The effects of switching barrier on the customer retention a study of ceramic companies in vietnam

Therefore, the purpose of this study is to determine critical factors of switching barrier that potential influence on customer retention in business-to-business B2B sector in Vietnam ce

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS - HOCHIMINH CITY

ABSTRACT

Many previous researches proved that retaining customers plays an important role for business in service sector and end-user or consumers are their oriented-object However, there is a lack of research in the areas of evaluation of B2B customer retention in product sector in Vietnam Therefore, the purpose of this study is to determine critical factors of switching barrier that potential influence on customer retention in business-to-business (B2B) sector in Vietnam ceramic companies Based

on previous studies on switching barrier, four major factors will be calculated as move-in cost, benefit/loss cost, interpersonal relationship and the attractiveness of alternatives The overall purpose of this research is to develop a conceptual foundation

of customer retention, with the use of the concepts of switching barrier and customer retention, and provide management significance of customer retention for marketers of Vietnam ceramic companies in developing strategies for retaining B2B customers

ACKNOWLEGEMENTS

Although I have taken efforts in this research but it would not have been finished without the kind support and help of people Therefore, I would like to extend my sincere thanks to all of them

First of all, I would like to express my sincere gratitude towards my direct supervisor PhD Tran Ha Minh Quan for his great guidance, support and encouragement in completing the research

I am very thankful managers of My Duc Ceramics Limited Company for their share opinions, experiences and providing necessary information regarding to the research

I would like to express my special gratitude to my family and my friends for the love, support and encouragement during the whole process of my project which helps me in starting the first difficult step and completion of my thesis

Finally, my thanks and appreciations also go to my colleagues in developing the project and agents of MDC for their kind co-operation in answering the questionnaires

I also thank to person who willingly helped me out with their abilities

My heartfelt thanks to you all!

Nguyen Thi My Trang

Ho Chi Minh City, April 2012

STUDENT DECLARATION

I affirm that the research titled ―The effects of switching barrier on the customer retention – A study of ceramic companies in Vietnam‖ is my own work The work is original except where indicated by special reference in the text The research has been conducted in studying by the academic knowledge and with the assistant of my supervisor and MDC‘s managers

By this letter, I would like to undertake that it is my own research All data, resources, references using in this research are clearly identify

SIGNED:

DATE:

TABLE OF CONTENT

ABSTRACT i

ACKNOWLEDGMENTS ii

STUDENT DECLARATION iii

TABLE OF CONTENT iv

LIST OF FIGURES vi

LIST OF TABLES vii

LIST OF ABBREVIATIONS viii

CHAPTER 1: INTRODUCTION 1

1.1 Rational of the study 1

1.2 The statement of the problem 1

1.3 Research objective 3

1.4 Research questions 3

1.5 Scope of the research 3

1.6 Research methodology 4

1.7 The structure of the research 4

CHAPTER 2: LITERATURE REVIEW 6

2.1 Ceramic tile 6

2.2 B2B customer 7

2.3 Customer satisfaction 9

2.4 The relationship between customer satisfaction and customer retention 10

2.5 Customer‘s retention 11

2.5.1 Define of customer retention 11

2.5.2 Benefit of customer retention 12

2.5.3 Switching barrier 13

2.5.3.1 Switching cost 17

2.5.3.2 Attractiveness of alternatives 19

2.5.3.3 The interpersonal relationship 19

2.6 Research model and hypothesis 20

2.6.1 Proposal of research model 20

2.6.2 Initial hypothesis 21

CHAPTER 3: RESEARCH DESIGN 23

3.1 Research design 23

3.1.1 Research purpose 23

3.1.2 Research approach 23

3.1.3 Research process 24

3.2 Official research 25

3.2.1 Measurement scale 25

3.2.2 The questionnaire design 27

3.2.3 Research sample and sampling 28

3.2.4 Data collection methods 28

CHAPTER 4: DATA ANALYSIS AND FINDINGS 29

4.1 Characteristics of the samples 29

4.2 Statistical Result 30

4.2.1 Variables for measuring switching barrier 30

4.2.2 Variables for customer retention 32

4.3 Data Analysis 32

4.3.1 Reliability evaluation through Cronbach‘s Alpha 33

4.3.2 Evaluation the measurement scale by using Exploratory Factor Analysis 36

4.3.2.1 Some rules in EFA test 36

4.3.2.2 EFA for switching barrier 37

4.3.2.3 EFA for customer retention 40

4.3.3 The adjusted research model 42

4.3.4 Modeling Testing 42

4.3.4.1 Correlation coefficient analysis 42

4.3.4.2 Regression Analysis 44

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 48

5.1 Conclusions 48

5.2 Recommendations 49

5.2.1 Benefit/loss cost 49

5.2.2 Interpersonal relationship 50

5.2.3 Move-in cost 51

5.3 Research limitations 53

REFERENCES 54

APPENDIX 60

APPENDIX 1: Questionnaire 60

APPENDIX 2: Cronbach's alpha analysis result and Factor analysis result 64

LIST OF FIGURES

Figure 2.1: Kim et al (2004) 17

Figure 3.1: The suggested research model 21

Figure 3.2: Research process 24

Figure 4.1: Sample characteristics 30

Figure 4.2: Research model 42

LIST OF TABLES

Table 2.1: Define of switching barrier variables 15

Table 3.1 :Summary of retention factors and measurement scale 27

Table 4.1: Descriptive statistics of switching barrier measurement 32

Table 4.2: Descriptive statistics of customer retention measurement 32

Table 4.3: Reliability test of switching barrier and customer retention 34

Table 4.4: Final Reliability test of switching barrier and customer retention 36

Table 4.5: Rotated Component Matrixa 38

Table 4.6: Rotated Component Matrixa 39

Table 4.7: KMO and Bartlett‘s Test 40

Table 4.8: Total Variance Explained 41

Table 4.9: Final EFA analysis result of customer retention 41

Table 4.10: Pearson correlation matrix 43

Table 4.11: Model Summaryb 44

Table 4.12: ANOVAb 45

Table 4.13: Coefficientsa 45

LIST OF ABBREVIATIONS

B2B: Business to Business

B2C: Business to Consumer

DONG TAM: Dong Tam Group

EFA: Exploratory Factor Analysis

MDC: My Duc Ceramics Limited Company

VND: Vietnam Dong

WHITE HORSE: White Horse Ceramics Company

CHAPTER 1: INTRODUCTION

1.1 Rational of the study

Infrastructure construction is one of top interests in Vietnam as well as other countries in the world Moreover, with high growing rate of urbanization and increasing demand for housing of middle class in society pushing up the construction

of public works and high-floor projects by Government and investors Based on that, the building material industry in Vietnam get opportunity to develop and ceramic industry is not an exception with the quite stable growth in the last ten years According to Vietnam building ceramic association, the building material market has grown by 10%/year in the last 2000-2005 period and 20%/year in 2 years after Therefore, Vietnam ceramic tile is an attractive market drawing investors in both domestic and overseas as its potential profits and has had the participation of 20 companies up to now In order to compete and grow in this competitive markets, each ceramic company must strongly focus on retaining existing customer, special for business customers who tend to be fewer in a number and each is more valuable, and gaining new ones as the more customers company has, the more profits it get

Business is in a constant race to increase profits Therefore, ceramic companies should invest on retaining customers, especial for difficult times But striving to maintain unprofitable customers is not a good business strategy Companies should identify 20% of potential customers who bring 80% of profits to business In ceramics industry, agents are company representatives who create 80% of revenues to companies So we need a research to find the critical factors adjusting to their retaining Its aims to help organizations build effective customer retention strategy in

a way that both firms and the customer get the most out of exchange, providing both parties with long term benefits

1.2 The statement of the problem

Many previous studies have identified the benefits of retention to an organization (Colgate et al., 2007; Reichheld and Sasser, 1990) but relatively little research on B2B customer retention And although many companies have realized the economical advantage of keeping existing customers against acquiring new ones, almost ceramic

companies still focus on developing new customers rather than maintaining old customers and invest on customer satisfaction more than retaining customers Their own decisions base on the traditional information about the profit and customer satisfaction

Firstly, organizations except that expanding the market or developing new customers is the best way maximize profits However, it is the fact that acquiring new customers is more expensive than keeping existing customers According to Reichheld and Sasser (1990), a 5% improvement in customer retention can cause an increasing in profitability between 25% and 85% (in terms of net present value) depending upon the industry With long term relationship, customers tend to be less inclined to switch, less price sensitive, less expensive to service and may initiate free word of mouth promotions and referrals So that saving cost and getting more profit can be reach by maintaining customers It is the reason that many firms focus on customer retention which is aimed at building strong long term relationships that keep customers coming back repeatedly

Secondly, in traditional understanding, customer satisfaction is often seen as the key to a company‘s success and long-term competitiveness because it could lead customers to repurchase and keep stay with current providers Hence, it is often viewed as a central determinant of marketing by almost firms But even if customers have high satisfaction, they could change to other suppliers Moreover, according to John Wiley & Sons, Inc (1997), if direct relationship of customer satisfaction, customer relationship management and customer loyalty is weak or even nonexistent, switching barrier is a factor affecting to customer‘s decision to stay or not with the current providers It plays a role of adjustment variable in the interrelationship between customer satisfaction and customer retention (Lee & Cunningham, 2001; Colgate & Lang, 2001; Jones et al, 2000; Kim et al, 2004) (Trung voi doan Literature review ne) From that, the firms should note that customer retention must be more invested in the future

The competition is hard in today‘s ceramic business and the building material market is quite because of economic crisis To survive in this environment, firms should improve their ability to be dynamic and be different from the competition

Customer retention helps organizations to keep the existing customers to continue purchasing with current providers And even dissatisfied customers can be retained through switching barrier which is one of factor effecting on customer retention

Although company seems to be doing well at the time, but systematically upgrading the customer retention strategy could further enhance the company‘s competitive abilities Therefore, this study emphasizes on factors impact on switching barriers of agents in ceramic companies in Vietnam The purpose of this thesis is to provide a better understanding of customer retention concept in B2B sector to ceramic industry And it can offer some ideas to improve company-customer relations and adjust the presented condition of companies

1.3 Research objective

The purpose of this research as following:

- To identify significant factors of switching barrier effect on customer retention

in Ceramic Companies in Vietnam

- To measure the effect of these key factors related with customer retention in Vietnam ceramic companies

1.4 Research questions

- What are the main determinant factors impacting on B2B customer retention?

- How can these factors influence on customer retention by the view of agents in Ceramic Companies in Vietnam?

