During the last two decades, organisations have needed to learn more about consumer behaviour and consequently also about growing customer loyalty which has become a major objective of many companies.
This dissertation determines the reasons why people become loyal to their mobile operator and identifies potential differences between the Czech Republic and the United Kingdom regarding these reasons. The findings of the literature review show that there are four main factors that may cause customer loyalty. These key-factors were researched through a questionnaire survey among 200 respondents in the Czech Republic and in the United Kingdom. The results of the study showed significant dependence between customer loyalty and customer satisfaction in both countries. In addition, the dependence between customer loyalty and the mobile operators’ brand was significant for the United Kingdom. For the Czech Republic the dependence was significant between customer loyalty and customers’ “no choice”.
The author’s recommendation for the mobile operators is that they should pay attention to customer needs and expectations and the building of brand loyalty which should be supported by special and enticing offers.
First of all I would like to thank my personal tutor Dr Evgeny Polyakov for the assistance and guidelines that helped me to finish this dissertation.
My special thanks belong to my family and boyfriend which enable me to experience this academic year. I am deeply grateful for their emotional support, understanding, patience and love.
I wish to give thanks to my friends Jana K., Jana H., Kačka, Květa, Michaela who have given me many inspiriting advices and for great time we had.
I am very grateful to Filip for his help and practical advices which enable me to go through this dissertation.
Many thanks belong also Jana F. for her valuable advices.
I would like to express many thanks to Pája, Evča and Alan for their language support.
Finally, I would like to thank all participants who took part in the survey.
ABSTRACT...I
ACKNOWLEDGEMENTS...II
TABLE OF CONTENTS...III
LIST OF FIGURES...VII
LIST OF TABLES...IX
1. INTRODUCTION ... 1
2. INDUSTRY REVIEW ... 3
2.1 Mobile World – Past, Present and Future ... 3
2.2 The Situation in the United Kingdom ... 3
2.3 The Situation in the Czech Republic ... 4
2.4 Findings ... 5
3. LITERATURE REVIEW ... 7
3.1 Introduction to Literature Review ... 7
3.2 Consumer Behaviour ... 7
3.2.1 Understanding Consumer Behaviour ... 7
3.2.2 What Reflects Consumer Behaviour ... 8
3.2.3 Marketing Strategy and Consumer Behaviour ... 10
3.3 Customer Loyalty ... 10
3.3.1 Understanding Customer Loyalty ... 10
3.3.2 Benefits of Customer Loyalty ... 12
3.3.2.1 Cost Efficiency and Profitability ... 12
3.3.2.3 Repeat Purchases ... 14
3.3.2.4 Auxiliary Benefits ... 14
3.3.3 Benefits of Loyalty for Customers ... 14
3.3.4 Types and Degrees of Loyalty ... 15
3.3.4.1 Types of Loyalty ... 15
3.3.4.2 Degrees of Loyalty ... 16
3.3.5 Categories of Loyal Customers ... 17
3.3.5.1 Contented Loyalists ... 17
3.3.5.2 Committed Loyalists ... 21
3.3.5.3 Captive Loyalists ... 24
3.3.5.4 Convenience Loyalists ... 24
3.4 Findings ... 25
3.4.1 Hypotheses ... 26
4. METHODOLOGY ... 29
4.1 Research Approaches ... 29
4.1.1 Used Approaches ... 30
4.2 Research Strategies ... 31
4.2.1 Used Strategy - Survey ... 32
4.3 Research Methods ... 32
4.3.1 Used Method - Questionnaire ... 33
4.3.1.1 Questionnaire Design ... 33
4.3.1.2 Types of Questions ... 34
4.4 Questionnaire in this Research ... 35
4.4.1 Questionnaire Design ... 35
4.4.1.1 Sampling ... 36
4.4.1.2 Piloting, Validity and Reliability ... 38
4.4.1.3 Ethics ... 39
4.4.1.4 Limitations and Recommendations ... 39
4.5 Data Analysis ... 40
4.6 Summary ... 41
5.1 Respondents’ Profiles and Mobile Operators ... 42
5.1.1 The Czech Republic ... 42
5.1.2 The United Kingdom ... 44
5.2 Background of the Tested Hypotheses ... 46
5.3 Tests of the Hypotheses ... 49
5.3.1 First Hypothesis ... 50
5.3.1.1 The Czech Republic ... 50
5.3.1.2 The United Kingdom ... 52
5.3.2 Second Hypothesis ... 54
5.3.2.1 The Czech Republic ... 55
5.3.2.2 The United Kingdom ... 56
5.3.3 Third Hypothesis ... 57
5.3.3.1 The Czech Republic ... 58
5.3.3.2 The United Kingdom ... 59
5.3.4 Fourth Hypothesis ... 61
5.3.4.1 The Czech Republic ... 61
5.3.4.2 The United Kingdom ... 63
6. DISCUSSION, LIMITATIONS AND RECOMMENDATIONS ... 64
6.1 Discussion ... 64
6.1.1 Hypothesis 1 ... 64
6.1.2 Hypothesis 2 ... 65
6.1.3 Hypothesis 3 ... 66
6.1.4 Hypothesis 4 ... 66
6.1.5 Research Question ... 67
6.2 Limitations ... 68
6.3 Recommendations ... 69
7. CONCLUSION ... 71
REFERENCES...73
APPENDIX B ...83
APPENDIX C...87
APPENDIX D...91
FIGURE 1 MOBILE OPERATORS’ SHARES IN THE UK MARKET ...3
FIGURE 2 DEVELOPMENT OF THE CZ OPERATORS...4
FIGURE 3 MOBILE OPERATORS’ SHARES IN THE CZ MARKET...5
FIGURE 4 WHAT REFLECTS CONSUMER BEHAVIOUR...8
FIGURE 5 CUSTOMER LOYALTY MODEL...11
FIGURE 6 INTEGRATED CONCEPTUAL FRAMEWORK...16
FIGURE 7 CUSTOMER SATISFACTION THEORY...19
