Luận văn thạc sĩ UEH effects of negative and positive switching barriers to customer satisfaction and customer retention, a study of mobile service users in vietnam

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY ---oOo--- PHAM THANH LONG EFFECTS OF NEGATIVE AND POSITIVE SWITCHING BARRIERS TO CUSTOMER SATISFACTION AND CU

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY

-oOo -

PHAM THANH LONG

EFFECTS OF NEGATIVE AND POSITIVE SWITCHING BARRIERS TO CUSTOMER SATISFACTION AND

CUSTOMER RETENTION

A STUDY OF MOBILE SERVICE USERS IN VIETNAM

MASTER OF BUSINESS ADMINISTRATION THESIS

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY

-oOo -

PHAM THANH LONG

EFFECTS OF NEGATIVE AND POSITIVE SWITCHING BARRIERS TO CUSTOMER SATISFACTION AND

CUSTOMER RETENTION

A STUDY OF MOBILE SERVICE USERS IN VIETNAM

Major: Business Administration Major Code: 60.34.05

MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisor: DR TRAN HA MINH QUAN

Ho Chi Minh City – 2011

ACKNOWLEDGEMENT

This thesis is the result after several months of work in which I have been accompanied and supported by many people It is fantastic that I now have the opportunity to express my gratitude and sincere thanks all of them

The first person I would like to thank is my direct supervisor Dr Tran Ha Minh Quan During these years I have known him to be a sympathetic and principle-centered person I owe him a lot of gratitude for having shown me this way of research

I would like to express my sincere gratitude to all of my teachers at Faculty of Business Administration and Post-graduate Faculty, University of Economics Ho Chi Minh City for their teaching and guidance during my MBA course

I would like to specially express my thanks to all of my classmates, my friends from for their support and encouragement

I am deeply and forever indebted to my parents and my wife, Hong Thao, for their continuous love, support and encouragement dedicating to me For their never-ending support and the sense of security they have given when I wanted it most I dedicate this thesis to them

ABSTRACT

Customer retention is a concept getting more and more attention in business nowadays

as loyal customers are considered as vital components to organizational success

Companies today strive to identify and manage effective methods to retain their customers as many as possible Even though some research papers have been published globally on service sectors, including mobile telecommunication services, very limited studies have been conducted on this subject inside Vietnam

Many studies show that customer satisfaction is related to customer retention However, customer satisfaction is not enough to provide explanation to customer retention because in a lot of cases, customers are not freely to choose or switch between suppliers

There are different types of constraints identified as switching barriers have effect to customer satisfaction and customer retention Some previous studies investigated the impact of switching barriers as a uni-dimensional concept and it has mediating effect to the linkage between customer satisfaction and customer retention Just a very few studies went further to divide switching barriers into ‘positive elements’ and ‘negative elements’ and tested both in the same model separately In this study, our first objective

is to prove the role of switching barriers that influence customer retention in mobile telecommunication service and classify them into positive and negative category

Secondly, we will use a path analysis of the empirical data in Vietnam to examine the impact of these 2 different categories into customer satisfaction and customer retention

Keywords: Customer retention, purchase retention, customer satisfaction, switching

barrier, customer loyalty, mobile service

Acknowledgement ……… i

Abstract ……… ii

Contents ……… iii

Lists of Tables ……… v

Lists of Figures ……… vi

CHAPTER 1: INTRODUCTION ……… 1

1.1 Background ……… 1

1.2 Problem definition and research questions ……… 2

1.3 Research purpose ……… 3

1.4 Research limitation ……… 3

1.5 Organization of the thesis ……… 4

CHAPTER 2: LITERATURE REVIEW ……… 5

2.1 Customer satisfaction ……… 5

2.1.1 Defining customers and customer purchasing process ……… 5

2.1.2 Concept of customer satisfaction ……… 6

2.1.3 Determinants of Customer satisfaction ……… 9

2.1.4 Customer satisfaction measurement model ……… 11

2.2 Customer retention ……… 14

2.3 Switching barriers ……… 18

2.4 Positive and negative switching barriers ……… 23

2.5 Proposed research model and hypotheses ……… 25

CHAPTER 3: RESEARCH METHODOLOGY ……… 27

3.1 Research purpose ……… 27

3.2 Research Approach ……… 28

3.3 Sampling ……… 28

3.3.1 Sampling technique ……… 28

3.3.2 Sampling size ……… 29

3.4 Data collection procedure ……… 29

3.5 Measurement ……… 30

3.6 Pilot testing ……… 31

3.7 Data analysis method ……… 33

CHAPTER 4: DATA ANALYSIS AND FINDINGS ……… 36

4.1 The questionnaire ……… 36

4.2 Descriptive result ……… 36

4.3 Accessing reliability and validity of collected data ……… 39

4.4 Accessing model fit ……… 42

4.5 Testing hypotheses and answering research questions ……… 44

CHAPTER 5: RESEARCH IMPLICATIONS ……… 47

5.1 Conclusion ……… 47

5.2 Implications for management ……… 47

5.3 Implications for theory and future research ……… 48 REFERENCE

APPENDIX 1: QUESTIONNAIRE (ENGLISH AND VIETNAMESE) APPENDIX 2: STATISTICAL RESULT, PILOT STAGE

APPENDIX 3: STATISTICAL RESULT, MAIN RESEARCH

LISTS OF TABLES

Table 3.1 Cronbach’s alpha result – Pilot stage ……… 32

Table 4.1 Age statistics of respondents ……… 36

Table 4.2 Education Background statistics of respondents ……… 37

Table 4.3 Occupation statistics of respondents ……… 37

Table 4.4 Monthly income statistics of respondents ……… 38

Table 4.5 Living city/town Statistics of respondents ……… 38

Table 4.6 Mobile network statistics of respondents ……… 39

Table 4.7 Cronbach’s alpha value – Main research stage ……… 39

Table 4.8 Table KMO and Bartlett's Test ……… 40

Table 4.9 Total Variance Explained by EFA ……… 41

Table 4.10 Rotated Component Matrixa by EFA ……… 42

Table 4.11 CMIN value calculated by AMOS ……… 43

Table 4.12 RMSEA value calculated by AMOS ……… 44

Table 4.13 Standardized Regression Weights of path model calculated by AMOS 45 Table 4.14 Non-standardized Regression Weights of path model ……… 46