1.5 Scope of the research

Due to the limited time, the research is conducted to the agents (B2B customers)

of My Duc ceramic company who are also sales representative of Dong Tam Group (Dong Tam) and White Horse Ceramic Company (White Horse) and other ceramic companies in Vietnam

The conclusions will be derived from this research are limited to big companies such as My Duc Ceramic company, Dong Tam and White Horse and will be based on the information of this result

Qualitative research: This step is researching by in-depth interviews with manager of My Duc ceramics Company (International Sales Manager, Local Sales Manager and Service Team Manager) in order to discover and adjust the customer retention dimensions The result of this research is used for designing the questionnaire used for official study

Quantitative research: this research is researching by delivering questionnaires to agents of MDC in Hanoi City, Danang City and Ho Chi Minh City directly SPSS version 16.0 will be used for analyzing the collected data

1.7 The structure of the research

This research includes five chapters:

Chapter 1: Introduction

As presented, this chapter mentioned about rational of the research, statement of the problem, research objectives, research questions, scope and limit of the research and research methodology

Chapter 2: Literature review

This chapter gives theories related to customer retention or background for the research

Chapter 3: Research Methodology

This chapter develops the research model, hypotheses, research process and a methodology for data analysis

Chapter 4: Research finding and result

This chapter gives the research finding according to analysis the collected data

Chapter 5: Conclusions and Recommendations

It is the final chapter which summaries the most important findings and provides recommendations on improving customer retention strategy in Vietnam ceramic companies It also presents the suggestion for future research

CHAPTER 2: LITERATURE REVIEW 2.1 Ceramic tile

Historically, ceramic tile has been made since 4000 years for human‘s demand in creating living spaces which were beautiful, durable, and user friendly Beautiful tiled surfaces have been found in the oldest pyramids, the ruins of Babylon, and ancient ruins of Greek cities Decorative tile work was invented in the near East, where it has enjoyed a longer popularity and assumed a greater variety of design than anywhere in the world Europe decorated tiles came into general use outside from the second half

of the 12th century The mosaics of Spain, Italia, and ceramic tile of England, Netherlands and Germany are all prominent landmarks in the history of ceramic tile Nowadays some countries in Asia such as Malaysia, Thailand, Indonesia, Sri Lanka, China, Indian and Vietnam become producers of ceramic tile

Ceramic tile - made of clay, sand and other chemical - cut pieces into shape and

be dried beneath the sun or fired in a kiln under high heat to create the finish product According to number of firing, ceramic tiles can be divided in to two groups: unglazed tiles and glazed tiles Unglazed tile was fired once and glazed tile was fired twice Basing on the used purpose, there are two types of ceramic tiles including roofing tiles used in Mission-style architecture and hand-painted porcelain tiles intended for ornamentation (decorative tiles) Now the tile has a wide variety of designs, shapes and sizes, textures and surface effects

Ceramic tile can be used in a range of application, including walls, floors, ceilings, fireplaces, in murals, and as an exterior cladding on buildings Because of beauty and high durability, ceramics are caused for commercial buildings, particularly

in lobby areas and restrooms

* Vietnam ceramic companies

The production of ceramics in Vietnam has a long history dating back to ancient times It first appeared during the Bac Son period (4th-3rd centuries BCE) and ceramic production underwent vigorous development during the Lý period (1010-1225) Over the following centuries, as demand for high-quality pottery and porcelain increased, many other important ceramic production centers emerged through-out the country According to Vietnam ceramic association, ceramic industry was built in 1986 In the

first time, it had 3 factories and increase to more than 20 factories until now Some of them applied high technology system to meet the demand for higher end product such

as My Duc ceramics, Dong Tam, White Horse, Primer Group, Viglacera, etc My Duc ceramics, Dong Tam ceramics and White Horse ceramics herein are some of top brand

of ceramic industry They are considered as companies that have significant improvements in products and service MDC is top brand for high-end customers with high quality of product and services Dong Tam is brand for a wide variety of designs for mass market segment White Horse got 3rd, after MDC and Dong Tam

Vietnam has followed similar trends developing countries which Government attaches exaggerated important to build material and technological foundation Vietnam‘s strong capability in terms of design and artistic quality has enabled it to become a major supply hub of ceramics products This industry is supported by several craft villages located in different provinces With models from the country blend traditional craftsmanship with contemporary influences, ceramics dominate as the top product line accounting for more than 60 percent of total output an Nowadays Vietnam becomes the largest tile manufacturer in Southwest Asia and ranks among the largest industry tiles in the world

The potential of ceramic tiles seems to be great with the high growth over the last few years However, the problem of ceramic industry is abundance of goods because of existence a lot of ceramic companies involving domestic and foreign firms, special China‘s tiles which almost their products have price cheaper than price of domestic companies In addition, economic crisis has strong affect on business of ceramic industry Therefore, it needs to be improved

2.2 B2B customer

B2B customer is contemporary shorthand for a longtime sales practice called business-to-business B2B transactions primarily target companies and other wholesale buyers, while transactions targeting individuals are called B2C, or business-to-customer Many organizations have both B2B and B2C components, but it's not unusual for a company to specialize in B2B services or sales In fact, the vast majority

of products and services sold are considered to be B2B in nature

B2B customer have different characteristic compared with B2C customer: Products for B2B are often more complex, B2B buyer are more ―rational‖, personal relationships are more important in B2B market, B2B buyer are longer-term buyers and B2B customers have needs-based segments The behavioral and needs-based segments that emerge in B2B markets are similar across different industries Here are these segments:

 A price-focused segment, which has a transactional outlook to doing business

and does not seek any ‗extras‘ Companies are often small

 A quality and brand-focused segment, which wants the best possible product

and is prepared to pay for it Company aims to high margins, focus on product/service as of high strategic importance They are medium-sized or large

 A service-focused segment, which has high requirements in terms of product

quality and range, but also in terms of after-sales services, delivery, customer service, etc They are usually purchasing relatively high volumes

 A partnership-focused segment, usually consisting of key accounts, which

seeks trust and reliability and regards the supplier as a strategic partner They require the product and service as strategically important They tent to be large

