offered to help PRC marketers move forward.

INTRODUCTION

Over the past 20 years, the People’s Republic of China (PRC) has experienced tremendous economic growth. In just two decades, its per capital gross domestic product has quadrupledCa feat that has no counterpart in recorded world history (Dornbusch, 1997), with the GDP for the first half of 1995 at 10.3% (SCMPIW, 1995). Such pronounced development can be largely traced to Party General Secretary Jian Zemin’s determination to transform the operation mechanism of large and medium-sized enterprises, and to speed up the development of the market mechanism (Tsang, 1993).

The development of the enterprise reform has been fueled in part by the most encouraging aspect of the Chinese experiment: the price reform. The achievement in price liberalization in the past few years has been truly remarkable. The prices of most consumer goods are now determined by supply and demand.

Another significant outcome from this reform is the growth of non-state-owned sectors, which are allowed to grow faster than the state sector. For example, Tsang (1993) reported that the share of state-owned enterprises in industrial production dropped from 77.6% in 1978 to 48.4% in 1992. And many economists in China are forecasting that the contribution of the state sector to GNP will fall to less than 25% by the year 2000.

China’s bold move in state-enterprise reform is undoubtedly a valuable tool in fighting unemployment and social instability. But these sweeping changes have intensified competition among the emerging private businesses, and changed the face of small business marketing in the PRC. In an environment of ever increasing competitive pressure, PRC entrepreneurs may have to consider adopting a strong service orientation in their marketing efforts to give themselves a competitive edge (Garg and Chan, 1997).

THE ROAD TOWARDS A SERVICE ORIENTATION

The Marketing System

China’s current economy is best described as one of market-socialism. Its private sector has been characterized as cryptocapitalism (Thorelli, 1996). The government takes little interest in end consumers except for price controls and subsidies on rice in the capital and maybe a few other urban areas. End consumers are basically underprivileged and are only slowly gaining some standing relative to sellers and government.

Since firms are doing well enough with their performances, the urge to improve service is not there. Furthermore, firms are unable to measure success or failure of their businesses’ merit because intense demand discourages consumer selectivity (Kaynak, 1982). Innovative service offering is hampered. This kind of a sellers’ market bleeds complacency among businesses and will inhibit the acceptance by PRC entrepreneurs of a more consumer-centered business philosophy.

Of equal importance is a prevailing, yet troubling, management philosophy, which places a strong focus on rapid external growth, and on accumulation of wealth and property. Loosely translated, this means short-term profit over long-term strengthening of strategic competitiveness. This mentality is certainly not conducive to the adoption of a service orientation in maketing (Vanhonacker and Pan, 1993).

Consumer Readiness

Consumers in the PRC may not appreciate the sudden emphasis of a service orientation because many still associate "marketing" with the physical aspects of it. That is, the selling and physical delivery of the product. Not surprisingly, they are relatively less familiar with value-added services, which have by now become part of the basic product offering in western countries. The majority of PRC consumers may not be accustomed to viewing service intangibles as important, though peripheral, elements of the product. These consumers understand the importance of a service orientation in marketing even less.

Customer expectations in China are typically lower than in Western markets. Many of the differences are the result of differences in culture and tradition. Indeed, such fundamental factors as religion, national identity and loyalty, values and customs have been reported as important influencing factors of attitudes and consumer expectations (Bartels, 1967), and relationships between customers and providers (Raymond and Relance, 1996).

Based on anecdotal evidence, one may conjecture that the Chinese do not expect to receive nor do they expect to pay for added values. Western customers have been reported to seek five key determinants in their transactions B reliability (dependence and accurate performance), responsiveness (prompt and helpful service), assurance (trustworthy, instills confidence, knowledgeable and courteous), empathy (can relate to client’s situation), and tangibles (physical environment, promotional materials) (Raymond and Rylance, 1996). Chinese customers, on the other hand, look for one: "Xin@Ckeeping promises and maintaining trust.

"Xin" may be the most valuable philosophy for doing businesses in the PRC. Customers believe that warranties are only as good as the issuers’ trustworthiness. Positive word-of-mouth and a long-term relationship are sufficient marketing tools among Chinese. It would seem logical that if PRC vendors can be made aware that a service orientation is a manifestation of "Xin", more would want to distinguish themselves as what Garg and Chan (1997) have termed "relationship marketers".

