Factors Affecting Customer Loyalty free essay sample

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. 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. 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 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 towards 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. In measuring perceived service quality, instead of the 22-item SERVQUAL instrument, a one-dimensional measure (seven-item scale) of perceived service quality relating to an evaluation of all the base services was used for reasons of data collection efficiency. (Bloemer et al. , 1998). We are pursuing the survey questionnaire method for our study. This survey questionnaire was carried out only for students in Universiti Tunku Abdul Rahman, Sungai Long. It is distributed to mobile phone users who are currently subscribing to Maxis. We chose survey questionnaire as our data collection method as it is the most economical method in collecting information within a relatively quick time. It is also cost effective when compared to face-to-face interviews as this research involves large sample size. Other than that, most of the students feel reluctant to be interviewed due to their jammed pack schedule they have. Survey questionnaires are the most familiar method to most people. Nearly everyone has had some experience completing questionnaires and they generally do not make students feel uneasy. Besides, the responses are gathered in a standardized way where it reduces bias. Questionnaires are also easy to analyze, and data entry for all surveys can be easily done with the computer software package and results can be obtained simply. Firstly, we distributed the written survey questionnaires to respondents which are Maxis users in Universiti Tunku Abdul Rahman (UTAR). The type of question used is close-ended question where the respondents choose among specific response options for each question. Here, respondents are able to provide both negative and positive answers based on their own perception. In section 1 of or questionnaire, the participants are first posed with three demographic questions namely their gender, age and the last question to stronger affirm whether the respondent is a Maxis user thus using a close ended question where a dichotomous answer such as yes or no is given as a choice. In the following sections, the questions capture data in several more categories which question respondents on their perception measures on the level of user’s loyalty towards Maxis. This section is to mainly identify the extent of customer’s loyalty towards Maxis. Subsequently, users are asked about their perception on the corporate image of Maxis, then their trust on Maxis, and finally the service quality offered by Maxis. Meanwhile the following sections are the three potential variables that may affect customer loyalty towards Maxis. All of the constructs in the model were measured using a multiple-item measurement scale. All measures used a five-point Likert-type response format. A list of measurement items was developed using input from the review of the literature related to our study. Respondents then rank this statement according to the degree to which they agree (I strongly agree, I somewhat agree, I have no opinion, I somewhat disagree, I strongly disagree) and to the degree to which they are satisfy as the anchors. We also have pretest the reliability and validity of our survey questionnaire questions. We have recognized that most Maxis user who has a high level of customer loyalty would most likely strongly agree to most of the positive statements and vice versa. Careful wording, format, and content of the statement are carefully described so that to reduce the unreliability of the question and be appropriate to the objectives of our research. For reliability, the items were submitted to reliability analysis via Cronbach’s alpha. The results for Reliability analysis is shown below. The reliability values of all the factors were either close to or greater than 0. 80. The reliability and validity analysis results indicate that the scales for the constructs appear to have satisfactory measurement qualities. Analysis and Findings Due to the difficulties in collecting data from large population, a sample of 60 is drawn. A survey was conducted within campus via questionnaires. A total of 30 male and 30 female mobile phone users are involved in this sample. Questionnaires are circulated equally to course representative of six different courses which includes Accounting, Marketing, Finance, Entrepreneurship, Banking and Finance, and Business Administration and later the course representatives will disseminate the questionnaire randomly to students of their course. The proposed model was analyzed by using Statistical Package for the Social Sciences (SPSS 13. for Window Integrated Student Version). The biggest age group among the respondents is 21 years old. They consist more than half (55%) of the respondents. Second largest age group is 20 years old, which cover 18. 3% of the respondents, followed by 22 years old (10%). There are 6. 7% of 60 respondent is 23 years old, and 5% of them are 19 years old. Only 2 pers on from the respondents are 18 years old (3. 3%) and 1 is 25 years old (1. 7%). Respondents age (years old)FrequencyPercent 1823. 3 1935. 0 201118. 3 213355. 0 22610. 0 2346. 7 2511. 7 Total60100. 0 The mean for customer loyalty is the highest among four variables, which is 5. 4 (over full score of 7). It means the respondents are loyal to their telecommunication service provider, Maxis. The respondents perceive Maxis as having a good corporate image because they have a mean of 5. 31 for average summated score for corporate image. The mean of 5. 3 for average summated score for trust shows that the respondents trust Maxis. The mean score for the service quality of Maxis is lowest compare to other variables (5. 04), but overall the respondents are satisfied with the service provided. Below is the table of mean for average summated score for customer loyalty, corporate image, trust, service quality. Mean average summated score for customer loyalty5. 54 average summated score for corporate image5. 31 average summated score for trust5. 