B2B communities tend to be much smaller than B2C communities, the needs of the members more focused and intense around specific product, service or problem-solving scenarios In addition, the B2B community can impact on the organization powerfully, thanks to the direct on core operations such as customer service, marketing, product development, product groups and sales Therefore, companies must provide excellent customer service for all interactions However, good business-to-business customer service is not something that is easy to obtain Companies should invest to well skilled training for several employees to handle customer service issues and problems An internal training procedure is the way that many companies applied

to help staff handle problems quickly and professionally And external training is another way for almost company Companies could combine two kinds of training or chose one of them according to their purpose In summary, business-to-business customer service requires a customer service department to handle issues or problems

in which individual employees can be expert consultant This can help company to prevent issues to become major problems can ruin a company‘s reputation Therefore, organizations should spend amounts of time to handle customer service tasks and activities

The final distinguishing factor of B2B is business-to-business buyers are more demanding because of their responsibility in making the right decision when purchasing on behalf of their companies They need quality to be less risk and paying more than they would as a consumer and therefore expect more in return They would like to interaction with the product or service supplied to them, rather than playing the role of passive recipient

Business customers tend to be regarded as long-term customers more than consumers with more valuable One major reason for the popularity of B2B sales and services are sheer volume Without a B2B component, the manufacturer would have lost out on a very lucrative sale Therefore, retaining them are enormous benefits so the consequences of losing them is very serious

2.3 Customer satisfaction

Customer satisfaction is an important theoretical as well as practical issue for most marketers and consumers researches (Dabholkar et al., 1996; Fournier and Mick, 1999; Meuter et al., 2000) It is considered as the essence of success in competitive market There are many define of customer satisfaction Hansemark and Anbinsson (2004) states that satisfaction is an overall customer attitude towards a service provider, or an emotional reaction to the different between what customers anticipate and what they receive, regarding the fulfillment of some need, goal or desire Zeithaml and Bitner (2000) defines satisfaction as ―the customer‘s evaluation of a product or service in term of whether that product or service has met their needs and expectations‖ Kotler (2000) says that ―satisfaction as a person‘s feelings of pleasure

or disappointment resulting from comparing a product‘s perceived performance (or outcome) in relation to his or her expectations‖ In summary, customer satisfaction is a respond to meet or exceed the customer‘s expectation by company‘s performance It is clearly a worthy objective for business

2.4 The relationship between customer satisfaction and customer retention

Although there are more than 1,200 articles published in the area of customer satisfaction (Perkin, 1991; Wilkie, 1990), but in recent times, according to Rush & Zahorik (1993), satisfaction has been an potential factor for the retention of customers, and therefore it has moved to the forefront of relational marketing approaches in large publication Besides, Kotler (2000) said that the key to customer retention is customer satisfaction It is demonstrated that there is the relationship between customer satisfaction and customer retention The higher customer is satisfaction, the more customer loyalty and the less churn However, competitive market could modify this relationship Customers are more easily retained even with poor levels of customer satisfaction in less competitive markets And in high competitive market, because of more expecting and more choices, customers could be move to other provider even high level of satisfaction (J.Best, 2009) Kordick (1988) demonstrated that 15% of the unsatisfied customers returned to the same dealers despite their dissatisfaction And according to Gierl (1993), between 40% and 62%

of the interviewed customers stated that they had changed the brand even though they were satisfied Further more, she stated that the rate of retention of customer dissatisfaction (due to a dissatisfactory state) exceeded that of satisfied customer in eight of nine examined product classes

In addition, many marketers accept that retention equals satisfaction in term of repurchase intention However, customer satisfaction does not mean that they will continuous to purchase with current provider because what customers say versus how they actually behave When customers are satisfied with product and/or service or brand name of company, it not means they need to repurchase Otherwise, if other companies offer them greater relative value, customers could switch to them There are many reasons for spending money for one company while being satisfied with others

Therefore, in highly competitive market, the link between satisfaction and retention is only weak or even nonexistent in some of the analysis

2.5 Customer’s retention

2.5.1 Define of customer retention

It is hard to define customer retention because the true meaning of customer retention is the subject some controversy Some authors accept retention as repurchasing, intending repurchase, referral or feeling of loyalty to the brand According to Zeithanl et al (1996), the retention refers to repurchase intentions, positive and negative worth of mouth, and price sensitivity And Aspinall (2001) demonstrates that customer retention, customers‘ repetition or renewal to use product,

to response all organization‘s activities based on their satisfaction or any reasons, links

to the way provides maintaining the existing customers based on establishing a good relationship with all people who buy the company‘s product In simple way, customer retention is the activity that a selling organization undertakes in order to reduce customer defections Simply, retention means that the customer has not defected or remains active In business, to achieve the target, companies seek to get a customer and keep the customer, avoid the cost to additional expense in case of acquiring and losing customer So retention strategies discussed in this thesis focus on activity, or intent to repurchase, or any other relevant indicators that the customer has not defected

In addition, customer retention is not the same as customer loyalty and should not be held as loyalty (Oyeniyi and Abolaji, 2008) in spice of the fact that loyalty and retention are considered as the source of profit Although not conceptually unified but we can understand loyalty including both attitudinal and behavioral dimensions Behavioral conceptualizations are concern of ‗loyalty‘ purely in terms of revealed behavior such as repeat purchase behavior, proportion of purchases, sequence of purchases Attitudinal conceptualizations mentions about ―loyalty‖ as interesting in brand, feeling committed to it; recommend it to others, and having positive beliefs According to Uncles et al (2003) and Blackwell et al (1999), attitude toward a brand

is a weak predictor of repurchasing because repeat buying is moderated by contingent factors: individual‘s characteristics, circumstances, and purchase situation Customer retention does clearly not contain any attitudinal aspects (Jacoby & Chestnut, 1978) and a customer may be retained but not necessarily loyal to the product or service of

the providers For retention, customer‘s mandatory or voluntaries are the reason for their retaining with the current provider Moreover, loyalty is higher level of retention

in customer behavior and attitude With feeling of loyalty, customer is not move to new suppliers who offer attractive benefits

