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CUSTOMER RETENTION: INVESTIGATING THE DIMENSIONS IN TELECOMMUNICATION INDUSTRY Gui lin Kiant BE Corponte Master in 76 11 Business Administration G943 2013 20 13

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Page 1: CUSTOMER RETENTION: INVESTIGATING THE DIMENSIONS IN ... Retention... · dengan 170 soal selidik telah diedarkan kepada responden. Pearson Coefficient Pearson Coefficient Correlation

CUSTOMER RETENTION: INVESTIGATING THE DIMENSIONS IN TELECOMMUNICATION

INDUSTRY

Gui lin Kiant

BE Corponte Master in 7611

Business Administration G943 20132013

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Pusat Khidmat Maklumat Akademilt' UNIVERSm MALAYSIA SARAWAK

P.KHIOMAT MAKLUMAT AKAOEMIK

1llIllIlIlfimallllllllll,1000246902

CUSTOMER RETENTION: INVESTIGATING THE DIMENSIONS IN TELECOMMUNICATION INDUSTRY

GUI JIN KIANT

This project is submitted in partial fulfilment of the requirements for the

Corporate Master in Business Administration

Faculty ofEconomics and Business

UNIVERSITI MALAYSIA SARA W AK

2013

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ABSTRACT

CUSTOMER RETENTION: INVESTIGATING THE DIMENSIONS IN

TELECOMMUNICATION INDUSTRY

(:his paper aims to investigate the relationship between factors affecting

customer retention in the telecommunication industry. Customer satisfaction, customer

trust and service quality are three identified factors affecting customer retention in the

industrj Convenience sampling technique used to collect the

the sample with 170 questionnaires was distributed to the target

respondents. Pearson Coefficient Correlation and regression analysis utilized in order to

determine the relationship of the variables and the data analyzed using a computer

software package -Statistical Package for Social Science (18.0). The finding confirmed

that the three factors have positive and significant relationship with customer retention.

From the finding also postulated that most significant variable that influences the

variance in customer retention is service quality.

telecommunication

information from

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ABSTRAK

PENGEKALAN PELANGGAN: KAJIAN DALAM DlMENSI INDUSTRI

TELEKOMUNlKASI

Kajian ini bertujuan untuk menyiasat hubungan di antara faktor-faktor

mempengaruhi pengekalan pelanggan dalam industri telekomunikasi. Kepuasan

pelanggan, kepercayaan pelanggan dan kualiti perkhimatan diantara faktor-faktor yang

dikenalpasti mempengaruhi pengekalan pelanggan dalam industri telekomunikasi.

Teknik mudah persampelan digunakan untuk mengumpul maklumat daripada sampeJ

dengan 170 soal selidik telah diedarkan kepada responden. Pearson Coefficient

Correlation dan regression analisis digunakan untuk menentukan hubungan diantara

pembolehubah dan data dianalisis menggunakan pakej peri sian computer -Statistical

Package for Social Science (18.0). Daripada analisis ini terbukti ketiga-tiga faktor

tersebut mempunyai positif dan kepentingan hubungan terhadap pengekalan peJanggan.

Juga daripada kajian ini menunjukkan pembolehubah yang paling penting yang

mempengaruhi pengekalan pelanggan adalah kualiti perkhidmatan.

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ACKNOWLEDGMENT

First, I would like to thank you to my supervisor, with his guidance and support I

can successfully complete this study.

Besides, a million thank I dedicated to all my friends and course mates, who

provide me the morale support, encouragement, guidance and assistance in

accomplishment of this study.

I also would like to thank to my family members with all their love and heartfelt

support in carry out this study.

lowe special thanks to all the respondents that gives co-operation in

participating in this survey. Without their co-operation this study cannot be done.