LISTS OF FIGURES

Figure 1.1 Research organization ……… 4 Figure 2.1 Components of ACSI Model ……… 12 Figure 2.2 Components of ECSI Model ……… 13 Figure 2.3 Affecting role of switching barriers, both mediating and direct to

Figure 2.4 Mediating role of switching cost to both customer value – customer

loyalty and perceived satisfaction – customer loyalty linkage ……… 20 Figure 2.5 Research model used in this thesis to investigate relationship among

switching barriers, customer satisfaction and customer retention …… 25 Figure 4.1 Path diagram with regression weights calculated by AMOS ………… 43

It has been figured out by previous researchers that as markets become more competitive, firms are more likely to try maintaining their market share by focusing

on retaining current customers It’s also obvious that when competition and the costs

of acquiring new customers increase, companies will be more concentrated their strategic efforts on customer retention, therefore to maintain customer long-term relationships becomes as a critical mission for business Especially in the field of telecommunications services, it has been pointed out that once customers have been acquired and connected to the telecommunications network of a particular operator, their long-term links with the focal operator are of greater importance to the success

of the company

By having this in mind, customer retention is critical in the mobile service since operators lose about 30 percent or more of their subscribers every year and have large customer acquisition expenditures It is very important to stress that mobile operators need to develop well-designed programs to increase customer retention (Lee, 2001)

As a result, many studies were conducted in this critical issue They developed and

estimated different dynamic models to explain and measure the determinants, different factors and influencers of customer retention

1.2 Problem definition and research questions

Nowadays the Telecommunications industry, like many of other ones, faces both the difficulties of increasing national and international competition, slower growth rate and saturated market As a result, fewer new customers are being pursued by an increasing number of service providers Under this circumstance, a large scale of firm’s resources must be definitely devoted to the present customers in order to make them more satisfied and retain them

One important point of customer retention is its close relationship to the company’s continued survival, and to strong and stable future growth Therefore, for a company

to maintain a stable profit level and the subscription level has reached the saturation point, a defensive strategy which strives to retain existing customers is more important than an aggressive one, which expands the size of the overall market by inducing potential customers

Many studies show that customer satisfaction is related to customer retention, but only customer satisfaction is not enough to explain customer retention in all circumstances since customer rarely has the chance to freely choose suppliers

Actually, there are different types of constraints, together with customer satisfaction, determine customers choice of supplier (Fornell, 1992) In this study, such constraints are termed switching barriers Only a few empirical studies investigate how various types of switching barriers affect satisfaction with suppliers, customer retention and the relationship between variables It has been pointed out, that customers remain loyal to a supplier either because they want to or they have to (Ping, 1993) High switching barriers mean that customer have to stay (or perceive that they have to) with suppliers, regardless of the satisfaction created in the relationship

The research questions that are discussed in this thesis are as below:

Question 1: Can switching barriers be separated into negative and positive factors?

Question 2: How do positive switching barriers have impact to customer satisfaction and customer retention in mobile telecommunication service in Vietnam?

Question 3: How do negative switching barriers have impact to customer satisfaction and customer retention in mobile telecommunication service in Vietnam?

1.3 Research purpose

In this thesis, a model of determining customer retention in Vietnam mobile service market will be developed and then applied in order to recognize its influencers and hopefully can help service providers to increase their customer retention rate

The research model defines customer satisfaction, positive switching barrier and negative switching barrier as main determinant of customer retention Switching barrier will not be tested as a uni-dimensional factor that has impact to either the customer satisfaction or customer retention or act as a mediating role in the linkage between customer satisfaction and customer retention In this thesis, both positive and negative effects of switching barriers are tested in the same model and we will investigate their impact to customer satisfaction and customer retention separately

1.4 Research limitation

This thesis would be an opening base to further researches in related area in other service sectors, but in other hand it may have some limitations There are other factors that can influence customer retention, apart from factors suggested in this thesis such as: demographic characteristics of customer, customer’s usage pattern of mobile service, etc are not studied in this research

1.4 Organization of the thesis

This thesis includes 5 chapters The first chapter provided a brief overview of the importance of this area of research and introduced research questions Chapter Two provides a review of the literature relevant to customer satisfaction, customer retention and the common understanding about customer satisfaction and customer retention relationship, a review of different variables of switching barriers and how they are classified into positive and negative factor, a review of impact of switching barriers into customer satisfaction and customer retention In this Chapter, the proposed model and hypotheses are introduced Next, Chapter Three will present all aspects of the research method, including pilot testing phase, that was applied in this thesis Chapter Four discusses characteristics of the sample, the measurement of key constructs and the result of path analysis of the proposed model Finally, the implication of this study that may be applied for management, theory and future research are discussed in Chapter Five

Chapter 1: Introduction

Chapter 2: Literature review

Chapter 3: Research Methodology

Chapter 4: Data analysis and findings

Chapter 5: Research implications

Figure 1.1 Research organization

CHAPTER 2

2.1 Customer satisfaction

2.1.1 Defining customers and customer purchasing process

The term “customer” is commonly used to refer to end-users of a product or is a generic term referring to anyone who receives a service or product from some other person or group of people More broadly, there are internal and external customers, where internal customers refer to the staff or employees and external customers refer

to stakeholders of an organization Within the external customer group, there are many types such as: clients, consumers and constituents It is important to identify the types of customer who are surveyed when studying customer satisfaction results

In this study, the concerned customers are the individual consumers/users who subscribe mobile services of any operator in Vietnam