Increasing Permeability

The shrinking boundaries between PRC and its neighboring Hong Kong Special Administrative Region (SAR) may have a positive effect on moving China businesses closer towards a service orientation. Today’s PRC customers, especially ones who reside near such metropolitan areas as Beijing, Shanghai, Tianjin, Guangzhou and Chong Qing, or the border city Shengzhen, lead a kind of life that tends to blunt the acute binarism between east and west which earlier generations have had to contend with.

Newly transplanted immigrants from Hong Kong bring about part of this transformation. To combat the exorbitant rent and increasing labor cost in the SAR, many manufacturers from Hong Kong have begun transplanting their production facilities to the PRC even before the changeover. Many managers as well as workers are splitting their time between the mainlan and Hong Kong. Their presence has compelled local marketers to offer a wider and more sophisticated merchandise mix, and to adopt some western-style business approaches. These efforts have hastened the diffusion of western standards and expectations in the PRC.

Increased Availability of Information

Another factor, which may facilitate the adoption of a service orientation, is the increase in information flow. The growing popularity of home phones and mobile phones make the voice of family or co-workers across the ocean just a push-button phone call away. And Hong Kong media could be easily brought into a PRC resident’s living room. In fact, advertising has become one of the fastest growing industries in China in the past decade (Chan, 1995). The total revenue for advertising almost increased by 100% from 1992 to 1993 (China Advertising, 1994).

Armed with more product information, PRC consumers have improved their ability to evaluate products and alternatives. Consumers are becoming more difficult to satisfy. They are also beginning to put more pressure on PRC entrepreneurial businesses to offer value-added service. Soon businesses will recognize that their success and survival may depend upon the delivery of superior service quality (Parasuraman, Berry and Ziethaml, 1991).

The purpose of this study is to get a sense for what PRC consumers expect in terms of western-style services. The authors will also try to compare these findings against those from two western countries.

METHODOLOGY

A survey was undertaken to elicit consumer’s attitude toward advertising, their media utilization patterns and the importance that they place on the service orientation of business. A service orientation is operationalized to be a sample of services commonly provided by companies in the western countries, such as "no-questions-asked guarantees", "formal customer complaint policy and procedures", and "courteous and attentive service".

Sample

The data were collected from 96 Chinese consumers, 59 French consumers and 54 U.S. consumers in the form of personal interviews. Following are profiles of the subjects.

*  The Chinese subjects (96) were disperse in age from 20 to 78, studying or working in a university or local government office. All the subjects had formal undergraduate education and were able to read and write English. None of the subjects had ever traveled abroad. This subset of respondents had a ratio of 62% female to 38% male.

*  The 59 French subjects (31 males, 28 females) were largely faculty and staff of a large private rural university in the eastern part of France. The median age of the subjects was between 33 to 38.

*  The U.S. subjects were graduate students and staff of a large rural eastern U.S. university. There were 34 females and 20 males, with a median age of 28-30.

The Questionnaire

The survey questionnaire was divided into four parts. Part I solicited consumer attitudes toward advertising on 15 scaled items. Part II solicited consumer’s usage rates of different media. Part III solicited consumer’s importance of the service-orientation attributes in their purchase decisionsBthus, contributing to consumer expectations. Part IV sought demographic information about subjects, such as their age, sex and education. For the purpose of this paper, however, only Part III data on service orientation were utilized.

The 15 service-orientation attributes reported in this study were selected from recent studies published in the area of service quality evaluation (Parasuraman, Berry and Zeithml, 1991; Plymire, 1991; Garg and Chan, 1997). The overall Cronbach alpha reliability measure on these 15 items was 0.889. The standardized item alpha was 0.876. Together, this list of attributes appears to provide a clear and adequate measurement of service-orientation dimension.

RESULTS AND ANALYSIS

In order to examine if the factor structures of the three national groups were similar, the total sample was divided by nationality into three subgroups and separate principle component analyses were performed on the data. The factor structures are summarized in Table 1. It is obvious Chinese subjects appear to have less complicated factor structures and tend to place higher importance on the personal, one-to-one type service. Though they are relatively new to western style services, they appear appreciative of personal attention at point of purchase. French and U.S. subjects seem to favor the more formal aspects B such as return policies, stated complaint policies and procedures, and no-question-asked guarantees.

