Factors Affecting Customer Loyalty free essay sample

The growth for mobile service has been gradually developing from a total number of subscribers of 1. 513 million at the end of 1996 to 7. 477 million in 2001. (Malaysian Communication and Multimedia Commission, MCMC) The market for the telecommunication industry in Malaysia is highly competitive. This industry is currently dominated by 3 operators Telekom, Maxis and DiGi. For example, as Maxis Communications Berhad (â€Å"Maxis†) being one of the most favorable choice for users, Maxis believes that the main competitive factors in the mobile services market are network coverage, service quality, pricing and brand. Therefore, these could be the main factors that determine the level of customer loyalty towards Maxis. A critical issue for the continued success of a firm is its capability to retain its current customers and make them loyal to its brands (Dekimpe et al. , 1997). Customer loyalty is vital to a company as disloyal customers can amount to millions of lost revenue and profit. We will write a custom essay sample on Factors Affecting Customer Loyalty or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Studies were also conducted in the financial services industry show that increasing customer loyalty by 5 percent could lead to 25-75 percent profit growth (Chan et al. , 2001). Generally, loyalty is something that consumers may exhibit to brands, services, stores, product categories. Here, we use the term customer loyalty as opposed to brand loyalty; this is to emphasize that loyalty is a feature of people, rather than something inherent in brands. Oliver (1997) defines customer loyalty as a deeply held commitment to rebuy or repatronize a preferred product/service consistently in the future, thereby causing repetitive same-brand or same brand-set purchasing, despite situational influences and marketing efforts having the potential to cause switching behavior. Due to the aggressive competition in the telecommunication industry, many companies are losing customers at a formidable rate. Thus, companies recognized the need to place greater emphasis on customer loyalty as there is perceived to be a link to profitability. In fact, loyal customers tend to purchase more, they will even accept higher prices and have a positive word-of-mouth effect, telling friends and family, thus adding them to the number of loyal customers. Besides, we clearly know that the cost of selling to new customers is much higher than the cost of selling to existing customers. The aim of this research is to examine the relationship between the existing factors and customer loyalty, at the same time to find out which factor is best to determine the level of customer loyalty. In this research, we proposed Maxis Communication Berhad as the research subject as it is known to be the main competitor in the mobile phone service market based in Malaysia. Potential factors affecting customer loyalty are discussed. Besides, a survey is carried out in Universiti Tunku Abdul Rahman, Sungai Long using a survey questionnaire. Data was obtained from 60 students who are currently Maxis users. The data collected was analyzed by using a statistical software package which is known as SPSS program. In order for companies to sustain in a competitive edge, building customer loyalty is rather crucial. Since loyalty is a key in customer development and profitability, it is important for organizations to understand the loyalty condition in more detail, and to use this understanding to develop the relationship further with customers which falls in the loyal category. The results of this study will provide evidence to organizations on what are the key reasons that possibly will influence customer to make repeating purchases. Hence, allowing organizations to focus on areas by viewing from customer’s perspective in which will result in higher profit and building a closer bond between the brand and current customers in its hoped to maintain current customer base. Literature Review The review of previous study from different resources has been revised to obtain a further understanding of the variables in this study. It is divided into three parts, which are the review of the literature, proposed conceptual framework and hypotheses development. Review of the literature shows relevant constructs, methodologies, and findings related to the study. Meanwhile, the proposed conceptual framework and hypotheses development shows the relationship of the variables constructed in this study. Customer Loyalty Three conceptual perspectives have been suggested to define customer loyalty: the behavioral perspective, the attitudinal perspective, and composite perspective (Bowen and Chen, 2001; Zins, 2001). Firstly, the behavioral perspective looks at repeat purchase behavior based on the customer’s purchase history. This approach assumes that preference structure of the customer is reflected in the customer’s behavior (Ehrenberg, 1988). In contrast, the attitudinal perspective allows gain in supplemental understanding of loyal behavior (Zins, 2001). Attitude signifies the degree to which a customer’s deposition towards a service is favorably inclined. (Grembler and Brown, 1996). Some examples of operational measures in attitudinal perspective are preference, buying intention, supplier prioritization and recommendation willingness (Fournier and Yao, 1997). The third perspective combines both attitudinal and behavioral definitions of loyalty. The composite perspective is considered an alternative to affective loyalty that increases the predictive power of loyalty (Pritchard and Howard, 1997). Essentially, loyal customers build businesses by buying more, paying premium prices, and providing new referrals through positive word of mouth over time (Ganesh et al. , 2000). Furthermore, loyal customers contribute to the company’s profitability by spending more on company products and services, via repeat purchasing, and by recommending the organization to other consumers (Bowen and Chen, 2001; Fesicova, 2004). Hence, the main objective of this study is to determine the potential determinants of customer loyalty towards Maxis and to test the relationships among these factors. Corporate Image Corporate image is described as the overall impression made in the minds of the public about a firm (Barich and Kotler, 1991). Meanwhile, Nyuyen and Leblanc (2001) claim that corporate image is related to the physical and behavioral attributes of the firm, such as business name, architecture, variety of products or services, and to the impression of quality communicated by each person interacting with the firm’s clients. Therefore, corporate image was early identified as an important factor in the overall evaluation of the service and the company (Bitner, 1991; Gronroos, 1984; Gummesson and Gronroos, 1988). Although a customer may not have enough information about a firm, information obtained from different sources such as advertisements and word of mouth will influence the process of forming the corporate image. (Andreassen, 1995). In addition, Fishbein and Ajzen (1975) added on that attitudes are functionally related to behavioral intentions. Hence, corporate image affects behavioral intentions such as customer loyalty (Johnson et al. 2001). According to Nguyen and Leblanc (2001), corporate image relates positively with customer loyalty in three sectors (telecommunication, retailing