Customer Loyalty

CUSTOMER LOYALTY : THE CASE OF MOBILE PHONE USERS IN UNIVERSITI UTARA MALAYSIA Prepared by

Meguellati Achour Pn. Nor Pujawati Md. Said Dr. Ali Boerhannueddin

Abstract Service quality, switching barriers, and brand image are the major antecedents of customer loyalty, and loyal customers may buy more, accept higher prices and have a positive word-ofmouth effect. Also we know that the cost of selling to new customers is much higher than the cost of selling to existing customers, also the cost of attract new customers is much higher than the cost protect existing customers ten times. Although this fact is apparent to everyone, many companies are still losing customers at a formidable rate. In this context the main aim of this research is to examine the relationships between these factors and customer loyalty in the Universiti Utara Malaysia sector. Based on the theoretical model, a comprehensive set of hypotheses were formulated and a methodology for testing them was outlined. These hypotheses were tested empirically by questionnaires to demonstrate the applicability of the theoretical model. The results indicate that service quality, switching barriers, and brand image are separate constructs that combine to determine the loyalty, with service quality and switching barriers exerting a stronger influence than brand image. Finally hypotheses H1, H2 were supported, while hypothesis H3 was rejected. Keywords: Customer Loyalty, Brand Image, Switching Barriers, Service Quality, Mobile Telecommunication

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Introduction

Attract customers and satisfy them has become a hot issue and expresses present of organizations and the reason of its existing. Customer loyalty has become more important as rapid technology changes in telecommunications. Your customers know what is available elsewhere. They may know other locations, and they may be willing to travel far for a bargain. A critical issue for the continued success of organizations is its capability to retain its current customers and make them loyal to its brands (Dekimpe et al., 1997). Loyal customers build businesses by buying more, paying premium prices, and providing new referrals through positive word of mouth over time (Ganesh et al., 2000). Loyalty research in services is an important area to study (Gremler, 1995). In fact, companies in telecommunications are losing 2-4 percent of their customers monthly; disloyal customers can amount to millions of lost revenue and profit. For example 20% of customers of the mobile phone operator orange defect each year and, on average it cost orange £256 in 1996 to recruit each new customer, reflecting the cost of introductory offers, subsidized phones and advertising. With almost a million customers, therefore, reducing the churn rate from 20% to 10% would bring about annual savings of over £25 million (Palmer, 1998). In the same way, studies conducted in the financial services industry show that increasing customer retention (or customer loyalty) by 5 percent could lead to 25-75 percent profit growth (Chan et al., 2001, p. 5):

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Especially in telecommunications services, it is frequently pointed out that once customers have been acquired and connected to the telecommunications network of a particular operator; their long-term relations with the focal operator are of greater importance to the success of the company in competitive markets than they are in other industry sectors (Gerpott et al., 2001). In case of Malaysia many studies have done about customer loyalty in several services. According to Nilson (2007) reported that in study applied on a sample 220 bank customers in Malaysia. Multiple regression analysis assessed the impact on customer loyalty of four key constructs of relationship marketing (trust, commitment, communication and conflict handling). The findings of this study – The four variables have a significant effect and predict a good proportion of the variance in customer loyalty. Moreover, they are significantly related to one another. Also Chang Ee Ling and Ernest (2009) in study - Satisfaction and Loyalty: Customer Perceptions of Malaysian Telecommunication Service Providers- by utilizing a two-part research method. The first part utilized an in-depth interview method to obtain variables used in the second part of the study. The second part consisted of a questionnaire distributed to 125 respondents. A factor analysis is also carried out. Findings indicate that important variables for satisfaction included, supporting services, product (handy, reliable coverage, friends and family lines) and promotional efforts of the firm; while for loyalty, they refer to convenience, services, satisfaction and cost. The findings indicate that telecommunication service providers should look beyond price wars to keep their customers satisfied and loyal. As market growth slows or as markets become more competitive, firms are more likely to attempt to maintain their market share by focusing on retaining current customers. . In this context the main objective of this research is to

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examine the relationships between customer loyalty and service quality, switching barriers and brand image at Universiti Utara Malaysia sector, and there are three specific objectives of this research-1- To determine the relationship between service quality and customer loyalty, 2- To determine the relationship between switching barriers and customer loyalty, and 3- To determine the relationship between brand image and customer loyalty. This research tries to answer following questions: •

What is the relationship between service quality and customer loyalty?

