An evaluation of retention strategies and switching cost in the mobile telecommunications industry – Investigation of customers of Three mobile

 

Table of Contents

List of tables. 5

List of figures. 5

1        Introduction. 6

1.1         Overview.. 6

1.2         Introduction. 6

1.3         Rationale for research. 7

1.4         Aims and objectives of research. 8

1.5         Research questions. 8

1.6         Summary. 8

2        Literature review.. 10

2.1         Overview.. 10

2.2         Introduction. 10

2.3         CRM and customer retention. 10

2.4         Need for effective customer retention strategies. 12

2.5         Positive retention strategy. 13

2.5.1          Criticism of positive retention strategies. 13

2.6         Negative retention strategies. 14

2.7         Comparison of positive and negative strategies. 16

2.8         Evaluation of exit or switching costs. 17

2.9         Effectiveness of switching cost as a barrier to defection. 18

2.10      Important research studies. 18

2.11      Summary. 19

3        Methodology. 20

3.1         Overview.. 20

3.2         Introduction. 20

3.2.1          Deduction and induction. 20

3.3         Research philosophy. 21

3.3.1          Rationale for adopting positivist research philosophy. 22

3.3.2          Qualitative and quantitative approach. 22

3.4         Research strategy. 23

3.4.1          Subjective and objective approach. 23

3.5         Research design. 23

3.5.1          Case study. 24

3.5.2          Questionnaire design. 25

3.5.3          Data collection. 26

3.5.4          Data analysis. 27

3.5.5          Validity and reliability. 27

3.5.6          Generalisation. 28

3.6         Summary. 28

4        Data analysis. 29

4.1         Overview.. 29

4.2         Measure of retention. 29

4.3         Degree of retention. 35

4.4         Effectiveness of positive retention strategy. 36

4.5         Effectiveness of negative retention. 38

4.6         Summary. 41

5        Discussion. 42

5.1         Overview.. 42

5.2         Retention strategy of Three mobile. 42

5.3         Effectiveness of positive and negative retention strategy. 44

5.4         Effectiveness of switching cost 45

5.5         Summary. 45

6        Conclusions. 46

6.1         Overview.. 46

6.2         Conclusions. 46

6.3         Limitations of research. 47

6.4         Recommendations to industry and managers. 47

7        Questionnaire. 49

8        References. 51

 

 

List of tables

Table 1 – No of years in the same relationship type. 28

Table 2 – Previously was with the same service provider 30

Table 3 – Previously were in the same category. 32

Table 4 – Would like to change the relationship type. 33

Table 5 – Extension of contract 34

Table 6 – Reason for extension. 36

Table 7 – Number of customers who would like to change service provider 37

Table 8 – Reason for inability to switch. 39

List of figures

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Figure 1 – No of years in the same relationship type. 29

Figure 2 – Previously was with the same service provider 31

Figure 3 – Previously were in the same category. 32

Figure 4 – Would like to change the relationship type. 33

Figure 5 – Extension of the contract 35

Figure 6 – Reason for extension of contract 36

Figure 7 – Number of customers who would like to change service provider 38

Figure 8 – Reason for inability to switch. 39

 

1       Introduction

1.1      Overview

This section provides a background for the entire research on the subject of customer retention in the mobile telecommunication industry by developing loyalty schemes and switching cost. The necessity of doing the research on the subject is also evaluated under the heading of rationale where the general objectives of the research are outlined. The aims and objectives provide clear-cut parameters of the entire research.

1.2      Introduction

Customer relationship management involves customer acquisition, development and retention. Most of the companies concentrate on the initial stage of customer relationship and develop strategies in order to acquire more number of customers (Stone, Woodcock and Machtynger, 2000). But the acquisition of new customers involves high level of cost in marketing and advertising (Brink and Berndt, 2009). The last part of the customer relationship marketing and management strategy or the retention involves less cost in increasing the revenue per customer than the acquisition strategy (Ahmad and Buttle, 2002). Any organisation which has been in the market for a long period of time and has acquired a market size has to develop an effective retention strategy in order to the sustainable. Moreover the retention strategy increases the sustainability of the revenue over a period of time.

Retention strategy is mainly to induce the customer to stay with the organisation for a long period of time and to reduce the inclination to switch to an alternative product or service (Crosby, 2002). The retention of the profitable customers can be effectively implemented based on providing loyalty benefits to the customers, improving their satisfaction levels and also introducing switching cost and exit barriers. Improving the loyalty and commitment of the customers with the help of positive retention strategy improve the image of the organisation. But negative retention strategies of such as switching cost and exit barriers are also important from the point of view of retaining those customers who have inclination to switch to an alternative product or service.

Egan and Bruhn, (2005) and Clemes, Gan and Zhang, (2010) have indicated that the introduction of negative retention strategies and exit barriers are much more effective than the positive retention strategies. Moreover the effectiveness of positive retention strategies cannot be conclusively proven mainly because of the involvement of other types of transactional, situational and psychological barriers to switching (Schneider, 2002). But Ahmad and Buttle, (2002) and Molapo and Mukwada, (2011), indicate that a combination of the positive and negative retention strategy and a comprehensive retention plan would only enable the organisation to improve the retention of more number of customers on a long-term basis.

In order to analyse the effectiveness of positive and negative retention strategy, the present research evaluates the customer relationship management and marketing strategies adopted in the mobile telecommunications industry. The mobile telecommunications industry is characterised by the higher number of customers and the different levels of profitability generated from each segment. It is necessary for an organisation to evaluate the profitability from the customer segments and develop adequate retention strategies in order to retain the most profitable customers. Due to the increased competition in the developed markets such as the United Kingdom, the barriers to defection or the ability of the customer to switch to an alternative service provider is reducing. The aggressive direct acquisition strategies of new players in the market are also a threat to the existing mobile service providers. Hence it is necessary for an organisation to develop a comprehensive retention strategy in order to retain the most profitable customers. But before developing a comprehensive retention strategy it is necessary to analyse the effectiveness of the different types of strategies and whether the exit cost or switching barriers are more effective than the positive retention strategies.

1.3      Rationale for research

It is based on the divisions and contradictions among the conclusions in several research studies about the effectiveness and efficiency of positive and negative retention strategies that the following report is generated from the research conducted on the sample customers of Three mobile. Three mobile is a mobile service provider in the United Kingdom and has been operating for several years. In the initial stages the company developed an aggressive acquisition strategy by providing significantly reduced contract length and rate plans. As the company has increased the market share, they reduced contract plan and modified the rate plans and the present strategy is to retain their customers by providing them loyalty benefits. But along with these positive retention strategies the company has also introduced negative strategies such as locking the customers in the contract and introducing exit fees.

Although different concepts have been identified with related to the strategies of customer retention, the core concept is to reduce the defection rate or a proactive management of profitable customers and developing value-based relationship. Several advantages of increased customer retention have been provided by as Boone and Kurtz, (2011) and Evans and Patterson, (2004). The present research is evaluating the positive and negative retention strategies of three mobile and the effectiveness of the same.

1.4      Aims and objectives of research

The research project analyses the retention strategies specifically the concept of switching cost and its effectiveness as a barrier to defection and increased customer retention in the mobile telecommunications market in the United Kingdom. The research is conducted on the customer retention strategies mainly the switching cost developed by Three Mobile of the United Kingdom. Apart from the switching cost created by the service provider the market induced cost to the customer in defecting to another service provider are also evaluated.

The objectives of the research are

  1. To evaluate the effectiveness of positive and negative retention strategy in increasing customer retention
  2. To analyse the switching cost to a customer of a mobile telecommunications service provider in the United Kingdom.

1.5      Research questions

  1. What are the strategies and types of customer retention
  2. How effective are the positive and negative retention strategies
  3. Does switching cost act as a barrier to defection of the customer

1.6      Summary

Customer retention and the several strategies adopted to retain the customers in the mobile telecommunication industry have been evaluated. The introduction has developed an argument about the switching cost being a significantly effective strategy in retaining the customers. Based on this, the research is planned to evaluate whether the negative retention strategy of developing the switching cost is more effective than the positive retention strategy of providing the customers with loyalty benefits.