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pusat Khidmat Maklumat Akademik UNIVERSffi MALAYSIA SARAWAJ{

Contents Chapter I: Introduction ...................................................................................................... I

1.1 Background of Study .............................................................................................. I

1.1.1 The Malaysia Scenario ............................................................................................ 4

1.2 Problem Statement .................................................................................................. 6

1.3 Research Objective ....... .......................................................................................... 8

1.4 Definition of Key Terms ......................................................................................... 8

1.5 Significant of Study ............................................................................................. ...9

1.6 Scope of Study and Organization of Study ............................................................. 9

Chapter 2: Literature Review ........................................................................................... 11

2.1 Introduction ........................................................................................................... II

2.2 Definition of Model .............................................................................................. II

2.3 Underlying Theory ................................................................................................ 12

2.4 Definition of Variables ......................................................................................... 14

2.4.1 Customer Satisfaction ........................................................................................... 14

2.4.2 Customer Trust ...................................................................................................... 15

2.4.3 Service Quality ...................................................................................................... 17

2.5 Conceptual Framework ......................................................................................... 18

2.6 Gap in Literature ................................................................................................... 18

2.7 Development of Hypothesis .................................................................................. 19

Chapter 3: Research Methodology ........................................... ........................................ 21

3.1 Introduction ........................................................................................................... 21

3.2 Research Design .................................................................................................... 21

3.2.1 Population and Sampling ...................................................................................... 22

3.3 Data Collection Procedure .......... .......................................................................... 24

3.4 Statistical Analysis ................................................................................................ 24

3.5 Research Questionnaire ......................................................................................... 27

Chapter 4: Research Findings .......................................................................................... 29

4.1 Introduction .................................................................... .-...................................... 29

4.2 Distribution of Questionnaire ............................................................................... 29

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4.3 Reliability Test ...................................................................................................... 30

4.4 Respondents Demographic ................................................................................... 30

4.5 Pearson Correlation Coefficient Test and Regression Analysis ...................... ..... 41

Chapter 5: Conclusion and Recommendation .................................................................. 48

5.1 Introduction ........................................................................................................... 48

5.2 Discussions on Hypothesis ................................................................................... 48

5.3 Limitations of Study ............................................................................................. 53

5.4 Recommendation .................................................................................................. 54

5.5 Conclusion ......................... ..... .......................................................................... .... 56

5.6 Manageriallmplication ......................................................................................... 57

5.7 Future Research .................................................................................................... 58

REFERENCES ................................................................................................................ 59

BIBLIOGRAPHY ............................................................................................................ 66

II

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LIST OF TABLES

Table I: Interpretation of the Correlation Coefficient, r .................................................. 26 Table 2: Reliability Statistic for Actual Test ................................................................... 30 Table 3: Frequency for Respondents' Demographic Profile ........................................... 31 Table 4: Frequency for Respondents' Demographic Profile (Gender) ............................ 32 Table 5: Frequency for Respondents' Demographic Profile (Marital Status) ................. 33 Table 6: Frequency for Respondents' Demographic Profile (Age) ................................. 34 Table 7: Frequency for Respondents' Demographic Profile (Race) ................................ 35 Table 8: Frequency for Respondents' Demographic Profile (Income per Month) .......... 36 Table 9: Frequency for Respondents' Demographic Profile (Level of Education) ......... 37 Table 10: Frequency for Respondents' Demographic Profile (Occupation) ................... 38 Table 11: Frequency for Respondents' Demographic Profile (Brand of Mobile Communication Service) .......................................................................................... ....... 40 Table 12: Pearson Correlation Analysis results for customer satisfaction and customer retention ........................................................................................................................... 41 Table 13: Linear Regression Analysis results for customer satisfaction and customer retention (Model Summary) ............................................................................................. 41 Table 14: Linear Regression Analysis results for customer satisfaction and customer retention (Correlations) .................................................................................................... 42 Table 15: Pearson Correlation Analysis results for customer trust and customer retention .......................................................................................................................................... 43 Table 16: Linear Regression Analysis results for customer trust and customer retention (Model Summary) ............................................................................................................ 43 Table 17: Linear Regression Analysis results for customer trust and customer retention (Correlations) ................................................................................................................... 44 Table 18: Pearson Correlation Analysis results for service quality and customer retention .......................................................................................................................................... 45 Table 19: Linear Regression Analysis results for service quality and customer retention (Model Summary) ............................................................................................................ 46 Table 20: Linear Regression Analysis results for service quality and customer retention (Correlations) ................................................................................................................... 46

III

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Chapter 1: Introduction

1.1 Background of Study

Nowadays high competitive business environment possibly generate higher need

to toughen customer relationships and enhance customer retention. Customer retention

is the activity that business organizations carry out aimed to minimize customer

defection, which may leads to customer dissatisfaction and switch to other competitors.