Successful customer retention starts with the first contact of an organization with a customer and continues throughout the entire lifetime of a relationship Customer retention is exceeding customer‘s expectations in order to build customer‘s loyalty In which companies puts customer value rather than maximizing profits and shareholder value at the center of business strategy

To improve customer retention rate, let‘s think about value added service which can provide benefits for company and customer in long term It helps companies keep the old customers over their competitor with good feeling from customer In other word, it helps customers‘ business to see organization as a partner than supplier because partners are as interested in making the business succeed as the owners are so organization must concentrate on the uniqueness of your customers

* Repurchase intentions

According to Hellier et al.(2003), ‗repurchase intention‘ is proposed model to

be a customer‘s judgment about again buying a designated service from the same service provider, taking into account the customer‘s current situation and likely circumstances Purchase intentions can incorporate psychological influences, economic and environmental considerations, and the customer‘s ability and need to make a purchase (Pickering and Isherwood, 1974)

2.5.2 Benefit of customer retention

As mentioned above, customer retention has a direct impact on profitability First, the revenue from long-term customers can be increased more than 1.7 times compared with revenue from the normal customers (John Fleming and Jim Asplund, 2007) Second, the cost of creating a new customer has been estimated to be give times higher than the cost of retaining an existing one (Reichheld and Kenny, 1990; Koler, 2000; Rust and Zahorik, 1993) and the higher a business‘s customer retention rate is, the greater the profit impact is (Best, 2009) And the long-term relationship takes lower cost than beginning of a relationship (John Fleming and Jim Asplund) because

long term customers tend to be less inclined to switch and also tend to be fewer prices sensitive They may initiate free word of mouth promotions and referrals and tend to

be satisfied with their relationship with the company and are less likely to switch to competitors, making market entry or competitors' market share gains difficult They also more likely purchase ancillary products and high-margin supplemental products Therefore, profits can be increased by customer retention efforts (Buchanan and Gilles, 1990) In other words, customer retention is the source of conversion to customer profitability because of its attractive performance

Furthermore, when company increases customer retention, it makes the employees' jobs easier and more satisfying In turn, happy employees feed back into higher customer satisfaction in a virtuous circle So that companies should give good reasons to keep customer in the long term

2.5.3 Switching barrier

The influence of switching barrier to customer retention in business is getting the attention of researchers Among many previous researches on customer retention, some models focus on customer satisfaction considered as the main factor influenced the retention (Fornell, 1992) but even a satisfied customer is lured away by competitor‘s offer or other attractive alternatives (Jones and Sasser, 1995) Vice versa, for some cases, according to Reichheld (1996), some unsatisfied customers may choose not to defect, because they do not except receive a better delivery elsewhere Therefore, satisfaction is not always an assurance of customer retention, special for high competitive market From that, the concept of the switching barrier was proposed and researchers also set their focus on customer retention with the influence of switching barrier except satisfaction They found that a switching barrier also is a factor which affects to a customer‘s decision to stay or not with the current provider Further, they note that the switching barrier plays the role of an adjustment variable in the interrelationship between customer satisfaction and customer retention (Lee & Cunningham, 2001; Colgate & Lang, 2001; Jones et al., 2000) Kim et al (2004) demonstrates this issue by evaluating the effect of customer satisfaction and switching barrier on customer retention in her thesis

As mentioned above, in high competitive market, even high satisfaction, customer can change to other provider because of many choices and the satisfaction can‘t explain fully about customer loyalty or repurchase behavior The model for customer retention mentioned the switching barrier factor is studied by many researchers in various areas Almost researchers argue that switching barrier can be seen as positive or negative to customer retention due to its factor Switching barrier is considered as the most important thing effecting on customer retention because it related to the social and emotional cost which the customer will perceive when changing to a new provider (Fornell, 1992) and it makes it difficult or costly for customers to change providers (Jones et al, 2000) Dwyer et al (1987), Heide and Weiss (1995) said that customers are motivated to stay in existing relationships to economic on the types of switching cost These potential costs thus constitute a significant barrier to moving to other service providers when customers are dissatisfied with the services of a provider Empirical support for the influence of switching costs

on retailer–supplier loyalty has been provided by Ping (1993)

Many authors researched and defined the switching barrier variables following:

Tore Nilssen 1985 Endogenous cost: attractiveness of alternatives

Exogenous cost: switching cost

Rusbult et al 1986 Alternative quality: how appealing are the alternatives

Investment in relation: time, energy, self-disclosures,

shared experiences, a number of children, etc…

Guiltinan

Wilson

1989 Uncertainty cost: cost associated with the psychological

uncertainty that accompanies the performance of an untested service provider

Set-up cost: the time and effort associated with the process

of initiating a relationship with a new provider, or setting up

a new service for initial use

Benefit/loss cost: Contractual arrangements often mean that

there are economic benefits in staying with an incumbent firm, and the potential loss of these benefits thus represents a disincentive to switching

Wilson et al

Liu

1995

2006

Hard assets: equipment

Soft assets: procedural investments and customer-specific

expertise which enhance switching cost perceptions

Paul Klemperer 1987

1995

Switching cost: transaction, learning and artificial

Fornell 1992 Search costs, transaction costs, learning costs, loyal customer

discounts, customer habit, emotional costs, cognitive effort, financial, social and psychological risk

