The factors affecting customers loyalty to supermarkets in ho chi minh city

administrators understand more clearly the importance of customer loyalty in mind, the authors chose the topic “The factors affecting customers’ loyalty to supermarkets in Ho Chi Minh C

BUSINESS RESEARCH PROJECT

THE FACTORS AFFECTING CUSTOMERS’ LOYALTY TO SUPERMARKETS IN HO CHI MINH CITY

June 2014

Advisor’s assessment

Advisor’s signature

TABLE OF CONTENT

CHAPTER 1:INTRODUCTION……… 5

1.1 Reasons for research……….5

1.2 Research questions………6

1.3 Research goals……… 6

1.4 Subject and scale of research………6

1.5 Research methodology……… 7

1.6 Contributions of this research……… 7

1.7 Thesis structure……….7

CHAPTER 2: THE RETAIL MARKET ……… ……… … 9

2.1 Revenue from retail and consumer services throughout the years…… …… 9

2.2 The market for main types of retail goods……… ………… … 9

2.3 Overview of the competition situation among supermarkets in Vietnam… 12

CHAPTER 3: THEORETICAL BASES……… ………… …….14

3.1 Supermarket Theories……… …… 14

3.2 Service theories……… ………15

3.3 Loyalty theories……… 18

3.4 Overview of previous researches……… 21

3.5 Proposed research model……… 23

CHAPTER 4: STUDY DESIGN……… …… … ………28

4.1 Research Process……… …… 28

4.2 Qualitative Research……… ………28

4.3 Qualitative Research ……… 29

4.4 Scale……… ……….31

CHAPTER 5: RESEARCH FINDINGS……… ……… 36

5.1 Descriptive Statistics……… ……… 36

5.2 Testing the model ……… ……… 44

5.3 Regression Analysis……… ……….59

5.4 Seeking violation……… ……… …66

5.5 Testing the difference between groups……… 66

5.6 Regression analysis based on frequent supermarkets ……… 72

CHAPTER 6: CONCLUSION AND SUGGESTIONS FOR MANAGERS… 78

6.1 Conclusion……… ………78

6.2 Implication for manager……….… ……… 79

6.3 Limitations of the subject and directions for further research………… ……82

REFERENCE MATERIAL ……… ……… … 83

APPENDIX 1 –INTERVIEW OUTLINE……… …… 87

APPENDIX 2 – SURVEY QUESTIONAIRE……… ……… …92

APPENDIX 3 – PREMILINARY RESEARCH……… ……93

APPENDIX 4 – EFA ANALYSIS……….….102

APPENDIX 5 – REGRESSION ANALYSIS……… … 107

APPENDIX 6 – VIOLATION SEARCH……….… … 109

APPENDIX 7 – DIFFERENCE INSPECTION……… …….….110

CHAPTER 1: INTRODUCTION 1.1 Reasons for research

In the emerging trend to integrate with the world’s economy, business fields in Vietnam in general and the retail industry in particular are not only facing fierce competition from fellow domestic firms but are also under pressures from foreign companies On January 1st, 2009, compelled to its commitments to joining the World Trade Organization – WTO, Vietnam officially opened the door to its retail market for foreign investors, making the competition in the retail market become fiercer than ever

Along with the existing domestic supermarket chains, the market for retailing supermarkets in Vietnam in general and in Ho Chi Minh City in particular is becoming more vibrant, and the level of competition is becoming fiercer by the day

To survive and to thrive, domestic firms have to continuously increase their standards of quality, diversify their goods, upgrade and modernize their infrastructures, and widen their food and goods distribution network in order to compete with supermarket chains run by foreign corporations Increasing the number of loyal customers’ visit to its supermarket chain is an urgent matter for a firm because according to Kotler (2011), the cost to attract a new customer is usually nine to ten folds that to maintain an existing customer It is worth noting that, as the competition on the market becomes more and more complex, to survive and prosper, supermarket administrators have to find ways to establish and increase their customers' loyalty Building customer loyalty plays an important role in building a firm's competitive strategies, which is even more crucial as top-tier retailers worldwide such as Tesco, Walmart, Carrefour, etc have been making preparations to set foot on the market According to Nguyen Thi Mai Trang (2006), customers’ loyalty to a supermarket is the most important factor deciding that supermarket’s success and existence Without customer loyalty, the competitive strength of a firm will be negligible With the purpose of helping supermarket

administrators understand more clearly the importance of customer loyalty in mind,

the authors chose the topic “The factors affecting customers’ loyalty to

supermarkets in Ho Chi Minh City” to be the research subject for their research 1.2 Research questions

This thesis focuses on researching to answer these questions:

(1) Which factors will affect the loyalty of customers to supermarkets in Ho Chi Minh City?

(2) To what extent do these factors affect the loyalty of customers to supermarkets in Ho Chi Minh City?

(3) Are there any differences among the loyalty of different types of customers

to supermarkets in Ho Chi Minh City?

1.3 Research goals

To answer the questions stated above, the specific goals of this thesis are to:

(1) Point out the factors affecting customer loyalty towards supermarkets in Ho Chi Minh City?

(2) Measure the extent to which the factors affect the loyalty of customers towards supermarkets in Ho Chi Minh City?

(3) Explore the differences among survey subjects in their loyalty towards supermarkets in Ho Chi Minh City?

1.4 Subject and scale of research

This research is conducted using the method of directly surveying the opinions

of regular supermarket shoppers in Ho Chi Minh City Samples are chosen using the convenience sampling method The data used for research are mainly primary data, collected from handling questionnaires directly to customers

Step two: Conducting quantitative research through handling close-ended questionnaires directly to 700 customers regularly visiting supermarkets such as Co-opmart, Big C, Maximart…in Ho Chi Minh City; collecting 506 legitimate finished questionnaires in July 2013

1.6 Contributions of this research

The research “The factors affecting customers’ loyalty to supermarkets in

Ho Chi Minh City” helps supermarket administrators gain necessary information

and acknowledge the importance of factors affecting the loyalty of customers From there, the administrators can come forth with solutions to maintain customers’ loyalty

1.7 Thesis structure

Chapter 1: Research overview

This chapter states the reason for choosing this topic, the research questions, research goals, subject and scale of research, research methodology, and the contributions of this research and the structure of the thesis

