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

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS - HOCHIMINH CITYNGUYỄN THỊ MỸ TRANG THE EFFECTS OF SWITCHING BARRIER ON THE CUSTOMER RETENTION A STUDY OF CERAMIC COMPANIES IN

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS - HOCHIMINH CITY

NGUYỄN THỊ MỸ TRANG

THE EFFECTS OF SWITCHING BARRIER ON THE CUSTOMER RETENTION

A STUDY OF CERAMIC COMPANIES IN VIETNAM

Many previous researches proved that retaining customers plays an important role forbusiness 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 customerretention in product sector in Vietnam Therefore, the purpose of this study is todetermine critical factors of switching barrier that potential influence on customerretention in business-to-business (B2B) sector in Vietnam ceramic companies Based

on previous studies on switching barrier, four major factors will be calculated asmove-in cost, benefit/loss cost, interpersonal relationship and the attractiveness ofalternatives 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 customerretention, and provide management significance of customer retention for marketers ofVietnam ceramic companies in developing strategies for retaining B2B customers

Although I have taken efforts in this research but it would not have been finishedwithout the kind support and help of people Therefore, I would like to extend mysincere thanks to all of them

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

I am very thankful managers of My Duc Ceramics Limited Company for their shareopinions, 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 instarting the first difficult step and completion of my thesis

Finally, my thanks and appreciations also go to my colleagues in developing theproject 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 customerretention – A study of ceramic companies in Vietnam‖ is my own work The work isoriginal except where indicated by special reference in the text The research has beenconducted in studying by the academic knowledge and with the assistant of mysupervisor 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

3.1.3 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 othercountries in the world Moreover, with high growing rate of urbanization andincreasing 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 ceramicindustry is not an exception with the quite stable growth in the last ten years.According to Vietnam building ceramic association, the building material market hasgrown 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 bothdomestic and overseas as its potential profits and has had the participation of 20companies up to now In order to compete and grow in this competitive markets, eachceramic company must strongly focus on retaining existing customer, special forbusiness customers who tend to be fewer in a number and each is more valuable, andgaining new ones as the more customers company has, the more profits it get

Business is in a constant race to increase profits Therefore, ceramic companiesshould invest on retaining customers, especial for difficult times But striving tomaintain unprofitable customers is not a good business strategy Companies shouldidentify 20% of potential customers who bring 80% of profits to business In ceramicsindustry, agents are company representatives who create 80% of revenues tocompanies So we need a research to find the critical factors adjusting to theirretaining Its aims to help organizations build effective customer retention strategy in away that both firms and the customer get the most out of exchange, providing bothparties 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 B2Bcustomer retention And although many companies have realized the economicaladvantage of keeping existing customers against acquiring new ones, almost ceramic

companies still focus on developing new customers rather than maintaining oldcustomers and invest on customer satisfaction more than retaining customers Theirown decisions base on the traditional information about the profit and customersatisfaction.

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

Secondly, in traditional understanding, customer satisfaction is often seen as thekey to a company‘s success and long-term competitiveness because it could leadcustomers to repurchase and keep stay with current providers Hence, it is oftenviewed as a central determinant of marketing by almost firms But even if customershave high satisfaction, they could change to other suppliers Moreover, according toJohn 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 thecurrent providers It plays a role of adjustment variable in the interrelationship betweencustomer 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 thefuture

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

Customer retention helps organizations to keep the existing customers to continuepurchasing with current providers And even dissatisfied customers can be retainedthrough switching barrier which is one of factor effecting on customer retention.

Although company seems to be doing well at the time, but systematicallyupgrading the customer retention strategy could further enhance the company‘scompetitive abilities Therefore, this study emphasizes on factors impact on switchingbarriers of agents in ceramic companies in Vietnam The purpose of this thesis is toprovide a better understanding of customer retention concept in B2B sector to ceramicindustry And it can offer some ideas to improve company-customer relations andadjust the presented condition of companies

1.3 Research objective

The purpose of this research as following:

in Ceramic Companies in Vietnam

Vietnam ceramic companies

1.4 Research questions

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 ceramiccompanies in Vietnam

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

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

Quantitative research: this research is researching by delivering questionnaires toagents of MDC in Hanoi City, Danang City and Ho Chi Minh City directly SPSSversion 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 ofthe problem, research objectives, research questions, scope and limit of the researchand research methodology