•

What is the relationship between switching barriers and customer loyalty?

•

What is the relationship between brand image and customer loyalty?

The Importance of Research Customer loyalty is about retaining customers, which means earning more. Various researches have already shown that companies need to focus on customer retention more than grabbing new customers. It is more difficult retaining a customer than it is getting a new one (Mayank, 2001). Increasing competition in the global market of production and distribution of goods and services, as well as challenges of globalization created difficulty in obtaining customer, so, therefore, the organizations become more care, satisfaction, maintain, and make more loyal for customer to the organization. Building loyalty to the company is very important, also is not just simple function for department of marketing, but is philosophy and a way of thinking for how attract customers and how satisfaction them even loyalty, and this is responsibility of all staff in organization.

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Literature Review The description of the research already introduced, in literature review will focus on the discussion and ideas in previous studies related to customer loyalty and the factors that affecting on it. There are several definitions of customer loyalty. Customer loyalty is defined as a customer who repurchases from the same service provider whenever possible, and who continues to recommend or maintains a positive attitude towards the service provider (Bloemer et al. 1999, Gremler and Brown 1999, Shoemaker and Lewis 1999, Kandampully and Suhartanto 2000). According to Wong and Sohal (2003a) customer loyalty appears to consist of three separate dimensions, namely, the behavioral, attitudinal and cognitive dimensions. Customer loyalty has been generally described as occurring when customers: 1- repeatedly purchase goods or service over time, and, 2- hold favorable attitudes towards goods or service, or towards the company supplying the goods or service (Wong and Sohal, 2003b). Customer loyalty has been studied for several decades by marketers but it is not a well understood phenomenon (Gremler, 1995). Furthermore, there is no consensus on the most appropriate way to measure loyalty. Three groups of studies reflect both the major approaches to defining and/or measuring customer loyalty and the limitation of these approaches. These three groups are: (1) loyalty as repeat purchase behavior (e.g., Liljander and Strandvik, 1993), (2) a composite approache of repeat patronage combine with an attitudinal component (e.g, Dick and Basu, 1994), and (3) a psychological state of loyalty (e.g, Czepiel, 1990a). The first approach is to treat loyalty as either actual purchase behavior or repeat purchase intentions. This approach has long been criticized for leading to spurious loyalty (Day, 1969) while the

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composite approach lacks theory (Jacoby and Chestnut, 1978). Customers may be loyal due to high switching barriers or lack of real alternatives. Customers may also be loyal because they are satisfied and thus want to continue the relationship. History has proven that most barriers to exit are limited with regard to durability; companies tend to consider customer satisfaction the only viable strategy in order to keep existing customers. Several authors have found a positive correlation between customer satisfaction and loyalty (Bearden, Teel et al. 1980; Bolton and Drew 1991; Fornell 1992; Anderson and Sullivan 1993). Customer loyalty is a buyer’s overall attachment or deep commitment to a product, service, brand, or organization (Oliver, 1999). Customer loyalty fall into two broad categories: the behavior and the attitude. As a behavior, customer loyalty has been measured as the longterm choice probability for a brand, including hard-core loyalty, repeat purchase probability. Attitudinal approaches focused mainly on brand recommendations, resistance to superior products, repurchase intention, and willingness to pay a price premium. Oliver, (1999) defines loyalty as a deeply held commitment to re-buy product/service consistently in the future, thereby causing repetitive same brand or same-brand set purchasing. The customer attitude toward a service or product (brand) including attitudinal preference and commitment has a greater impact on forming loyalty (Goodwin and Gremler, 1996) cite quality in a relationship as a necessary element in defining loyalty. Earlier studies of factors affecting on customer loyalty usually set the focus on customer satisfaction and the switching barrier (e.g., Dick & Basu, 1994; Gerpott, Rams, & Schindler, 2001; Lee & Cunningham, 2001). Customers experiencing a high level of