Researchers suggest that customers go through a five-stage decision-making process

in most purchasing situations: need recognition and problem awareness, information search, evaluation of alternatives, purchase and post-purchase evaluation (Kotler and Keller, 2006) In service sector, Lovelock and Wirtz (2007) provided a three-stage model of service consumption including: pre-purchase service, encounter stage and post-enter stage

• Pre-purchase: This stage includes three main components First is need

awareness, information search where needs are clarified Second is solutions explored and suppliers and alternative service products are identified by customers And finally, last stage is an evaluation of alternative solutions and suppliers for a decision on service purchase This stage is affected by the

consumer’s search for certain service attributes and the perceived risk and expectation of consumer

• Service-encounter: This stage involves a request from chosen supplier of

which payment will be billed latter It also includes service delivery by personnel or self-service It is the moment of truth as the service has already been experienced by customers

• Post-encounter: This stage involves an evaluation of the performance of the

service and its effect on future intentions It is this stage that satisfaction and dissatisfaction happen and whether to remain loyal or not is taken by customers

In the mobile telecom market, when a customer buys a SIM card and activates it, he/she immediately becomes a subscriber to the service operator The decision to purchase and the decision making process are very significant to consider since they have significant effect on customer satisfaction, re-purchasing, and ability to recommend service to others and switching intentions This value exchange process continues when customers continue to receive or consume services from the mobile network and even participate in the services production and delivery process In the process, customers’ decision to remain loyal to the organization or move to other networks takes place depending on many factors, in which one of the most important factors is their satisfaction level of the services quality delivered to them

2.1.2 Concept of customer satisfaction

Customer satisfaction is the term receiving a lot of attention and interest among scholars and practitioners since it is the key element of business strategy, and goal for all business activities especially in today’s competitive market (Anderson et al, 1994) It is therefore important to understand this terminology in detail as conceptualized in this study Some of the definitions given by scholars for customer satisfaction are as follows:

• Customer satisfaction is a ‘‘psychological concept that involves the feeling of

wellbeing and pleasure that results from obtaining what one hopes for and expects from an appealing product and/or service’’ (WTO, 1985);

• Customer satisfaction is “as an attitude-like judgment followed by a purchase

act or a series of consumer product interactions.” Youjae Yi, (1990 cited in

Lovelock & Wirtz 2007);

• Customer satisfaction is ‘‘a consumer’s post-purchase evaluation and

affective response to the overall product or service experience.’’ (cited from

Oliver, 1992);

• Satisfaction is “merely the result of things not going wrong; satisfying the

needs and desires of consumers.’’(cited from Besterfield 1994);

• Customer satisfaction is ‘‘an experience-based assessment made by the

customer of how far his own expectations about the individual characteristics

or the overall functionality of the services obtained from the provider have been fulfilled.’’ (cited from Bruhn, 2003);

• ‘‘Satisfaction is a person’s feeling of pleasure or disappointment resulting

from comparing a product’s performance (outcome) in relation to his or her expectation.’’ (cited from Kotler P & Kevin L K., 2006 p 144)

Customer satisfaction as a Process and an Outcome:

One issue that has received lots of debate in customer satisfaction literature is whether customer satisfaction should be defined as an outcome or a process Many early definitions conceptualized satisfaction as a process which is currently the dominant view held by most scholars (Oliver, 1980, Parasuraman et al., 1991) The process perspective supposes that customer satisfaction is a feeling of satisfaction that comes from the process of comparing perceived performance and one or more predictive standards, such as expectations or desires (Khalifa & Liu 2002) This perspective is grounded in the expectancy disconfirmation theory proposed by

Richard Oliver (Oliver, 1980) The customer is satisfied if the performance of product or service is equal to her expectations (positive disconfirmation) On the other hand, she is dissatisfied if the product or service performance is perceived to

be under her expectation (negative disconfirmation) If expectation exceeds perceived performance, the customer is highly satisfied By taking satisfaction as a process these definitions do not focus on satisfaction itself but what cause satisfaction, the antecedents to satisfaction, which occur primarily during the service delivery process (Vavra 1997)

More recent studies consider satisfaction as an outcome or end result during the process of the service consumption; it is viewed as a post-purchase experience (Vavra 1997) This view has its roots in motivation theories that their behavior is directed at the achievement of relevant goals (Vroom, 1964) In this way satisfaction

is perceived as a goal to be achieved

In the context of this study, we consider customer satisfaction as process perspective

because we believe that in Vietnam mobile telecom market, customers’ evaluation

of mobile telecom services takes place primarily during the service delivery process and continues, but not just an outcome that customers want to achieve

Customer satisfaction as Cognitive and Affective responses:

Another controversial aspect in customer satisfaction literature is whether it is cognitive or affective Although according to most scholars who view satisfaction as

a process, the nature of satisfaction process remains unclear While some authors maintain that satisfaction is a cognitive assessment involving a comparison of product or service offerings from a provider against expectations, other scholars disagree that the feeling of satisfaction represent an emotional state of mind that is formed through the process of service delivery where customers encounter service experiences that affect their emotions More recent research have found that satisfaction is both cognitive and affective (Oliver, R.L., 1993a; Gronroos, C.,

2001) They argue that “ satisfaction is naturally tied to cognitive judgments and

to affective reactions elicited in consumption” (Mano and Oliver, 1993, p 451)

This study conceptualizes customer satisfaction as both cognitive and affective

since we believe customers express their satisfaction with the service quality they consumed in both cognitive and emotional way

Customer satisfaction as Transactional or Cumulative:

Another commonly debating problem to many scholars is whether customer satisfaction should be conceptualized as cumulative or transactional On the one hand from a transactional perspective, customer satisfaction is based on a one time, specific post-purchase evaluative judgment of a service encounter (Hunt, 1977)