Chapter 2: Literature review

This chapter gives theories related to customer retention or background for theresearch

Chapter 3: Research Methodology

This chapter develops the research model, hypotheses, research process and amethodology 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 providesrecommendations on improving customer retention strategy in Vietnam ceramiccompanies It also presents the suggestion for future research

CHAPTER 2: LITERATURE REVIEW2.1 Ceramic tile

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

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: unglazedtiles 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 tilesused in Mission-style architecture and hand-painted porcelain tiles intended forornamentation (decorative tiles) Now the tile has a wide variety of designs, shapes andsizes, 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 ofbeauty 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 ancienttimes It first appeared during the Bac Son period (4th-3rd centuries BCE) and ceramicproduction underwent vigorous development during the Lý period (1010-1225) Overthe following centuries, as demand for high-quality pottery and porcelain increased,many other important ceramic production centers emerged through-out the country

first time, it had 3 factories and increase to more than 20 factories until now Some ofthem 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 Ducceramics, Dong Tam ceramics and White Horse ceramics herein are some of top brand

of ceramic industry They are considered as companies that have significantimprovements in products and service MDC is top brand for high-end customers withhigh quality of product and services Dong Tam is brand for a wide variety of designs

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

The potential of ceramic tiles seems to be great with the high growth over thelast few years However, the problem of ceramic industry is abundance of goodsbecause 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 ofdomestic companies In addition, economic crisis has strong affect on business ofceramic industry Therefore, it needs to be improved

2.2 B2B customer

B2B customer is contemporary shorthand for a longtime sales practice calledbusiness-to-business B2B transactions primarily target companies and other wholesalebuyers, while transactions targeting individuals are called B2C, or business-to-customer Many organizations have both B2B and B2C components, but it's notunusual 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: Productsfor B2B are often more complex, B2B buyer are more ―rational‖, personalrelationships are more important in B2B market, B2B buyer are longer-term buyersand B2B customers have needs-based segments The behavioral and needs-basedsegments that emerge in B2B markets are similar across different industries Here arethese 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 theproduct and service as strategically important They tent to be large

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

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

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

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

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

2.3 Customer satisfaction

Customer satisfaction is an important theoretical as well as practical issue formost 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 competitivemarket There are many define of customer satisfaction Hansemark and Anbinsson(2004) states that satisfaction is an overall customer attitude towards a serviceprovider, or an emotional reaction to the different between what customers anticipateand what they receive, regarding the fulfillment of some need, goal or desire Zeithamland Bitner (2000) defines satisfaction as ―the customer‘s evaluation of a product orservice in term of whether that product or service has met their needs andexpectations‖ Kotler (2000) says that ―satisfaction as a person‘s feelings of pleasure

or disappointment resulting from comparing a product‘s perceived performance (oroutcome) in relation to his or her expectations‖ In summary, customer satisfaction is arespond to meet or exceed the customer‘s expectation by company‘s performance It isclearly 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 customersatisfaction (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 largepublication Besides, Kotler (2000) said that the key to customer retention is customersatisfaction It is demonstrated that there is the relationship between customersatisfaction and customer retention The higher customer is satisfaction, the morecustomer loyalty and the less churn However, competitive market could modify thisrelationship Customers are more easily retained even with poor levels of customersatisfaction in less competitive markets And in high competitive market, because ofmore expecting and more choices, customers could be move to other provider evenhigh level of satisfaction (J.Best, 2009) Kordick (1988) demonstrated that 15% of theunsatisfied customers returned to the same dealers despite their dissatisfaction Andaccording to Gierl (1993), between 40% and 62% of the interviewed customers statedthat they had changed the brand even though they were satisfied Further more, shestated that the rate of retention of customer dissatisfaction (due to a dissatisfactorystate) exceeded that of satisfied customer in eight of nine examined product classes

In addition, many marketers accept that retention equals satisfaction in term ofrepurchase intention However, customer satisfaction does not mean that they willcontinuous to purchase with current provider because what customers say versus how theyactually 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 offerthem greater relative value, customers could switch to them There are many reasons forspending money for one company while being satisfied with others

Therefore, in highly competitive market, the link between satisfaction andretention 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 customerretention is the subject some controversy Some authors accept retention asrepurchasing, 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 goodrelationship with all people who buy the company‘s product In simple way, customerretention is the activity that a selling organization undertakes in order to reducecustomer defections Simply, retention means that the customer has not defected orremains active In business, to achieve the target, companies seek to get a customerand keep the customer, avoid the cost to additional expense in case of acquiring andlosing customer So retention strategies discussed in this thesis focus on activity, orintent to repurchase, or any other relevant indicators that the customer has notdefected