Ping 1993 Switching cost: cost in the time and money to change

supplier

Attractiveness of alternatives: how much better or worse in

various dimensions an alternative wholesaler would be

Investment: how much time, energy and money invested in

the relationship

Uniqueness of investment in this wholesaler

Jones et al 2000 Interpersonal relationship: friend or bond with employee

Switching cost: hassle to change, time and effort

Attractiveness of alternatives: how good other suppliers

would be in comparison with current supplier

Table 2.1: Define of switching barrier variables

Switching barrier is made by many factors due to the definition of researcher According to Fornell (1992) and Jone et al (2000), the switching barrier refers to difficulty or costly of moving to new carriers, brands or products that is occurred with

customer who is dissatisfied with the current providers Fornell (1992) provides a list

of factors that can constitute such barriers: search costs, transaction costs, learning costs, loyal customer discounts, customer habit, emotional cost, cognitive effort and financial, social and psychological risk It relates to the financial, social or psychological burden felt by this customer Tore Nilssen (1992) stated that endogenous costs and exogenous costs are the factor of switching barrier If Endogenous costs or switching cost mentions about internal cost/effort to retain customers, exogenous costs (attractiveness of alternatives) play the role as barrier pushing by the competitors

Compared with the large number of studies that have investigated switching barriers in consumer markets, relatively few studies have investigated this subject in B2B markets, in which almost researches have studied the effects of: (i) Switching cost (Lam et al., 2004; Nielson, 1996; Sengupta et al., 1997; Wathne et al., 2001); (ii) Interpersonal relationship (Young and Denize, 1995); (iii) Attractiveness of alternatives providers (Ping, 1993, 1997, 2003) In 2004, with the purpose of testing the role of switching barrier in the context of loyalty in Korean mobile telecommunication service, Kim et al also examined the model with the same factors

of switching barrier such as Switching cost, Interpersonal relationship and Attractiveness of alternatives In Vietnam market, Ho Thi Phuong Minh (2009) uses the similar model to evaluate the effects of switching barrier on customer retention in mobile service Therefore, three types of switching barrier such as Switching cost, Interpersonal relationship and Attractiveness of alternatives are considered in the research

Figure 2.1: Kim et al (2004)

If customers recognize the risk of switching, retention rate could be increased even dissatisfied customers Therefore, companies try to use the strategy that incur some sort of high costs involved with switching to another carrier to prevent or dissuade customers moving to a competitor's product, brand or services

2.5.3.1 Switching cost

There are many definition of switching cost and almost researches demonstrate that switching cost is considered as important factor influence customer retention As the switching cost increases, there are risk and burden on a customer as a result (Jone

et al, 2000; Keaveney, 1995)

According to Heide and Weiss, switching costs are the buyer‘s perceived costs of switching from the existing to a new supplier It is negative cost which includes the cost of changing services in terms of time, monetary and psychological expenditure (Dick and Basu, 1994) Switching cost of business goods suppliers almost is ―hard assets‖, such as installed proprietary equipment, in order to lock in current customer

Switching barrier

Switching cost

Customer retention Interpersonal

relationship

Attractiveness

of alternatives

Customer satisfaction

(Wilson et al., 1995; Liu, 2006) but business service providers explore the establishment of ‗soft assets‘, such as procedural investments and customer-specific expertise which enhance switching cost perceptions (Wilson et al., 1995)

According to Tore Nilssen (1992), switching cost is endogenous costs which impact on retaining the customer Potter (1998) said that it is one-time costs or a consumer faces a switching cost between sellers when an investment specific to his current seller must be duplicated for a new seller (Farrell and Klemperer, 2007)

According Kim et al (2004) Jone et al (2000) and Ho Thi Phuong Minh (2009), switching cost includes Move-in cost, Adaptation cost, Loss cost In this research, because of the nature of building material industry as well as ceramic tile‘s business so the Adaptation cost and Move-in cost should be combined to one factor which would

be strong influence on agent‘s retention in ceramic companies in Vietnam Therefore, switching cost herein refers as Move-in cost and Loss cost

Move-in cost refers to the economic cost involved in switching to a new provider such as the purchase of a new device (Kim et al, 2004), search and evaluation cost in finding new provider and evaluating their viability prior to switching It also includes set up new service for initial use such as cost relating to the habit, knowledge adjustment of customers when they use the new product or service of other provider Because customers play an integral role in service routines and procedures so time and effort is required of customers in acquiring and adapting to the new procedures and routines of an alternative provider

Adaptation cost refers to the perceived cost of adaptation such as research cost, learning cost which incurred when customers changes supplier Suppose that new suppliers use other routines or other contact rules than the current carriers so customers have to learn these new rules to start the new cooperation effectively

Benefits or loss cost is losing benefits from the current providers such as discount policy, debit policy, etc… It includes the costs of money, time and effort Contractual arrangements often mean that there are economic benefits in staying with an incumbent firm (Guiltinan, 1989), and the potential loss of these benefits thus represents a disincentive to switching (Turnball and Wilson, 1989)

2.5.3.2 Attractiveness of alternatives

The Attractiveness of alternatives is the better offering of competitor related to price, promotion, etc It refers to the allurement about the image; qualified service or fame of other providers With the same concept, Jones et al (2000) mentions about Attractiveness of alternatives as how good other suppliers would be in comparison with current providers According to Jones et al (2000), with the less choice of the product/service level, the possibility the customer switching the service provider is very low The available of best alternative strongly impacts on retention Therefore, the relationship between Attractiveness of alternatives and customer retention is opposite The higher Attractiveness of alternatives is the lower customer retention is However, if customers know clearly about the risk of switching or the weakness of competitors, the decision of moving to another vendor can be changed With the better products and/or services, it could be as positive barrier

The notion of the ‗attractiveness of alternatives‘ can also be linked to service differentiation—that is, the provision of a unique and valued service that competitors

do not offer (Jones, 1998; Kim et al., 2004) If a company offers differentiated services, customers tend to remain with that company (Bendapudi and Berry, 1997) If customers feel that alternative service providers are of the same or similar quality, the perception of high barriers to exit is accentuated (Colgate and Norris, 2001)