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satisfaction are likely to remain with their existing providers and maintain their subscription. However, according to some research, customer satisfaction, while positively influencing customer loyalty, is not always a sufficient condition, and, in some cases, fails to produce the expected effect. Hence, these researchers suggest that it is necessary to analyze other potentially influential factors. It is in this context that the concept of the switching barrier was proposed (Jones, Mothersbaugh, & Betty, 2002). From all previous studies about customer loyalty and the factors that affecting on it such as service quality, switching barriers, and brand image, all researchers gave several definitions of customer loyalty, each definition expect type of product or service, but there are some things are similarity between their definitions as, repeatedly purchase a goods or service over time; and hold favorable attitudes towards a goods or service, or towards the company supplying the goods or service. But the deference between their definitions are the factors that affecting on customer loyalty for example the factors that affecting on loyalty to cars are deferent the factors that affecting on loyalty on mobile phone or any product that consume it daily, monthly or yearly, as mentioned by (Jun and Bin, 2005).

Factors affecting on customer loyalty The customer loyalty is characterized by repurchasing and not transferring by the fluctuation of the market. There are many factors that affect the customer loyalty. In the telecommunication industry, according to opinions of the experts and literatures previous studies, the effects of customer loyalty can be assessed in these aspects: service quality,

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switching barriers, and brand image "the customers’ switching cost requirement, quality requirement and service requirement for the telecommunication business" (LI Li, 2005).

Service Quality and Customer Loyalty Service quality in telecom industry is an important indicator to assess a company’s performance. Service quality in the telecommunications has mainly been researched on the technical and/or on corporate strategies (Douligeris & Pereira, 1994; Gruber, Abdou, Richards, & Williams, 1986; Jung, 1996a; 1996b; Lim, Widdows, & Park, 2006; Lynch, Buzas & Berg, 1994; Takahashi, 1988). Due to the inherent intangibility, inseparability, heterogeneity and perishability of characters, service quality can be defined as a consumer’s overall impression of the relative efficiency of the organization and its services. The dominant conceptualization and measurement of service quality has been SERVQUAL instrument developed by Parasuman et al. (1988). SERVQUAL was identified determinants of perceived quality and indicated by the arithmetic differences between customer expectations and perceptions across the 22 measurement items. Using factor analysis, SERVQUAL further is condensed into tangible, reliability, assurance and empathy dimensions, which are generic across service contexts. However, a number of authors investigated the number of dimensions and stability of items across different industries by empirical tests. They conclude that the five component factor structure is not confirmed in any of the research samples. This implies that service quality attributes are context-dependent and should be selected to reflect the service environment investigated Cronin et al (1992, 2002) criticized SERVQUAL’ poor reliability and argued that

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expectation is neither sufficient nor necessary condition, therefore identified a performance-only measurement, called SERVPERF instrument. The results of existing studies on service quality suggest that the definitions of service quality in mobile telecom setting are quite diverse, and do not seem to fit any single existing quality model. In this study, for the sake of brevity, modified SERVPERF instrument has been adapted for mobile telecom industry (Zhijian Huanl, et, al, 2005).

The Switching Barriers and Customer Loyalty The switching barrier refers to the difficulty of switching to another provider that is encountered by a customer who is dissatisfied with the existing service, or to the financial, social and psychological burden felt by a customer when switching to a new carrier (Fornell, 1992). Therefore, the higher the switching barrier, the more a customer is forced to remain with his or her existing carrier. According to a previous study, the switching barrier is made up of switching cost, the attractiveness of alternatives, and interpersonal relationships. Switching cost means the cost incurred when switching, including time, money and psychological cost. (Jackson, 1985) categorized switching costs as psychological, physical, and economic in nature. In addition to objectively measurable monetary costs, switching costs may also pertain to time and psychological effort involved in facing the uncertainty of dealing with a new service provider. According to (Burnham’s, 1998) review and typology, switching costs were broadly grouped into three categories: procedure, financial and relational, Attractiveness of alternatives means the reputation, image and service quality of the replacing carrier, which