In addition, customer retention is not the same as customer loyalty and shouldnot be held as loyalty (Oyeniyi and Abolaji, 2008) in spice of the fact that loyalty andretention 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 revealedbehavior such as repeat purchase behavior, proportion of purchases, sequence ofpurchases Attitudinal conceptualizations mentions about ―loyalty‖ as interesting inbrand, 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 contingentfactors: individual‘s characteristics, circumstances, and purchase situation Customerretention 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 fortheir 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 tonew suppliers who offer attractive benefits

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

To improve customer retention rate, let‘s think about value added service whichcan provide benefits for company and customer in long term It helps companies keepthe old customers over their competitor with good feeling from customer In otherword, it helps customers‘ business to see organization as a partner than supplierbecause partners are as interested in making the business succeed as the owners are soorganization 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 sameservice provider, taking into account the customer‘s current situation and likelycircumstances Purchase intentions can incorporate psychological influences,economic and environmental considerations, and the customer‘s ability and need tomake 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 timescompared 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 timeshigher 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

long term customers tend to be less inclined to switch and also tend to be fewer pricessensitive 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 tocompetitors, making market entry or competitors' market share gains difficult Theyalso 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 customerprofitability because of its attractive performance

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

2.5.3 Switching barrier

The influence of switching barrier to customer retention in business is gettingthe attention of researchers Among many previous researches on customer retention,some models focus on customer satisfaction considered as the main factor influencedthe retention (Fornell, 1992) but even a satisfied customer is lured away bycompetitor‘s offer or other attractive alternatives (Jones and Sasser, 1995) Vice versa,for some cases, according to Reichheld (1996), some unsatisfied customers maychoose not to defect, because they do not except receive a better delivery elsewhere.Therefore, satisfaction is not always an assurance of customer retention, special forhigh competitive market From that, the concept of the switching barrier was proposedand researchers also set their focus on customer retention with the influence ofswitching barrier except satisfaction They found that a switching barrier also is afactor 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 inthe 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 switchingbarrier 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 satisfactioncan‘t explain fully about customer loyalty or repurchase behavior The model forcustomer retention mentioned the switching barrier factor is studied by manyresearchers in various areas Almost researchers argue that switching barrier can beseen as positive or negative to customer retention due to its factor Switching barrier isconsidered as the most important thing effecting on customer retention because itrelated to the social and emotional cost which the customer will perceive whenchanging to a new provider (Fornell, 1992) and it makes it difficult or costly forcustomers to change providers (Jones et al, 2000) Dwyer et al (1987), Heide andWeiss (1995) said that customers are motivated to stay in existing relationships toeconomic on the types of switching cost These potential costs thus constitute asignificant barrier to moving to other service providers when customers are dissatisfiedwith 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:

Exogenous cost: switching cost

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

shared experiences, a number of children, etc…

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 incumbentfirm, and the potential loss of these benefits thus represents adisincentive to switching

expertise which enhance switching cost perceptions

1995

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

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 relationshipUniqueness of investment in this wholesaler

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 todifficulty 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, learningcosts, loyal customer discounts, customer habit, emotional cost, cognitive effort andfinancial, social and psychological risk It relates to the financial, social orpsychological burden felt by this customer Tore Nilssen (1992) stated thatendogenous costs and exogenous costs are the factor of switching barrier IfEndogenous costs or switching cost mentions about internal cost/effort to retaincustomers, exogenous costs (attractiveness of alternatives) play the role as barrierpushing by the competitors

Compared with the large number of studies that have investigated switchingbarriers in consumer markets, relatively few studies have investigated this subject inB2B markets, in which almost researches have studied the effects of: (i) Switchingcost (Lam et al., 2004; Nielson, 1996; Sengupta et al., 1997; Wathne et al., 2001); (ii)Interpersonal relationship (Young and Denize, 1995); (iii) Attractiveness ofalternatives providers (Ping, 1993, 1997, 2003) In 2004, with the purpose of testingthe role of switching barrier in the context of loyalty in Korean mobiletelecommunication service, Kim et al also examined the model with the same factors