Chapter 2: The retail market and the competition situation among supermarkets in Vietnam

The second chapter introduces the revenue from retail and consumer services throughout the years, the market for main retail goods, and the overview of the competition situation among supermarkets in Vietnam

Chapter 3: Theoretical bases

The content of this chapter presents the definition of supermarket, supermarket classifications, theories on service, theories on loyalty and the summaries of previous researches Finally, the author argues the research hypotheses to propose the initial research model

Chapter 4: Research design

This chapter presents the research subjects, the survey subjects, the sampling methods, the analytical methods and the designing of the measuring scale to form the survey questionnaire

Chapter 5: Research results analysis

Chapter five uses the descriptive statistics method, the Cronbach Alpha internal consistency analysis method, the explanatory factor analysis method, and the regression analysis method, to detect violations and verify the differences

Chapter 6: Conclusions and notes to administrators:

From the conclusions drawn from the research results, this thesis puts forth recommendations for supermarket administrators/managers in order to increase customer loyalty

CHAPTER 2: THE RETAIL MARKET AND THE COMPETITION SITUATION AMONG SUPERMARKETS IN VIETNAM

Chapter two introduces the revenue from retail and consumer services throughout the years, the market for main retail goods, and the overview of the competition situation among supermarkets in Vietnam

2.1 Revenue from retail and consumer services throughout the years

The revenue gained from retail and consumer services maintained a high degree

of growth in the period 2005-2011, increasing at an average of up to 27%/year The total amount of goods sold in retail and revenue from consumer services in 2011 in Vietnam were estimated to be 2,004.4 trillion dong (approximately 96 billion USD), having increased by 24.2% compared to the previous year; if excluding the price factor, the increase was 4.7% If calculated based on the proportion of contributing components, the majority of the retail revenue came from the individual and private sectors, which accounted for 85% of the total retail revenue This showed the activeness of these business groups The revenue from the government sector in

2010 was 219 trillion dong, making up 11% of the total revenue from retailing and service providing The proportion of revenue from the FDI companies sector is quite low at 3% of the 2010 total retail revenue As of the speed of growth in the period 2005-2011, the average retail revenue growth rate for the individual and private sectors were 23% and 38%/year, respectively, while that of the FDI companies sector was 21%/year, lower than the average rate at 27%/year (www.gso.gov.vn)

2.2 The market for main types of retail goods

2.2.1 Food and beverages

Food is the most important segment of the retail market In 2011, the proportion

of spending for food in the total retail expense in Vietnam was up to 62.5%, higher than that of China (60.7%), Thailand (58.1%) and Indonesia (59.8%) In Vietnam, 80% of the retail outlets are food outlets (www.vneconomy.vn) Moreover, food

outlets are usually stationed in numbers in traditional markets and in unlicensed stalls In the trend of urbanization and modernization of the economy, supermarkets and food stores appear more often than before In general, the cuisine needs of Vietnamese people are becoming more diverse and increase alongside the population growth scale However, under the effects of inflation, the proportion of spending for food in the total income of people is increasing

Consumer food revenue in Vietnam in 2011 reached 357 trillion dong (approximately 18.69 billion USD), 1.9 times higher than that in 2006 The consumer revenue from food in 2012 was estimated to be 397 trillion dong (equivalent to 19.3 billion USD), which was a 3 percentile increase compared to the figure in 2011 (www.gso.gov.vn) Compared to the scale of the population, the average amount of spending for food per capita in Vietnam in 2011 reached 4 million dong/person (equivalent to 212.7 USD/person), which was a 1.8 times increase compared to that in 2006 Therefore, the yearly average food consumption growth rate in Vietnam was about 12% Compared to other Asian countries, this average spending on food per capita was relatively low This was a significant growth potential for the food industry (www.saigontimes.com.vn)

As of breweries, the need for breweries in Vietnam is very significant Aside from the reason that Vietnam is in a tropical location with a hot and humid climate, there are two other important reasons: that the majority of the population are in their young and working years, and the living culture of Vietnamese people The total revenue from alcoholic drinks in 2011 reached 1.7 billion USD, an 18.46% improvement compared to the previous year The total volume of alcoholic drinks consumed in 2011 in Vietnam was 2.1 billion liters, which composed of 2 billion liters of beer and 16.3 million liters of table wine Therefore, beer was the dominant kind of goods in the Vietnamese breweries market Aside from alcoholic drinks, the need for non-alcoholic drinks in Vietnam is also great The revenue from non-alcoholic drinks in 2011 reached 1.7 billion liters, equivalent to 6,430 billion dong,

which was a 20.37% increase in volume and a 15.98% increase in worth compared

to the previous year (www.saigontimes.com.vn)

Coffee is also a drink which is greatly interested in and favored in Vietnam The total coffee sales revenue in 2011 in Vietnam reached 39.8 thousand tons Vietnam also owns several famous coffee brand names such as Trung Nguyen, Vinacafe Bien Hoa (VCF) As of the foreign investors group, Nestlé took the top spot in the instant coffee segment (www.sgtt.com.vn)

2.2.2 Consumer goods

As of household appliances, this industry is split into two segments: large appliances (washing machines, air conditioners, TV, refrigerators, etc.) and small appliances (fans, irons, blenders, coffee makers, etc.) The total sale of household appliances in 2011 reached 14.2 million units, 9.4 million of which was of small appliances and 4.7 million was of large appliances Therefore, the average growth rate for the sales of household appliances in the period 2006-2011 reached 12.5%/year, in which the sales of small appliances increased by 10.5%/year and that

of large appliances increased by 17.5%/year Calculated base on worth, the revenue from household appliances in 2011 in Vietnam was 30.882 billion dong, in which small appliances contributed 11.063 billion dong and large appliances contributed 19.819 billion dong The average growth rate for household appliances in the period 2006-2011 was 21.1%, in which large appliances revenue grew by an average of 20%/year and the revenue of small appliances grew by an average of 21.7%/year (www.vneconomy.vn)

Calculated based on the market share (based on sales) of large household appliances suppliers, Sanyo took the largest market share in 2010 at 49.8%, followed by LG (9.7%), Toshiba (6.5%), Panasonic (4.8%), Electrolux (4.7%), etc