and education). Corporate image can therefore axis from all of a consumer’s experiences, results in different level of attitude towards the brand that leads to customer’s satisfaction and customer loyalty. Trust The degree by which an individual perceives a trust image to a brand is based on his or her experience with the brand. Therefore, the experience attributed will be influenced by any direct (e. g. rial, usage, satisfaction, and consumption) and any indirect contact (advertising, word of mouth, brand reputation) with the brand (Keller, 1998; Krishnan, 1996). Essentially, trust has been recognized as an important role in affecting relationship commitment (Morgan and Hunt, 1994) and so customer loyalty (Gundlach and Murphy, 1993). This is because when one party trusts another, it is likely to develop some form of positive behavioral intention towards the other party. Furthermore, when a customer trusts a brand, this means that he is also likely to form a positive buying intention t owards the brand (Lau and Lee, 1999). On the other hand, it is claimed that there is a positive relationship between trust in a firm and customer loyalty, consistent with the past research (e. g. Chaudhuri and Holbrook, 2001; Lau and Lee, 1999). Furthermore, to trust a brand, customers should not only perceive positive outcomes but also believe that these positive outcomes will continue in the future. Service Quality Gronroos (1984) defined service quality as a perceived judgment, resulting from an evaluation process where customers compare their expectations with the service they perceive to have received. He further added that the quality of a service is dependent with two variables: expected service and perceived service, which is that any previous experience with a service could influence the expectations of a customer, whereas the perceived service is a result of a consumer’s perception of the service itself. Following the above definitions, service quality has also been described as a form of attitude, related but not equivalent to satisfaction, that results from the comparison of expectations with performance (Balton and Drew, 1991; Parasuraman et al, 1988). According to several studies it is hypothesized that service quality will exert a direct positive influence on perceived value (e. g. Balton and Drew, 1991; Zeithaml 1988), on overall satisfaction (e. g. Cronin and Taylor, 1992) and it will have an indirect influence (e. g. Andreassen and Lindested, 1988) as well as a direct influence on future loyalty (Boulding, 1993; de Ruyter, 1998) Proposed Conceptual Framework The hypotheses among the corporate image, trust, service quality and customer loyalty: The conceptual framework above is the foundation of the research project, and describes the relationship among the four main variables which are customer loyalty, corporate image, trust, and service quality. Essentially, the independent variables include corporate image, trust, and service quality. On the other hand, customer loyalty is identified as the dependent variable. Hypotheses Development Based on the results of the previous studies, we formulated the hypotheses detailed below, with reference to the proposed conceptual model: H1:There will be a positive relationship between corporate image and customer loyalty. When customers are satisfied with the services rendered, their attitude towards the company is improved. (Andreassen and Lindestad, 1998) This indicates that a desirable image leads to customer satisfaction and customer preference, while an undesirable image leads to dissatisfaction. H2:There will be a positive relationship between trust and customer loyalty. Trust is believed to be a critical variable that contributes to healthy and long-term relationships (Anderson and Weitz, 1989). This explains trust towards the company is strongly related with commitment that leads to customer loyalty. H3:There will be a positive relationship between service quality and customer loyalty. Recent research offers some evidence that perceived service quality has an impact on customer satisfaction, which in terms leads to later behaviors towards the service firm (Andreassen and Lindestad, 1998). The internal quality and external value of the service will therefore contribute to customer loyalty. Research Method Maxis Communication Berhad is chosen as the research subject as it is well known as the main competitor in the mobile phone service market based in Malaysia. Also, Maxis is widely recognized and used by most of the students. Potential variables are identified and discussed and they include corporate image, trust towards Maxis, and the service quality offered by Maxis. Due to the huge population of students within campus, hence a sample of 60 is drawn. A survey was conducted and data was collected from 60 students who is currently subscribing to Maxis. A total of 30 male and 30 female are involved in this sample, the mean age of the sample is 21 years old. Sample characteristics appear to be representative of mobile phone users in UTAR. Probability sampling methods are selected for this research. Questionnaires are distributed equally to course representative of six different courses which includes Accounting, Marketing, Finance, Entrepreneurship, Banking and Finance, and Business Administration. The course representatives are informed to disseminate the questionnaires to any five guys and girls of their course, respondents are then randomly picked by the course representatives. Respondents are given a period of one week to complete the questionnaire. Later then, the completed survey questionnaires are collected from each of the course representative. Simple random sampling method was employed as this method provides more accurate and valid results. Our target samples are scattered over a wide area, thus we assigned our questionnaires to the course representatives for more efficient mode. Due to the large target population, we have also employed another approach which is stratified sampling. Here, we have stratified our population by genders, and respondents from different courses in a university. This would ensure better coverage of our targeted population for more desirable result. We have pursued quantitative approach in collecting data in our study for our research problem. As we have clearly defined the three determinants factor which affects the level of customer loyalty for Maxis, which are corporate image, trust, and also the service quality offered, the quantitative data we obtained is by using the various numeric means, in this case it is the Likert scale. Respondents are required to rank statements from 1 to number 7 based on their own perceptions and beliefs. Consequently customer loyalty, trust, corporate image, and service quality were measured using multiple indicators. Customer loyalty is measured using two loyalty indicators which are repurchase probability, and the likelihood of providing positive word-of-mouth to potential customers. Regarding the measure of trust (TR), a five-item scale was developed by using different but complementary definitions. The multiple indicators involved reliability, ethics, service quality, and cumulative process. Corporate image is an overall evaluation of the company and is measured using three indicators; overall opinion of the company, opinion of the company’s contribution to society, and customer’s liking of the company.