 

 

 

 

2       Literature review

2.1      Overview

In the following sections of this literature review, the different strategies adopted by organisations to retain the customers who are identified as profitable will be analysed in a critical manner. Mainly the retention strategies have been classified into positive and negative and it is based on this classification that the literature review is formulated and developed. One of the contentious issues related to customer retention is the effectiveness of positive strategy which provides benefits and loyalty discounts to the customers and the negative strategy which involves the development of switching cost to the customer in different industries. The literature review analyses the different characteristics of positive and negative strategies from the viewpoint of several authors in order to make it framework for further research based on primary data to be collected from the customers.

2.2      Introduction

Customer retention is the third and most important phase of customer relationship marketing whose three phases are customer acquisition, development and retention of profitable customers. Indeed customer retention is synonymous with the profit generating capability of the organisation as the concept is very much consistent with retaining the most profitable segment of the customers. Customer retention contributes to increased levels of loyalty and commitment from the customers to the organisation and continued purchase of products and services. Several strategies have been adopted by different industry verticals in order to retain the profitable customers. Although many industry segments are approaching the market with a segmentation strategy, even within their particular segments there are profitable and non-profitable customers. The purview of customer relationship marketing is to identify the profitable customers and to provide positive retention benefits as well as adopt negative strategies in order to retain the most profitable segment.

2.3      CRM and customer retention

Marketing can be considered as the identification, creation and developing satisfactory relationship with the consumers so that both the parties are generating value for each other (Stone, Woodcock and Machtynger, 2000). The modern business concepts indicate customers as one of the important stakeholders and their participation in all the stages of organisational development. Customer relationship management has become an important framework in the organisational strategy which provides the basis for developing the products and services of the organisation resulting in the successive purchasing by the customers (Brink and Berndt, 2009). Customer retention which is one of the key concepts of relationship marketing is the identification of the most valuable customers and providing value to them ensuring continued patronage (Foss and Stone, 2001).

Hennig-Thurau and Hansen, (2000), Ang and Buttle, (2006) and Clayton-Smith, (1996) have classified the retention strategies adopted by organisations into positive and negative. Basically the positive retention strategy rewards the customer for continued patronage (Dyche, 2002) influences the affective dimensions of the customers (Egan and Bruhn, 2005) and develops loyalty (Ahmad and Buttle, 2002) to the organisation. On the other hand the negative strategy penalises the customer (Gould, 1998) for switching to other service providers or products. Peppers and Rogers, (2011), have provided an alternative view of customer retention strategies based on relationship management orientation and which consists of welcome cycle, up selling, cross selling, renewal and reawakening the lapsed customer.

Boone and Kurtz, (2011) and Evans and Patterson, (2004) indicate that with superior customer retention the organisation can improve the performance, reduce the operating cost and ensure sustained competitive advantage. An effective customer retention strategy according to Boone and Kurtz, (2011) increases the consumer base who purchase frequently, in volume and also more sensitive towards the new offerings of the organisation. The other characteristics are the low maintenance which reduces the operating costs and reduced sensitivity to the acquisition tactics of competitive organisations (Evans and Patterson, 2004). Neslin, (2008), have also suggested that an organisation can benefit from a satisfied, loyal, and committed, retained customers through the increased word of mouth marketing.

It is in the service-based industries that customer retention and relationship management is important rather than in the areas where the industries are selling products which have a long usability (Rust, Stewart, Pielack, 1996). The services are utilised by the consumers on a periodic basis and effective customer relationship management becomes a key part in managing the customer life cycle (Boedeker, 1997).

2.4      Need for effective customer retention strategies

Increased customer retention is a necessity for organisations which have products and services with a short purchase cycle. Although several organisations target the customers based on segments, the retention strategy is indeed developed in order to retain the profitable customers (Anglais, 2005). It is because of the need to increase the retention of profitable customers that many organisations develop and design the positive and negative retention strategy. One important consideration with respect to the customer retention strategy is the analysis of the customers based on their profitability. Crosby, (2002) has analysed different industry verticals and has found that in many industries and organisations a typical 20% of the customers contribute to 80% of and the profits. It is this 20% of the customers which the organisation tries to retain by providing them with rewards and penalising them for switching. Moreover and increased level of retention of the profitable customers can increase the profit levels of the particular organisation by several folds (Rust, Stewart, Pielack, 1996).

There is a need for a targeted retention strategy more than the effort put in the acquisition of new customers. Many organisations even though concerned with retaining profitable customers are putting much of the effort into acquiring new customers (Gordon, 1998), which incurs a significant cost of acquiring and developing. Schneider, (2002) have studied the need for an effective retention strategy and have concluded that the application of customer retention strategy is much more inexpensive and effective to the organisation than a proactive acquisition strategy. In the case of new customer acquisition the organisation has to incur enormous marketing and advertisement cost to woo the customer from a competitor organisation (Varian and Shapiro, 2004). Moreover the development of relationship to a level of customer’s attitudinal and behavioural change to that of a continued purchase pattern involves significant expenditure from the part of the organisation and also time (Payne, 1994). On the other hand the organisation can target a specific segment of the customers and develop loyalty and reward schemes to retain them in a much inexpensive manner.

Although based on expenses and costs, customer retention has proved to be providing significant profits, contradicting opinions about the effort to be put by organisations either only in new customer acquisition or existing customer retention exists. According to Caceres and Paparoidamis, (2007) acquisition, development and retention is an overall marketing strategy based on relationship management and hence should have an adequate balance. But the role of customer retention in improving the profitability is not denied or contradicted but indeed has been stressed support. Another area of contention is the application and effectiveness of the two types of strategies.

2.5      Positive retention strategy

The main positive retention strategies are the rewarding of customers for continued purchase of products and services. There are financial as well as non-financial incentives provided to the customers for the repeated purchase (Ahmad and Buttle, 2002). Loyalty schemes such as frequent flyer programs and corporate memberships are some of the examples. The positive retention strategy motivates the customer to stay with the same organisation for a long period of time as they are benefited mainly from the financial incentives provided (Clemmet, 1998) One of the drawbacks of the positive retention strategy’s effectiveness in retaining the customers is because it can be copied by another organisation. Moreover an aggressive acquisition strategy which provides financial incentive to the new customer who is switching from another service provider makes some of the loyalty schemes redundant (Molapo and Mukwada, 2011).

Developing a brand image and identity is also considered as a positive retention strategy as the organisation is reducing the uncertainty associated with the quality of the products and services (Boedeker, 1997). Enhancing the quality of products and services is also a positive retention strategy which enhances customer satisfaction and thereby contributes to creating loyalty (Crosby, 2002). Most importantly the price perception is considered as increasing customer loyalty and which Starkey, Williams and Stone, (2002) have indicated to provide increased customer retention. One of the most important advantages of positive retention strategy is that, the organisation is able to develop a long term relationship with the customer who can affect the attitude, behaviour and commitment (Guenzi and Pelloni, 2004).

2.5.1     Criticism of positive retention strategies

One of the foremost issues is related to the development of loyalty in the minds of the customer due to the positive retention strategy of rewarding customers for continued patronage. Omotayo and Joachim, (2008), have identified that loyalty has two different dimensions with affective loyalty and cognitive loyalty. Leverin and Liljander, (2006) have analysed consumer behaviour and have concluded that loyalty of customers may not be directly influenced by the rewarding strategy of organisations. An important research conducted by Ndubisi, (2006) into customer retention has indicated that many consumers continue to purchase the products of organisations even though they are not fully satisfied with. It is because of the reward strategy that the customers are motivated to purchase the products and services on a continual basis. But this continued patronage does not indicate the loyalty to the organisation (Adamson, Chan and Handford, 2003).

On this basis, it is hard to analyse the reward strategy as developing a long term relationship with the customer (Ang and Buttle, 2006) as it is not affecting the commitment and loyalty of the customers to the organisation. But contrary to this Coyles and Gokey, (2005) have suggested that loyalty and commitment can be affected even though the customers are not fully satisfied with the product and service of the organisation and the reward strategy can indeed influence the motivation of the customer to purchase the products and services and on a long-term basis which could develop the relationship with the organisation. Although many customers are motivated by the financial benefits of continued purchase Hansemark and Albinsson, (2004) have indicated that affective and cognitive loyalty constructs are indeed very hard to be influenced by the simple reward strategy.