However on the other hand, in the cumulative customer satisfaction perspective, customer satisfaction is defined as a total customer evaluation of a product or service based on purchase and consumption experiences over a time period (Fornell, 1992; Johnson and Fornell, 1991) In terms of the diagnostic and predictive value of customer satisfaction measurement, cumulative satisfaction is more useful and reliable than transaction-specific in that it is based on series of purchase and consumption occasions rather than just one occasion of transaction Therefore, our

conceptual framework for this study treats customer satisfaction as cumulative

2.1.3 Determinants of customer satisfaction

Many factors that affect customer satisfaction need to be examined According to many scholars and practitioners, customer satisfaction is found to be driven by the service quality and the customer service experiences (Oliver, R.L., 1980; 1993a;

Parasuraman, A., et al., 1991, Kotler P & Keller K.L., 2006) It is generally accepted by most researchers that service quality basically relates to what the customer perceives of the product/service performance Recent empirical studies have proved that customer satisfaction is not only driven by cognitive dimensions of customer perceptions of service quality but also by affective dimensions which have positive impact on post-purchase behaviors, such as repeated purchase, customers

loyalty, switching intention, and likelihood to recommend (Erevelles S., 1998;

Oliver R L., 1980; Oliver, R.L 1993a) Perceived service quality is an important determinant of customer satisfaction that has both cognitive and affective dimensions beyond just cognitive assessment of customers of the offering of service providers Perceived quality is created by customers during their consuming interactions with product/service providers

Another important determinant of customer satisfaction is customer expectations It has been found out that expectation plays an important role in determining satisfaction This view was supported by the majority of famous expectancy disconfirmation theory (Oliver 1980; 1993; Parasuraman, A., et al., 1988,)

According to this theory, the customer is satisfied if the performance of product/service is equal to his/her expectations and he/she isn’t satisfied when the product/service performance is perceived to be below his/her expectation (negative disconfirmation)

Customer satisfaction is also driven by perceived value Though the concept of value is relative and has several dimensions to it, Zeithaml (1988) considers customers value as the overall assessment of the utility of a product based on comparison of what he is received and what he is given Dodds et al (1991), argued that customers perceptions of value represent a trade-off between the quality or benefit they receive in the product relative to the sacrifice they perceived by paying the price

Conceptually, since what the customer gets for what he/she gives is based on the performance of the product/service, what he/she gives become a standard for comparison

In conclusion, it is established by may empirical studies that customers overall cognitive or affective evaluation is based on basically the service quality, but the customer’s perception of the performance of the service quality encountered is compared with some cognitive or affective standard like his/her expected quality,

perceived quality or value quality

The implications of the antecedents of customer satisfaction is that managers must plan and conduct effective strategies to manage customer perceived quality, customer expectations, customer perceived value in order to get the full benefits of customer satisfaction measurement (Gronroos, C., 1990; Kauppinen-Raisanen H et al., (2007))

2.1.4 Customer satisfaction measurement model

Many measurement models have been developed and applied to measure customer satisfaction, even though not all of them were validated by empirical research Oh and Parks, (1997) listed out nine methods for measuring customer satisfaction:

expectancy disconfirmation, assimilation or cognitive dissonance, contrast, assimilation-contrast, equity, attribution, comparison-level, generalized negativity and value-precept Among all these nine methods, disconfirmation theory and customer satisfaction index are two method that are most commonly used

Customer Satisfaction Indices

The increasing importance of customer satisfaction in determining profit and customer behavior which in turn determine industry and national productivity has called for development of tools that can be used to measure and analyses its impact across firms, industries, sectors and nations (Fornell et al., 1996) This has resulted

in the development and use of customer satisfaction indices in many countries like Sweden, the USA, Germany, Norway, Russia, Switzerland, Taiwan and Turkey A national customer satisfaction index is a market oriented performance measure Its

main purpose is to “gain a deeper insight understanding into the interaction

between the customer and the supplier, in order to provide enough customer satisfaction information as reference data in planning better policy decision making.” Te-King Chien et al., (2003) It is used to complement traditional

performance measures, such as return on investment, profits and market shares or

Kaplan and Norton’s balanced score card approach The Swedish Customer Satisfaction Barometer (SCSB) was the first national customer satisfaction index that was developed and applied for customer satisfaction and evaluation method of the quality of products and services The result was calculated based on annual survey data from customers of about 100 leading companies in some 30 industries (Fornell, 1992, p 6)

The National Quality Research Center in the USA (NQRC) adapted the Swedish index in 1994 and developed the American Customer Satisfaction Index (ACSI)) The American Customer Satisfaction Index (Figure 2.1) uses customer interviews as input to a multi-equation econometric model It is a cause-and-effect model with indices for antecedents of satisfaction, satisfaction, and outcomes of satisfaction (www.wikipedia.org, Fornell et al., 1996) It uses many multivariable components measured by several questions having different industrial weights and reported on a

0 to 100 scale

Perceived Quality

Customer Expectations

Perceived Value

Customer Satisfaction (ACSI)

Customer Complaint

Customer Loyalty

Figure 2.1 Components of ACSI Model

(Source: http://www.theacsi.org)

The European Customer Satisfaction Index (Figure 2.2) was developed by the

European Organization for Quality (EQO), European Foundation for Quality Management (EFQM), European Academic Network for Customer-Oriented Quality Analysis and the European Commission developed

Customer Expectation

Perceived Quality

Perceived Value

Customer Satisfaction (ECSI)

Customer Loyalty

Customer Complaint

Corporate Image

Figure 2.2 Components of ECSI Model

(Source: adapted from Serkan Aydin and Go¨khan O ¨zer (2005)

Disconfirmation Models

Disconfirmation models are models that suggest that customer satisfaction or dissatisfaction is the disparity that exist between the performance of a product or service and some cognitive or emotional standards of the consumer Oliver (1980) was the first to propose and developed the expectancy disconfirmation theory After that, the theory was tested and confirmed in many other studies (Oliver and DeSarbo, 1988; Satari, 2007)

According to expectation disconfirmation theory, customers after consuming a product or service, compare their perception of product or service performance

against their expectations before they consume the service When outcome or perceived performance is equal to expectations, confirmation occurs Negative disconfirmation happens when perceived performance of product or service is less than expected Positive disconfirmation occurs when product of service performance

is better than expected Customer satisfaction happens by confirmation or positive disconfirmation of consumer expectations, and dissatisfaction is caused by negative disconfirmation of consumer expectations