Customers will only stick with the business organization that they really satisfied with.

Hence, successful customer retention strategy is very significant for every business

organizations, in order to make their maximum profit. According to Jacqueline (2006),

customer retention is important because retaining customers is cheaper than acquiring a

new one or because of the necessity of retaining customers until they are profitable.

The significance of customers has been discussed by many researchers and

academicians. Customer is the main income of every business organization and also the

main profit source of the business. Without the existence of customer, there will be no

reason to set up a business organization. "Customers are the purpose of what we do and

rather than they depending on us, we very much depending on them. The customer is not

the source of the problem, we should not perhaps make a wish that customers 'should go

away' because our future and our security will be put in jeopardy" (Zairi, 2000).

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Retention can be interpreted as a promise to remain to do business or exchange

with a specific company continuously (Zineldin, 2000). Customer retention can also be

defined as giving more than their expectation in order to make them the loyal advocates

to the company. An organization's ability to retain customers is not only related to the

products they provided, but it is also strongly related to the services provided to the

customers and the reputation the organization created within and across the market place.

Creating customer retention is not an easy effort. An organization needs to let customers

feel the value that they earned in the transaction is worth for them to stick with the

organization, the value not only includes money value, and it is even more than just

money value.

Telecommunication starts from a simple network, when Alexander Graham Bell

made the first telephone call when he spoken and transmitted the call to his assistant.

The first cellular phone made its appearance in 1983. Until today, the cutting edge of

technology has dramatically changed. This sector had been developed and become a

urbane telecommunications network, using optical fiber cable, and microwave and

satellite systems to link rural and urban areas all the way through the state and among

the whole world.

The telecommunication industry is undergoing dramatic changes. As Gerpott

(2001) remark, "In telecommunication services, it is frequently pointed out that once

customers have been acquired and connected to the telecommunication network of

particular operator, their long term relations with the telecommunication with the focal

2

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operator are of greater importance to the success of company in competitive markets

than they are in other industry sectors". Meanwhile, Boston (2000) pointed out that

many companies are grasping business opportunities by multiple mergers and

acquisitions in order to increase their international performance (Boston, 2000).

The importance of telecommunication is very significant in the business world

today. Sheridan (1996) believe that in twenty-first century, telecommunication is a

suitable weapon in order to transform the way business is operated. The researcher does

agree that no business operation that is experience this impact more than the marketing

area as unprecedented technological revolution is revolutionizing the marketing

profession.

In Malaysia, the Telecommunication Industry had aggressively established since

many years with the initial of the telephone and telegraphic services to advance

telecommunication channel by using fiber optic cable, microwave and satellite system to

link the communities in the rural and urban area. This is followed by the prompt

development of other services such as mobile telecommunication services.

Nevertheless, the progression rate in the Malaysia Telecommunication Industry

had been critically impacted by the economic crisis of the late 1990's. The competition

between the companies of telecommunication industry had dramatically increased

especially because of the telecommunication market in Malaysia had been dominated by

the companies namely Celcom, Maxis, Digi, V-Mobile and Tune Talk.

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These companies known as service providers cover the following segments of

the Malaysia telecommunication market such as traditional telecommunication, IP

services, wireless, mobile markets and broadband. They are also provided mobile

services with an increasing number of values added services like Short Message

Services (SMS), wireless application protocol (W AP) and so on.

Nowadays, telecommunication industry had become one of the most important

industries and it has a potential market to the global.

1.1.1 The Malaysia Scenario

The telecommunication sector in Malaysia has been changing rapidly in recent

years. This is due to part of restructuring and liberalizing process that is underway in

almost all regions and all countries in the world. However, telecommunication industry

in Malaysia has continuing growth over past few decades. Obviously, there is

tremendous growth in telecommunication industry especially the usage of mobile

telecommunication. Besides only provide mobile telecommunication services, Malaysia

government has also take action on the steps for the implementation of the National

Broadband Plan. This help to create and generate Malaysia society to become

knowledge base society. Moreover, the statistic shows that in the earliest of2009 almost

all of 27 million people in the country equipped or subscribed with mobile phone

4

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Pusat Khidmat Maklumat Akademik VNlVERSm MALAYSIA SARAWAK

connection. As a result, Malaysia had become the second largest mobile usage amongst

Southeast Asian countries only after Singapore.