It is not only the rewards to the customer that is retaining customers with continued purchase of products and services, but the development of the customer through other strategies such as customer service which can influence the affective cognitive loyalty. Moreover Ranaweera and Prabhu, (2003) have indicated that the value perception of the customers is definitely affected by the financial benefits provided by the organisations and does indeed contribute to the development of a long term relationship. Moreover the reward systems and other positive retention strategies developed are in such a way that the financial and other tangible benefits to the customer due to continued purchase of products and services is increasing for every purchase the customer makes (Molapo and Mukwada, 2011).

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2.6      Negative retention strategies

Along with providing rewards to the customers for continued patronage, the organisation also tries to adopt negative strategies to retain the select segment of customers. Switching cost between providers which is an investment specific to the current seller to be duplicated for a new seller is the main negative retention strategy adopted (Guenzi and Pelloni, 2004). The negative retention strategies or the cost to be borne by the customer for switching to another organisation can be divided based on situational, contractual, economic, technical, functional and psychological (Ahmad and Buttle, 2002). Gordon, (1998) have identified that the transaction costs economic theory can be utilised to effectively evaluate the switching cost of the customer. The transaction costs economic concept theorises that increased cost is to be borne by the consumer in order to identify, evaluate and purchase product and services from organisations and hence the reason a financial motive to stick to one organisation whose products and services they have used, evaluated and is satisfied with (Farquhar, 2004).

One of the other types of retention strategy is situational where the customer is able to purchase the products due to the increased accessibility and availability of the services and products of the organisation (Oyeniyi and Abiodum, 2009). But White and Yanamandram, (2007) have identified that accessibility and availability of products and services cannot be effectively controlled for every customer. Rust, Stewart, Pielack, (1996) have identified that contractual relationship forms an effective retention strategy wherein the customer and the organisation enters into a contract for continued purchase and use of the product or service or a long period of time which provides financial incentives to the customer along with a switching cost or exit cost. The technological and functional characteristics of a particular product or service can also act as a barrier to defection and mainly in high-technology products and services. A customer using a specific product or service may have to learn the usage of another service or product of different organisations and also may have to spend money to acquire new devices which are compatible with the services of the new organisation (Brink and Berndt, 2009).

From the economic considerations, the switching cost of the exit cost demotivates the consumer to defect to another organisation due to the loss of futuristic benefits which can be accrued from the same organisation for continued patronage (Foss and Stone, 2001). The psychology of the customers and the risk appetite also increases customer retention where the customer has to take the risk of switching to an alternative service or product without having full information about the benefits and comparison. According to Oyeniyi and Abiodum, (2009) there is a potential of the reduction in quality of service or product which cannot be identified by the customer prior to switching which forms a psychological risk. Out of all the negative retention strategies, Anglais, (2005), have indicated that only the switching cost or the exit fees can be effectively managed by the organisation. The other types of switching cost without the backing of the contract such as technological, situational, transactional etc. are becoming irrelevant because of the significant acquisition strategies and increased levels of competition.

2.7      Comparison of positive and negative strategies

Although Farquhar, (2004) and Hennig-Thurau, (2004) have consistent opinion regarding the positive and negative retention strategies based on the generalised framework provided, there are several contentious issues. One of the concerns with regards to the application of positive and negative retention strategies is the lack of effective segmentation possible on positive retention strategy. Indeed customer retention is the selected targeting of customers based on the profit contributions to the organisation (Omotayo and Joachim, 2008), and but there is conflicting opinion at different levels on the conclusions relating to the effectiveness of positive retention strategy contributing to increased levels of profitability. On the other hand Edward and Sahadev, (2011) and Lin and Wu, (2011) have indicated that the negatives retention strategies can be selectively applied which has a significant contribution to affecting the profitability of the organisation. An important difference between the two strategies is that the positive retention strategy needs customer involvement whereas negative retention strategy can be selectively applied by the organisation based on the profitability of customers (Keiningham, Cooil, Aksoy and Weiner, 2007). This can be further explained by analysing the positive retention strategies of rewarding the customers with loyalty points for their purchase of products and services, but the choice of purchase is solely dependent on the customer and is not creatively managed by the organisations (White and Yanamandram, 2007). Every type of customer who is profitable and non-profitable can access the loyalty schemes of the organisations.

When analysing the negative retention strategies evaluated in the previous segment, it can be seen that most of them are not induced by the organisation. The psychological cost of risk perception, situational barriers and event economic barriers cannot be accurately controlled by the organisations (Molapo and Mukwada, 2011). The risk appetite of customers in the different, the situational barriers of accessibility could change due to entry of new competition and futuristic economic considerations could be significantly reduced by acquisition strategies of organisations (Potter-Brotman, 1994). Such considerations have motivated Lin and Wu, (2011) and Awwad and Neimat, (2010) to conclude that the switching cost or exit fees backed by contractual considerations are the main negative retention strategies which can be effectively practised and managed by organisations.

2.8      Evaluation of exit or switching costs

Several types of switching and exit barriers were evaluated and it has been concluded by Stauss, Chojnacki, Decker and Hoffmann, (2001) that most of them involve the financial considerations. The most effective or efficient form of retaining the customers is the inclusion in a contract which involves exit fees to be borne by the customer in case of switching to an alternative service provider. Since the transaction between the customer and the organisation is based on economic considerations whose effect is significant in terms of tangibility, it may be said that the switching cost of exit barriers has an important role to play in the increasing customer retention. When considering the different negative barriers to switching situation, contractual, economic, technological, functional and psychological, it can be seen that all of them has a cost to be borne by the customer. From this perspective all of these negative values can be associated with switching cost.

The situational barriers were evaluated to have comprised of the cost to be borne by the customer in order to access a new product or service of a competitor organisation. The availability of such alternative products and services to the customer has a cost to be borne by the customer due to the considerations from information searching, evaluating and analysing the products and services of the competitor organisation (Zhu and Dai, 2011). The cost due to the contractual obligations has been considered as the most effective as it often involves and exit fees to be borne by the customer in case of switching to an alternative service or product. But Omotayo and Joachim, (2008), have contradicted this contention that exit fees could be an effective barrier because of the acquisition strategies of competitor organisations which motivate the customer based on financial incentives which may be comparatively reducing the cost towards exit or switching.

The economic value which the customer forgoes in case of switching to an alternative organisation could be insignificant because of the comparatively similar types of financial motivations and loyalty schemes of competitive organisations (de Matos and de Rosa, 2009). Many organisations provide incentives and financial loyalty schemes to new customers based on the acquisition strategies. The technological and functional barrier to switching has also been evaluated as a cost to the customer based on the learning cost and the acquisition of devices which are compatible with the services and the products offered by the competitor organisation (Awwad and Neimat, 2010). Although the learning cost is considered as psychological in nature, the enhanced competition indicates that in the technological and functional barriers are reducing as many organisations are able to copy the innovative technology of their competitors. The psychological barrier for cost of switching cannot be effectively evaluated based on tangible terms as it will depend on the consumer’s attitudes, risk perceptions and risk appetite (Lee and Cunningham, 2001).

2.9      Effectiveness of switching cost as a barrier to defection

Ahmad and Buttle, (2002) have indicated that customer retention is dependent on the intrinsic and extrinsic motivations of the customer. The intrinsic aspects include the difficulty of switching to an alternative service provider and the sensitivity towards the cost. The extrinsic aspects are determined by the competitor’s action in terms of new acquisition strategies which intends to provide financial as well as other benefits to switch (Lee and Cunningham, 2001). A further research by Clemes, Gan and Zhang, (2010) have indicated that customer retention is mainly driven by the efficiency of the switching cost developed by the organisations, the satisfaction level of the customer from the services of the products and the futuristic considerations which could be tangible as well as intangible. There is also evaluation of the dependence of customer retention on the various characteristics, attitudes, behaviour and motivations of customer and have concluded that switching cost is an effective barrier to defection and hence conclusively increasing customer retention. But one of the important aspects which need to be analysed with related to the switching cost is that they are effectively the negative strategies through which a relationship cannot be developed and hence may not contribute to sustained loyalty from the part of the customer (Aydin, Ozer and Arasil, 2005).

2.10  Important research studies

In developing the literature review certain important research studies conducted by different authors have been analysed and evaluated and their contributions have significantly impacted the discussion. The list of those articles is provided below and his also attached to the report.