Within the disconfirmation school of thought, more recent researches argue that

‘desire’ instead of ‘expectation’ in comparison with perceived performance should

be used in determining customer satisfaction (Suh et al 1994 & Spreng et al.1996 in Satari 2007) Expectation disconfirmation model has been challenged as unsuitable since an expectation of a service can be rated as better than expected though it might not necessarily meet consumers desired set of services Therefore desire disconfirmation has been suggested as a better substitute Desire and expectations are both cognitive standards and it is not clear which one provides a better explanation of customer satisfaction Khalifa and Liu (2002) proposed, in their empirical research, a contingency theory that includes both expectation and desire disconfirmations They concluded that both desire and expectation simultaneously affect overall satisfaction significantly This implies that desire could be used in addition to expectation and not instead of it

2.2 Customer retention:

As mentioned earlier competition in the mobile telecom markets in Vietnam is intensive As these markets have reached saturated point since long ago, the focus of competition is starting to shift from customer acquisition to customer retention

The pressure to reduce customer churn, together with the high cost of acquiring new customer, have forced mobile service providers to take a hard look at their customer retention strategies

Customer retention is a well-known and heavily researched topic in the field

of marketing Throughout the years, the main stream of retention and loyalty studies have focused on the willingness of customers to enter and to stay in a relationship with the provider of a product or service based on their level of satisfaction

Retention, rather than satisfaction, is becoming the number one strategic goal in today’s competitive business environment (Oliver, 1999)

Companies spend millions trying to understand and influence customers But to increase the customers’ loyalty and retention, there’re more things for companies to

do rather than track today’s typical metrics: satisfaction and defection Especially in telecommunications services, it is frequently pointed out that once customers have been acquired and connected to the telecommunications network of a specific operator; their stay-in with the operator in long term are far beyond important to the success of the company in competitive markets than they are in other industry sectors (Gerpott et al., 2001, p 249)

In addition, customer retention is concerned with maintaining the business relationship set up between a supplier (service provider) and a customer This can be achieved in two ways Firstly, it is achieved by subsequent purchases, or by extending the customer's contract with the supplier over a specified period of time

Secondly, it is achieved by the intention of the customer to make future purchases from the provider, or to refrain from quitting the contract

On the one hand, a business relationship may be maintained involuntarily because of

a mobility barriers, in which level is based from each specific customer’s perception and condition, from changing suppliers or dispensing with a category of service (Bliemel & Eggert, 1998) On other hand, a customer may continue subsequent transactions because he has a favorable attitude towards the provider and the services he supplies, and because he therefore wants to keep the business relationship going to their mutual benefit Customer loyalty is the term used when business relationships are continued in the latter way because of a mutual benefit

perceived by customer, otherwise it is just the stay-in status of the customer with the supplier and it’s termed customer retention (Homburg & Bruhn, 1998) From this distinction it follows that, although customer loyalty and customer retention may be strongly related in terms of cause and effect

Acquiring new customers is both costly and hard in terms of marketing for mobile service operators when the number of subscribers has reached its peak level

Hence, it is becoming an industry-wide belief that the best core marketing strategy for the future is to try to retain existing customers by heightening customer loyalty and customer value (Kim et al., 2004, p 146)

Sustained business relationships result in massive savings in costs, including costs

of advertising to get attraction of new customers; costs of personal selling pitch to new prospects; costs of setting up new accounts; costs of explaining business procedures to new customers; costs of inefficient dealing during the customers’

learning process, etc (Peppers and Rogers, 1995 and Reichheld, 2003)

Retention of customers, therefore, has a two-way advantage stream, both keeping revenue and reducing cost, for a business – revenues increase through higher off takes and costs decline through a various types of savings said above Thus, nowadays customer retention has been becoming an important source of long-term business success (Rust and Zahorik, 1993)

Although business enterprises realize the value of retaining customers, a schematic approach to enhance customer loyalty is still obscure Enterprises measure customer satisfaction, and hope that if the satisfaction scores are good, the customers will stay with them But even in some cases, satisfied customers still move due to a competitors’ offer (Berry and Bendapudi, 2003; Curasi and Kennedy)

The ability to make customers loyal to a specific company and repeatedly purchase product or service from this company, also known as customer retention, is a matter

of growing importance Kotler (2000) said that one major reason for this is the fact that it is five times more costly to attract new customers, than to keep the current

An important aspect for the continued success of a company is its capability to retain its current customers and make them loyal to its brands (Dekimpe et al., 1997,

p 405) Loyal customers build businesses by buying more, paying premium prices, and providing good referral when being asked by other through positive word of mouth over time (Ganesh et al., 2000, p 65) 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

Reichheld and Sasser (1990) and Reichheld (1996) have studied customer lifetime value and the value of building customer retention by listening to their complaints, preventing their defection, and understanding why customers move to competitors

Customers remain loyal because of the value they receive from the supplier

Customer retention means continuing an active relationship with a customer (Cannie, 1994)

Knowing and understanding that some customers have left the company is really important This is because more and more customers leave, the greater loss of the revenue will happen It's difficult to encourage customers to stay, especially in the toughly competitive markets as nowadays, but it must be done with an assumption that, keeping an existing customer is far more effective than acquiring a new one

Both parties in the customer/supplier relationship can get benefit from retention It is not only the supplier who can get the best interest to build and maintain a loyal customer base, but customers themselves also benefit from long-term associations (Zeithaml et al, 1996, p 173)

Studies have shown that by increasing the customer retention rate by 5%, profits could increase up to 85% Profits from reduced operating costs come from the fact that when there is a closer relationship between a customer and a supplier, the customer will be more receptive to the firm's marketing efforts and therefore it becomes easier to sell new services to customer Furthermore, as the customer becomes accustomed to the firm and firm’s employees facing to customers, and the

manner in which the service is delivered, the customer asks fewer questions and has fewer problems This can contribute to the reduction of the firm's operating costs