2.5.3.3 The interpersonal relationship

Interpersonal relationship refers to friends or bond with employees (Jone et al., 2000) and investment in relationship is to spend time with partner, investing financial, (Lund, 1985), shared experiences, etc (Rusbult et al., 1986) Lund (1985) also states that the barrier could be made by investing in the relationship between customers and firms which measured by efforts in supporting or trying to encourage your partner or contributing financial to the relationship With the same opinion, Bendapudi and Berry (1997) and Jones et al (2000) said that the social bonding that can occur in a business relationship can increase the customer‘s dependence on the service provider

The interpersonal relationship between the company and the customer can be an important factor as a switching barrier so we can expect that customers stay withsuppliers because of such positive relationships The strength of the personal bonds

could develop the relationship between employees of a supplier and the customers The long term interpersonal relationship between the company and customer offers a lot of benefits to the customer: social benefits such as the fellowship and personal recognition, psychological benefits such as reducing anxiety and credit, economy, benefits such as discount and time-saving, and finally customization benefits such as customer management and etc… (Peterson, 1995) The continuous interpersonal relationship becomes a relationship-specific asset which acquires a customer to pay costs to be out of that relationship If the relationship is week, the convenient in contacting between current providers and customers would be reduced Otherwise, the interpersonal relationship could help customers to get many benefits for their business from the level of supporting Therefore, good interpersonal relationship protects a customer from being apart from the relationship with the company The positive interpersonal relationship is also the positive barrier (Fornell, 1992)

Young and Denize (1995) argues that a personal relationship is the primary motivation to stay in a business service relationship, even if there are strong reasons to seek other providers And Jone at el (2000) also demonstrates that strong interpersonal relationships positively influence the repurchase intentions of customers, even dissatisfied customers

2.6 Research model and hypothesis

2.6.1 Proposal of research model

Based on the review of selected dimensions in the literature, there are four potential factors of switching barriers including Move-in cost, Benefit/Loss cost, Interpersonal relationship, and Attractiveness of alternatives which considered as main factors to impact on customer retention in proposal model appropriated for ceramic companies in Vietnam

Figure 2.2: The suggested research model

2.6.2 Initial hypothesis

* As we mentioned above, Move-in cost is the cost that customers have to pay for the new providers If customers perceive that this cost is high, they could stop to move to new providers Therefore, we had the first hypothesis following:

H 1 : Move-in cost has positive impact on customer retention

* When moving to new suppliers, customers could loss the benefit from current providers which is called Benefit or Loss costs If these costs were small and not worth bother for agents, they could easy switch to competitor It is the reason for second hypothesis:

H 2 : Benefit/ Loss costs has positive impact on customer retention

* Interpersonal relationship is more important in business because it takes benefit for both company and agent And the long term interpersonal relationship between the

company and customer offers a lot of benefits to the customer So, we suggest the hypothesis as following:

H 3 : Interpersonal relationship has positive impact on customer retention

* Attractiveness of alternatives is factor to impact on retention decision In the competitive market, Attractiveness of alternatives could be high and with many choices, agent easy change to new provider who might supplier more benefits for them

H 4 : Attractiveness of alternatives has negative impact on customer retention

CHAPTER 3: RESEARCH DESIGN

3.1 Research design

3.1.1 Research purpose

The purpose of this study is to explore the factors that have the potential to induce customer retention in the business-to-business (B2B) product context to remain with their present providers The study presented a theoretical model of the factors involved and advances several propositions regarding the relationships among these factors The result of research could help ceramic companies in Vietnam new concept

of customer retention with critical factors of switching barrier in order to have the competitive advantage in long-term strategy Some recommendations would be given out for MDC to retain old customer based on the analysis and evaluation Besides, the study concluded with suggestions for future research

3.1.2 Research approach

The research was starting in theory and moving to data, collecting qualitative research and quantitative research Although no data collection method is better than all others, the interview is one of the most important sources of information (Yin 2003) because of deeper understanding made as discussion on the subject Therefore, interview was applied to collect the primarily data Qualitative research had been implemented through face to face interview with managers of My Duc Ceramics Limited Company (International Sales Manager, Local Sales Manager and Service Team Manager) to build the initial factors of customer‘s retention for questionnaire After that, quantitative research was carried out by delivering the questionnaires to 121 MDC‘s agents in Hanoi, Danang and Ho Chi Minh City directly to gather data

3.1.3 Research process

The research was implemented in steps following:

Figure 3.1: Research process

Regression Analysis

Conclusions &

Recommendations Factor Analysis (EFA)

Research Objectives

Research design:

- Initial model (based on previous study and deep interview)

- Hypotheses

The research started with determining research problem, and then research objectives, research question were given out Literature review showed the general concepts related to customer‘s retention, customer‘s satisfaction, B2B customer and gave some model that the study will be applied in ceramic companies in Vietnam Basing on literature review and in-deep interview with Managers of MDC, the suggested model was proposed With the result of market research, the data would be collected and analyzed by Cronbach‘s alpha and Explore Factor Analysis (EFA) method which eliminate some factors (variables) not suitable for the model Next step would be regression analysis to determine the relationship between independent and dependent variables of the model From that, potential factors would be determined which drive the recommendations given out Based on that ceramic companies in Vietnam would improve their customer‘s retention

3.2 Official research

3.2.1 Measurement scale

Based on the previous theories (Jone et al (2000), Kim et al (2004), Ho Thi Phuong Minh (2009)) and the discussion with the Managers of My Duc Ceramics Company, with four component factors (Move-in cost, Benefit/loss cost, Interpersonal relationship and Attractiveness of alternatives), the variables of customer‘s retention are defined to test in Vietnam ceramic companies as following:

Move-in cost

It takes time and costs for learning about new products,

You could spend money and time to change the business‘s plan or strategy when moving to new providers

products of new providers

It takes time to negotiation with new providers about

It takes time and cost to invest on new equipment with

Benefit/loss costs

You will miss promotion programs of current providers Ben.7

You will miss benefit of loyal customer of current

You will miss sales policy (commission, transportation, debit or payment term, sponsor, etc.) from current providers

Ben.9

You will lose the business opportunities with contractors, architects or designers who will be introduced by current providers

You are familiar with current providers and its products

You have relationship with current providers and its

The quality of products and services of new providers

is better than that of current providers Att.17

Business strategy, image and reputation of new

New providers have sales policy (commission, transportation, debit or payment term, sponsor, etc) better than current providers

Att.19

New providers want to create more favorable advantage

Customer retention

Overall, you feel difficult in switching to other

You will continue to do business with current providers Gen.22

You are likely to recommend the current providers to

Table 3.1 : Summary of retention factors and measurement scale

Switching barrier was measured by twenty three questions and customer retention consisted of three items: ―Overall, you feel difficult in switching to other providers; you will continue to do business with current providers; you are likely to recommend the current providers to others‖

3.2.2 The questionnaire design

As mentioned above, interviews were used as a primary source of information for data collection so the best result could get from good questionnaire The questionnaire was divided into two parts which presented at appendix of this research Part 1 was designed to collect customer‘s information for statistical purpose Part 2 including 23 items of four main factors designed to measure variables in the hypothesized associations were presented Likert scales with five point scales ranging

from ―1=Strongly disagree to 5= Strongly agree‖ was used to measure the extent of agreement or disagreement with these items

3.2.3 Research sample and sampling

The sampling size depends on the measurement method and it had different opinions of researcher Bollen (1989) and Hatcher (1994) prove that the sample size have to base on the number of variables, minimum 5 samples for each variable or the sample size should be five times more than variables Beside, Hair et al (1998) argues that minimum samples size is from 100 – 150 From that, if we have 23 tentative questions, the least sample size should be 115 This research was done with 121 agents accounted for 40% agents of MDC in Vietnam These samples also referred to distribution channel of Vietnam ceramics companies (because each agent in ceramic industry often cooperates with many suppliers) because of the nature of this market These agents were chosen at Ho Chi Minh City, Danang City and Hanoi City where the main domestic markets are for big ceramic companies like My Duc ceramic companies, Dong Tam Group, White Horse Ceramic Company, etc

With the purpose of the thesis is to find some critical factors of switching barrier influence on B2B customer retention, medium value to high value agents were selected as data sources The selection depended on the revenue or sales volume of the agent to each ceramic company

3.2.4 Data collection methods

Data were collected with a questionnaire which was directly distributed to owner of agents The participants were asked to complete the questionnaires then the data would be collected directly The completed questionnaires were returned 100% of each respectively and would be analyzed by SPSS software (version 16.0) which was used as analytical tool all of the constructs were subject to confirmatory factor analysis In this study, we used the regression method with 121 respondents for samples

In this chapter, the initial research model was suggested based on the theories in the literature review This chapter described the research methodology used in the study in which introduced the methodology to collect data, research process, how the measurement scale is verified, how the questionnaire is designed and analysis method

CHAPTER 4: DATA ANALYSIS AND FINDINGS

4.1 Characteristics of the samples

There are several efforts that any business needs to take in order to ensure that the customer is on its list of priorities Although each person can be potential customer

in the future butcompanies should invest on 20% customers who making 80% revenue

or profit with limited resource Agents with high value and medium value are profit customers From that, the object of study would be these customers who contribute a lot of profits for MDC The rates of kind of high value agent and medium value agent are almost 73% and 27% respectively In the order word, their average revenues for MDC at 73% from 6 to 9 billion VND, 27% above 9 billion VND Almost high value agent and medium value agents accounted for 90.9% and 79.5% are agents in Ho Chi Minh City and Danang City

The characterristic of samples did not include age, gender, marital status because of B2B customers The research herein focused on their revenue and location

To get the initial target, the research selected agents in major markets in Vietnam 121 research questions would be sent directly to 121 national agents in which the samples of Ho Chi Minh and Hanoi were larger than that of Danang because

of level of the market The structure of samples was following: 50 high value agents and medium value agents in Ho Chi Minh City, 50 high value agents and medium value agents in Hanoi City, 21 high value agents and medium value agents in Danang City

Figure 4.1 : Sample characteristics

The first part of the questionnaire contained questionnaires asking the name of current providers and how many selected suppliers agents were co-operate The results from an analysis of this part presented that 100% samples were the distributor of more than two ceramic companies So the result of this thesis could be applied for almost ceramic companies, not only MDC, to enhance the retention of the business customer

to increase additional revenue and profit

After being sent, questionnaires will be collected and analyzed by using SPSS 16.0 software

4.2 Statistical Result

4.2.1 Variables for measuring switching barrier

After testing, 100% questionnaires could be collected then analysis Mean value

of each variable is quite different which shows that customers have different evaluation about switching barrier on customer retention of Vietnam ceramic companies 3.4628 is the highest mean value for switching measurement which proves that customers had quite concerned to switching barrier However, the mean value of Attractiveness of alternatives is lower than 3 showing that B2B customers did not care

this factor The reason could come from the poor economic in Vietnam as well as constructor material industry In this difficult time, to survivor is the priority target of each company, particular for ceramic companies Therefore, agents would ignore the attractiveness of alternatives and focus on maximizing opportunities, reducing costs and avoiding risks By other word, poor economic has large effects to agents‘ consideration in switching to new suppliers because of their business

N Mean Std Deviation Minimum Maximum