In Malaysia's mobile telecommunication service market, prepaid services have

been the most important stimulator of subscribers' growth and contributed high

profitability toward this industry compared to postpaid. As at Dec 2008, prepaid

subscribers accounted for approximately 80.8% of Malaysia's cellular phone users, while

the rest were postpaid subscribers. Malaysia is a huge mobile telecommunication

services market, so if the mobile service provider can has a big market share, the profit

will be very considerable.

As in Malaysia telecommunication industry, it involved five companies, namely

Celcom, Maxis, Digi, V-Mobile and Tune Talk. These companies are competing with

each other in the market. As the competition is increasing dramatically, each company

has to fight for taking in new customers. Nevertheless, in the high competitive market

like telecommunication industry, how to retain the customers had become the crucial

issue for them. This is because when the customers defect, they will go to the

competitors. This scenario will only foster the competitors' competitive advantage but

lower down their own competitive advantage.

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1.2 Problem Statement

In today's highly competitive business environment, every business organization

are striving to focus on the activities that able to lead to satisfied existing customers and

to build up a long term stable relationship. In fact, on average, existing customers

account contributes to about two-thirds of a typical firm's total revenues (Vavra, 1994).

To be successful, a business organization must identify and focus on the needs

and wants of the customers. Hence, many researchers and academicians have endlessly

stressed on the significance of customer satisfaction, loyalty and retention (Harkiranpal,

2006). Obviously, customer retention is a very important strategy in making profit for a

business organization. This is especially crucial in the Telecommunication Industry.

Because of the Telecommunication Industry had been dominated by the five companies,

which is Celcom, Maxis, Digi, V-Mobile and Tune Talk, the customer retention is

become vital to defend their own business. However, there is still a lot of companies

take customer retention for granted and over emphasized at seeking the new customers.

Moreover, it costs a lot more money to seek out the new customer, which you have to

entice them to purchase, to win their confidence to repurchase again while it is all done

with the current customers.

Furthermore, according to Keiningham, Vavra, Aksoy and Wallard (2005), with

regard to the new customers, operating costs are predicted to increase as the customer

has to learn the procedures of the firm, and the firm has to learn the needs of the new

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[I

customers. It brings out the meaning; to retain a customer is much more valuable than to

acquire a new customer. The reason behind this is because the current customers already

are accustomed to the firm and what the firm should do is to maintain the good

relationship with them.

Moreover, long term customer retention and long term relationships with

customers generate a lot of essential benefits, but it is not easy to give a reason to let

customer retain to the services provided by a company. This happened because the

existing of plenty of competitors in the market. However, according to Bolton (2000),

when customers expect that they are gaining better quality service for their money, they

believe they are getting "good value", which enhance their loyalty toward the service

provider.

Nevertheless, according to Jones and Sasser (1995), satisfaction alone does not

ensure continued customer patronage. Due to this situation, customer retention is not

only influence by customer satisfaction, but it is also influence by other crucial factors.

Thus, the purpose of this study is to find out what factors will cause Kuching area

telecommunication services users stick to their service providers since there are a lot of

choices in the Kuching's market.

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1.3 Research Objective

The general objective of this study is:

I. To gain deeper understandings towards the factors that will lead to the customer

retention.

The specific objectives for this study are:

i. To examine the relationship between customer satisfaction and customer

retention for telecommunication services in Kuching area.

ii. To examine the relationship between Customer Trust and Customer Retention.

iii. To examine the relationship between service quality and customer retention for

telecommunication services in Kuching area.

1.4 Definition of Key Terms

Terms Definition

, Customer satisfaction A person's feeling of pleasure or disappointment resulting from comparing a product's perceived performance (or outcome) in relation to his or her expectations. (Kotler, 2000)

Consumer trust Confidence in the exchange partner's reliability and integrity. (Morgan and Hunt, 1994)

Service Quality The gap 'between expectation and perception, and it is the evaluation of not only the service outcome but also the service delivery process. (Parasuraman, 1985)

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1.5 Significant of Study

This study will investigate the criteria that may support to the success of

customer retention. In today's highly competitive business environment, especially in

the Telecommunication Industry, the successful of retain customers become the vital

process of every companies. The attractive promotion and offers by the competitors will

lead to the customers switch to the competitors. Due to this situation, if a company does

not know well in retain their customers, the customers will switch to other competitors.