FIGURE 8 EFFECTS OF EXPERIENCE AGAINST EXPECTATION...19
FIGURE 9 WHAT CUSTOMERS REALLY WANT...20
FIGURE 10 SERVICE TRIANGLE (CUSTOMER LOYALTY AND SERVICE BRANDS)...22
FIGURE 11 RANGE OF METHODS OF RESEARCH AND TECHNIQUES OF DATA COLLECTING...32
FIGURE 12 PRINCIPLES OF QUESTIONNAIRE DESIGN...34
FIGURE 13 ANSWER GROUPS...36
FIGURE 14 SAMPLING TECHNIQUES...37
FIGURE 15 GENDER AND AGE GROUP, THE CASE OF THE CZ...43
...44
FIGURE 17 GENDER AND AGE GROUP, THE CASE OF THE UK...45
FIGURE 18 FREQUENCY OF MOBILE OPERATORS, THE CASE OF THE UK ...46
FIGURE 19 DURATION OF CUSTOMER LOYALTY TO THEIR CURRENT MOBILE OPERATOR...47
FIGURE 20 COMPARISON OF DURATION OF CUSTOMER LOYALTY
BETWEEN THE CZ AND THE UK...47
FIGURE 21 LOYALTY STATEMENTS...48
FIGURE 22 FREQUENCY OF FOUR FACTORS WHICH MAY INFLUENCE CUSTOMER LOYALTY...49
FIGURE 23 RESEARCH RESULTS...67
TABLE 1 DEDUCTIVE APPROACH...30
TABLE 2 TYPES OF QUANTITATIVE DATA...31
TABLE 3 CROSSTABULATION - GENDER AND AGE GROUP, THE CASE OF THE CZ...43
TABLE 4 FREQUENCY OF MOBILE OPERATORS, THE CASE OF THE CZ 44
TABLE 5 CROSSTABULATION - GENDER AND AGE GROUP, THE CASE OF THE UK...45
TABLE 6 FREQUENCY OF MOBILE OPERATORS, THE CASE OF THE CZ 46
TABLE 7 FREQUENCY OF FOUR FACTORS WHICH MAY INFLUENCE CUSTOMER LOYALTY...49
TABLE 8 RELIABILITY STATISTICS – THE CASE OF THE CZ...50
TABLE 9 RELIABILITY STATISTICS – THE CASE OF THE UK...50
TABLE 10 CROSSTABULATION - FIRST HYPOTHESIS, THE CASE OF THE CZ...51
TABLE 11 CORRELATIONS - FIRST HYPOTHESIS, THE CASE OF THE CZ ...51
TABLE 12 TEST OF HOMOGENEITY OF VARIANCES - FIRST
HYPOTHESIS, THE CASE OF THE CZ...51
...52
TABLE 14 CROSSTABULATION - FIRST HYPOTHESIS, THE CASE OF THE UK...53
TABLE 15 CORRELATION - FIRST HYPOTHESIS, THE CASE OF THE UK.53
TABLE 16 TEST OF HOMOGENEITY OF VARIANCES - FIRST
HYPOTHESIS, THE CASE OF THE UK...53
TABLE 17 ONE-WAY ANOVA - FIRST HYPOTHESIS, THE CASE OF THE UK ...54
TABLE 18 CROSSTABULATION - SECOND HYPOTHESIS, THE CASE OF THE CZ...55
TABLE 19 CORRELATION - SECOND HYPOTHESIS, THE CASE OF THE CZ ...55
TABLE 20 CROSSTABULATION - SECOND HYPOTHESIS, THE CASE OF THE UK...56
TABLE 21 CORRELATION - SECOND HYPOTHESIS, THE CASE OF THE UK ...56
TABLE 22 TEST OF HOMOGENEITY OF VARIANCES - SECOND
HYPOTHESIS, THE CASE OF THE UK...56
TABLE 23 ONE-WAY ANOVA - SECOND HYPOTHESIS, THE CASE OF THE UK...57
TABLE 24 CROSSTABULATION - THIRD HYPOTHESIS, THE CASE OF THE CZ...58
TABLE 26 TEST OF HOMOGENEITY OF VARIANCES - THIRD
HYPOTHESIS, THE CASE OF THE CZ...58
TABLE 27 ONE-WAY ANOVA - THIRD HYPOTHESIS, THE CASE OF THE CZ ...59
TABLE 28 CROSSTABULATION - THIRD HYPOTHESIS, THE CASE OF THE UK...59
TABLE 29 CORRELATION - THIRD HYPOTHESIS, THE CASE OF THE UK 60
TABLE 30 TEST OF HOMOGENEITY OF VARIANCES - THIRD
HYPOTHESIS, THE CASE OF THE UK...60
TABLE 31 ONE-WAY ANOVA - THIRD HYPOTHESIS, THE CASE OF THE UK ...60
TABLE 32 CROSSTABULATION - FOURTH HYPOTHESIS, THE CASE OF THE CZ...61
TABLE 33 CORRELATION - FOURTH HYPOTHESIS, THE CASE OF THE CZ ...62
TABLE 34 TEST OF HOMOGENEITY OF VARIANCES - FOURTH
HYPOTHESIS, THE CASE OF THE CZ...62
TABLE 35 ONE-WAY ANOVA - FOURTH HYPOTHESIS, THE CASE OF THE CZ...62
TABLE 36 CROSSTABULATION - FOURTH HYPOTHESIS, THE CASE OF THE UK...63
...63
1. 1. Introduction Introduction
In today’s dynamically changing business environment, organisations are searching for achievement and consequently also growth of customer loyalty. It is not so long ago when the organisations were focused on volume of sales and not on customers.
However this attitude has started to change. Customers have more options and more choices. Companies, in case that they want to succeed, have been forced to find out new methods in customer interactions, costs reduction and in gaining market share. With the coming of the new information age companies learn more about “a wide range of customer behaviours and lifetime values associated with loyalty” (Heskett, 2002:355).
Since, marketers are everyday intensively confronted with these challenges they need to achieve competitive advantage by force of differentiation of the products or services which they offer. It is the customers who are now setting new standards in all branches and therefore the long-term relationship of the company and customers became a necessity.
Customer loyalty has become a major objective of companies. Cram (1994) points out this by saying:
“Loyalty is the magic substitute for market growth.”
For companies it is important to realize factors which may influence customer loyalty and also all issues which may be influenced by customer loyalty.
Although considerable research has been devoted to overall customer loyalty, rather little attention has been paid to the mobile communication business in connection with it. For this purpose the cases of the Czech Republic and the United Kingdom have been adopted. In view of these facts the research question which follows has been devised:
Why do customers in the mobile communication business become loyal to their mobile operators in the Czech Republic and in the United Kingdom?