  1. “The impact of customer retention strategies in the South African cellular industry: The case of eastern free State” by Molapo, M. E. and Mukwada, G. (2011), in the International Journal of business, humanities and technology, volume 1, issue number two.
  2. “Switching cost on customers loyalty in the mobile phone market: The Nigerian experience” by Oyeniyi, J. O. and Abiodum, J. A., (2009), in the Business intelligence Journal.
  3. “Customer service in the retention of mobile phone users in Nigeria” by Omotayo, O. and Joachim, A. A., (2008) in the African Journal of business management, volume 2, issue two, pages 26 to 31.

2.11  Summary

The literature review identified the key concepts with related to customer relationship management and marketing and concluded that customer retention is an important element of relationship management. Although different strategies and concepts related to customer retention has been evaluated, in practical sense they can be divided into positive and negative. Although positive retention strategies are proactive in nature, needs customer involvement to be implemented and effective but also significantly improves the relationship between the customer and the organisation which is an important aspect of relationship marketing. While the negative retention strategies may not directly induce a relationship, the financial and tangible cost to be borne and incurred by the customer can contribute to effective retention. Moreover negative retention strategies can be selectively employed by the organisation on the targeted profitable segment.

Although the above discussion concludes that the several forms of switching and exit cost could be comparatively less in practical situations, most of the research conducted has indicated that the financial aspect is an important motivation for the customers to stick to one organisation. Along with the cost to be borne in case of switching, the other barriers are effectively inducing retention of the customers. Moreover a continuous usage of one product or service has a propensity to develop loyalty and commitment from the part of the customer. The satisfaction gained from the usage of a particular product or service can also induce customer loyalty and commitment. In the following sections of the report, primary data collected from the customers are evaluated in order to find the effectiveness of the positive and negative retention strategies and particularly respect to the switching cost as a barrier to defection. The mobile telecommunications industry is taken to analyse the customer retention strategies practised by the organisations, the positive and negative strategies implemented by the company’s and their comparative effectiveness in enhancing the retention.

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3       Methodology

3.1      Overview

This section of the report provides an overview of the methods utilised by the researcher in the collection and analysis of primary data. But before moving to the methods it is also necessary to understand the philosophical perspective adopted by the researcher, the research strategy and approach. Following these considerations the research design with the rationalisation of the several methods adopted has been provided.

3.2      Introduction

Towards the end of the literature review, the necessity for evaluating the effectiveness of positive and negative retention strategies and specifically the switching and exit cost as a barrier to defection has been adequately concluded. In line with the research objectives and in order to analyse the above factors it is necessary to collect the primary data directly from the market and evaluate it in order to understand and answer the research questions in a comprehensive manner. The collection and analysis of primary data has to be conducted by using several methods which are applicable, adequate and which provides reliability and validity to the conclusions.

3.2.1     Deduction and induction

Research into the field of marketing are often indulging with evaluation of phenomena based on the theoretical and conceptual models developed by the researchers, but also to develop the theory and concepts into practical models (Bryman and Bell, 2007). All kinds of research are the development of knowledge either in conjunction with the existing or radically new. There are two approaches used by researchers where the existing theory is utilised in order to analyse the phenomena and where data is utilised in order to understand the phenomena and develop new concepts and models. But in practical cases the analysis of the phenomena usually develop a practical situation which can be considered as a new knowledge but will be based on the existing theories and concepts to a certain extent along with introduction of new model. The two concepts of developing knowledge are called deduction and induction.

Deduction is the development of the research based on the already available theoretical and conceptual considerations whereas induction is the development of a theory or a concept based on the data collected (Khanzode, 2004). In the present research, the literature review have analysed the specific concepts related to customer retention, its importance, its need and the variables affecting customer retention. Moreover the researcher do not plan to develop a theory or a concept relating to customer retention but merely wants to evaluate the effectiveness of the different types of strategies adopted by organisations. The available theoretical and conceptual models are utilised in analysing the data which will be collected from the customers and hence the deductive research strategy is adopted.

3.3      Research philosophy

Research philosophy
Positivism Phenomenology

Figure 1 – Research philosophy

(Source – Bryman and Bell, 2007)

Philosophy from the perspective of research can be considered as the way in which the researcher views the world and develops the knowledge (Bryman and Bell, 2007). Mainly two forms of research philosophies can be identified from the reviews conducted by Kumar, (2006) and Kothari, (2008). They are the positivist and phenomenology research philosophies or paradigms. The positivist research philosophy indicates the need for objective considerations of the research phenomena, developing the knowledge using scientific principles, focusing on the fact and data and analysis of the causes using scientific principles (Saunders, Lewis and Thornhill, 2009). The phenomenological paradigms view the world as a socially constructed sphere and develop the knowledge with its objective approach with the researcher as part of the observation process involved in human interest (). It links the meaning of the phenomena and understanding of the totality of the situation with the use of several methods to investigate different considerations in depth. The basis of positivist research philosophy is the utilisation of scientific principles, whereas the phenomenological research philosophy adopts the view that the subjective nature of research phenomena has to be considered in developing the knowledge, understanding the meaning and the research process should consider the totality of the situation (Bergh and Ketchen, 2009). On the one hand the positivist research philosophy utilises deductive research strategy, phenomenology mainly uses inductive method of research (Ethridge, 2004).

3.3.1     Rationale for adopting positivist research philosophy

The objective of the research is to analyse the effectiveness of switching cost as a barrier to defection along with the positive and negative retention strategies adopted by organisations. The effectiveness of a particular research variable can be conclusively analysed using scientific principles which use mathematical models and develop the knowledge based on objective evaluation of the data. On this basis the positivist research philosophy or the consideration that the switching cost needs to be analysed in an objective manner without considering the situational and subjective aspects is utilised for the present research. Moreover the research strategy utilised is that of deduction and quantitative (which is explained in the next section) which is in line with the objective nature of research based on positivist philosophy. On this basis the researcher has proceeded with the development of analysis and conclusions based on the positivist philosophy.

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3.3.2     Qualitative and quantitative approach

The qualitative approach utilises the subjective meaning of data in the data collection and analysis whereas quantitative approach utilises the collection and analysis of the data using numerical fashion and scientific methods (Singh, 2007). Qualitative data collection and analysis is used for an in-depth study of the research problem and hence can provide a conclusive view of any subject (Khan, 2005). On the other and quantitative research strategic adopts a much more generalised perception of the subject with the collection of data from a large number of respondents in order to make generalisations which can be practicable to practical considerations (Saunders, Lewis and Thornhill, 2009). Quantitative research methods are the culmination of the necessity to understand natural science and the processes involved in the same. It uses heavy mathematical modelling based on data collected through experimentation in the laboratory or survey and a range of formal methods. On the other hand qualitative methods are the culmination of the necessity to research social sciences which involves social and cultural parameters. The main methods used are observation, interviews etc along with an analysis of the subjective nature of the phenomena.

Since the present research is utilising the scientific method of approaching the knowledge based on positivist philosophy, the quantitative method of data collection and analysis is utilised. Moreover the effectiveness of switching cost can be analysed only by analysing the perceptions of the customers and in order to completely understand the different variables involved in switching cost it is necessary to collect the perceptions and opinions of several number of customers. A qualitative data collection will involve much more time and effort in collecting the data from a large number of respondents and hence the quantitative method is taken as the research strategy.

3.4      Research strategy

Several research textbooks evaluate the research strategy and approach in the same manner and consider the qualitative or quantitative, deductive or inductive and subjective or objective considerations as the components of the strategy or the approach.

3.4.1     Subjective and objective approach

The subjective and objective strategy to be adopted is very much relevant to the research philosophy and the strategy (Chitnis, 2006) of quantitative or qualitative which has been adopted. As the term suggest subjective approach evaluate the research phenomena and the variables in a subjective manner devoid of scientific principles and the objective considerations would approach the research problem and phenomena in an objective manner (Bryman and Bell, 2007). The researcher’s positioning and relevance to the research problem is also an important consideration in adopting the subjective or objective strategy (Saunders, Lewis and Thornhill, 2009).

In the present research, the philosophy adopted is positivism along with quantitative and deductive research strategies which necessitates the need for adoption of the objective research strategy. The objective strategy removes the researcher’s viewpoints and bias which could cloud the analysis and the conclusions (Taylor, 2006). The objective research strategy would ensure the reliability and validity by removing the bias of the researcher (Kothari, 2008).