The profit that comes from referrals is due to the positive word-of-mouth advertising to all the people they know and or when they are asked, and this good thing is only generated by satisfied customers The satisfied customers often refer businesses to friends and family, which in turn reinforce their decisions (Hoffman et

al, 1997; Zeithmal et al, 1996)

As discussed before, analyses of costs demonstrate that customer retention is substantially less expensive than customer acquisition (Birch, 1990) Mobile service operators must first invest in gaining brand awareness at the beginning stage and getting businesses to use their marketplaces, but should be immediately and seriously pay more attention to customer retention in later stage

The tangible effects of companies’ commitment to retaining customers were first published by Dawkins and Reichheld (1990) who argued that higher retention rate leads to higher net present value of customers The attraction of customer retention management continued to be prominently advanced in many other subsequent related papers and books (Reichheld and Sasser, 1990; Reichheld and Kenny, 1990)

They proved that customer retention leads to higher profitability and companies must conduct related programs to proactively retain their customers

2.3 Switching barriers

Earlier studies of factors affecting customer retention usually pay their attention to customer satisfaction, the switching barriers and relationship between them (Dick &

Basu, 1994; Gerpott, Rams, & Schindler, 2001; Lee & Cunningham, 2001)

Further, it has been provide that the switching barrier plays the role of an adjustment factor in the relationship between customer satisfaction and customer retention On other words, when the level of customer satisfaction is the same, the level of customer retention can vary and depend on the magnitude of the switching

barrier (e.g., Colgate & Lang, 2001; Jones et al., 2002; Lee & Cunningham, 2001, Kim, 2000) Figure 2.3 illustrates a research model carried out and proved by Kim

in Korean mobile service market where he defined switching barriers with some key elements such as switching costs, interpersonal relationship, attractiveness of alternatives, service recovery According to Kim (2000), switching barriers in mobile service sector can have effect to customer retention on both ways: direct to customer retention and mediate in the relationship between customer satisfaction and customer retention

Figure 2.3 Affecting role of switching barriers, both mediating and direct to

customer retention

(Source: Adapted from Kim, 2000)

The switching barrier is generally defined as the difficulty that customer perceives

of switching to another provider, or to the financial, social and psychological burden perceived by a customer when switching to a new carrier (Fornell, 1992)

Yang (2004) established that switching barriers can have mediating impact to customer loyalty at both customer value – customer loyalty linkage and perceived

satisfaction – customer loyalty linkage (Figure 2.4) The connection between customer satisfaction and customer loyalty heavily comes from factors such as market regulation, switching costs, brand equity, current loyalty programs, and product differentiation to other competitors at the industry level Many authors have mentioned that these factors can be considered as switching barriers (Fornell, 1992;

Jones et al., 2000; Julander and Soderlund, 2003) In the same line, Ranaweera (2003) confirmed that firms might retain their customers by creating switching barriers that should add value to their services

Figure 2.4 Mediating role of switching cost to both customer value – customer

loyalty and perceived satisfaction – customer loyalty linkage

(Source: Adapted from Yang, 2004)

As defined by Jones et al (2000), a switching barrier is any factor that makes it hard

or costly for customers to move to other providers For those firms which have many customers that can leave/switch, it is important to understand why these customers stay and to what extent they can further discourage such customers from

leaving (in both positive and negative ways) Finally, for those services firms, who are new entrants to the market, looks for a effective approach to attract these prospective switchers, an understanding of why customers do not switch is important, since this understanding will enable them to develop strategies to overcome these switching barriers and gain market share (Colgate and Lang 2001)

Barriers to customer defection, such as development of strong interpersonal relationships or creation of switching costs, represent additional retention strategies

Such barriers are important because they may generally encourage greater retention and because they may help companies still retain their customer in cases they have made a disappointment to customer due to service performance in short term and not

in a frequent and repeated manner If there is not good retention strategies in such cases, most customer will choose to leave since there’s no factor to prevent them, or

in other words, create difficult burden to them (A Jones, L Mothersbaugh et al

2000)

Switching cost means the cost incurred if customers switch, including time, money and psychological cost (Dick & Basu, 1994), and is defined as perceived risk On other words, they are potential losses perceived by customers if they decide to move

or switch to other supplier, such as losses of a financial, social, psychological nature (Murray,1991)

Julander and Soderberg (2003) argued that switching barriers can be seen as both positive or negative factors Hirschman (1970) explains these two concepts by defining positive switching barriers as a ‘wanting to be in a relationship’ of customer While negative switching barriers are related to ‘having to be in a relationship’

According to some authors, positive switching barriers are resulted from the good interpersonal relationship that supplier can build to their customers during product

or service consuming life time (Berry and Parasuraman, 1991; Tumball and Willson, 1989)

Interpersonal relationship means a psychological and social relationship between customers and suppliers and what can be perceived by customers, such as care, trust, communication and intimacy (Gremler, 1995) The interpersonal relationship that was formed through recurrent interactions between a supplier and its customer can strengthen the connection between them and finally lead to a long-term relationship Not only companies who desire a long term relationship but most customers also tend to seek for the same with their supplier

Many customers want to set up, develop and maintain with a company an interpersonal relationship that provides value and convenience to them (Gwiner, Gremler, & Bitner, 1998) Therefore, relationship-specific investment can help company to increase customers’ dependence to them, and thus increase the switching barriers (Jones, Mothersbaugh, & Betty, 2000)

In nowadays practice, such types of relationship-specific activities offer various types of benefits to the customers, such as social benefits (e.g fellowship, personal recognition), economic benefits (e.g discount, time saving), psychological benefits (e.g help to reduce anxiety), and personal customization (Berry, 1995; kim et al., 2004; Peterson, 1995) Gwinner et al (1998) proved that customer, in their possible financial status, will commit themselves to establishing and developing relationships with a supplier who can provide superior value benefits to them