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are expected to be superior or more suitable than those of the existing carrier. Interpersonal relationship means a psychological and social relationship that manifests itself as care, trust, intimacy and communication. Switching barriers lock customer in his initial decision, which entail to market power to service supplier. Thus, suppliers can hinder his customer to churn to his rival for relative low price and can segment and discriminate its customer with different willing to pay. No matter how, suppliers can exploit his customer. Switching barriers can deteriorate offensive "fir" interest in acquisition of new customer campaign because firm must pay off extra to compensate it, which no exist in market without switching barriers. (M-K, Kim, 2004), so, Switching cost means the cost that consumers pay when they shift to use products and service of other operators. It includes not only the study cost that consumers pay to familiarize the service of other operators but also the cost of sacrificing the original phone number value and accumulated scores of service (Liang, et al, 2005). Switching costs are partly consumer-specific (Shy, 2002). For this reason, a switching cost can be seen as a cost that deters customers from demanding a rival firm’s brand. The economic or financial switching cost is a sunk cost which appears when the customer changes his/her brand, for example the costs of closing an account with one bank and opening another with a competitor, the cost of changing one’s long-distance telephone service (Klemperer, 1987) or the costs of changing one’s GSM operator.

Brand Image and Customer Loyalty Oliver (1999) proposes that eventual customer loyalty is a role of perceived product superiority, personal fortitude, social bonding, and their synergistic effects. Further

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analysis of Oliver’s discussion tend to suggest not that loyalty is commitment, but that loyalty is an aspect of commitment called attitudinal or emotional component of commitment (Meyer and Allen, 1991, 1997; Meyer et al., 1993; Ogba, 2008).A brand’s image often influences a customer’s expectations and consequently satisfaction with a product or service. Brand image pertains to the perception or mental picture a customer holds of a brand and is formed through his/her response, whether reasoned or emotional, an organization's image is an important variable that positively influences marketing activities. Image is considered to have the ability to influence customers' perception of the goods and services offered (Zeithaml and Bitner, 1996). Thus, image will have an impact on customers' buying behavior. The objective is to arouse a positive affective response to the brand in the customers, such that they buy brands for their physical attributes and functions, and their symbolic meanings associated with the brand, product or service. During its formation, the customer’s experiences, feelings and trust will influence the image. (Nguyen and Leblanc, 2001) claim that corporate image is related to the physical and behavioral attributes of the firm, such as business name, architecture, variety of products/services, and to the impression of quality communicated by each person interacting with the firm’s clients.

From the marketing literature of goods we have learned that brand reputation has been defined as a perception of quality associated with the name (Aaker and Keller 1990). Corporate image in the service marketing literature was early identified as an important factor in the overall evaluation of the service and the company (Grönroos, 1984); (Gummesson and Grönroos, 1988); (Bitner, 1991). Apart from image as a function of

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accumulation of purchasing/consumption experience over time, most organizations also provide complex and noisy informational environments (e.g. advertising, direct marketing, or PR) in order to attract new and keep existing customers. In the Perceived Quality Model (Grönroos 1988) perceived quality is a function of expected quality (generated from market communication, image, word-of mouth, and customer needs) and experienced quality (generated from technical quality and functional quality). Mobile Telecommunications markets can be divided by the type of services provided and by the telecommunications network used (Gerpott et al., 2001).

Hypotheses and structural model H1: Service Quality has positive impact on customer loyalty. H2: Switching Barriers has positive impact on customer loyalty. H3: Brand Image has positive impact on customer loyalty.

Service Quality

Custome r Loyalty

Switching Barriers

Brand Image

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Methodology:

This study involved a survey of users of a mobile phone service in North University of Malaysia. The methodology comprises six majors' topics areas. These topics are research design, population; sample size and sample method, hypothesis of the research, questionnaires design, analysis method and result of reliability. There are two types of customer loyalty-for company and for product. This research focusing customer loyalty for product, and also will focus on three factors such as service quality, switching barriers, and brand image. For that considered three hypotheses for determine the relationship between those factors and customer loyalty, furthermore the customer loyalty is dependent variable, and other factors are independents variables. The questionnaires was pre-tested with twenty users of mobile phone consist of staff and students at North University of Malaysia. The purpose of the research was explained to the users of mobile phone in an effort to facilitate user’s feedback, suggestions, and answering about the questions. The users suggested that some words in the questions were not clear and straight forward. Except for these comments, the results of the pretest indicated that, overall, the questions are realistic, clear, and easy to follow. After the pretest, unclear words and sentences were revised.