Although the three national subgroups may not have identical factor structures on service orientation, it is important to create a composite factor structure before comparisons across the three national subgroups may proceed. Hence, all 15 items relating to service attributes were re-submitted to a principal component factor analysis with the full data set. The results are reported in Table 2. The top three factors accounting for 69.7% of the variance with a eigen value greater than 1.0 were extracted and rotated using the varimax rotations. The factor loadings indicated the following structure of the three factors extracted. The findings tend to mirror in general the service quality dimensions of the SERVQUAL.

The service attribute items used in this study appear to provide a simpler and clearer measurement of service quality dimensions. As Myers and Alpert (1968) have argued that only a limited set of attributes, labeled as "determinant attributes," play a critical role in determining choice between alternatives. Determinant attributes usually are important to consumers and vary across alternatives. We contend that the simpler set of service attributes used in this survey may be a parsimonious measurement of service quality in general.

Table 3 shows the ANOVA results on the three SERVQUAL-type factors using nationality as a predictor. Nationality was found to be a significant variable in all the service factors indicating strong differences in consumer expectations with regard to tangibles and responsiveness, reliability and assurance, and empathy. Looking at the Student Newman Keuls contrasts, Chinese consumers appear to have lower expectations than their Frenc and American counterparts on tangibles and responsiveness as well as reliability and assurance factors. French and American consumers were not found to be significantly different on these two factors. For the empathy factor, all the three nationality groups were found to be significantly different in their expectations. Student-Newman-Keuls test, a posterior test of contrasts, was considered appropriate here because it is analogous to Bonferroni and/or Schaffe test, but provides more stringent results in cases where the sample sizes are relatively higher.

TABLE 1

FACTOR STRUCTURES BY NATIONALITY

TABLE 2

FACTOR ANALYSIS OF SERVICE ATTRIBUTES (FULL SAMPLE)

TABLE 3

ANOVA ON SERVICE-ATTRIBUTE FACTORS AND NATIONALITY

ANOVAs also were performed using each of the 15 service attributes as dependent variables with respondents’ nationality as a determinant factor. Significant differences in importance scores by respondents’ nationality were found in each of the 15 service orientation attributes. The results of these analyses are reported in Table 4.

As Table 4 shows, Chinese consider majority of the service attributes as unimportant relative to their French and U.S. counterparts. Further examination shows that Chinese consumers tend to regard formal structure in the market as more important. They tend to place higher emphasis on "thank you cards after a substantial purchase" and consider it as more important than the actual "courteous and attentive services" received. As Chinese consumers get more pampered by service providers, these service attributes would become increasingly important.

While the overall results were all significant, Student-Newman-Keuls test shows that the majority of the means were significantly different largely due to the Chinese consumer. This did not come as a surprise, for service expectations are thought to be affected by factors such as, one’s prior experience with the product or service and communications with the referent others (Rao and Kelkar, 1997). Since Chinese consumers have lived in the socialistic economic system, their prior experience with the service attributes so commonly used in western style marketing is extremely limited. Hence, they would tend to place a lower level of importance to the service attributes compared to the French or U.S. consumers.

Similarly, French consumers have been largely familiar with the mixed system of socialism and capitalism; however the growth of services has been largely regulated. Thus, we expect French consumers’ expectations to be significantly lower than those of their U.S. counterparts. This past experience factor can be expected to change for both Chinese and French consumers as their economic systems becomes more market oriented and less regulated.

Another factorCconsumer’s prior experiences with the shoppingCwas investigated using ANOVA. Consumers’ shopping behavior was measured using a question, "how often do you shop", on a three-point scale labeled as: Frequently, Occasionally and Never. Prior shopping experience and nationality were then used as covariates in separate analyses. In both of these cases, prior-shopping experience was found to be insignificant across the three cultural groups, while the nationality variable was always significant. The same results were found on analyses of the three service-attribute factors as well as when the attributes were considered individually.

It appears that prior shopping behavior did not affect consumer expectations in our study. This may suggest that marketing activities in China has not gone over the inertia threshold. It may take some time before PRC consumers will begin to see value added services commonly associated with most products sold in China that they will come to expect these attributed as basic requirements.