To be able to answer this question the research objectives have been also established:
1. To determine the reasons why people become loyal to their mobile operator.
2. To identify potential differences between the Czech Republic and the United Kingdom regarding these reasons.
This dissertation consists of six further chapters. Following this introduction is the second chapter. This is the industry review and it focuses on the background for this study where is reviewed the industry of mobile communication business. Mobile providers operating in the Czech Republic market and in the United Kingdom market are introduced.
The next chapter, the literature review, deals with the theoretical part of this dissertation.
Firstly, consumer behaviour as a basis for this study is discussed. Consequently, the central issue, customer loyalty, is introduced and important key aspects are presented.
Finally, the findings from both previous sections are synthesised and the research hypotheses are created.
The aim of the fourth chapter is to provide a methodological review of the primary data collection process. The research approaches, strategies and methods are discussed. To enable the primary research completed the most appropriate methods are chosen and the implications of the research are introduced. In addition, the methods of analysis are briefly outlined.
Then in the fifth chapter the research results and analysis are accomplished from the primary research. The data editor SPSS Version 12.0 for Windows is used. Firstly, the characteristics of respondents are reported. In the next section the background for the tests of the hypotheses is given. Finally, the variables to be analysed are tested for reliability using Cronbach’s alpha, for relationship using Bivariate Correlation and for dependence using ANOVA.
Having considered the previous chapters the sixth chapter provides a discussing of the findings related to the literature review, the research question and the industry information. Also the limitations of this research are concluded and finally, some recommendations derived from the study are given.
The last chapter includes the overall conclusion. The findings, recommendations and whether the research question has been answered are summarised.
2. 2. Industry Review Industry Review
For deeper understanding of the dissertation topic, the brief background of the mobile communication businesses in the Czech Republic and in the United Kingdom, together with the situation in this market follow.
2.1 Mobile World – Past, Present and Future
The mobile communication has the foundation-stones date at the beginning of the 20th century. Today’s mobile network has been developed through the cellular and the analogue cellular network to the Global System for Mobile Communications. The mobile phones are becoming standard for majority of population. To support this Hamill and Lasen (2005) declare that 72.1 per cent people in Europe own a mobile phone. In addition, in the communications technologies the mobile services are considered as the fastest growing branches.
2.2 The Situation in the United Kingdom
With the founding of Vodafone in 1985 the first UK mobile network has been established. The situation in the current UK mobile communication market is presented in the Figure 1.
Figure 1 Mobile Operators’ Shares in the UK market
17%
24%
23% 8%
23% 1%
4%
Source: Adapted from Mintel (2005)
The biggest UK mobile network providers as the Figure 1 shows are Vodafone, O2, Orange and T-mobile. The oldest UK mobile operator Vodafone has also the most stable position in the market. However, since 1994 Orange has become the most dangerous rival for Vodafone. In 1999 another two network providers have entered the UK mobile market. First, it was Virgin Mobile and later on, T-mobile. The last two operators, 3 Mobile and Tesco Mobile launched in 2003 (Mintel, 2005).
These all mobile operators mentioned above are the network providers. Alongside with these, there are other mobile operators which do not have own mobile network at their disposal such as Saintsbury’s Mobile using O2 mobile network.
The network providers presented in the Figure 1 are further referred to as mobile operators since these are the only ones this paper is focused on.
According to Mintel (2005) the UK mobile operators are well-performed networks above all their prices are low and their signal coverage is excellent.
2.3 The Situation in the Czech Republic
The CZ mobile communication market is much younger in comparison to the UK.
Since, the situation in the CZ market was more involved it is clarified in the Figure 2.
Figure 2 Development of the CZ Operators
*
2003*
1991*
2006*
1996*
1999*
2006Source: Adapted from Telefónica O2 Czech Republic, a.s. (2007), Vodafone Czech Republic a.s. (2007), T-Mobile Czech Republic a.s. (2007)
Eurotel, the first CZ mobile operator, was launched in 1991. As the first Eurotel’s competitor was established Paegas. The third and the last provider of the mobile network founded in the CZ was Oskar. However, the year 2003 brought the first change in the CZ mobile communication. Figure 2 shows that in 2003, Paegas has changed the name to T-mobile after earlier takeover by the world giant. The changes had carried on in 2006 when Vodafone bought Oskar and then Eurotel was taken over by O2.
The present situation in the CZ mobile communication market is presented in the Figure 3.
Figure 3 Mobile Operators’ Shares in the CZ Market
19%
41%
40%
Source: Adapted from Telefónica O2 Czech Republic, a.s. (2007), Vodafone Czech Republic a.s. (2007), T-Mobile Czech Republic a.s. (2007)
As the Figure 3 presents, two biggest network providers are T-mobile and O2. Although, Vodafone has the lowest market share in the CZ its year-on-year growth is significantly very high (Vodafone Czech Republic a.s., 2007).
2.4 Findings
To summarize all mentioned above it is important to pay attention to the fact that this branch is relatively young. For this work the differences between the CZ and the UK mobile communication market seem to be crucial. These differences are not only in the structure of both markets but also in the length of a performance of all present mobile operators in the CZ.
Having considered this background the theory can be developed in the literature review.
3. 3. Literature Review Literature Review
3.1 Introduction to Literature Review
This dissertation researches customer loyalty in the mobile communication business.
The objectives of the study are to determine the reasons why people become loyal to their mobile operators and to identify potential differences between the Czech Republic and the United Kingdom regarding these reasons.
This literature review is divided into three sections. In the first section the literature related to the essentials of consumer behaviour has been reviewed. The next section focuses on customer loyalty where the key aspects and some other related issues to loyalty have been discussed. Finally, the findings from this literature review synthesised and have been applied to form the research hypotheses.
3.2 Consumer Behaviour
In this section consumer behaviour from a general point of view is discussed. Firstly, the basics of consumer behaviour are outlined. Further, a numbers of issues central to consumer behaviour are considered. Finally, the connection to consumer behaviour with marketing strategy is discussed. All these lead to better understanding of the main dissertation topic which relates to customer loyalty.
3.2.1 Understanding Consumer Behaviour
Consumer behaviour is one specific part of human behaviour. Human behaviour is classified as the process where the individuals come into the interaction with the environment (Arnould et al., 2002). Consumer behaviour is closer expressed.