As of the market share of small appliances suppliers, Phillips took the largest share

in 2010 at 21.3%, followed by Sharp at 17%, Panasonic at 15.7%, etc (www.sgtt.com.vn)

As of personal belongings, this branch is usually about clothing, jewelry accessories, etc Even though Vietnam is an exporter of garment goods, as the life quality of the people increased and the process of globalization and integration became more rapid, Vietnamese people in the medium segment and above have the tendency to pay more attention to famous brand names from foreign countries such

as Mango, Bossini, Gucci, D&G, Valentino, etc Moreover, most popular brand names like Bossini, Mango and Giordano have their products made in China so they can be sold in major cities in Vietnam at affordable prices It has been estimated that the total revenue from garment products in 2011 in Vietnam reached about 2.5 billion USD, an 18% increase compared to 2010 (www.saigontimes.com.vn)

2.3 Overview of the competition situation among supermarkets in Vietnam

Despite having fallen out of the top 30 countries most favorable for the retail business as well as being under the effects of a struggling economy, Vietnam still has a retail market considered potential for investors to exploit In an assessment on the retail market, the Ministry of Industry and Commerce commented, after five years of joining the World Trade Organization, the retail industry in Vietnam has expanded at a fairly fast pace, having establish its presence on the market and fulfilled the needs of the people The number of newly established supermarkets in this period increased by more than 20% The number of commercial malls formed anew also increased by more than 72% Moreover, distributed over the country are thousands of specialized stores and convenience stores (after the modern business model of advanced countries) Generally estimated, the market share of the types of modern retail models is about 20% of all the retail industry, twice that at the time they were initially introduced Statistically, there are 717 modern retail stores all over the country and 8,600 traditional markets The official administrators of retail, the Ministry of Industry and Commerce, wanted that by 2020, there would be 1200 supermarkets, 157 shopping centers and 180 commercial malls By then, the proportion of modern retailing in the retail industry would reach 43%

(www.vnexpress.com.vn) The following statistics will prove the growth of the distribution network of supermarkets:

 The Korean corporation of Lotte planned to develop 60 supermarkets and commercial malls in Vietnam, starting with Lotte Mart (opened in July 24) and hiring a whole 4 commercial floors (about 20,000 m2) of Mipec Mall

 The Japanese company, Aeon, had plans to open two commercial complexes every year in Vietnam until they reach 20 complexes in 2020

 The French Big C chain of supermarkets has had 20 supermarkets in Vietnam, but is still working on developing their system by opening a center in Phu Tho and building a complex in Quang Ninh

 The Ocean Group is making their first investment moves in the retail industry Ocean Retail, a member of Ocean Group, who is in charge of and is developing the OceanMart supermarket chain, stated that their plan is to open 70-80 supermarkets and commercial malls across the country by 2015, making retailing the strategic direction of the corporation

 Coopmart is running three parallel business models serving different target customers including Coop Extra (giant supermarkets), Coop Food and the supermarket chain of Coopmart Among those models, Coopmart has 65 supermarkets including 27 supermarkets in Ho Chi Minh Cityand 38 supermarkets

in other major provinces and cities across the country

 Coopmart’s goal is to expand to 100 supermarkets by 2015, meaning each year Saigon Coop has to open 10 new supermarkets

 The supermarket chain of Vinatex Mart, belonging to the Vietnam National Textile and Garment Group, is also expanding their list of supermarkets and retail stores, with 21 supermarkets across many provinces and cities Their newest conquers are

in Bac Lieu and My Tho

 The supermarket chain of Citimart has also raised the number of their supermarkets

in residential and urban areas to 18

 The corporation of Metro Cash & Carry, with their revenue at 1.7 trillion dong/year has also committed to deploy fully and quickly their 8 distribution centers across the country, from Ho Chi Minh City, Ha Noi, Hai Phong, Can Tho, Da Nang and with the Tay Nguyen market in sight (www.vietbao.vn)

The figures above have shown the fierce competition among supermarkets Therefore, loyalty to a supermarket is the most important factor, deciding said supermarket’s successes and existence Without customers’ loyalty, the competitive power of a supermarket will be insignificant Therefore, doing research on the factors affecting the loyalty of customers towards supermarkets is a necessary and highly practical thing to do

CHAPTER 3: THEORETICAL BASES

The content of this chapter presents the definition of supermarket, supermarket classifications, theories on service, theories on loyalty and the summaries of previous researches Finally, the author argues the research hypotheses to propose the initial research model

3.1 Supermarket Theories

3.1.1 Supermarket Definition

Supermarket is a kind of modern store, selling general or specialized goods, with a diverse range of merchandise The types of goods being sold may not be related to each other (in general supermarkets) or they can belong to a same type of merchandise (in specialized supermarkets) These merchandises are ensured to be of good quality and follow specific quality standards Supermarkets must meet standards on their business areas, technical equipment, management and business organization, and they must possess civilized and convenient service procedures in order to satisfy customers’ shopping needs Supermarkets may be general or

specialized but may not include such services as meeting halls, meeting rooms, offices, etc (supermarket – commercial mall regulations, 2004)

3.1.2 Supermarket Classification

 Class I supermarket: Aside from standards requiring modern infrastructures, warehouses, preservation techniques, hygiene areas and entertainment areas, general supermarkets must comply to these basic standards: having a business area from 5000 m2 or more, having an inventory with 20,000 merchandise names or more For specialized supermarkets: the basic standards are: having a business area of 1000 m2 or more and an inventory of 2,000 merchandise names or more

 Class II supermarket: General supermarkets must comply to these basic standards: having a business area from 2,000 m2 or more and an inventory with 10,000 merchandise names or more With specialized supermarkets, the basic standards are: having a business area from 500m2 or more and an inventory with 1,000 merchandise names or more

 Class III supermarket: General supermarkets must comply to these basic standards: having a business area from 500 m2 or more and an inventory with 4,000 merchandise names or more With specialized supermarkets, the basic standards are: having a business area from 250m2 or more (like a general supermarket) and an inventory with 500 merchandise names or more

(supermarket – commercial mall regulations, 2004)

This research focuses on analyzing the factors affecting customers’ loyalty towards class I supermarkets These are the supermarkets mentioned in the survey questionnaire including Coopmart, Big C, Maximart, Lottemart and Citimart