IMPLICATIONS FOR MARKETERS

While this study has found some useful cultural differences in expectation of a service orientation, the authors recognize that small sizes of subgroups and their homogenous compositions may render the results not genealizable to the national populations from which the three samples were drawn.

Limitations notwithstanding, this study is cautioning PRC entrepreneurs that they cannot remain "movers of merchandise". It suggests that services may be the next strategic unique selling position to appeal to Chinese customers (Bennett, 1990; McDermott, 1990; Sellers, 1990). Obviously, companies, which aren’t adding value in their service, are missing out on a chance to improve their competitiveness. The key is to move towards becoming a "relationship marketer". Figure 1 outlines the "ABC" for narrowing the service gap. Needless to say, these dimensions are very much inter-related.

Acknowledge excellence in service. One of the most important decisions affecting PRC managerial performance is how to balance the profit-maximization business philosophy. The mentality to go for short-term profit rather than long-term gain sends the wrong message to employees. To move towards a service orientation, companies must instill the right attitude in their employees.

The use of sales quotas as performance goals may have to be abolished. Fair and reasonable as these quotas may be, they go against the philosophy of a service orientation. Incentives should be tied, at least in part, to customer retention. Subjective standards should be avoided at all costs. Instead, insist that standards be measurable, but realistic and customer-focused.

TABLE 4

ANOVA ON SERVICE ATTRIBUTES AND NATIONALITY

FIGURE 1

THE SERVICE ORIENTATION MAP

Public recognition is an important form of nonmonetary extrinsic reward for many employees. Moreover, public recognition sends a clear message of management’s commitment to service excellence and can motivate all employees, not just the selected performers.

When employees find their jobs intrinsically rewarding, they will be more motivated to learn how to do them better. Firms should share customers’ communication, both positive and negative, with employees. Asking the target employees themselves to answer such correspondence with a thank-you note or apology letter, depending on the polarity of the customer communication can enrich this experience. Of course, this would necessitate requiring that employees put their personal stamps on all transactions. The approach is actually an effective way to eliminate anonymity and help ensure quality in the first place.

Build goodwill before problems arise. Having an image for "treating the customer right every time" can be built into a powerful preemptive marketing pool. The goal is to reduce the number of customer defections even before they happen. The key is to focus on creating a perceivable advantage in your performance versus your competitors.

Put your employees to good use, for they are closer to customers and in better position to satisfy their needs. Empower them with more authority to handle customer inquiries, and give them greater opportunities to contribute to their firm’s success. The first step is to review the approval process and remove any unnecessary or insignificant formalities. Often managers will find that errors are reduced and service improved because employees feel personally responsible for the decisions. The next step is to make sure that their current compensation systems are indeed rewarding what a service-oriented firm and its customers need. Employees cannot be expected to sacrifice their livelihoods for the customers’ sake.

But we caution against putting too much stock in haphazard remedies. Many businesses that find they aren’t service-oriented may try to implement changes before every group within their organizations has been comprehensively "aligned" with the new direction. This kind of window-dressing treatment will often only mask the problem and prolong the cure.

Communicate your new commitment regularly to your customers as well as your employees. The concept of service orientation is intangible. Firms must learn to "manage the evidence" of this commitment. That is to say firms must put physical evidence of a service image that customers and can see (Gale, 1994). Some of the specific service features discussed in this study will be a good place to start.

Another reason for more frequent communication is evidenced in PIMS studies. Their reports show that advertising usually improves relative-perceived quality and, by doing so, increases profitability. In fact, Gale (1996) has shown a strong positive correlation between spending a larger portion of the sales dollar than competitors on advertising and achieving high perceived quality. It may be interpreted to mean that just having a service orientation is not enough. A firm must also use a louder "share of voice" to make people take notice of what it has accomplished.

CONCLUSION

The notion that a service orientation in marketing is as close to a rightful expectation rather than just a privilege continues to elude the average Chinese consumer in the PRC. But as consumers in the PRC become more sophisticated in their buying patterns, and multinational corporate giants continue to aggressively target PRC markets with more choices, local businesses must learn to focus on creating and retaining customers by "surprising" them with value-added services.

In seeking long-term profitability and survival, PRC companies will be wise to build relationships with their customers. The time has come for PRC entrepreneurs to begin establishing and managing expectations of service delivery.

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