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

CustomerretentionInterpersonal

relationship

CustomersatisfactionAttractiveness

of alternatives

Switching barrier

Figure 2.1: Kim et al (2004)

If customers recognize the risk of switching, retention rate could be increasedeven dissatisfied customers Therefore, companies try to use the strategy that incursome sort of high costs involved with switching to another carrier to prevent ordissuade 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 demonstratethat switching cost is considered as important factor influence customer retention Asthe 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 ofswitching from the existing to a new supplier It is negative cost which includes thecost of changing services in terms of time, monetary and psychological expenditure(Dick and Basu, 1994) Switching cost of business goods suppliers almost is ―hardassets‖, such as installed proprietary equipment, in order to lock in current customer

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

According to Tore Nilssen (1992), switching cost is endogenous costs whichimpact on retaining the customer Potter (1998) said that it is one-time costs or aconsumer faces a switching cost between sellers when an investment specific to hiscurrent 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 sothe 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 providersuch as the purchase of a new device (Kim et al, 2004), search and evaluation cost infinding new provider and evaluating their viability prior to switching It also includesset up new service for initial use such as cost relating to the habit, knowledgeadjustment 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 andeffort is required of customers in acquiring and adapting to the new procedures androutines 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 newsuppliers use other routines or other contact rules than the current carriers socustomers 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 discountpolicy, debit policy, etc… It includes the costs of money, time and effort Contractualarrangements often mean that there are economic benefits in staying with anincumbent firm (Guiltinan, 1989), and the potential loss of these benefits thusrepresents 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 toprice, promotion, etc It refers to the allurement about the image; qualified service orfame of other providers With the same concept, Jones et al (2000) mentions aboutAttractiveness of alternatives as how good other suppliers would be in comparisonwith current providers According to Jones et al (2000), with the less choice of theproduct/service level, the possibility the customer switching the service provider isvery low The available of best alternative strongly impacts on retention Therefore,the relationship between Attractiveness of alternatives and customer retention isopposite The higher Attractiveness of alternatives is the lower customer retention is.However, if customers know clearly about the risk of switching or the weakness ofcompetitors, the decision of moving to another vendor can be changed With the betterproducts and/or services, it could be as positive barrier

The notion of the ‗attractiveness of alternatives‘ can also be linked to servicedifferentiation—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 differentiatedservices, customers tend to remain with that company (Bendapudi and Berry, 1997) Ifcustomers feel that alternative service providers are of the same or similar quality, theperception 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,

the barrier could be made by investing in the relationship between customers and firmswhich measured by efforts in supporting or trying to encourage your partner orcontributing 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 businessrelationship can increase the customer‘s dependence on the service provider

The interpersonal relationship between the company and the customer can be animportant factor as a switching barrier so we can expect that customers stay with

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

Young and Denize (1995) argues that a personal relationship is the primarymotivation to stay in a business service relationship, even if there are strong reasons toseek other providers And Jone at el (2000) also demonstrates that strong interpersonalrelationships positively influence the repurchase intentions of customers, evendissatisfied 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 fourpotential factors of switching barriers including Move-in cost, Benefit/Loss cost,Interpersonal relationship, and Attractiveness of alternatives which considered as mainfactors to impact on customer retention in proposal model appropriated for ceramiccompanies in Vietnam

H1Move - in cost

new providers If customers perceive that this cost is high, they could stop to move tonew providers Therefore, we had the first hypothesis following:

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

providers which is called Benefit or Loss costs If these costs were small and not worthbother for agents, they could easy switch to competitor It is the reason for secondhypothesis:

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

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

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 toinduce customer retention in the business-to-business (B2B) product context to remainwith their present providers The study presented a theoretical model of the factorsinvolved and advances several propositions regarding the relationships among thesefactors 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 thecompetitive advantage in long-term strategy Some recommendations would be givenout for MDC to retain old customer based on the analysis and evaluation Besides, thestudy concluded with suggestions for future research

3.1.2 Research approach

The research was starting in theory and moving to data, collecting qualitativeresearch and quantitative research Although no data collection method is better thanall 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 beenimplemented through face to face interview with managers of My Duc CeramicsLimited Company (International Sales Manager, Local Sales Manager and ServiceTeam Manager) to build the initial factors of customer‘s retention for questionnaire.After that, quantitative research was carried out by delivering the questionnaires to 121MDC‘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:

The research started with determining research problem, and then researchobjectives, research question were given out Literature review showed the generalconcepts related to customer‘s retention, customer‘s satisfaction, B2B customer andgave 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, thesuggested model was proposed With the result of market research, the data would becollected and analyzed by Cronbach‘s alpha and Explore Factor Analysis (EFA)method which eliminate some factors (variables) not suitable for the model Next stepwould be regression analysis to determine the relationship between independent anddependent variables of the model From that, potential factors would be determinedwhich drive the recommendations given out Based on that ceramic companies inVietnam 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 ThiPhuong Minh (2009)) and the discussion with the Managers of My Duc CeramicsCompany, with four component factors (Move-in cost, Benefit/loss cost, Interpersonalrelationship and Attractiveness of alternatives), the variables of customer‘s retentionare defined to test in Vietnam ceramic companies as following:

It takes time and costs for learning about new products,

Mov.1services and processes of new suppliers

You could spend money and time to change the

Move-in cost

providers

You may spend a lot of money and couldn‘t have the

Mov.3profit in the first time with new providers

products of new providers

It takes time to negotiation with new providers about

Mov.5supporting equipment, sales policy, etc

It takes time and cost to invest on new equipment with

Mov.6new providers

You will miss promotion programs of current providers Ben.7

You will miss benefit of loyal customer of current

Ben.8providers

You will miss sales policy (commission, transportation,

providersBenefit/loss costs

You will lose the business opportunities with

introduced by current providers

You will lose business with customers who interest in

Ben.11products and/or services of current providers

You are familiar with current providers and its products

Int.13and/or services

Att.16

The quality of products and services of new providers

Att.17

is better than that of current providers

Business strategy, image and reputation of new

Att.18

providers is suitable for you

New providers have sales policy (commission, transportation, debit or payment term, sponsor, etc) Att.19 better than current providers

New providers want to create more favorable advantage

Att.20for your business

Overall, you feel difficult in switching to other

Gen.21providers

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

You are likely to recommend the current providers to

Gen.23others

Table 3.1 : Summary of retention factors and measurement scale

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

3.2.2 The questionnaire design

As mentioned above, interviews were used as a primary source of informationfor data collection so the best result could get from good questionnaire Thequestionnaire 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 2including 23 items of four main factors designed to measure variables in the

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

3.2.3 Research sample and sampling

The sampling size depends on the measurement method and it had differentopinions of researcher Bollen (1989) and Hatcher (1994) prove that the sample sizehave to base on the number of variables, minimum 5 samples for each variable or thesample size should be five times more than variables Beside, Hair et al (1998) arguesthat minimum samples size is from 100 – 150 From that, if we have 23 tentativequestions, the least sample size should be 115 This research was done with 121 agentsaccounted for 40% agents of MDC in Vietnam These samples also referred todistribution channel of Vietnam ceramics companies (because each agent in ceramicindustry 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 wherethe main domestic markets are for big ceramic companies like My Duc ceramiccompanies, Dong Tam Group, White Horse Ceramic Company, etc

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

3.2.4 Data collection methods

Data were collected with a questionnaire which was directly distributed toowner of agents The participants were asked to complete the questionnaires then thedata would be collected directly The completed questionnaires were returned 100% ofeach respectively and would be analyzed by SPSS software (version 16.0) which was

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 inthe literature review This chapter described the research methodology used in thestudy in which introduced the methodology to collect data, research process, how themeasurement 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 thatthe customer is on its list of priorities Although each person can be potential customer

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

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

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

To get the initial target, the research selected agents in major markets inVietnam 121 research questions would be sent directly to 121 national agents inwhich 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 agentsand medium value agents in Ho Chi Minh City, 50 high value agents and mediumvalue agents in Hanoi City, 21 high value agents and medium value agents in DanangCity

Figure 4.1 : Sample characteristics

The first part of the questionnaire contained questionnaires asking the name ofcurrent providers and how many selected suppliers agents were co-operate The resultsfrom an analysis of this part presented that 100% samples were the distributor of morethan two ceramic companies So the result of this thesis could be applied for almostceramic 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 SPSS16.0 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 differentevaluation about switching barrier on customer retention of Vietnam ceramiccompanies 3.4628 is the highest mean value for switching measurement which provesthat customers had quite concerned to switching barrier However, the mean value ofAttractiveness of alternatives is lower than 3 showing that B2B customers did not care