Hoyer and MacInnis (2007:4) use this definition:
“Consumer behaviour reflects the totality of consumer’s decisions with respect to the acquisition, consumption, and disposition of goods, services, activities, and ideas by (human) decision-making units.”
As you can see in the definition above, consumer behaviour contains all actions connected to decision-making before buying until the end of lifetime of the actual product or service.
In other words, it can be defined not only as activities they execute during consumption process but also everything that relates to the thoughts and feelings people experience.
It is also important to add that consumer behaviour is not continual because it involves many interactions and changes. Therefore, it is very dynamic (Peter and Olson, 2005).
3.2.2 What Reflects Consumer Behaviour
Customer behaviour reflects more than only how products are obtained by an individual. As Hoyer and MacInnes (2007:4) suggest in the Figure 4 consumer behaviour reflects “the totality of decisions about the consumption of an offering by decision-making units over time”.
Figure 4 What Reflects Consumer Behaviour
Source: Developed by Hoyer and MacInnes (2007:4)
As the definition above says and the Figure 4 presets with consumer behaviour several other issues relate.
Firstly, consumer behaviour implies not only products (Arnould et al., 2002). The Figure 4 presents that it is also connected to services, activities and ideas. Marketers call this group as “offering” because it is “offered by marketing organisation to customers”
(Hoyer and MacInnes, 2007:5).
The behaviour of customers involves also more than purchasing. Although, this is simply the manner how the customers buy. According to Hoyer and MacInnes (2007) it is also a very important issue for marketers. They should be interested in other activities as well. Therefore, Kotler and Amstrong (2004) pay attention to buying which is next to borrowing, trading and leasing one of acquisition behaviour. As another two issues are presented using and disposing of an offering. These are significant for their possibility to influence other consumers (Blackwell et al., 2001; Hoyer and MacInnes, 2007).
From the Figure 4 also follows that consumer behaviour is a dynamic process. It means that consumption occurs over time in sequence (Arnould et al., 2002). The time represents hours, days, weeks, months or years (Hoyer and MacInnes, 2007).
Many people can be affected by consumer behaviour. It results from many factors. The consumers can be not only purchasers and users but they also represent those who make the decision, who can influence the others and who gather information (Kotler and Amstrong, 2004).
Finally, consumer behaviour concerns many decisions about: “whether, why, when, where, how, how much, how often and how long” (Hoyer and MacInnes, 2007:7) customers will consume an offering.
Hoyer and MacInnes (2007) point out that all issues mentioned above should be important to marketers for better understanding of consumer behaviour dimensions because it necessary influences marketing strategies and tactics.
The connection between marketing strategy and consumer behaviour is detailed in the following section.
3.2.3 Marketing Strategy and Consumer Behaviour
In today’s quickly changing consumer environment, marketers are not able to satisfy all segments of the population by producing only one product. The customers have more choices and they want to try consistently new products and services. If the company wants to succeed in the market it does not have another chance than to have customers in the centre of its activities (Hawkins et al., 2007).
The understanding of consumer behaviour is essential. For that reason, as Schiffman and Kanuk (2004:8-9) say, every marketer “needs to know everything” that is possible to find out about consumers. Blackwell (2001:50) adds that all companies are “getting to know” the consumers because nobody knows who “may become their customer”. Therefore, everyday’s learning about customers and their listening should be the part of marketers’ life (Blackwell, 2001:50).
Furthermore, today when the society is named consumerist and the customers are the centre of the whole business, it is necessary to have successful marketing strategy.
A number of companies have understood that it is impossible to succeed among lots of competitors without good marketing strategy (Arnould et al., 2002). Blackwell (2001) points out that integral part of the companies’ marketing strategies became the concept of loyalty.
3.3 Customer Loyalty
This section on customer loyalty is the most important with regard to the research question of this study. In the first instance, customer loyalty in general is explained and related definitions are given. Further, the benefits of customer loyalty are discussed.
Then types and degrees of loyalty are presented. Finally, the reasons why customers become loyal are explained.
3.3.1 Understanding Customer Loyalty
In today’s global world big competition between all companies to win customers exists.
This is the main reason why they are intensively looking for new and better ways how
to outperform competition, thereby gain the competitive advantage and as Rajshekhar et al. (1997) add also increase customer loyalty. Oliver (1999) defines loyalty as:
“A deeply held commitment to re-buy a preferred product consistently in the future, despite situational influences and marketing efforts having the potential to cause switching behaviour”.
From this definition follows that loyal customer purchases “non-accidentally” and repeatedly. This can happen mainly by businesses products. However, Robinson and Etherington (2006:5) are in essential agreement with Oliver (1999) but they see customer loyalty rather as:
“An emotional and attitude-based preference resulting in the behaviour of spontaneous personal recommendation and/or purchase”.
For Robinson and Etherington (2006) key element of this definition poses the personal recommendation which represent the willingness to underpin company reputation.
For this work is the most appropriate combination of both. Namely, it is strong and long-term customer relationship with repeated purchases in the future and willingness to recommend. In addition, Duffy (2003:480) presumes that customer loyalty is “the strategic objective for most companies” and Heskett (2002:355) adds that it can be regarded as a necessity “of effective business strategy”.
Figure 5 Customer Loyalty Model
Source: Developed by Hoisington and Naumann (2003:34)
Business performance
Product quality Service quality Relationship Image
Global perceptions
Overall satisfaction Willingness to recommend Repurchase intent Commitment Met expectations Value for the money
Loyalty behaviours
Customer loyalty
Financial outcomes
Market share
Reduced cost
Employee attitudes
Profit Shareholder value
Figure 5 presents which issues are directly connected with customer loyalty. The first two fields represent issues that influence and cause that the customer behave loyally.
The second part of the Figure 5 poses items which are influenced in the company by customer loyalty.
After the brief introduction to the customer loyalty part is preceded to more detailed sections.
3.3.2 Benefits of Customer Loyalty
In spite of in today’s world it is so hard to gain customers even often it is more complicated to keep them and to make the clients of them. Buckingham (2001) developed the theory “customer once, client forever”. The goal should not be just to make a one-time sale but to satisfy clients so that the company “keeps them for life”
(Buckingham, 2001:1). If company succeeds and customers become loyal, it can bring many advantages for the company. The following sections detail the different types of these benefits.