3.2 Service theories

3.2.1 Service definition

Groonroos (1990), referred to by Kang and James (2004) defined service as an activity or a chain of activities with more or less intangibility, in which there are

interactions between customers and customer service staffs, material resources, goods or service providing systems

Kotler (2011) defined service as an activity or a benefit that one partner can provide the other partner, which has intangible characteristics and does not associate with any transfer of possession

However, nowadays, there is no accurate and unified definition of service Pure services have some features to differentiate itself from pure merchandise These differences lead to the fact that providing a service is different to provide merchandise in terms of intangibility, the inseparability between providing and consuming services, non-uniformity, non-storability and the inability to transfer possession

3.2.2 Service characteristics

According to Zeithaml et al (1985), the service industry is considered the part that provides an economy’s intangible values Services have some distinctive characteristics that we can base on to differentiate them with other tangible goods, which are these five aspects:

 Intangibility: A service’s intangibility is its inability to be touched or

grasped; it does not have a specific form like a tangible product Therefore, to lower uncertainty, buyers seek proofs of quality from the objects they come in contact with or the equipments that they can see

 Inseparability: This characteristic is the difficulty in differentiating the

creation and the consumption of a service A service cannot be separated into the creation phase and the consumption phase The creation and consumption of most service happen simultaneously, because the customer will also be present at the provision of the service so the interaction between the service provider and the customer is a special characteristic of services

 Non uniformity: a service’s different levels of accomplishment, which

means that a service can be either rated very bad or very perfect The essentials and

quality of a service may change according to the provider, the perception of the customer and the time of service Basically, fluctuations in services happen easily and they happen more regularly compared to the fluctuations in tangible products, because in services there is a high level of human interaction This makes standardizing services even more difficult

 Non-storability: services only exist at the time of provision; therefore they

cannot be produce en masse for storage They are only sold when there is a demand

on the market and that demand is hard to predict The demand can change according

to seasons, the times in a day, business circles, etc

 The inability to transfer possession: Upon buying a product, the customer

is granted its possession and will become the owner of the product they bought When buying a service, the customer can only uses the service, enjoy the benefits it brings during a limited period of time This characteristic affects distribution policies in which intermediaries, both retailer and wholesalers are not transferred possessions They are merely taking part in the provision of the service

3.2.3 Service quality definition

Customers play a very important role in services; therefore, when assessing a service, people usually mention the two concepts: “service quality” and “customer satisfaction” Service quality is the issue most concerned about by managers these days in business A good quality product may not be chosen by customers if the services that go with it are judged as of low quality Nowadays there are numerous different definitions of service quality, but in general service quality is defined as what customers can feel Each customer has different perceptions and demands so the feeling they have about the service quality they received will also be different Juran (1988), referred to by Luu Van Nghiem (2008) stated that quality is the fitness for purpose Feigenbaum (1991) defined quality as the decision of customers based on their actual experiences with a product or service, measured based on the requirements of that customer These requirements may be stated or not, be

perceived or simply felt, be purely subjective or have some degrees of expertise and always represent variable targets in a competitive market Meanwhile, Russell (1999), referred to by Kang and James (2004) stated that quality represents the superiority of a product or service, especially if they reach a level that can satiate every demands of customers and please them

According to Ranaweera and Neely (2003), service quality has to be assessed based on two aspects that are the service provision and the service results Gronroos (1984) also proposed two aspects of service quality including the technical quality and the usability quality Technical quality involves what are being served and usability quality involves the way services are delivered However, researches done

by Parasuraman et al (1985, 1988) stated that service quality is an all rounded assessment of the attitude that aims at service excellence

3.3 Loyalty theories

3.3.1 Loyalty definition

The loyalty of customers is an important factor in the customer strategy of any company Increasing customer loyalty is becoming a heated topic among managers, consultants and scholars Loyalty is also defined as the deep commitment to repurchase a favorite product or service in the future, therefore exists the repeated purchasing of a single brand or a group of brands, even though that can be changed

by effects from marketing efforts (Oliver, 1999 referred to Yee et al, 2010)

According to Oh (1995), referred to by Kim et al (2004), there are three main methods to approach loyalty for research: The first one is the activities including customer information sharing, the frequency of visit, the cross purchasing level and the durability of the relationship; the second way includes personal interests, commitments, intentions and finally integration (Rittippant et al, 2009) The suitable approaching method includes both variables “activity” and “attitude” to create a unique definition of loyalty The definitions of loyalty of customers can be understood as a combination of the attitude of enjoyment from customers and the

repurchase activities (Kim et al, 2004) The loyalty of customers towards a retail store is that a customer keeps purchasing again and again from a specific store (Rittippant et al, 2009) Many researches showed that loyal customers buy more, pay higher prices and refer the store to other customers

Hart (1999)identified that in order to gain customer loyalty, companies must continuously provide superior values to customers that lead to an increase in market share and profit, and decrease the cost to attract a new customer (Rittippant et al, 2009) Kumar and Shah (2004) stated that loyal customers can be a double edged blade If poorly managed, they can seriously harm a company This is where profit that can harm loyalty But if the loyalty of customers is carefully managed in accordance with profit, loyalty can become the mightiest marketing weapon against competitors

3.3.2 Competitive advantages from loyalty

Griffin (2002) assumed that gaining more loyalty brings a number of competitive advantages to a company, as stated below:

 Loyal customers actively choose to purchase again and again from a single company, thus reducing the market share of its opponents

 Loyal customers are price insensitive and therefore will not react to discount campaigns from the company’s opponents

 Loyal customers allow a company chances to make competitive offers or to correct mistakes made during the service provision process before giving up

Griffin (2002), referred to by Cant and Toit (2012) suggested a number of important ways through which the loyalty of customers can increase a company’s profit:

 Marketing cost reduction: The marketing cost for a loyal customer can be lowered since the cost to keep a customer interested is lower than that to obtain a new customer Gaining a new customer implies that a lot of promotion campaigns and customer-aimed multimedia usage are needed Therefore it costs more compared to the cost to retain an existing customer When using a lower marketing budget, companies can focus more on improving their product quality

 Low transaction cost: loyal customers tend to be price insensitive; therefore they are not easily moved by the marketing efforts of competing opponents Thus, when trading with loyal customers, it is not necessary that a company negotiates the terms on the price, the delivery service or the packaging of products, but they should focus more on maintaining and expanding relationships This reduces transaction costs