Previous researches prove that switching costs have an important impact on firm’s performance (customer retention) in the mobile service industry On the one hand, certain switching costs are decreasing in the mobile service industry; as a result of deregulation and globalization, which in turn lead to the increasingly high competition the market for mobile phone operators These changes in the competitive environment have reduced and in some cases affect to the hug reduction

of traditional switching costs, making it more challenging for operators to retain customers On the other hand, certain switching costs are increasing or some are new to the mobile industry; as a result of the increasingly networked environment,

operators now have new switching cost opportunities that enable them to improve customer retention (Hess and Ricart 2002)

Some researchers have defined switching cost as loss cost, adaptation cost, and move-in cost Loss cost can be understood as the perception of loss in social status

or performance, when canceling a service contract with an existing carrier

Adaptation cost refers to the perceived cost of adaptation to the new suppliers, such

as search cost and learning cost Move-in cost is defined as economic cost involved

in switching to a new carrier, such as the purchase of a new device and the subscriber fee

Switching barrier can relate to customer perceptions regarding the extent to which viable competing alternatives are available in the market place (Jones et al., 2000)

Many researches have proved that when viable alternatives are lacking, the probability of terminating an existing relationship with current supplier decreases (Jones et al., 2000) Alternatively, when customers are aware the existence of better attractive alternatives, it is likely they will decide to switch (Jones et al., 2000)

2.4 Positive and negative switching barriers:

As mentioned in previous section, Hirschman (1970) makes the distinction between

“having to be” or “wanting to be” in a relationship ‘Having to be’ can be understood as a negative reason to stay in a relationship, while ‘wanting to be’ in a relationship as a positive reason to stay Jones et al (2000) mentioned that some switching barriers can be separated as positive elements, and others as more negative elements Both from a theoretical and managerial perspective, it is critical

to explicitly distinguish between positive switching barriers, which are good since it’s about customer attitude of to wanting to be in a relationship, and negative switching barriers, which should be tried to avoid since it’s about customer’s perception of having to be with a supplier On psychological aspect, it should make

a big difference whether one keeps to use the service or product from a supplier because he think that the supplier is superior in services and products (a positive

reason), or because it is too costly for him to leave the supplier (negative reasons)

Julander (2003) classified previous measures of switching barriers into two types:

negative and positive switching barriers In this research, he indicated that switching costs is an important switching barrier Switching costs refer to various types of costly obstacles of changing supplier High switching costs tend to lock customers

to suppliers and we thus classify switching costs as negative switching barriers He also added the degree of monopoly on the market, and supplier power, which, when high, may lock the customer to the supplier In addition, customer’s investment in the supplier, for example how much time, money and effort customer invested in the relationship, was also considered as another negative switching barrier, since it tends to lock the customer to the supplier, especially if the customer has made physical investments in equipment So, we classify high investments in the relationship by the customer as negative switching barriers

For positive switching barriers, Julander (2003) in this research classified as attractiveness from other alternatives If the chosen supplier is better than the other available alternatives as what is perceived by the customer, he will stay with the supplier, or on other words, is locked to the supplier That is, there is a positive motivation from customers to stay with their supplier

Positive interpersonal relationships are also viewed as positive switching barriers

They could be perceived that they are set to be a part of the product or service offered It can be expected that customers stay with suppliers because of such positive relationships Loyal customer discounts and customer habit can also be classified as positive switching barriers, since they are positive aspects of the product or service package offered to customers (Fornell, 1992)

From the literature review of all the factors of negative and positive switching barriers, Julander (2003) developed model about the relationship of customer satisfaction, negative and positive switching barriers and customer retention He argued that when customers have to stay with suppliers because of negative

switching barriers, the satisfaction will lower than for customers that are in a more unconstrained situation, but customer retention will be higher, since customers in the constrained situation have to choose the given supplier He also suggested that a customer with high positive switching barriers will be at higher level of satisfaction and thus have indirect positive effect to her repurchase intention

2.5 Proposed research model and hypotheses

In the previous sections, we reviewed many studies about customer satisfaction, switching barriers and customer retention: how each construct can be measured and how do they have impact to each other However, in the limited scope of this thesis and in order to answer research questions posted in Chapter 1, we focused on understanding the relationship among customer satisfaction, switching barriers separated in 2 negative and positive factors and customer retention With this purpose, this thesis used the model developed and tested by Julander (2003) and sought for the model fit in mobile service users in Vietnam

Figure 2.5 Research model used in this thesis to investigate relationship among

switching barriers, customer satisfaction and customer retention

The following hypotheses were raised and tested with the selected research model

• H1: Negative switching barriers are negatively and directly associated with customer satisfaction

• H2: Negative switching barriers are positively and directly associated with

CHAPTER 3

RESEARCH METHODOLOGY

3.1 Research purpose

The research purpose is a broad statement of what the research hopes to achieve

According to purpose, research could be broadly divided into exploratory, descriptive and explanatory (Saunders et al 2000, 2007; Cooper and Schindler 2006)

• An exploratory research is a study that is conducted to “find out what is

happening; to seek new insights; to ask questions and to assess phenomena in

a new light” (Saunders et al 2007) It is mainly used when a researcher wants

to have a clearer understanding of a situation or a problem, where the area of study is so new or vague, important variable may not be known or defined It therefore uses such methods as searching documented materials, asking for expert’s opinion, and conducting a focus group interviews

• A descriptive research is a study that seeks to “portray an accurate profile of

persons, events or situations” (Saunders et al 2007) It involves formalising the study with definite structures in order to better describe or present facts about a phenomenon as it is perceived or as it is in reality

• An explanatory research is a study that seeks to establish relationship that

exists between variables In order words its purpose is to identify how one variable affects the other; it seeks to provide an explanation to the causes and/or effects of one or more variables (Saunders et al 2000, 2007; Cooper and Schindler 2006; Malhotra and Birks, 2007) It is often termed causal studies They are also used when the purpose of the study is to answer ‘why’

in a given context

From this definition, this thesis was categorized under explanatory research since it

based on the model developed and tested by other author to investigate the relationship among various constructs: customer satisfaction, switching barrier and customer retention