3.3.2.1 Cost Efficiency and Profitability
Many authors agree that customer loyalty is very important. It is especially important, because long-term customers represent lower costs and higher profit (e.g. Bowen and Chen, 2001; Clapham, 2004; Duffy, 2003; Robinson and Etherington, 2006; Rypacek, 2003; Wilson, 1994).
For company it is much cheaper “to keep existing customers than it is to win new ones”
(Hill, 2000:1). According to Rypacek (2003) new customers are in fact money losers. To gain new customers cost huge amount of money. Clapham (2004) affirms that to gain customers is five times more expensive than to keep already existing ones. However, Rypacek (2003) claims that it is even six times more expensive. In addition, Rypacek (2003) adds that often both sides are broken up after the first purchase or worst before some can be realized. Clapham (2004) justifies less costs link with loyal customers. To the existent customers is easier to sell the product. Duffy (2003) confirms it and maintains that loyal customers are more familiar with the company. Thus, they know how to deal with the company and they need less help and consequently cost less time.
They are also already familiar with the terms of purchasing. Robinson and Etherington (2006) argue that this all can come after the first year. However, they believe that than selling costs can be lower by 20–40 per cent every year and can be reduced even down to zero.
It is assumed that customer loyalty is worth ten times the amount of the purchase itself.
Furthermore, probability of the purchase to the existing customer is approximately 60–70 per cent whereas probability of the purchase to the new customer is around 5–20 per cent (Rypacek, 2003). Clapham (2004), Bowen and Chen (2001) add that increased customer retention only by 5 per cent can lead to increase profit by 25 per cent. Loyal customers are less price sensitive and they are not prone to switch suppliers due to price rising.
However, some companies invest more to the obtaining of new customers than to the keeping already exist ones, all over again. Many companies do not realize that customer loyalty is becoming the economic necessity (Rypacek, 2003).
3.3.2.2 Word-of-Mouth
Next benefit which is a consequence of customer loyalty is called “word-of-mouth” in the other words referrals. How was mentioned in the second definition of customer loyalty for the company is beneficial “personal recommendation”. Some see in the referrals very profitable issue (Duffy, 2003; Robinson and Etherington, 2006). Robinson and Etherington (2006) see in referrals lower promotion costs namely by 20–40 per cent. Dubrovsky (2001) says that satisfy customers mention about their good experience with the company other ten people which are becoming potential customers. Therefore word-of-mouth is very effective way of promotion which is actually very cheap.
However, as the talk factor can be beneficial as well as can be very dangerous. Wilson (1991) demonstrates this dangerousness on the rule “3-33”. He explains that the “3”
represent the people which will tell the others good experience with the company but unfortunately on them fall other “33” people which represent a bad experience.
Dubrovsky (2001) sees dangerous of word-of-mouth thereon that every dissatisfy customer the bad story will describe other nine people.
3.3.2.3 Repeat Purchases
Last but not least contribution resulting from customer loyalty is additional purchases.
Loyal customers have positive attitudes toward the company. Duffy (2003) names this relationship as: “top of mind in their category” where the company operates. Non-loyal customers do not care so much where they will realize their purchase. In contrast to loyal customers, they favour to make business with their “top of mind” company. They are not interested to shop around to find the best deal, because they are loyal (Bowen and Chen, 2001).
In this part it is important to mention familiar “80–20 rule”. This rule represents that majority (80 per cent) of executed businesses come from minority (20 per cent) customers (Duffy, 2005; Robinson and Etherington, 2006). However, Robinson and Etherington (2006) point out that from this rule also follows: if major customer decides to change supplier it can be big loss for the company.
3.3.2.4 Auxiliary Benefits
As another benefits resulting from customer loyalty should be mentioned the subtle ones. One of these hardly noticeable benefits is according to Duffy (2003) principle
“complain rather than defect”. From this arises “second opportunity” which is for today’s businesses (because of customer fickleness) very important. Customers who are loyal rather complain before they defect. They believe in the company. Therefore, they want to fix it (Duffy, 2003).
According to Duffy (2003) auxiliary benefits comprise also “greater awareness of brand assets”. Robinson and Etherington (2006) say that this positive impact lies in increase value of company’s brand.
3.3.3 Benefits of Loyalty for Customers
The customer loyalty is in fact profitable also for customers themselves. According to Robinson and Etherington (2006:1) “the customers desire to be loyal”. People were living in the “Attention Economy” in 1990s. Everyone had to withstand thousands of newspapers and magazines. It represented too much information. Today this approach
was converted into the “Human Attention” because people do not want to be flooded by the volume of the information anymore (Roberts, 2004).
The customers do not have any reason to change a company they are dealing with if the company meets their needs. Further Robinson and Etherington (2006:1-2) point out that customers want to be loyal because “staying with a supplier that meets their needs and cares about them makes their lives easier”. Roberts (2004) goes so far as to suggest that people need and want to love all depend on something. Why it could not be some product or service.
3.3.4 Types and Degrees of Loyalty
The following part of this work will be focused on types and degrees of loyalty. These topics are very closely connected. The company should want to know into which categories their customers fit. Categorisation of the company can be used for better understanding and further development of the relationship with their customers (Rowley, 2005). If the company knows who are its most loyal customers and who have the greatest inclination to stay with it will help the company to secure these customers (Cram, 1994).
3.3.4.1 Types of Loyalty
Some authors affirm that “customer loyalty has been conceptualised as an interaction of attitude and behaviour” (Rowley and Dawes, 2000:539).
According to Di Paola (2001) behavioural loyalty poses “repeatedly purchasing a product”. In other words, this type of loyalty means that customer does not think about change the company. Attitudinal loyalty represents “affinity for the company” which is attended by recommendation to the others and convinces others as well (Di Paola, 2001). Both loyalties do not have to necessary influence each other (Di Paola, 2001;
Rowley and Dawes, 2000). However, both can be change over time (Rowley and Dawes, 2000).
On these two types of loyalty Dick and Basu (1994) based their segmentation of loyalty which follows.
3.3.4.2 Degrees of Loyalty
Loyalty degree represents “strength of the relationship between relative attitude and repeat patronage” (Dick and Basu, 1994). “The Integrated Conceptual Framework” is based on the attitude-behaviour relationship. According to Dick and Basu (1994) there are four segments which pose different percentage proportion of relative attitude and repeat patronage. They are described in more details in the following paragraphs and summarised in the Figure 6.