 Lower customer attraction cost: Having a new customer after they walk away due to dissatisfaction is costly and requires a lot of marketing effort By keeping existing customers satisfied and loyal, a company can reduce the cost commonly needed to obtain a new customer

 Increase cross selling: since loyal customers have a certain level of familiarity with a company and its line of products, the company can more easily conduct the cross selling of relating items When customers buy more products, the company gains more benefits and increases the switching cost

of customers

 Lower error cost: In their relationship, both the company and its customers

do researches to act in a certain way and expect a certain level of service quality as well as respect from the other party This reduces the error cost or mistakes during the provision of services

 Increase the word-of-mouth effect: the definition of customer loyalty implies the increase of customers’ reference of the company to their friends and colleagues The word-of-mouth effect can lead to an increase in the customer base without incurring further marketing costs

3.4 Overview of previous researches

Researches done in the field of supermarket service quality by Nguyen Dinh Tho and Nguyen Thi Mai Trang (2003), referred to by Nguyen Dinh Tho and Nguyen Thi Mai Trang (2007), were done to explore, adjust and complement the aspects of supermarket service quality and the measuring scale of service quality, containing five factors: the types of goods, the level of staff service proficiency, the way goods are stored in the supermarket, the allocation of infrastructures and the level of safety This research concluded that there is a relationship between service quality and customer loyalty towards a supermarket The research built a theoretical model and a competitive model on supermarket service quality

The research by Nguyen Thi Mai Trang (2006) on service quality, satisfaction and customer loyalty showed that supermarket service quality includes five factors: the types of goods, the level of staff service proficiency, the displaying of goods, the infrastructures and the level of safety within the supermarket The results also pointed out that if service quality is improved, customer satisfaction will also be improved Customers will be loyal to a supermarket when they are satisfied with the services and goods provided by that supermarket To improve the service quality of

a supermarket, the supermarket manager should pay attention to the five factors of service quality, which are the types of goods, the level of staff service proficiency, the displaying of goods, the infrastructures and the level of safety within the supermarket

The research done by Cant and Toit (2012) on determining the factors that affect the loyalty of customers towards retail stores stated that the factors affecting the loyalty of customers towards retail stores are the quality of the goods provided

by those very retail stores and the loyalty card programs This research also pointed out that customers will be more loyal if retail stores focus on the displaying of their merchandise and these places should have music played to create a soothing relaxation for customers during their shopping experience

The research done by Fatima and Rasheed (2012) on the factors affecting the loyalty of customers towards commercial malls identified the three main factors affecting the purchasing behavior of customers in commercial malls They are: the environment of the shopping centers, the reputation of the shopping centers and finally the convenience of shopping The environment of shopping centers includes the color, the lighting and the decoration at the places, the assistance from staffs and the security of the shopping centers The research also pointed out that a shopping center that can create more enjoyment for customers can create customer loyalty and through that increases the shopping frequency of customers The reputation of shopping centers includes the advertisement and discount campaigns, the effort to retain customers, the quality of goods, etc., all of which play an important role in building customer loyalty The research also enlightened the fact that convenience

is considered a valuable factor in the mind of customers Conveniences like the geographical locations, convenient opening hours, minimal waits for checking out, etc all have great impacts on the loyalty of customers when shopping at commercial malls

Research done by Mokhtar et al (2011) on the impact of service quality and customer satisfaction on the loyalty of customers in the multimedia industry in Malaysia concluded that the satisfaction of customers play an important role in increasing the loyalty of customers Moreover, this research also pointed out that service quality also has positive impacts on the loyalty of customers This research did not study the relationship between service quality and customer satisfaction The research used regression analysis equations to explore the impact that service quality and customer satisfaction have on the loyalty of customers

Based on previous researches and theory models, this thesis also focuses on researching the factors affecting the loyalty of customers when shopping in supermarkets in Ho Chi Minh City, including such factors as: service quality, customer satisfaction, loyalty card campaigns, affordable prices, supermarket reputation and convenience Unlike the other researches, this one only uses the regression model to test the effects the factors above have on customer loyalty, therefore it does not focus on researching the effects the factors have towards each other or in other words, the research does not use the SEM linear research model to test the relationship among the factors and the loyalty of customers

3.5 Proposed research model

Service quality is also defined as the general assessment of a service by customers (Eshghi et al, 2008, referred to by Daniel et al, 2010) or the level of customer demands and expectation fulfilled by a service (Asubonteng et al, 1996, referred to by Daniel et al, 2010) Ladhari (2008), referred to by Daniel et al (2010) stated that service quality is considered an important tool in the war among companies to create differences compared to opponents Ghylin et al (2008), referred to by Daniel et al (2010) pointed out that by determining service quality, a company can provide higher quality services which can lead to improvements in customer loyalty Nguyen Thi Mai Trang (2006) found that when a customer rates a supermarket’s service quality as good, the relationship between the customer and the supermarket becomes tighter; therefore these hypotheses are proposed

Hypothesis H 1 : service quality positively affects customer loyalty

Customer satisfaction is considered the state where the purchasing goals of customers are satisfied according to their experiences and descriptions (Oliver,

2006, referred to by Chang, 2012) According to Schiffman and Karun (2004), referred to by Agbor (2011), satisfaction over quality is the personal recognitions towards the quality of a product or service related to expectation Lin (2011) pointed out that a company that can provide good quality services can satisfy a

diverse range of customer demands The contentment of customers is the general assessment on the quality of a product or service based on customers’ past experiences Kumar et al (2009) commented that high quality service leads to customer satisfaction and increases customer loyalty Therefore, this research proposed the following theory:

Hypothesis H 2 : The satisfaction of customers positively affects the loyalty

of customers

Ruiz et al (2010), referred to by Lu Hong Phuc 92011) commented that customers always seek convenience in the modern business environment Supporting services are basically essential in the retail industry and plays a vital role

in determining customer satisfaction Lu Hong Phuc (2011) saw that supporting services includes four main factors: loyalty card programs, parking areas, children play areas and delivery services In particular, Grewal et al (2002), referred to by Lu Hong Phuc (2011) commented that parking areas that create convenience for customers’ cars can lead to customer satisfaction Likewise, the playing areas for children can also create customer satisfaction In this research, the authors paid attention to loyalty card programs as an important supporting service through which customers can receive discounts or bonus items This is also the base to assess the repeated shopping frequency of customers According to Anonl (2012); Polevoi (2012) through many years retail supermarkets have invested a lot in loyalty card programs and created databases for loyal customers Loyalty card programs are usually considered one of the best means to establish and retain loyal customers (Cant and Toit, 2012) Rittippant et al (2009) commented that loyalty card program

is an effective marketing tool that bonds customers and retail stores Cant and Toit (2012) agreed with the viewpoint that loyalty card programs are a marketing tool created to increase customer loyalty towards a company or a specific brand Rittippant et al (2009) commented that loyalty card programs introduced in the retail market are considered the connection between customers and companies through which retail stores can build promotion programs that are paid interest in by

customers It can provide motivation for customers to purchase again and again a product or service in a particular retail supermarket Loyalty card programs are also used as a tool to accumulate information on the purchasing behavior of card holders while customers can accumulate points to receive discounts or other significant rewards based on their purchase frequency and value (Gomez et al, 2006; Meyer and Waarden, 2006, referred to by Cant and Toit, 2012) Therefore, the following hypothesis is proposed:

Hypothesis H 3 : loyalty card programs positively affect customers’ loyalty

Herbig and Milewicz (1993), referred to by Yee and Faziharudean (2010) commented that reputation has to be built with time and is considered a particular characteristic of a retail store Therefore, a retail store can have many kinds of reputation, such as reputation on prices, products, quality, etc or global reputation Many practical researches pointed out that the reputation of a good company can strengthen the trust of customers on the company and its products Muhammad (2012) commented that the reputation of a supermarket can be considered one of the important factors deciding the building and maintaining of customer loyalty Therefore, the following hypothesis is proposed:

Hypothesis H 4 : supermarket reputation positively affects customer loyalty

Dickson and Sawyer (1990), referred to by Veerapong and Wuttisak (2002) commented that normally, before buying from retail stores, most customers rarely

do research on prices due to limited time available as well as the fact that they have trust on the stores and the brands (brand loyalty) Affordable prices in a retail store create customer satisfaction as well as build customer loyalty In the retail industry, stores with affordable prices will regularly claim a large market share (Mason et al,

1994, referred to by Veerapong et al, 2002) Therefore, the following hypothesis is proposed:

Hypothesis H 5 : Affordable prices positively affect customer loyalty

Manana (2009) supposed that geographically convenient commercial malls cause customers to purchase from them repeatedly This research also stated that customers, instead of choosing small stores, may select the surplus services that shopping malls offer The satisfaction that customers receive from services by shopping malls can be directly affected by the perspective of customers regarding the convenience that shopping malls bring forth such as the wide opening hours, the locations, the parking lots, the space (Fatima and Rasheed, 2012) Reardon et al (2001), referred to by Fatima and Rasheed (2012) proved that stores that are located close to homes, workplaces and areas with dense traffic will be appropriate for shopping stops Therefore, customers want to quickly enter commercial malls instead of having to travel long distances, thus the following hypothesis is proposed:

Hypothesis H 6 : Convenience positively affects customer loyalty

Based on the theoretical base, the research model is proposed as below:

Figure 3.1 Proposed Research Model

To sum up, the hypotheses of this research are:

 Hypothesis H 1: Service quality positively affects the loyalty of customers

 Hypothesis H 2: Customer satisfaction positively affects the loyalty of customers

 Hypothesis H 3 : Loyalty card programs positively affect the loyalty of customers

 Hypothesis H 4: Supermarket reputation positively affects the loyalty of customers

 Hypothesis H 5: Affordable prices positively affect the loyalty of customers

 Hypothesis H 6: Convenience in shopping positively affects the loyalty of customers

SUMMARY

The content of chapter two explains the definition of supermarkets, the criteria for supermarket classifications, the definition of service, the characteristics of services, service quality and customer loyalty The research also studied previous research on customer loyalty like the researches by Nguyen Thi Mai Trang (2006)

on service quality and satisfaction’s effects on the loyalty of customers towards a supermarket; by Cant and Toit (2012) on finding the factors affecting the loyalty of customers towards retail stores; by Fatima and Rasheed (2012) on the factors affecting the loyalty of customers towards commercial malls, etc Based on these researches, this thesis focuses on researching the factors affecting the loyalty of customers when shopping in supermarkets in Ho Chi Minh City, consisting of such factors as: service quality, customer satisfaction, loyalty card programs, affordable prices, supermarket reputation and convenience Unlike the other researches, this one only employs the regression model to test the effects of each factor on the loyalty of customers, and does not look into the inter-effects of the factors on each other, or in other words, this research does not use the SEM linear research model to test the relationship among said factors and the loyalty of customers

CHAPTER 4: STUDY DESIGN

This chapter will present research process, research subjects and respondents,

as well as sampling methods, analytical methods, levels of measurement and questionnaire surveys

Quantitative Research Questionnaire

Passing out questionnaires

to 700 supermarket customers in Ho Chi Minh City

Qualitative Research:

- Descriptive statistics

- Assessing level of reliability by Croncbach’ s Alpha

- Exploratory factor analysis (EFA)

- Multiple regression analysis

Data Analysis and Reporting

measurement (Nguyen Dinh Tho and Nguyen Thi Mai Trang, 2007.) In case of customer respondents, 15 regular supermarket customers, who come to the supermarkets at least once or twice a week are chosen for interviews The one on one discussion was conducted in June 2013 (for detail please see appendix 1.) And here is the result of qualitative analysis:

 Most customers agree with determinants of customer loyalty in supermarkets in Ho Chi Minh City that the research brought

 Customers quite highly value the present service quality at the supermarkets including diverse goods and staff's customer service, grocery space

 The majority of supermarket customers are quite satisfied with their supermarket shopping options

 Customers mostly satisfy with shopping at their chosen supermarkets

 The majority of customers use supermarket loyalty cards while checking out

in order to accumulate reward points All interviewees said that the use of this card will help them shopping at the supermarkets offering these programs

 Customers agree that goods price in supermarkets is higher than that of markets but they still decide to shop at the supermarkets They claim that the supermarkets offer reliable origin and high quality goods