3.5      Research design

Research design is consisted of the several methods, mainly practical considerations involved in the collection of data and analysis (Singh, 2007). Several research design or methods are the experiment, survey, grounded theory, ethnography, case study, action research etc. But for the present research, the customers of a particular organisation are selected for the study. The organisation selected is Three mobile. The customers of Three mobile in a particular geographic location will be surveyed in order to understand the perceptions, attitudes and behaviours which will form the basis of analysing the effectiveness of positive and negative retention strategies and the specific concept of switching cost as a barrier to defection.

Since the organisation based approach is adopted, the research is basing on the case study or the analysis of the particular social phenomena with a particular context (Saunders, Lewis and Thornhill, 2009). The case study developed is provided in the next section which evaluates the organisation, the customers and the business process of customer relationships. Based on the case study and literature review, questionnaire was developed which is used to survey the customers in a particular area in the United Kingdom. The several methods used to develop the questionnaire, conduct this survey and do the data analysis is provided in the following sections.

3.5.1     Case study

Three mobile is an organisation which provides mobile telecommunication services to the customers of United Kingdom. The company provides mobile telecommunications and mobile broadband Internet to the customers of the United Kingdom. Hutchinson Whampoa owns the majority of the stake in the company. Analysis of the customer base of all the mobile telecommunication service providers in the United Kingdom indicate that Three mobile has had a considerable growth since its inception in 2002 in the United Kingdom.

The company engaged in proactive and targeted acquisition strategies during the initial periods which gained a vast share of the mobile telecommunication market. Several innovative products were launched by the company such as the Skype telephone the contracts with significantly less time duration than the competitors. This type of innovative acquisition strategy enabled the organisation to capture the expanding market and in the recent years it has moved onto a retention strategy with the adoption of providing loyalty discounts as well as adopting negative strategies such as increasing the length of the contract period in order to lock the customers. Moreover in the recent years several small-scale service providers have also entered the market which increased the competition and forced most of the mobile telecommunication service providers to adopt a proactive retention strategy.

The customers of the company can be divided into voice-based and data-based (mobile telecommunications and mobile Internet). In the present context only the customers of mobile telecommunications are taken for the analysis or the survey. The relationship of the company with the customers can also be divided into two types. The customers can either be a prepaid or a post-paid customer. The prepaid customer pays a particular amount to the company in order to utilise the service for a particular period of time such as one-month or higher. In many cases the prepaid customer needs to have their own mobile device and the company only provide a sim card and a particular plan which involves a limited period and quantity of usage of the service.

The post-paid customer enters into a contract with the organisation to utilise the service of the company for a longer period of time usually between one year and two year. As mentioned before during the initial stages of the development, the company managed to acquire new customers by providing contracts with considerably less time frame such as that of six months. The post-paid customers are provided with a mobile device along with a considerably better plan when comparing to the prepaid customers on a cost per use basis.

When considering the retention of customers, the prepaid customers do not have any kind of exit barriers or rather very minimal when comparing to the post-paid customers. The post-paid customers are essentially locked with the service provider for the particular period of time even though they are enjoying the benefits of reduced cost per usage. The company would like the customers of prepaid usage to be converted to post-paid contracts so that they are retained for a longer period of time in order to ensure the revenues for a longer period.

3.5.2     Questionnaire design

The survey questionnaire is developed based on the concepts of the positive and negative retention strategy or the loyalty, reward, exit fees, contract and other tangible and intangible benefits and penalties developed to the retain customers or the post-paid customers of the company. The effectiveness of the reduced cost per use and other loyalty schemes such as the provision of a handset without collecting the entire cost which is spread over the contract period etc. is analysed through the survey. The customer perceptions towards the negative retention strategy of being engaged in the contract for a long period of time and hence the effectiveness of the switching cost or the exit fees also is analysed.

The questionnaire was designed to capture the perceptions and attitudes of the customers towards several statements analysing the different aspects of positive and negative retention strategy adopted by the company. Particularly the questionnaire evaluated the consumer’s behaviour to the loyalty schemes and the penalising methods adopted by the company in order to retain the customer. More focus and stress was provided on the aspect of the exit fees which the customer needs to provide to the company in the case of disengaging from the contract before the period of completion. This enabled the researcher to collect the perception of the customer about the choice of switching to another service provider in the middle of the contract. The questionnaire also evaluated the customer’s intention and mainly that of the prepaid customers about the satisfaction and repurchase intentions.

Before undertaking the actual survey using the questionnaire, the researcher conducted a pilot study in order to understand whether the questionnaire was able to collect the data in a reliable manner. The pilot study enabled the researcher to redesign the questionnaire which provided much more reliability and validity to the research instrument. The pilot study was conducted on the acquaintances of the researcher. Based on the pilot study and the comments of the acquaintances of the researcher, modifications were done to the statements utilised in the questionnaire.

3.5.3     Data collection

The data is collected from the customers of Three mobile by adopting a snowball sampling technique and using the questionnaire developed based on the concepts in the previous section. The snowball sampling technique enables the development of the sample from known individuals (Taylor, 2006) who are the customers of the company. The data was collected from the customers of Three mobile in Middlesex and the researcher approached some of the friends and colleagues who were the customers of Three mobile and they in turn provided the details of other customers. Through the snowball sampling technique the researcher was able to collect data from 50 customers of Three mobile over a period of Three weeks. Out of the total 50 customers 25 customers were prepaid customers and 25 were post-paid customers.

The snowball sampling technique was mainly adopted because of the limitations of time and costs in developing any other sampling technique. Moreover the researcher conducted the survey without the collaboration of the company and hence no data regarding the customer size, demographics, pattern etc. was available. The snowball sampling technique enabled the researcher to contact several types of customers and collect the data.

Secondary data was also collected but in a limited manner in order to understand the customer retention strategies adopted by mobile telecommunication companies. Specifically the website of Three mobile was analysed in detail in order to understand the contract period, the cost per use for prepaid post-paid customers, the types of mobile phones provided, the cost, the comparison of the usage and costs of mobile phones provided by the company with that of the competitor’s etc. This was necessary to develop the case study and have a clear understanding of the retention strategies mainly with respect to the reward schemes and penalties applied by the company. The secondary data collected through the Internet and other sources enabled the development of the case study, the questionnaire and in the final analysis of the results collected from the customers of the company.

3.5.4     Data analysis

The data collected from the customers was quantitative in nature and is coded based on the relationship type (post-paid and prepaid). In order to analyse the data, the researcher has used the segmentation principle in order to develop a relation between the variables of type of relationship (post-paid and prepaid), retention and with that of the several retention strategies and practices. Specifically the researcher wanted to develop and analyse the relationship between the switching cost of post-paid customers and their usage (life time) of the service provider. This enables to analyse and understand the relationship between two variables by establishing a cause and effect relationship (Bergh and Ketchen, 2009).

On the basis of this the customer’s lifetime with the company is measured and related to the positive and negative retention strategies. Basically the idea was to develop the relationship between how long the customer was with the company to that of the specific benefits, rewards, loyalty schemes, exit fees, contract and other variables which are the retention strategies employed by the company.

3.5.5     Validity and reliability

The concept of validity indicates the usage of procedures and application in the development of the conclusions of the research questions. It is necessary to validate the facts, theory, concepts, data and the methods of collection of data and analysis in order to ensure that the conclusions formed are valid from different angles (Saunders, Lewis and Thornhill, 2009). The validity of the present research is ensured by collecting data from the available research of various authors, collecting the primary data from the customers using a structured sampling and questionnaire method, collection of secondary data to enhance the validity and also the development of questionnaire in a structured manner.

Reliability indicates the quality of the procedures and processes adopted for the purpose of investigation (Bryman and Bell, 2007). The adoption of pilot study in order to measure the reliability of the questionnaire, the method of data analysis of relationship measurement etc. enabled the development of relationship between the variables measured helped to increase the reliability of the research methods and analysis.

3.5.6     Generalisation

The focus of the research was to understand the concept of customer retention, positive and negative retention strategies and the effectiveness of switching cost as a barrier to defection. A case study based method is adopted where Three mobile is taken as the particular organisation whose customers are studied in order to understand their perceptions. Although the conclusions developed are specific to the situation and contact related to the telecommunication industry and particularly Three mobile, the recommendations generated are with the help of the secondary data and the already available theories and concepts which has enabled a wider generalisation for the whole of the telecommunication industry in the United Kingdom.