Figure 6 Integrated Conceptual Framework
Repeat Patronage
High Low
Relative Attitude
High Loyalty Latent Loyalty
Low Spurious Loyalty No Loyalty
Source: Developed by Dick and Basu (1994)
The combination of high repeat patronage and also high relative attitude indicate
“loyalty” (Dick and Basu, 1994). It is called as “unquestioned loyalty”. Customers which will always buy into same company (Cram, 1994). Therefore, this loyalty degree is the main goal of marketers (Rajshekhar et al., 1997).
“Latent patronage” is represents high relative attitude but low repeat patronage (Dick and Basu, 1994). According to Cram (1994) these customers could be swayed that means they can be “loyal at heart, but not necessarily to the same company”. It means that customers may have strong preferences toward a company, but something can cause low repeat patronage (Rajshekhar et al., 1997).
The inverse segment to latent loyalty is “spurious loyalty” which is represented by low relative attitude and high repeat patronage (Dick and Basu, 1994). Cram (1994) calls it
“normal choice”. He also adds that this type of customer ordinarily purchase from the same company but sometimes buy from different suppliers. In other words, this loyalty
degree means that customers may buy the product or service frequently. Nevertheless, they do not see any significant difference among companies (Rajshekhar et al., 1997).
The last combination is “no loyalty”. It is no associated either high relative attitude or high repeat patronage. Both issues are low (Dick and Basu, 1994). These customers do not show any loyalty. They show “variety driven or price obsessed”. Therefore they are called “promiscuous” (Cram, 1994:100).
Cram (1994) points out that thanks to these degrees of loyalty can marketers use as the distinctive factor. If companies know this customer segmentation they can focus especially on attractive groups for them. Because how was mentioned above some groups represent a higher propensity to be loyal (Cram, 1994; Kotler and Keller, 2006).
3.3.5 Categories of Loyal Customers
Loyal customers are divided into four main groups. These groups represent basically the reasons why customers becoming loyal. Possibly it represents the reasons to switch their supplier.
3.3.5.1 Contented Loyalists
Continually researches confirm existing correlation between customer loyalty and customer satisfaction. If the customers are satisfy with the company it can lead to their loyalty (Bowen and Chen, 2001; Dubrovski, 2001),
Before customer satisfaction is detailed is seems to be useful to explain what satisfaction means. For Bennett and Rundle-Thiele (2004) it represents simply a contemplation to make a purchase in the future. Woodruff et al. (1993, cited by Woodruff & Gardial 1996:95) suggest more detailed definition:
“Customer satisfaction is a customer’s positive or negative [dissatisfaction]
feeling about the value that was received as a result of using a particular organisation’s offering in specific use situations.”
Finally, Oliver (1996) agrees and emphasises where the positive and negative feelings come out:
“Satisfaction is an emotional post-consumption response that may occur as the result of comparing expected and actual performance (disconfirmation), or it can be an outcome that occurs without comparing expectations.”
Take into consideration the research question of this dissertation seems to be more suitable to use the first definition of customer satisfaction. Therefore for the study the customer satisfaction is posed as fact that company meets customers’ needs and expectations.
There are several ways how to explain the customer satisfaction theory. For this work
“The expectancy and disconfirmation model” is used because it is the most frequent theory.
As mentioned above in the definitions, satisfaction is emotions and feelings which are the result of consumption process. These feelings and emotions come at the moment when “the company meets customers’ expectation” (Juran, 1991). Smith (2003) calls this “The moment of truth”. It is the moment when the product or service “meets face to face with the customer” (Smith, 2003). In the Figure 7 the expectation–disconfirmation model posits that customer needs and expectations (comparison standard) are compared to perceived performance and “this comparison process determines disconfirmation”
(Oliver, 1996). Mc Nealy (1994) calls this “The perception gap”. If the customers are satisfy it means that performance was higher than what was expected and vice-versa the customers are dissatisfy when the performance is lower (Mc Nealy, 1994; Oliver, 1996;
Smith, 2003).
Figure 7 Customer Satisfaction Theory
Source: Developed by McNealy (1994:102)
Each disconfirmation process can have different effect on customers. This is graphically represented in the . It results from degrees of customer’s expectation and subsequent degree of customer’s experience. (Smith, 2003).
Figure 8 Effects of Experience Against Expectation Customer Perception of Performance Customer
Need, Expectation
Low
Gap Delight
High
Satisfaction
Let-down/
disappointed customer
Very poor Desperately seeking something
Vindicated advocate Pleased and surprised convert
Excellent Low
High
Customer experience
Customer expectations
Source: Adapted form Smith (2003:10)
Because satisfaction is the most often defined from the customers’ position, is it necessary to follow what customer needs and wants (Oliver, 1996). Therefore, Smith (2003) in Figure 9 states what should be and what should not be offered to the customers.
Figure 9 What Customers Really Want
Source: Developed by Smith (2003:62)
Many organisations are particular about satisfaction of their customers. Therefore, they measure the customer satisfaction towards to improve their performance (Arnould et al., 2002; Kotler and Keller, 2006; Smith, 2003; Woodruff and Gardial, 1996). For number of organisations; as Hill (2000), Buckingham (2001) and Zeithaml et al. (1990) agree;
customer satisfaction represents the measure of success and top marketing outcome.
Therefore it is the key goal for them.
However, Bennett and Rundle-Thiele (2004) argue that this attitude seems to be wrong.
Customer satisfaction should not be only goal. It indeed leads to company’s profit but first of all it is one way how to achieve loyal customers (Bennett and Rundle-Thiele, 2004; Arnould, 2002).
Do not offer me things.
Do not offer me furniture.
Do not offer me things.
Do not offer me things!
Do not offer me records.
Do not offer me books.
Do not offer me shoes.
Do not offer me clothes. → Offer me attractive looks.
→ Offer me comfort for my feet and the pleasure of walking.
→ Offer me hours of pleasure and the benefit of knowledge.
→ Offer me leisure and the sound of music.
→ Offer me comfort and the quietness of a cosy place.
→ Offer me ideas, emotions, feelings and benefits.
