Customer Retention in Telecom Industry Essay Example

and employment in the sector rose considerably between 1970 and 2006 [Central Bank of Sri Lanka (CBSL), 2007].

In the last couple of decades, a large portion of growth of the service industry in Sri Lanka was attributed to the development of Telecommunications industry.

Telecommunications industry as a whole in the global sphere expanded and made dominance due to the convergence of it with Information Technology (IT), which resulted in the emergence of Information & Communication Technology (ICT) and Multi media. ICT dramatically changed the world socially, politically and economically. The deregulation of the telecom industry in Sri Lanka in the early 1990s brought multiple players/ service providers to the country.

The number of telecom operators stands at 75, as of October 2007 (www. trc.gov. lk). With the competition becoming tough, service providers realized that retaining one’s existing customer base is important as much as the acquiring of a new customer (Coyles and Gokey, 2005). In that context, service providers realized the importance of knowing the attributes that customers consider as relevant, in deciding whether to continue or not to continue with a particular service provider.

This research intended to make an explanatory study into the aspects/ attributes that customers consider relevant in deciding whether to continue with the current service provider (retain) or to switch to an alternative provider (migrate) or to switch off completely (defect). However, the customer decision making process is not the same for individual customers and the corporate customers. Therefore, it is difficult find a set of characteristics common to both categories. Hence, this research was restricted to corporate customers.

The main objective of this research was to ascertain the relative

importance of characteristic/s towards loyalty of corporate telecom customers.

Customer Loyalty Customer loyalty is viewed as the strength of the relationship between an individual’s relative attitude and repeat patronage. The relationship is seen as mediated by social norms and situational factors. Cognitive, affective, and conative antecedents of relative attitude are identified as contributing to loyalty, along with motivational, perceptual, and behavioural consequences ( Dick and Basu , 1994).

In the customer centred business, survival remains to the degree that customer satisfaction is met. Previous research studies have shows that the repurchase intent was the main benefit of customer retention. However, some had identified multiple benefits like repurchase intent, price tolerance, willingness to recommend etc.

In reaching retention, vendors should manage satisfaction and consequences of Customer Loyalty (Naranyandas, 1998). Loyalty too has a pyramid effect that suggests of having hierarchy in loyalty levels between customer and vendor.

Change in loyalty level will manifest itself in the presence of specific attitude and behaviour (Aaker, 1991). Customer loyalty and satisfaction are integral part of customer retention process. Customer Retention is a primary measure of loyalty.

There is a positive relationship between changes in satisfaction and share of wallet. In particular, the initial satisfaction level and the conditional percentage of change in satisfaction significantly correspond to changes in share of wallet. Income and length of the relationship negatively moderate this relationship (Cooil et al. , 2007).

Loyalty and retention although positively moderate with share of wallet it is necessary to examine the cost of maintaining the particular customer. It is not guaranteed that every customer retention generates contribution. Therefore the concept of Customer lifetime Value (CLV) plays an important role. In creating

loyalty and thereby CLV, it would be prudent to explore qualities of loyalty.

Two types of primary loyalty qualities had been identified in the previous researches, i. e. Attitudinal Loyalty and Behavioural Loyalty, out of which attitudinal loyalty could be the most important dimension for marketers to monitor (Rundel –Thiele, 2005). Rust et al. , (1999) discuss the Customer – Perceived Quality and Role of Customer Expectation Distribution.

According to them exceeding customer expectation will still be required if the company seeks to delight customer. In the event of having low expectation of service quality and meeting it, researchers had found, had raised preference. Given the option to general customers two equally priced options, the customer will choose the one with higher expected quality, the research had established. They argued that a company should always focus on its most loyal customers.

Retention point of view, less loyal customers’ tendency to defection is grater hence that sector should be defended with force.

This research further suggested greater the experience a customer with a service provider greater the chances of meeting expectation in perceived value, hence retention. Services Quality is considered as a major determinant in customer retention and building value relationship (Venetis and Ghauri, 2004). The quality of the service has various elements namely ;

• Reliability
• Responsiveness
• Assurance
• Empathy
• Tangibles. as identified by Parasuraman et al.(1985).