3.6      Summary

The philosophy adopted is positivism along with quantitative and deductive research strategies which necessitates the need for adoption of the objective research strategy. Since the organisation based approach is adopted, the research is basing on the case study. The survey questionnaire is developed based on the concepts of the positive and negative retention strategy or the loyalty, reward, exit fees, contract and other tangible and intangible benefits and penalties developed to the retain customers or the post-paid customers of the company. The data is collected from the customers of Three mobile by adopting a snowball sampling technique and using the questionnaire. The data collected from the customers was quantitative in nature and is coded based on the relationship type (post-paid and prepaid). In order to analyse the data, the segmentation principle was used in order to develop a relation between the variables of type of relationship (post-paid and prepaid), retention and with that of the other variables.

 

 

4       Data analysis

4.1      Overview

The following sections provide the analysis of the data collected from the customers of Three mobile. The data was collected from 50 customers of Three mobile in Middlesex region; of which 25 customers were prepaid and 25 customers who were post-paid. An initial pilot study was conducted in order to evaluate the validity and reliability of the research instruments. The result generated from pilot study necessitated the need for reviewing and revising the questionnaire. The following data analysis conducted based on the responses received from the revised questionnaire. The data analysis is segregated based essentially on two relationship categories. The relationship categories are the post-paid category and the prepaid category. The section is divided into four broad areas which analyses the measure of retention, degree of retention and the effectiveness of the positive and negative retention strategies.

4.2      Measure of retention

The following of table indicates the number of years the sample customers of Three mobile were in a particular relationship type (post-paid, prepaid). From the table and the chart it can be seen that as the number of years increases the prepaid category customers reduces and post-paid category increases.

No of years in the same relationship type Post-paid Prepaid
1 32% 60%
2 16% 20%
3 28% 16%
4 24% 4%

Table 1 – No of years in the same relationship type

Figure 2 – No of years in the same relationship type

The above table and the chart illustrate the relationship between the number of years the customers with the company and the change in the relationship type. A customer with Three mobile in the first year is often in the prepaid category and as the years increases the post-paid category customers’ increases. One significant result from the above chart and table is that as the customer relationship with the same service provider moves on, there is a change in the relationship type from prepaid to post-paid. It can be seen that there is a reduction in the percentage of prepaid customers as the number of years the customer is with the company. A customer with a four year usage of the same company is likely to be in the post-paid category than the prepaid category as indicated in the chart and table. Only 4% of the customers are in the prepaid category with relationship duration of four years whereas 24% of the customers are in the post-paid category with the relationship duration of four years. When the relationship duration is only one year, 60% are in the prepaid category and 32% are in the post-paid category.

The result from the analysis is that as the customer’s relationship or the usage of the same service provider increases in years, the relationship type changes from prepaid to post-paid. In other words the customers change the relationship type, because of the acquisition and retention strategies of the company. As evaluated in the literature review the company would like to have the customers to be having a long term relationship and it is only through a post-paid contract that such a relationship can be established and maintained. The prepaid category is only having short relationship duration and is not sustainable. Hence the company induces the customer to change the relationship type from prepaid to post-paid and the reduced number of prepaid customers with a four-year relationship indicates the acquisition strategy or the retention strategy of the company.

The below chart analyses the usage pattern of the customers based on the two categories of relationship type. The below chart indicates that out of all the total post-paid customers, 68% was with the same service provider and out of all the prepaid customers 60% was with a different service provider.

Previously was with the same service provider Post-paid Prepaid
Yes 68% 40%
No 32% 60%

Table 2 – Previously was with the same service provider

This further illustrates the retention strategy of the company’s where it can be seen that when the customer has used the same service provider for a number of years, the relationship type is likely to be more of post-paid customers than prepaid customers. The prepaid customers with the company who were with the different service provider are more, mainly because they are able to change the service provider without any transactional barriers. The post-paid customers are not able to change the service provider in an easy manner because they are locked in the contract or have other transactional barriers such as exit fees. Hence this illustrates the retention strategy of the company which indicates that when the customer is with the same service provider for several years, the retained customers in the post-paid category are more than the prepaid category.

Figure 3 – Previously was with the same service provider

A further measure of analysis is used in the below table and chart in order to conclusively prove that the company is able to retain the customers by changing the relationship type from prepaid to post-paid. The below table and chart illustrates the number of customers who have changed their relationship type over the usage period.

From the table it is seen that out of all the retained customers 80% where in the same category or were using prepaid contracts whereas 72% of all the post-paid customers have been changed from prepaid to post-paid. There are no customers who have changed from post-paid plan to prepaid plan within the same service provider’s usage.

Previously were in the same category Post-paid Prepaid
Yes 28% 80%
Prepaid changed to post-paid 72% 0%
Post-paid changed to prepaid 0% 20%

Table 3 – Previously were in the same category

Figure 4 – Previously were in the same category

This further illustrates the strategy of the company to change the relationship type and establish a long-term relationship with the company. There is more number of post-paid customers who have changed from the prepaid plan while using the same service provider. Out of all the prepaid customers 80% of the customers have indicated that they were with the same category. But this merely illustrates that they could be using the same service provider or a different service provider. But out of all the post-paid customers, either most of them have started with their post-paid plan or have changed from the prepaid to post-paid plan. This indicates that either the company have acquired these customers by providing them benefits of the post-paid contract from a different service provider or retained them on a long-term basis by changing the relationship type from prepaid to post-paid.

Another measure of the likelihood of change in the relationship apart from the retention strategy of the company is the consumer’s perception of the advantages and disadvantages of prepaid and post-paid categories. As indicated in the literature review and the previous sections, the company actively targets to retain the customers by changing the relationship type from prepaid to post-paid. By this way the organisation is able to increase the retention of the customers for a longer duration. Similarly the customer perceptions towards the changing relationship from prepaid to post-paid where they are locked in a contract with transactional barriers needs to be analysed.

Would like to change relationship type Post-paid Prepaid
From prepaid to post-paid 56%
From post-paid to prepaid 20%
No change 80% 44%

Table 4 – Would like to change the relationship type

Figure 5 – Would like to change the relationship type

The above table and chart provides the customer’s degree or the likelihood of change from one relationship type to another. From the table and chart it can be seen that out of all the prepaid customers 56% would like to change from prepaid to post-paid category. Out of all the post-paid customers only 20% would like to change from post-paid or prepaid category. This indicates that customers also have the willingness to be in the post-paid category as they are able to derive the benefits provided by the company for the post-paid customers. The prepaid customers would like to derive the benefits such as loyalty schemes, improved rate plans and a better mobile device by changing to the post-paid category.

More significantly the degree or the likelihood of the post-paid customers not to change to the prepaid category is important. As indicated before post-paid customers are the retained customers of the company and they do not want to change to the prepaid category as they are getting the benefits provided by the company due to the retention. Although 56% of the prepaid customers have indicated that they would like to change the relationship type from prepaid to post-paid, the significant 44% have indicated that they would like to remain in the same category. This could be because the customers would like to alternate the service provider without having any transactional barriers.

4.3      Degree of retention

The next table and figure illustrates the number of customers within the post-paid category alone who have extended their contracts with the same service provider. Out of all the post-paid customers of the company, 40% have extended the contract one time and 24% extended the contract two times. This indicates that more number of post-paid customers is being retained by the company as they are extending the contract with the same service provider more than one time. A majority of the post-paid contracts are extended by the customers for more than one time and this indicates the longer retention of the customers and the active retention strategy of the company.

Percentage of post-paid contract extended None 1 time 2 times
36% 40% 24%

Table 5 – Extension of contract

Figure 6 – Extension of the contract

4.4      Effectiveness of positive retention strategy

Among the retained customers in the post-paid category and out of those customers who have extended the contract for at least once, it is also necessary to evaluate the reasons for the extension from the customer’s viewpoint. The below table indicates that 24% of the post-paid customers who have extended the contract have done so because of the better rates. 16% of the customers who have extended the contract have done because of the better mobile device provided. 12% extended the contract because of the loyalty benefits of the company. Significantly only 4% of the customers have extended the service because of the satisfaction level with the service provider. Another factor to be analysed is the 4% of the customers even though insignificant who have not received any comparable offer from competition.