3.2 Research Approach

Research may be approached from deductive or inductive perspectives It is deductive where it begins with the development of a theory or hypothesis and a strategy is designed to test it in a context to verify or reject its claims So it is thinking from general to specific On the other hand, the approach is inductive where the research begins with an observation of a phenomenon in an environment, then data is collected upon which a theory is developed or generalisation is made

Thus, thinking from specific to general

In this study, we have carefully selected existing empirical theories and models, then apply and test the relation of customer satisfaction, switching barrier and customer retention in the context of Vietnam’s mobile service market Therefore,

the study is deductive

3.3 Sampling 3.3.1 Sampling technique

There are two major alternatives on how to select an appropriate sample: random (probability) and non-random (non-probability) sampling The random sampling gives every part of population an equal probability of selection The non-probability sampling includes a selection of a sample on other basis than the random sampling, such as convenience and personal judgment (Zikmund, 2000)

The convenience sampling technique was used in this research since questionnaires were distributed over email and form available online to all people that we have relationship

More than that, in order to conduct path analysis using Structural Equation Modeling (SEM) with reliable output and model, at least 15 samples should be used for 1 observed variable in the model (Hair et al., 1998) Therefore to meet the sampling size constrain, we should have valid data from at least 165 respondents

3.4 Data collection procedure:

According to many scholars, in the use of survey strategy, the main instruments used are self-administered/interviewer administered or structured/unstructured interviews and questionnaire or a combination of both (Saunders et al 2000; Cooper and Schindler 2006) They further agree that generally the questionnaire can be used for descriptive or explanatory study, and must have a good layout, unambiguous questions, complete items, non-offensive but relevant items, logical arrangements of items, and the ability to elicit willingness to answer in respondents As a result, questionnaire was used

In this study, self-administered, structured questionnaire was used to collect data from respondents (Appendix) As explained above, a complete questionnaire was developed and sent to all people in all kinds of relationship to the author at most ranges of age via email It was also uploaded in internet and respondents were also encouraged to provide their feedback by filling an online form Data collection was conducted in 4 continuous weeks in October and November of 2011 There were

243 questionnaires distributed and we received 189 feedbacks from respondents,

among of them 8 were then identified as invalid So in total, we had 181 valid returned questionnaires which contributed a response rate of 74.5%, which was considered at satisfaction level for consequent analysis This quantity also met the criterion calculated for a minimum sampling size (165) above

3.5 Measurement

All variables in our hypotheses were assessed with multi-item scales and based on Likert 5 point, with 1: strongly disagree; 5: strongly agree All the constructs were built based on previous research of Julander (2003) who had defined items to measure each construct of his model

Customer satisfaction included 3 observed variables, coded respectively CS1, CS2

and CS3:

• CS1: I am satisfied with the supplier

• CS2: The supplier meets all the requirements that I see reasonable

• CS3: The supplier satisfies my need

Customer retention included 2 observed variables, coded respectively CR1 and

CR2:

• CR1: I intend to continue to be customer of this supplier

• CR2: Next time I shall need services of the supplier, I will buy it from him

Switching barriers included 7 observed variables From the previous research, Julander (2003) defined the switching barrier into 2 different factors: positive and negative So in this thesis, we applied what had been proved by Julander (2003) and

designed negative switching barriers included 5 observed variables They’re coded

respectively NSB1 to NSB5 as following:

• NSB1: There are few other suppliers that are realistic alternatives for me

• NSB2: It is difficult for me to use other suppliers

• NSB3: It would be complicated for me to change supplier

• NSB4: I feel locked to this supplier

• NSB5: It take a lot of time to get information about other suppliers

Positive switching barriers are measured by 2 observed variables and coded PSB1

and PSB2:

• PSB1: I feel uncertain about whether other suppliers can give the same

service as this one

• PSB2: If I were to choose another supplier I do not know what I will get

All of these fifteen respondents were firstly provided the questionnaire by email, following by a telephone call of authors to ensure they have received and spent their time to go through the questionnaires carefully Another call was made to each of the 15 respondents in one or two days at their convenient time to go through each item with us closely and explained how well they understood each question From this feedback, we made some minor adjustment in some Vietnamese questions from the original questionnaire

The final step in pilot testing after adjustment of questionnaire was to distribute it to

another 30 respondents to check the reliability of measurement scale From the results we collected, we ran Cronbach alpha test and got the Cronbach’s alpha value 0.947 for Customer satisfaction measurement scale, Cronbach’s alpha value 0.818 for Customer retention measurement scale, Cronbach’s alpha value 0.786 for Negative switching barrier measurement scale and Cronbach’s alpha value 0.885 for Positive switching barrier measurement scale (Table 3.1)

From all the results, only variable NSB5 had to be removed since the Cronbach value of ‘switching barrier’ measurement scale would be higher (0.901) if this item was deleted Therefore, we removed NSB5 after pilot stage and ran Cronbach alpha test again for switching barriers, this time we had good result (Appendix 2) and no item was removed

Table 3.1 Cronbach’s alpha result – Pilot stage

Scale Mean if Item Deleted

Scale Variance if Item Deleted

Corrected Total Correlation

Item-Cronbach's Alpha if Item Deleted Customer satisfaction, Cronbach’s alpha = 0.947

CS1 6.40 593 945 884 CS2 6.37 585 864 943 CS3 6.37 585 864 943 Customer retention, Cronbach’s alpha = 0.818

CR1 4.67 230 693 N/A(*)CR2 4.73 202 693 N/A(*)Negative switching barrier, Cronbach’s alpha = 0.786

NSB1 14.87 4.257 .801 .670 NSB2 14.80 4.166 .717 .691 NSB3 14.77 4.737 .642 .725 NSB4 14.73 3.995 .757 .674