 Most customers have the habit of shopping at supermarkets near their houses They have said that the supermarkets have good reputation and reliability In addition, customers said that shopping supermarkets near their houses will help them save time and easily use delivery service

4.3 Qualitative Research

Based on theory and qualitative research, the authors conducted a questionnaire with official rating scale The questionnaire was designed consisting of three parts

as follows:

Part One: Questions to clarify the right survey respondents

Part Two: Statements related to determinants of customers loyalty and other customers' statement about their loyalty to favorite supermarkets in Ho Chi Minh City

Part Three: Customers' personal information

Based on theoretical basis, the conducted research concepts include service quality, customer satisfaction, loyalty cards, supermarkets' reputation, reasonable price, convenience and customer loyalty This is the multivariate scale The scale is shown to be consistent with the standards of reliability and value in the previous study Preliminary interviews are conducted inJuly 2013with a sample size of 30 persons in order to avoid semantic misunderstandings Then the authors edit in accordance with the research objectives (for details please see Appendix 3.)

Hoang Trong and Nguyen Mong Ngoc Chu (2008) suggested that the number

of samples needed to be 5 times more than that of observed variables This sampling strategy will apply to the thesis There are 39 variables in total; therefore, the number of required questionnaires is 39 x 5 = 195 Using convenience sampling method, the authors passed out 700 survey questionnaires to customers who shop at supermarkets at least once or twice a week The questionnaires are administrated in major retail supermarkets such as Co-opmart, Big C, and Maximark where the authors pass out them directly to customers The authors do not use email because the customers' response rate of this method is quite low They collected 663 surveys including 52 questionnaires missing some questions, which leaves 611 questionnaires valid In terms of clarifying questions, there are 105 people who do not often go to the supermarket; thus, the authors only analyze 506 complete

questionnaires The survey is conducted in July 2013 (for details please see Appendix 2.)

From the given data, the authors analyze and use methods such as descriptive statistics, Cronbach's Alpha scale, exploratory factor analysis (EFA) and regression analysis Using Cronbach's Alpha aims to remove inappropriate variables Crobach's Alpha coefficients of factors must be greater than the standard value alpha of 0.6 and the values must have a total correlation coefficient greater than 0.3

in order to be reliable (Hoang Trong and Nguyen Mong Ngoc Chu, 2008.)

Next, the EFA method is used when the Kaiser-Meyer-Olkin (KMO) coefficient value is 0.5 or higher, the observed variables with a coefficient value of less than 0.5 will be disqualified The scale is reliable for factor analysis when the total variance account for 50% or more (Hoang Trong and Chu Nguyen Mong Ngoc, 2008.) The scale continues to be identified, which is subject to correlation analysis and regression methods to examine the hypothesis Pearson product-moment correlation coefficient, known as Pearson's is used to analyze the linear relationship between variables before making regression analysis

4.4 Scale

Service Quality (Service Quality - SQ)

The scale used to measure the quality of service is advocated by Nguyen Dinh Tho and Nguyen Thi Mai Trang (2003) As quoted by Nguyen Dinh Tho and Nguyen Thi Mai Trang (2007), the scale consists of five components: types of goods, service personnel, supermarket goods display, supermarket space and safety level in the supermarket In the qualitative research, the author has revised wording

of the observed variables of SQ1, SQ6 and SQ4 in accordance with customers' opinions This scale includes 7 variables measured by 5-point Likert scale

Table 4.1 Measuring the quality of services

SQ1 The supply of goods in supermarket X is abundant and diversified

SQ2 Supermarket X always has many new items

SQ3 Supermarket X's' staffs are always ready to serve me

SQ4 Supermarket X's staffs are dedicated to answer my inquires

SQ5 Goods displayed at the supermarket X is easy to find

SQ6 Supermarket X's space is airy and beautifully decorated

SQ7 Supermarket X's exits are very safe

Customer Satisfaction (Customer Satisfaction - CSN)

Satisfaction scale is measured based on the scale recommended by Brumly (2002) cited by Noyan and Simsek (2012) In addition, during the operation of qualitative research, the author adds CSN3 observed variables, which based on the opinion of customers to scale the satisfaction and measure them by 5-point Likert scale

Table 4.2 Measuring customer satisfaction

CSN1 In my opinion, shopping at supermarket X is the right decision

CSN2 I am satisfied with the quality of goods of supermarket X

CSN3 I am satisfied with quality of service of supermarket X

CSN4 Supermarket X considers my satisfaction their achievement goal CSN5 Overall, I am very pleased with supermarket X

Loyalty Card (Customer Card - CARD)

The scale used for measuring loyalty cards is suggested by Rittippant and CTG (2009) While doing the qualitative research, the authors supplement more CARD6 observed variables on the scale of loyalty card, which is measured by 5-point Likert scale

Table 4.3 Measuring loyalty card

CARD1 I use loyalty cards issued by supermarket X to accumulate points when

shopping

CARD2 I get discounts when using loyalty card offered by supermarket X CARD3 I receive complimentary gifts when having supermarket X's loyalty

card

CARD4 Application process for a loyalty card of supermarket X is fast

CARD5 Having a loyalty card, I always get the promotion information from the

supermarket

CARD6 It is easy to use loyalty cards

Supermarkets' reputation (Reputation - REP)

The scale measuring the supermarket's reputation is advocated by Yee and Faziharudean (2010) During the qualitative research process, the authors have revised terms of observed variables REP4 to suit customers' comments for the scale The scale of reputation has 5 observed variables and subject to 5-level Likert rule

Table 4.4 Scale of supermarket's reputation

REP1 Supermarket X has very good reputation

REP2 Supermarket X has better reputation than other supermarkets

REP3 Supermarket X is a well-known retailer

REP4 Supermarket X offers safe and reliable products

REP5 I think supermarket X is the best retail brand

Reasonable price (Price - PRI)