In the other words, if customers are satisfied with the company they become contended loyalist. On the other hand, they might switch their supplier if they are not fully satisfied. In addition, Rypacek (2003) argues that satisfied customers can change their service provider simply because they do not express any interest in them anymore.
3.3.5.2 Committed Loyalists
In this section another reason why customers become loyal is detailed.
Customers become loyal the most often because of the companies’ brand. “Committed loyalists” are also called “brand loyalists”. Cram (1994) reports that 70 per cent of loyal customers represent brand loyalists. However, Rajshekhar et al. (1997) points out that the studies show markedly higher brand loyalty in goods branches. Lots of people see behind the brands only company’s logo and nothing else. However, brands signify also other issues which are connected with it (Emerald Group Publishing Limited, 2005;
Palumbo and Herbig, 2000; Hart and Murphy, 1998). Palumbo and Herbig (2000) develop this definition:
“It is a name, term, sign, symbol, design or any combination used to identify the goods and services of a seller”.
However, Mininni (2006) uses more specific definition which was developed by Dow Jones in connection with Wall Street Journal:
“A brand or corporate image is not something that can be seen, touched, tasted, defined or measured. Intangible and abstract, it exists solely as an idea in the mind. Yet it is often a company’s most precious asset...in a world of parity products and services, nothing can tilt things more dramatically in your favour“.
The brands seem to be connected only with consumers that have impact only on them.
However, the brand concerns also “stuff, suppliers, business partners, the trade, regulators and providers of capital” (Emerald Group Publishing Limited, 2005:28). This brings all these issues together in association with legal protection of pattern and trademark (Roberts, 2004; Liu, 2002).
3.3.5.2.1 Reasons and Benefits for Branding
Today’s companies have many reasons why they should have strong brand and thanks to it obtain many benefits for them. A number of authors agree that the most important reason and also benefit is differentiation. Branding helps the company todifferentiate its products or services from the competitors (Emerald Group Publishing Limited, 2005;
Palumbo and Herbig, 2000; Hart and Murphy, 1998). Thanks to a brand, customers easily recognize the product or service which becomes unique (Kotler and Keller, 2006;
Roberts, 2004). Furthermore, with brand is connected higher profitability. Customers usually see behind a good brand especially quality, therefore they are willing to pay more (Roberts, 2004). According to Kotler and Keller (2006) it is about 20–25 per cent amount more than normally. Moreover, staff which is working for a good brand has better confidence in it which is also beneficial for the company (O’Malley, 1991). In addition, Berry et al. (1988) say that customer should better accept new products which the company launches in the market. Robinson and Etherington (2006) and Emerald Group Publishing Limited (2005) add that it is connected with familiarity which is helpful in the case of keeping company in customers mind.
3.3.5.2.2 Different Types of Brands
Despite brands were always dividing into “service and product brands”, since recent times service brands have the same statutory rights as product brands (Hart and Murphy, 1998; O’Cass and Grace, 2004; Robinson and Etherington, 2006; Rooney, 1995). In addition, according to O’Cass and Grace (2004) the importance and customers’ meaning about service brands is still growing. The biggest contrast between service and product brand is in tangibility and intangibility. Which cause that service brands can be seen more complex as is illustrated in Figure 10 (Robinson and Etherington, 2006).
Figure 10 Service Triangle (Customer Loyalty and Service Brands)
Company
Customer Staff
enables the promise
delivers the promise
sets the promise
Source: Developed by Robinson and Etherington (2006:97)
By service brand customer is much more impacted of employees. Service delivers to customers totally depends on the staff behaviour, skills and attitudes (Robinson and Etherington, 2006).
Another possible dividing is “global and local brands”. As world is becoming more global, companies follow this trend. Some brands are known throughout the world therefore are called “global brands” (Emerald Group Publishing Limited, 2005). Hart and Murphy (1998) add that global brand has to keep its image and characteristics across its geographic location. Local and regional brands are connected maximally only with few proximate nations (Hart and Murphy, 1998). Emerald Group Publishing Limited (2005) cites Argentinean consumer:
“Global brands make us feel like citizens of the world, and...they somehow give us an identity”.
And it quotes also Costa Rican:
“Local brands show what we are; global brands show what we want to be”.
It seems that customers like global brands and therefore they choose them. On this topic Roberts (2004) argues that in each branch can succeed only one global or local brand.
3.3.5.2.3 Key Elements of a Brand
In the following paragraph two main aspects of a brand are described.
One of them is reputation. This issue influences the most often customers’ thinking about brand. According to Gommans et al. (2001) if the company has well-established reputation it increases customer trust in a company. With it is connected fact that people are more willing to recommend their supplier to the others. To gain good reputation takes long time and built it is not easy in any case (Gotsi and Wilson, 2001).
The second aspect of a brand is image. In contrast to reputation it is going on current perceptions and it is not so stable. The image is usually called “cool factor”. Especially some companies as Apple or Puma show how the establishing on image can be successful and thereby also profitable (Olson et al., 2005). With image is connected
possibility that people want to be seen how they use the product. It can represent their personal lifestyle or the lifestyle they would like to have. Therefore, they will be willing to pay more for this exclusive aura (Olson et al., 2005; Hollis, 2005).
3.3.5.3 Captive Loyalists
The most often customers become loyal because they are satisfied or event more often it is because of companies’ brand. However, there are some other reasons why people repeatedly purchase from one particular company.
Customers’ “no choice” is one of them. Curasi and Kennedy (2002) called these customers “prisoners”. In the market, some companies are monopolies in their branch (for example public highways or fire protection). It does not have to necessary mean that the customers cannot evaluate quality of products or services. However, it represents lack of opportunity to choose some other company or substitute and it leads to elimination of loyalty importance. It means that these customers may not be satisfied they only have no other choice. Therefore, they become “loyal”.
Another reason why the customers can become “prisoners” is lack of alternatives because it is the decision of somebody else. A good example is employer’s supplier.
Employes do not have right to choose because it is decision of company’s management (Vyskocilova, 2004).
Lower level of captive loyalists is the one in which the customers would have possibility to choose but for them is better to stay. It can be an advantage because of customers’ family or friends (Spacil, 2003). Arnould et al. (2002) suggest that this sub- level of “no choice” loyalty is closely associated with identity or membership in some community. This fact may lead customers to ignore other competitive alternatives.