Population of this research is the staff and student’s users of mobile phone in North University of Malaysia (UUM). The population size is 28790 users. Based on Sekaran (1992), therefore sample size of this research is 378 users. However only 150 have valid responses were obtained. The no-probability sampling was used and the sampling method

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used is convenience sampling. Convenience samples are the most common form of sampling design in social science research (Mohr, 1990) and provide researchers with an acceptable database to use statistical inference techniques. This approach to sampling design is also common in services marketing. The questionnaires were distributed at the library and the student’s Affairs Department where students are likely to gather foyer between classes. There are two main sections in the questionnaires, the first section- the demographic characteristics of the respondents. These characteristics are: age group, gender, highest level of education, marital status, and the career. The second section of the questionnaires is the dependent variable- customer loyalty, and three independent variables- service quality, switching barriers and brand image. There are thirty five questions in this section, eight questions for customer loyalty, eleven questions for service quality, eight questions for switching barriers, and eight questions for brand image. The constructs in the demographic were measured using a multiple-item measurement scale. Measures for independent and dependent variables used a five-point Likert-type response format, with “strongly disagree” and “strongly agree” as the anchors. The users recorded their assessment of the items on five-point Likert-type scales (1= strongly disagree, 2= disagree, 3= neutral, 4= agree, 5= strongly agree). The descriptive analysis of the variables customer loyalty, service quality, switching barriers, and brand image in this research used three hypotheses for test to assess the relationship between the independent variables and dependent variable. The correlation is one of the most common and most useful statistics. A correlation is a single number that

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describes the degree of relationship between two variables. In this research it described the degree of relationship between all independent variables and dependent variable. Regression analysis is a statistical tool for the investigation of relationships between variables. The goal of regression analysis is to determine the values of parameters for a function that cause the function to best fit a set of data observations that you provide. In this research to determine the relationship between customer loyalty and service quality, the relationship between customer loyalty and switching barriers, also the relationship between customer loyalty and brand image.

Reliability Results

The result of reliability is as tabled below: Table 1.1: Reliability Results Number Variables Independent Variables • • •

Service Quality Switching Barriers Brand Image

of item

Alpha

Std. D

Mean

11 8 8

.785 .757 .810

4.919 5.551 4.505

40.24 29.30 28.00

8

.778

5.210

27.47

Dependent Variable •

Customer Loyalty

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The reliability test was conducted. Coefficient Cronbach’s Alpha is a measure of reliability or internal consistency. A value of Cronbach’s Alpha of .50 or above is consistent with the recommended minimum values stated by Nunnally (1967). Cronbach’s alpha indicating reliability for each factor: customer loyalty: .778, service quality: .785, switching barriers: . 757, brand image: .810. Therefore the research results can be accepted as related by Nunnally (1978).

Findings

Demographic variables The respondents are male (43.30%) and female (56.7%)., their age vary from 18-25 years (84.0%), 26-35 years (10.0%), 36-45 years (4.0%), and others are (0.7%), in marital status single (84.7%), and married (15.3%). In terms of the education level of the respondents were high school (24.7%), diploma (9.3%), degree (54.7%), and postgraduate (10.7%). The sample consists of students (87.3%), staff (12.0%) and lecturers (0.7%). All results are in the table bellow:

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Table 1.2: Demographic Results

18-28

Frequency 126

Percent (%) 84

26-35

15

10

36-45

6

4

Gender

46 and over Female

3 85

0.21 56.7

Education level

Male High School

65 37

43.3 24.7

Diploma

14

9.3

Degree

83

54.7

Marital Status

Postgraduate Single

16 127

10.7 84.7

career

Married Student

23 131

15.3 87.3

Staff

18

12.0

Lecturer

1

0.7

Age

Correlation analysis

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Table 1.3: Correlation Matrix Customer Loyalty

Service Quality

Switching Barriers

Brand Image

Variables 1 Customer Loyalty Service .561** 1 Quality Switching .516** .718** Barriers Brand .382** .610** Image **. Significant at the 0.01 level (2-tailed)

1 .599**

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Table 1.3 exhibits the correlation coefficients between all variables. All independent variables are correlated significantly customer loyalty. The correlation is significant at the 0.01 level (2-tailed). The criterion used for the level of significance was set a priori. The relationship must be at least significant at **P≤ 0.01. Table 1.3 shows that there is significant correlation between customer loyalty and service quality, (r=0.561, p=0.000