Measurements of reasonable prices is subject to the scale used by Cant and Toit (2012,) combined with the scale recommended by Nguyen Dinh Tho and Nguyen Thi Mai Trang (2007) In addition, while carrying outthe qualitative research, the

author adds variable PRI5 monitoring customer opinion on the scale measuring

reasonable price, using the 5-level Likert format

Table 4.5 Scale of reasonable price

PRI1 Price of items sold at supermarket X is consistent with its quality

PRI2 Supermarket X's goods are sold at reasonable prices

PRI3 Supermarket X offers goods with competitive price than other supermarkets PRI4 Price of daily necessities in supermarket X is no higher than that of

traditional markets or grocery stores

PRI5 Cost of price-stabilization commodities at supermarket X is very reasonable

Convenience (Convenience - CVN)

Scale of convenience is subject to the scale recommended by Fatima and

Rasheed (2012) Besides, during the qualitative research process, the authors added

two observed variables CVN5 and CVN6 raised by customers' opinion onto the

scale This scale consists of 6 variables were observed and measured by 5-point

Likert scale

Table 4.6 Scale of Convenience

CVN1 Supermarket X is near my house

CVN2 Supermarket X is near my workplace

CVN3 Supermarket X is easy to locate

CVN4 Supermarket X has spacious and safe parking lot

CVN5 Supermarket X's delivery service is very punctual

CVN6 Exchange and return services makes it convenient for me when shopping

Customer loyalty (Customer Loyalty - CLY)

Scale measuring customer loyalty is built according to the scale of Wornchanok and Watanyoo (2011) combined with that of Muhammad (2012) Plus, during qualitative research, the authors have revised wording of observed variables CLY3

to suit customers' opinions The scale is based on the format of 5-point Likert scale

Table 4.7 Scale of customer loyalty

CLY1 I always go to supermarket X when wanting to go shopping

CLY2 Supermarket X is my first choice when it comes to shopping

CLY3 In my opinion, supermarket X offers the best service

CLY4 I will introduce supermarket X to my acquaintances

CLY5 I will continue to shop at supermarket X in the coming years

All observed variables were measured by the 5-point Likert scale, which consists of (1) - strongly disagree; (2) - disagree; (3) - no opinion; (4) - agree; (5) - strongly agree

ABSTRACT

This chapter presented the research process, research subjects, research respondents, sampling methods, analytical methods and design scale For qualitative research, the authors conducted in-depth interviews of 15 customers who often go shopping at supermarkets in Ho Chi Minh City, revised words to make the meaning clear and added additional statements related to the research concepts Then, the authors passed out questionnaires to 30 customers and received no extra comments Finally, he completed the study questionnaire with 39 observed variables After that, the authors conducted 700 questionnaires and collected 663 In particular, the authors detected 52 questionnaires, which had been left blank for some questions, became invalid, meaning there were 611 questionnaires In clarifying question section, there were 105 people who do not often go to the supermarkets; therefore the author only analyzed 506 completed questionnaires

CHAPTER 5: RESEARCH FINDINGS

This chapter applies the statistical methods and analysis methods, uses Cronbach’s Alpha scale as a measure of reliability, EFA analysis, multiple regressions, detects invalid variables and expertise the differences to get the results

5.1 Descriptive Statistics

5.1.1 Descriptive statistics of questionnaires

Using convenience sampling method, the authors pass out 700 survey questionnaires to 700 customers Then, the authors collected 663 surveys However, the author found 52 questionnaires have been left blank some questions, leaving only 611 valid In the section of clarifying questions, there were 105 people who do not often go to the supermarkets; therefore the author only analyzed 506 completed questionnaires

Table 5.1 Descriptive statistics of questionnaires Sample information Frequency

(n)

Percentage (%)

 Regarding age, the sample had 36 people under age 20, accounting for 7.1% the total 260 people aged 20 to 30 years old, which was 51.4% 157 people who are 30 to under 40 years old (31%) and there are53 people who are40 years old (10.5%) More than half of respondents are people aged 20 to 30 years old This is a fairly and active young age range They tend to go to the supermarket on weekends instead of daily

 In terms of income, there are 153 people with incomes that go below VND5 million /month, accounting for 30.2% 218 people, or 43.1% of total, had monthly income from VND5 million to VND10 million 83 people (16.4%) make incomes from VND10million to VND15 million a month and 52 (10.3%) earn over VND15 million each month The statistics show that the majority of respondents have income ranging from VND5million to VND10 million

 Regarding education, the study had 72 people graduated from high school, making up14.2% 95 people or 18.8% went to vocational schools There are the same number of people who finished college, 95, accounting for 18.8%

207 out of survey people went to universities, representing 40.9% 37 reported other educational levels, which is 7.3% The statistics show that the majority of supermarket customers are who have relatively high levels of

education They are knowledgeable, so they often choose supermarkets for buying high quality products

 For the frequency of weekly supermarket visits, 252 people (49.8%) said they go to supermarkets once or twice a week 145 people (28.7%) went to supermarket usually 3 to 4 times a week 18 out of total (3.6%) reported to

go to supermarket 5 to 6 times per week 18 people paid a visit to supermarket up to 7 times weekly Finally, 73 remaining people went to supermarket with other frequencies, occupying14.4% of the total sample This survey showed that the majority of customers often go to the supermarket once or twice a week This is a general trend for the active young people who are often busy working during the weekdays and go shopping at supermarkets on the weekends

 In choosing favorite supermarkets to shop, 200 people chose Coopmart, accounting for 39.5% out of total 201 customers (39.7%) picked Big C supermarket Maximart was chosen by 45 customers (8.9%) 38 people (7.5%) selected Lottemart 10 customers, or about 2% said they chose Citimart Other supermarkets took 2.4% of the total sample The statistics showed that customers often go shopping at Coopmart and Big C supermarket chains They are the two leading supermarket chains have retail stores across the country, which are usually located at populated areas

5.1.2 Descriptive statistics of variables

Table 5.2 Descriptive statistics of variables

Observed variables Mean Standard

deviation Service Quality (SQ)

The supply of goods in supermarket X is abundant and

Supermarket X always has many new items 3.73 830 Supermarket X's' staffs are always ready to serve me 3.58 894 Supermarket X's staffs are dedicated to answer my inquires 3.88 764 Goods displayed at the supermarket X is easy to find 3.77 825 Supermarket X's space is airy and beautifully decorated 3.77 799

Overall, I am very pleased with supermarket X 3.65 818

Loyalty Card (CARD)

I use loyalty cards issued by supermarket X to accumulate

I get discounts when using loyalty card offered by