Reason for post-paid contract extension
Satisfaction with service 4%
Offer of better rates 24%
Offer of better mobile device 16%
Other loyalty benefits offered 12%
No other comparable offer from competition 4%
Automatic extension 4%

Table 6 – Reason for extension

Figure 7 – Reason for extension of contract

When analysing the above data with regards to the customers viewpoint about the extension of their contracts, it can be seen that the company is providing better rates, better mobile devices and other loyalty benefits to induce the customers to extend the contract and hence retain them on a long-term. As indicated in the literature review, positive retention strategies are an important part of customer retention (Hansemark and Albinsson, 2004) and providing the customers with benefits can increase the retention of the customers. Out of all the customers who have extended the contract more than once, 50% have indicated that they have received positive benefits from the company in order to extend the contract. Hence the relevance of the positive retention strategies such as providing loyalty discounts, better rate plans and better mobile devices are having a significant effect on the retention of the customers.

4.5      Effectiveness of negative retention

One significant measure of the effectiveness of the retention strategy and mainly the negative retention strategy is the ability to retain those customers who would like to change. The following table and the graph illustrate the number of customers within the two categories who would like to change the service provider. As indicated in the below table and chart, out of all the post-paid customers only 36% customers would like to change the service provider whereas 40% of the prepaid customers would like to change the service provider.

It is necessary to analyse how the company is retaining these customers who have indicated their intention of changing the service provider. As analysed in the literature review, positive retention strategies are having an effect in retaining those customers who may not have an inclination to change, whereas the negative retention strategies are having an effect in retaining those customers who are having an inclination to switch to another service provider (Boone and Kurtz, 2011).

Would you like to change the service provider Post-paid Prepaid
Yes 36% 48%
No 64% 52%

Table 7 – Number of customers who would like to change service provider

Figure 8 – Number of customers who would like to change service provider

The below chart and the table indicate the reasons or the inability of those customers who have indicated that they would like to change the service provider. From the table and chart it can be seen that out of the post-paid customers who have indicated their inclination to switch the service provider, 16% are unable to change because they are locked in the contract and 24% are unable to change because of the exit fees. A significant 12% of the post-paid customers who wanted to change indicate that they do not have an alternate offer which is comparable to the present plan provided by the company. Another significant reason provided by the customers as the reasons for the inability to change is the positive retention strategy of good loyalty schemes in the future. 16% of the customers have indicated that they would like to avail the loyalty schemes in the future and this is an indication of the positive retention strategy. But as mentioned in the literature review, the negative retention strategy have more effect on those customers who have an inclination to switch their service provider and roughly around 40% of the customers are retained by the company because of the contract and the exit fees.

Reason for inability to change Post-paid Prepaid
Locked in contract 16% 0%
Exit fees 24% 0%
No alternative offer 12% 28%
No better rate plan offer 8% 32%
No better mobile device offer 12% 0%
Not checked any other service provider 8% 24%
Good loyalty schemes in future 16% 8%
Satisfied with service 4% 8%

Table 8 – Reason for inability to switch

Figure 9 – Reason for inability to switch

Another factor which is retaining the customers which are not controlled by the company directly is the inability of the customers to find an alternative plan which provides better rates and better mobile device. A total of 32% of the customers have not received any better offers from other service providers and this is one of the reasons for their not switching to an alternative service provider. Another factor which contributes to the lack of switching is the transactional barriers as indicated in the literature review. According to this the customers would have to spent money in order to evaluate and analyse the comparable offers. 8% of the customers have indicated that they have not checked any other service provider and this could be because of the cost involved in analysing the alternate services. One another factor which can be considered as a positive retention strategy is the satisfaction with the service and 4% have indicated that they are satisfied with the service. This also indicates the psychological barriers of switching where the customers are satisfied with the present service provider and are having psychological barriers such as the insecurity about the satisfaction they would receive from an automatic service provider.

4.6      Summary

The analysed data has indicated that positive and negative retention strategies are equally effective on retaining the customers. The ability of the company to retain the customers with a contract and exit fees is important but the positive retention strategies such as providing benefits and loyalty schemes are also an important factor in inducing the loyalty of the customer. Hence although exit fees and switching cost is an effective barrier they are effective, valid and reliable only in the case of the effectiveness of other types of retention strategies. Positive retention strategies, since providing improved loyalty and commitment from the part of the customer to the organisation are also an important part in retaining those customers who have an inclination to switch to an alternative service provider.

 

 

5       Discussion

5.1      Overview

This part of the research focuses on the results generated from the data analysis and compares it with the literature review in order to generate the conclusions about the retention strategy of Three mobile and effectiveness of positive and negative retention strategy. The analysis of the data has indicated that both positive and negative retention strategies are equally important and a standalone strategy of adopting only one position would not be favourable in enhancing the retention of the profitable customers. The following sections evaluates the several aspects of the analysed data in light of the literature which has been reviewed in the initial sections and mainly based on the effectiveness of positive and negative retention strategy. Moreover the effectiveness of exit fees and switching cost is analysed in order to identify whether they are contributing factors and their degree and relevance to the retention of the customers.

5.2      Retention strategy of Three mobile

The first and foremost factor which have been analysed from the data was the measure of retention of the customers. The retention of the customers of a mobile service provider can be said to be effective when there are more number of long-term customers with post-paid contracts than the prepaid contracts. From the data analysis it has been established that as the customer’s usage of the service provider increases in years the relationship type changes from prepaid category to post-paid category. Irrespective of the type of switching cost and the retention strategies, this indicates that more number of customers is retained by the company as the usage of the service provider increases. Customer relationship management involves the strategies to retain their customers for a long period of time (Zhu and Dai, 2011) and the effectiveness of the retention strategies is indicated by the number of customers which has a long term relationship with the company. From the perspective of Three mobile the effectiveness of the retention strategy is indicated by the number of post-paid customers who are having a long term contract of one year or more with the company. Essentially the post-paid customers are having significantly reduced barriers to switch from one service provider to another. But the post-paid customers are having significantly higher barriers to switch and the number of such post-paid customers increases the revenue to the company on a sustainable basis (Ang and Buttle, 2006).

The prepaid customers can switch the service provider without involving any switching cost and exit barriers whereas the post-paid customers are having the barriers to switching (Guenzi and Pelloni, 2004). The higher number of post-paid customers for the company than the prepaid customers indicates the effectiveness of the retention strategy. One of the significant evaluation and conclusion from the literature review was that, as the customer’s usage of a product or service with one organisation increases there is the likelihood that the customer’s retention with the company increases. This is conclusively proven by the data which indicates that there is more number of post-paid customers who are having a long term relationship with the company than the prepaid customers. One another factor evaluated in the literature review was the ability of the company to change the relationship status in order to retain the customers for a long period of time (Farquhar, 2004). It has been evaluated that as the customers usage of one product or service increases, the organisation is able to effectively induce the customers to use the same product and service because of the psychological and other barriers (Clemes, Gan and Zhang, 2010).

The results indicate that 80% of the post-paid customers were in the same category or were using prepaid contracts of the company. Hence effectively the company has been able to retain the prepaid customers by changing them to post-paid which conclusively proves the effectiveness of the retention strategy. According to Awwad and Neimat, (2010) as the usage of one product or service increases the customers perceptions also changes about the advantages and disadvantages of using the same product or service and switching to another organisation. The results further indicate that only 20% of the post-paid customers would like to change their relationship type to prepaid whereas 56% of the prepaid customers would like to change the relationship type to post-paid. This indicates that the prepaid customers would like to continue with the company and change their relationship type which enhances the retention measure of the company.

Furthermore it is seen that out of all the post-paid customers 40% have extended the contract at least one time and 24% extended the contract two times which indicates that more number of post-paid customers are being retained by the company as they are extending the contract with the service provider more than once. When taking the overall outlook from the data about the nature and degree of retention of the customers it is seen that more prepaid customers are changing to post-paid plan which improves the retention and the post-paid customers are renewing their contracts which further enhances the retention of the customers.

5.3      Effectiveness of positive and negative retention strategy

One of the important contributions of the literature review was about the effectiveness of the positive and negative retention strategies on the different types of customers. It had been indicated that positive retention strategy provides more customer satisfaction, loyalty and customer retention (Hennig-Thurau and Hansen, 2000). From the previous figures it has been analysed that more number of prepaid customers are changing to post-paid plan and post-paid customers are increasing their number of contract renewals. Moreover when analysing the reasons for the customers who have extended the contract it is seen that most of them have extended because of the better offers, mobile devices and loyalty benefits of the company. One significant result from the analysis was that satisfaction is not a contribution to the retention of the post-paid customers. The main conclusions from the data analysis were the positive retention strategies are effective in retaining the customers on a longer time basis.