It may increase the competitors profit and revenue, followed by strengthens their

competitive advantage in the market place. So, this study is to help in gaining insight in

the relationship between the criteria which are going to be measure and the customer

retention.

1.6 Scope of Study and Organization of Study

This research will be done at the telecommunication companies in the Kuching

area. Questionnaire will be distributed for the purpose to collect the useful infonnation

for this study. Therefore, questionnaire will be distributed randomly to the respondents

of the telecommunication services users. Respondents will be chosen randomly to avoid

from the bias towards the measurement ofthe result.

The purpose of this study is to find out what factors will influence the customer

retention in Telecommunication Industry in Kuching area. This study will be divided

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into five chapters which is the introduction of study, literature review, methodology,

results of the study and lastly are discussion and conclusion ofthe study.

Chapter one will include the background of the study, problem statement, a

research objective which is divided into general objective and specific objectives,

research questions, definition of key tenns, significance of study and scope of the study.

Chapter two will be the literature review, which will involves the identification

of published and unpublished work from secondary data resources on this study, the

evaluation of this study in relation to the problem, and the documentation of this study.

Chapter three is about the methodology, which will include the method to use to

collect the data for this study, the method to analyze the data collected and come out

with the result of the study.

Chapter four will touch about the result of the study. This chapter will explain

the result of the finding of this study and also the hypothesis testing.

The last chapter will be discussion and conclusion. The content of this chapter

include the discussion of the finding, implication of the study, strength and potential

limitation, direction for future research and also the conclusion of the study.

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Chapter 2: Literature Review

2.1 Introduction

In this chapter, the important driven of customer retention will be stated out.

Then, the further explanation about the independent variables will be cover in this

chapter too. The literature review must be in secondary sources. Literature review is

important for provide a handy guide to the study. By review the previous research that

done by the researchers or journalists, the theoretical framework will come out at the end

of this chapter. Theoretical will framework shows the linkage or relationship between

the dependent and independent variables of this study.

2.2 Definition of Model

Customer retention denotes a continuous commitment from customer and the

finn to uphold the relationship. Based on Dawkins and Reichheld (1990), a 5% rise in

retention rate possibly rise in the net present value of customers of between 25% and 85%

in a varied range of industries. Moreover, Payne and Frow (1997) acknowledged that

customer retention has stimulated to tangible financial benefits of the finns and the

existing, new and potential customers supposedly be treated differently. However, as

Payne and Frow (1999) reported, very few organizations have accounted the economic

value ofthe customer retention. Hence, this study is to find out the important driven that

cause customer retention in telecommunication industry.

11

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2.3 Underlying Theory

For this study, the theory that will be used is Reichheld's (1996) proposition.

Reichheld's proposition rests on the idea that loyal employees and loyal investors are

likely generate the inventory of loyal customers and that with the good value proposition

customers predicted to remain or stay. Therefore in order to term attract and retain

customers, firms are reminded to be conscious of the different "loyal coefficient", which

is the amount economic force required to alter vary types of customers. The simplest to

win is possibly the one who will be the fastest to defect. Reichheld (1996) also stated

that the customers who attracted for a minimal price discount are the similar customers

who will go away or tum to other at the slightest inducement.

Reichheld (1996) mentioned that not all customers like to have continuous

relationship. They also naturally buy more, pay promptly and require less service. The

researcher also pointed out that, in order to success to retain customer, the combination

of strategies being followed such as:

• Define and measure retention. This can be conducted with consideration to the

context of the business: the product, the industry and the customers. Perhaps,

customer is not compulsory the similar as the bank account number or an

insurance policy number does not compulsory amount to a defection.

• Designing special programs to appeal and embrace the most valuable customers.

Basically giving distinguished attention.

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Firms, in Reichheld's point of view required to seek for continuously and

consistently for initiatives that offer a superior value proposition compared to their

competitors. Customer value, Reichheld opposes, can be determined, and efforts for

retention should be focused against those that have relatively high net present value.

Furthermore, it is significant to not just retain the customers, but it is essential to gain

high share ofthe customers' total purchase or spending.