30 average summated score for service quality5. 04 The Cronbach’s Alpha for all the variables (customer loyalty, corporate image, trust, and service quality) used in our study are above 0. 6, which is the minimum acceptable level. All the items used in measuring the four variables are reliable. The items used to measure trust and service quality are very reliable because the Cronbach’s Alpha is more than 0. 8. Reliability Statistics Cronbachs Alpha for customer loyalty (4 items)0. 44 corporate image (5 items)0. 662 trust (5 items)0. 822 service quality (5 items) 0. 838 T-test was performed to determine the association between gender and loyalty. The Levene’s test shows a p-value of 0. 2075 (p gt; 0. 05), therefore, equal variances are assumed. Furthermore, customers are loyal to this telecommunicating service provider partly because they think that Maxis has a healthy image and they have no reason to switch to its competitor, as long as they continue providing reasonable service to customers. The findings by Tor Wallin Andreasen and Lindestad (1998) reveals that corporate image is the primary driver of customer satisfaction for the package tour industry consolidated, and managers should seek to maximize the customer’s satisfaction by building a strong corporate image as well as securing high quality services. Surprisingly, in contrast to some previous study (e. . Aydin and Ozer, 2004; Bloemer et al. , 1998), we found that the service quality has an inverse relationship with customer loyalty, though it is significant but relatively weak. Maxis’ customer may not be loyal for the factor of service quality. The major Malaysia mobile telecommunicating market includes Celcom, DiGi, and Maxis. All of them provide co mpetitive and similar services. Our respondents may not perceive Maxis as a high quality telecommunicating service provider compared to its competitors, yet they still remain loyal to Maxis, and they still continuously subscribe Maxis’ services. In our opinion, this may be the reason of the inverse relationship revealed in this study. One of the limitations of the current is that our proposed model did not assess other related variables, such as perceived switching cost. The switching cost consists of different associated context, such as psychological, financial and procedural prospect. Therefore, these contexts should be measured and their effects should be examined. This approach may provide both empirical and theoretical information. Finally, due to the limitation of time and cost, we only conducted questionnaires on students of University Tunku Abdul Rahman. The following studies can be focused on switching cost and customer commitment to the telecommunication service provider. Besides, we may also measure the different aspects of customer satisfaction that leads to customer loyalty. Recommendation and Conclusion In a service industry that is becoming increasingly international, it is important to develop standardized measure to adequately capture consumer satisfaction, loyalty and commitment. Through such measurement, companies are able to understand how they are doing from their targeted customer’s point of view. Thus, giving them an opportunity to identify what it takes to ompete and finds ways to deliver better services to their customers and compare their achievements with competitors. It is becoming an industry-wide believe that the best core marketing strategy for the future is to try to retain existing customers by heightening customer loyalty and customer value (Kim et al. , 2004) Thus, what is more imperative than an org anization’s capability to retain customers to survive in an industry and maintaining a competitive edge over its competitors. Customer loyalty has become the most important determinant factor of a company’s profitability. The results from this study have important implications for the Malaysian mobile telecommunications industry; Maxis. We can conclude that analysis results show that Maxis’s customer loyalty is determined by the three most vital factors following a sequence which are trust, corporate image, and the service quality offered by Maxis. Perhaps, Maxis needs to gain the benefit of doubt from customer’s viewpoint by emphasizing on ways to develop trust of customers towards them as there is a direct positive relationship between trust and customer’s loyatly. To better strengthen the evidence of customer’s loyalty towards Maxis, respondents perceived Maxis as having a good corporate image, and thoroughly trust Maxis and shows satisfaction with the service offered by Maxis. However, gender differences have no significant association with customer loyalty. The results imply that Maxis should place greater emphasis on achieving high levels of customer’s trust. To better serve customers, Maxis can look at the behavior of their repeat buyers and decipher the reason why they come back for more. For some, customers may stay with Maxis as in their view, Maxis is the best around. Never at once assume that inertia will keep customers buying. In order to gain customer’s confidence, they must bend their efforts and not forgetting its staff efforts toward giving each and every customer the service that they desire. Generally, customer’s loyalty is controlled by how well we service their needs. Besides, we would suggest to that Maxis should respond to complaints immediately in order to raise the trust among current customers. If conflicts are address and resolve promptly, the appreciative customer is in many cases more likely to be loyal than a customer who never had a complaint. In addition, a surefire way to increase loyalty is to offer your customers rewards, such as free merchandise or discounts, for shopping with you on a regular basis. A well-planned loyalty program will help you identify and compensate deserving patrons. Then, we would recommend studying on other possible antecedents which could have an influence on telecommunication industry customer loyalty, for example, some of the dimensions which constitute reputation and awareness; as well as the switching costs. Such factors are important to the process of adding value to service offerings and, hence, achieving competitive advantage in the telecommunication industry.