According to Lovelock and Wright (2001), marketing managers in service organizations make decisions regarding “8Ps” i. e. Product, Place, Promotion and Education, Price and other user outlays, Process, Productivity and Quality, People and Physical evidence. Finally, Since this research focused on ICT used by businesses it is appropriate to cite what business to

business (B 2 B) transactions means. Business customers means, those buy goods and services for use in producing their own products and services or for resale to others (Kotler and Armstrong, 2005).

ICT and its Strategic Importance to Business

The importance of ICT as a strategic tool is a moderating factor in determining the customer loyalty. The information revolution is sweeping through the economies. No company can escape from its effects. Dramatic reduction in the cost of obtaining, processing and transmitting information is changing the way business is done (Porter and Millar, 1985). They have further elaborated that IT changes the rules of competition.

Advances in IT itself is changing the industry structure. It has become an increasingly important lever that companies can use to create competitive advantage.

In addition IT developments have created a set of new businesses such as call centres and business processing outsourcing. ICT has become a tool of value creation, net return to IT capital is (37. 9 per cent) two and half times higher than that from Non –IT capital (14. 6 per cent) (Wong 2001).

Emergence of Internet and web technology application complimented each other in the recent drive in globalization. E–Commerce applications enabled companies opening up their products to the customers world wide. This has not been limited to consumer market. B2B (Business to Business) market too enjoyed those.

B2B e- commerce in 2003 reached almost US$ 4 trillion, compared with just US $ 282 billion in 2000 (Kotler and Armstrong, 2005). According a recent report of Boston Consultancy Group, by 2005 this has exceeded US $6. 8 trillion. A recent report (National Geography, December, 2007) states that US shops

experienced 20% drop in customers visiting them, mainly due to on-line ordering. With regard to availability of ICT services in Sri Lanka, Dassanayake (2003) suggests that changing development and competitive dynamism have created backward and forward integration in the economy of Sri Lanka.

Relationship Marketing In competitive business environment where there is an ongoing / continues desire for a particular product or services , organizations focus their strategies not only on acquiring customers, but also keeping them as long as possible and encouraging them to increase purchase frequency by developing lasting relationships Relationship marketing recognizes long term value to the company of keeping customers.

Berry (1983), defined relationship marketing as “attracting, maintaining, and enhancing customer relationships”.

He further emphasized that “relationship marketing can be applied: when there are competitive product alternatives for customers to choose from and when there is an ongoing and periodic desire for the product or services ‘. In service industry particularly in ICT industry such strategies play a very critical role in enhancing retention. Attraction of new customers is an intermediate step in marketing process.

Solidifying relationship and transforming them as loyal customers, serving customers as clients too should be a part of marketing (Berry, 1983).

Subsequent thinking on relationship marketing further expanded and stressed on profitability of relationship management. “Companies are building customer relationship management to build profitable, long term relationship (Kotler and Armstrong, 2005). It implies discouragement to maintain relationship in the event profits are not foreseen.

Relationship marketing in recent past has emerged as a leading strategic element of business. It has a direct effect on firm’s objective performance and also suggest that relationship marketing is more effective when the relationships

are more critical to customers.

Furthermore effectiveness is greater when relationships are built with an individual than a firm/ institution (Robert et al. , 2006) Payne and Holt (2001) dealt in to diagnosing customer value: integrating value process and relationship marketing . There they have argued that value creation was a dynamic element to existing value concept. Value creation shall be looked over a time on multiple transactions.

Creation of mutual value will become focus of both customer and the firm , value is jointly shared among all the parties involved on relationship.

According to Gordon (1999), marketing mix should be replaced by the alternative models of relationship marketing where the focus on customers, relationships and interaction over the rather markets or products. In the same light, to be effective in relationship marketing, entire firm should be geared towards the successful implementation. Many of the relationship marketing attributes such as collaboration , loyalty and trust determine what employees ; “ internal customers” , do. (Gordon, 1999) Relationship marketing in the ICT service industry plays more important role due to unique features in the services.

It is an accepted fact that purchase frequency is the value generator in the ICT industry. The stronger relationship marketing will enhance trust and customer bonding thereby increase exit barriers in addition to purchase frequency and mutual value generation (Berry, 1995). To end up this literature review it is to be noted that, business is meant to generate value to all share holders. In that, whilst serving the customer and establish long term relationship, this should be done only up to the extent that customer retention delivers value for shareholders.