Furthermore, for this study, the social exchange theory (Thibaut and Kelley,

1959) and interdependence theory (Kelley and Thibaut, 1978) can be utilized too. This is

because in social psychology, the intention to endure a relationship is referred to as

relationship maintenance by these two theories. In marketing, repurchase intention has

been studied in the areas of customer satisfaction, loyalty and retention. Hence, it has

been used as an influencer for actual repurchase behavior or customer retention

(Patterson, 1997). The objective of the evaluation process based to social exchange

theory is to "assess the attractiveness of the relationship" (Kelley and Thibaut 1978).

This is expected once the exchange association is started; a comparison of a perceived

actual outcome versus outcome expectation is counted. In addition, a comparison of

results available from alternative relationships to the perceived actual result also appears.

Based to this theory, channel members will gain satisfaction with the exchange

relationship ifthe experienced actual result surpasses the anticipated result.

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Besides, business network is society that has better connection in associated

relationships as will influence among each other. Kelley and Thibaut (1978) found that

the business relationship is established via social exchange process in which the

association partners raise their interdependence and commitment to the relationship over

interaction.

2.4 Definition of Variables

2.4.1 Customer Satisfaction

"Customer satisfaction is an overall customer attitude towards a service provider,

or an emotional reaction to the difference between what customers anticipate and what

they receive, regarding the fulfillment of some need, goal and desire." (Hansemark and

Albinsson, 2004). Customer satisfaction is a very important path to reach the customer

retention. In order to retain the customer, firstly you have to satisfied customers.

Kotler (2000) pointed out that customer satisfaction is the individual's feeling of

pleasure or disappointment subsequent from comparing a product's perceived

performance (or outcome) and their expectation toward the product. If a customer were

dissatisfied with a company, the customers will have high possibility to defect and shift

to other company. Hence, in order to gain customer satisfaction, company must manage

to fulfill the customer needs and wants (La Barbera and Mazursky, 1983). Customers'

needs indicate the felt deficiency ofa customer, meanwhile customers' wants is the form

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derived from human needs as they are influenced by culture and individual personality

(Kotler, 2000).

In order to fulfill and gain customer satisfaction, it is vital for firm to determine

and identify the factors that contribute to customer satisfaction. According to Hokanson

(1995), the factors influence customer satisfaction consist of friendly employees,

courteous employees, knowledgeable employees, helpful employees, accuracy billing,

competitive pricing, service quality, good value, billing clarity, and quick service.

Nevertheless, Bowen and Chen (2001) pointed out the customer must extremely

satisfied customers' instead of only satisfied customers. When the customers have high

satisfaction, they will have greater intention to stay (Anderson and Sullivan, 1993;

Fornell, 1992). As a conclusion, satisfied customers shaped the business' successfulness

as notably customers satisfaction contribute to repeat purchase, brand loyalty, and

positive word of mouth (Hoyer and MacInnis, 2001).

2.4.2 Customer Trust

According to Deutsch (1958), trust refers to the anticipation of the individual in a

transaction and the risks connected with presumptuous and acting on such anticipations.

In other word, trust is when the individual anticipates something from another party by

undertaken the risk. Trust is the willingness to depend to other party in experience of

risk. This willingness stems from an understanding of the other party will lead to a

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positive result and in turn the likelihood that the action may cause a negative result

(Worchel, 1979).

Furthermore, trust is an expectation set within particular contextual and

constraints. Lewis and Weigert (1985) pointed out that trust is not only having the

predictability but also it involves the confidence in the overcome of risk. Moreover,

Boon and Holmes (1991) interpreted that trust as a state relating confident positive

expectation about another's intentions with respect to oneself in risky situations.

The trust relationship is supported by Lau and Lee (1999); they stated that there

is a direct and positive association between trust and loyalty in consumer markets.

Furthermore, trust also defined as confidence in exchange partner's reliability and

integrity (Morgan and Hunt, 1994). Therefore, trust may conclude as the confidence and

reliability of both side in a deal.

Moreover, Worchel (1979) found that trust in the willingness to depend on

another party in the overcome the risk. The willingness stems from an understanding of

the other part based on the past experience. It also involves an expectation that other

party will cause a positive outcome, despite the possibility that the action may cause a

negative outcome.

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