3.3.5.4 Convenience Loyalists
As another reason for repeat purchases is according to many authors lower or none motivation to evaluate alternatives (Di Paula, 2001; Curasi and Kennedy, 2002). Lin and Chang (2003) called this category as habitual loyalty because customers purchase repeatedly due to it is their habit or routine. Time is in today’s hectic world scarce
commodity and therefore some routines become a part of customers’ lifestyle. The well- known example is weekly food shopping that is every time in the same supermarket simply because it is the most convenience and the quickest way. Although, it is loyal attitude the real loyalty is in fact very low. In the case that more convenient, more modern, competitively or lower priced supermarket is opened the old one may find that the loyalty was not as high as it was supposed.
As the literature explains, companies can also make efforts to improve loyalty of their existing loyal customers. For additional information on customer loyalty and its improvement see Appendix A.
3.4 Findings
Over time attitudes of marketers to customers have been changing. If the marketers want to succeed in the market they have to adjust to these changes. One of the main changes was orientation to customers from which customer loyalty also follows. As explained earlier in this chapter, customer loyalty became one of the objectives of organisations. It also seems to be the core of the marketing strategy therefore all businesses should build customer loyalty. However the winning of customer loyalty is not the end. For companies it is important to keep this loyalty and deepen it.
Authors are essentially in agreement that customer loyalty is represented by non- accidental and repeated purchases by businesses which produce products and as a personal recommendation by companies which provide services. From the literature review it seems clear that the studies focused on loyalty are conducted mainly in product businesses and in bank branches. No loyalty research has been accomplished in the mobile communication business, neither in the Czech Republic nor in the United Kingdom.
Specialists agree on many benefits which loyalty brings. The most important advantages seem to be: improvement of profitability, cost efficiency and also word-of-mouth.
Loyalty is previously divided into the types and degrees which seem to be helpful for the company.
Further, the four key-factors to keep customers seemed to be their satisfaction, company’s brand, customers’ “no choice” and their lack of motivation to evaluate alternatives. For many authors brand loyalty appears as the most common. However, it is important to keep in mind that mobile communication business has emerged relatively recently as accessible for everyday customers.
Another frequent reason why customers become loyal is their satisfaction. It seems to be very important for mobile operators which are relatively young business. Although, it is a rapidly developing business, the relationship to the brand has to be gained long term. Therefore, satisfied customers appear to be a necessity for “young businesses”.
Finally, the last two reasons why customers become loyal particularly today’s changing world. If the customers have “no choice” they are considered to be captive loyalists. If the customers have lack of motivation to evaluate alternatives they are called as convenience loyalists.
It seems clear that everything in the company should be focused on the customers themselves.
From the literature review and its findings the research hypotheses follow.
3.4.1 Hypotheses
The mobile communication businesses are rapidly developing companies. Although, they are relatively young businesses it seems clear that the loyalty of their customers is very important for them. Since, they are solely providing a service, the companies have to be careful in choosing how they achieve the desired loyalty.
In the introduction of this study the research question has been developed:
Why do customers in the mobile communication business become loyal to their mobile operators in the Czech Republic and in the United Kingdom?
To generate a more detailed research question, the research objectives have also been set up.
1. To determine the reasons why people become loyal to their mobile operator.
2. To identify potential differences between the Czech Republic and the United Kingdom regarding these reasons.
To be able to answer the research question and the research objectives four hypotheses have been developed. All hypotheses are related to the reasons why the customers may become loyal and have been established through the literature review.
The first hypothesis tests if any dependence exists between customer loyalty to the mobile operator and customer satisfaction:
H1: Customer loyalty in the mobile communication business is dependent on customer satisfaction.
From the literature review customer satisfaction seems to be the most common way how to achieving customer loyalty in service providing businesses.
The second hypothesis tests if any dependence exists between customer loyalty to the mobile operator and mobile operators’ brand.
H2: Customer loyalty in the mobile communication business is dependent on the mobile operator’s brand.
Customers becoming loyal due to a company’s brand are not so common in the service sector. In addition, to achieve strong brand loyalty takes a long time. Therefore, in the case of the mobile operators, which are relatively young businesses, it seems to take some time before they will be able to provide well-known brands.
The third hypothesis tests if any dependence exists between customer loyalty to the mobile operator and customers’ “no choice”.
H3: Customer loyalty in the mobile communication business is dependent on customers’ “no choice”.
The term “no choice” arises from the review of the literature and represents lack of opportunity to choose between different companies. It happens either because only monopoly exists in the market or because it is the employer’s supplier. More common
for mobile operators seems to be the membership in some community or simply the family’s tariff.
The fourth hypothesis tests if any dependence exists between customer loyalty to the mobile operator and customers’ lack of motivation to evaluate alternatives.
H4: Customer loyalty in the mobile communication business is dependent on the customer lack of motivation to evaluate alternatives.
In today’s hectic world it seems simpler to stay with one company because it is not time demanding. Although, mobile operators endeavour to make the approach to them as easy as possible it appears to be more convenient for some customers to not evaluate alternatives.
The following chapter details the methodology where the ways of research, data collecting, finally methods of analysis and hypotheses testing are introduced.
4. 4. Methodology Methodology
In addition to two previous chapters where a theoretical background was presented for this study, the methodology chapter follows. The purpose of this part is to introduce and discuss a design of the research method and its implementation to be able to meet objectives of this work. The approach, strategy and method were chosen having considered previous research for instance Ndubisi (2007), Guenzi and Pelloni (2004) and Yi-Ting and Dean (2001) on the customer loyalty topic.
The first general objective is to determine the reasons why people become loyal to their mobile operator and the second is to identify potential differences between the Czech Republic and the United Kingdom regarding these reasons.
4.1 Research Approaches
The research approach is explained as a research methodology. It poses a general overview how to do the research (Dawson, 2002). From this strategy, method, sampling and finally data analysis will follow (Saunders et al., 2000). There are two main groups of research approaches which are now discussed.
First, the inductive approach is based on data collecting and analysing at the beginning, then the theory developing follows (Sekaran, 2003). This approach is also called building theory (Saunders et al., 2000). In the deductive approach firstly a theory is firstly developed from which the hypotheses arise. After this the research strategy to test hypotheses is developed. Therefore it is also called a testing theory (Robson, 2002;
Saunders et al., 2000; Sekeran, 2003).
The deductive approach is a dominant one. Therefore, it is in detailed in Table 1.