It has also been analysed that negative retention strategies are effective on those customers who wish to change because of dissatisfaction or better offer plans from the alternative service providers. When analysing the data about the effectiveness of the negative retention strategies such as locking in the contract and exit fees on those customers which indicated an inclination to switch the service it has been seen that majority of them are unable to switch to an alternative service provider because of the negative retention strategies of contract and exit fees. Moreover there are other retention strategies which are psychological, transactional and situational in nature (Lin and Wu, 2011). All these factors are coming into play where it was seen that the customers are not able to change because of the satisfaction levels with the company. The customers have a psychological barrier of switching because they are not able to completely evaluate the level of services to be provided by the alternative service provider. This constitutes to a psychological barrier. The transactional barriers are because of the inability of the customer to evaluate the alternative offers from the competitors.

Although no situational barriers have been found because of the effective competition in the market, the data has not been comprehensive enough to analyse the situational barriers. But more importantly when analysing those customers who indicated an inclination to switch the service provider, it has been seen that these customers would like to avail the loyalty schemes in the future which indicates that effectiveness of the positive retention strategies on those customers who wish to change. Hence it may be said that along with the negative retention strategy the positive retention strategy also have an impact on those customers who are not completely satisfied with the services of the organisation.

5.4      Effectiveness of switching cost

The effectiveness of switching cost as a significant barrier to defection more than the positive retention strategies has not been conclusively proven from the research. Even with the customers who indicated an inclination to change, it has been analysed that there are psychological and transactional barriers along with the inability to switch because of the positive retention strategies of the company. On this basis it may be said that the switching cost even though is an effective barrier in the negative retention strategy is not a significant contributor when comparing the positive and negative retention strategies. The switching cost is a barrier to those customers who wish to change the service provider but the other barriers are also acting along with the switching cost in order to reduce the defection of the customer. On this basis it may be said that even though switching cost is a barrier, its effectiveness is only relevant and valid based on the effectiveness of other types of barriers and positive retention strategies.

5.5      Summary

The above discussion which evaluated the data in line with the literature review has argued that positive and negative retention strategies are equally important in retaining customers. On the one hand whereas the contract and exit fees are contributing to retaining those customers which are having an inclination to switch to alternative service provider, it is also necessary to retain those customers who are satisfied and would like to continue with the same organisation. In order to increase the satisfaction levels it is necessary to provide positive benefits to them in the form of loyalty rewards. The main conclusion from the discussion of the data and the research articles is that, Three mobile should ensure a strategy of adopting both the positive and negative retention strategy and applying them selectively for different type of customers.

 

 

6       Conclusions

6.1      Overview

The research project analysed the retention strategies specifically the concept of switching cost and its effectiveness as a barrier to defection and increased customer retention in the mobile telecommunications market in the United Kingdom. The research is conducted on the customer retention strategies mainly the switching cost developed by Three Mobile of the United Kingdom. Apart from the switching cost created by the service provider the market induced cost to the customer in defecting to another service provider were also evaluated. The following switch section provides a brief evaluation of the important points with related to the research questions and the conclusions generated from the analysis of the data and the discussions.

6.2      Conclusions

The literature review evaluated the customer relationship management and marketing strategies and the need for effective customer retention strategies in order to improve the profitability and the sustainability of the business. The critical review of the positive retention strategy and negative and strategy indicated a conflict among the researches about the effectiveness of both. When comparing the positive retention strategy to the negative retention strategy it has been found that the exit barriers and switching cost are more effective than the positive retention strategies. These analysis from the literature review and is further evaluated with the help of primary data collected from the sample customers of the mobile.

When analysing the overall retention strategies of the company it has been concluded that positive and negative retention strategies are equally effective on retaining the customers. The psychological and transactional barriers are also playing their part in retaining customers as more number of prepaid customers is changing into post-paid plan. The ability of the company to retain the customers with a contract and exit fees is important in retaining those customers who have an inclination to switch to an alternative service provider. But the positive retention strategies such as providing benefits and loyalty schemes are an important factor in inducing the loyalty of the customer.

The research conducted has not been able to conclusively prove the contention that switching cost and exit barriers are one of the most effective retention strategies and much more than the positive retention strategies. It has been analysed from the data analysis that positive retention strategies are able to improve the retention and increased the loyalty of the customers as more number of prepaid customers are changing to post-paid plan and more number of post-paid customers are renewing their contracts. These conclusions have been developed based on the positive retention strategies employed by the company. When coming to the customers who indicated an inclination to change the service provider it has been found that exit fees is an important barrier to retain them but along with other transactional and psychological barriers. Moreover there is an element of positive retention strategy acting upon, even these customers who indicated an inclination to change.

Hence it can be concluded that although exit fees and switching cost are an effective barrier they are effective, valid and reliable only in the case of the effectiveness of other types of retention strategies. This can be further analysed and conclusively stated that positive retention strategies, since providing improved loyalty and commitment from the part of the customer to the organisation is also playing an important part in retaining those customers who have an inclination to switch to an alternative service provider.

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6.3      Limitations of research

The research of this large scope and magnitude has several limitations. One of the main limitations was with respect to data collection. Due to the ethical considerations, personal data relating to demographic segmentation of the respondents was not collected. Secondary data have suggested that due to the relatively young position of the company in the United Kingdom and the strategy adopted by the company, most of the subscribers are in the age group of 16 to 30. Such an age group requires different types of retention strategies than provided to the customers by other companies who are targeting all the age groups. This aspect has not been reviewed in the present research. The next aspect is due to the limitation of the researcher mainly based on time and money considerations. Due to the limitations, only the respondents in one specific geographic area in the United Kingdom (Middlesex) have been collected. There are specific demographic patterns for different regions of the United Kingdom and the present research has only captured the perceptions of the customers in a particular geographic location.

6.4      Recommendations to industry and managers

From the conclusions generated in the research project which is contradicting some of the literature about the effectiveness of switching cost and exit barriers as more effective than the positive retention strategies, the following recommendations are generated which are generalised to the industry.

  1. As analysed it is necessary for an organisation to develop loyalty schemes and benefits which are positive retention strategies in order to have an effective and comprehensive retention strategy. The recommendations to the marketing managers of organisations are to develop those kinds of strategies which can provide benefits to the customers on a long-term basis and which can be perceivable by the customer. These kinds of perceptive positive retention strategies can provide improved retention of the customers of any organisation. But mere implementation of positive retention strategies would not be effective in retaining all the customers and it is also necessary to implement exit barriers and switching cost.
  2. The positive retention strategies are also effective in order to generate transactional and psychological barriers. The transactional and psychological barriers are created because of the satisfaction levels provided by the service of the organisation. The increased positive benefits which are perceived by the customer increase the psychological and transactional barriers and reduce the switching of the customer. The exit barriers and switching cost will only be effective when there is a significant level of transactional and psychological barrier.

 

 

 

7       Questionnaire

  1. What is your relationship type?
    1. Prepaid
    2. Post paid
  2. How many years in the same relationship type
    1. 1
    2. 2
    3. 3
    4. 4
  3. Previous to the existing relationship were you with the same service provider
    1. Yes
    2. No
  4. Previous to the existing relationship were in the same category
    1. Yes
    2. Prepaid changed to post-paid
    3. Post-paid changed to prepaid
  5. Would you like to change your relationship type
    1. From prepaid to post-paid
    2. From post-paid to prepaid
  6. No of times the post-paid contract extended
    1. 0
    2. 1
    3. 2
    4. 3
  7. Reason for post-paid contract extension
    1. Satisfaction with service
    2. Offer of better plan
    3. Offer of better rates
    4. Offer of better mobile device
    5. Other loyalty benefits offered
    6. No other comparable offer from competition
    7. Automatic extension
  8. Would you like to change the service provider?
    1. Yes
    2. No
  9. Reason for inability to change to another service provider
    1. Locked in contract
    2. Exit fees
    3. No alternative offer
    4. No better rate plan offer
    5. No better mobile device offer
    6. Not checked any other service provider
    7. Good loyalty schemes in future
    8. Satisfied with service
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