1 “THE IMPACT OF CUSTOMER RELATIONSHIP MARKETING TACTICS ON CUSTOMER LOYALTY” SUMMER PLACEMENT REPORT Submitted to MAHATMA GANDHI UNIVERSITY, KOTTAYAM In Partial Fulfillment of Requirements for the award of the MASTERS DEGREE IN BUSINESS ADMINISTRATION (2009-2011) By V S Sreekumar Reg No: 10849 RAJAGIRI COLLEGE OF SOCIAL SCIENCES RAJAGIRI P.O COCHIN-683104
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“THE IMPACT OF CUSTOMER RELATIONSHIP MARKETING
TACTICS ON CUSTOMER LOYALTY”
SUMMER PLACEMENT REPORTSubmitted to
MAHATMA GANDHI UNIVERSITY, KOTTAYAM
In Partial Fulfillment of Requirements for the award of the
MASTERS DEGREE IN BUSINESS ADMINISTRATION
(2009-2011)
By
V S Sreekumar
Reg No: 10849
RAJAGIRI COLLEGE OF SOCIAL SCIENCESRAJAGIRI P.OCOCHIN-683104
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Declaration
I do hereby declare that this project report entitled “The impact of customer relationship
marketing tactics on customer loyality” is a bonafide work that has been done by me .
This study has been undertaken for the partial fulfilment of the degree of MBA at Rajagiri
School of Management, Cochin affiliated to M.G. University.
Further this report has not been submitted to any other University or institute for the award of
any degree or diploma.
Place: Cochin
Date: __________________
V.S Sreekumar
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Acknowledgement
First of all I express my gratefulness to God Almighty for seeing me through the successful
completion of this project.
I would also like to express my deep sense of gratitude to Mr. Harish, Faculty Guide, Rajagiri
School of Management, Cochin for his valuable technical advice and suggestions. I would
also like to thank all other staff and faculty members of my college for their help and co-
operation.
I would also like to thank my parents and friends who were always there to support me with
their help & suggestions to complete my project on time.
Finally I would like to thank all the respondents who helped me complete my field work
without which this project would not have been possible.
V S Sreekumar
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Table of Contents
Serial
No.
List of Contents Page
No.
1 Research Abstract 1
2 Chapter 1 – Review of Literature 6
3 Chapter 2 – Research design & Methodology 18
4 Chapter 2 – Data Analysis & Interpretation 20
5 Chapter 4 – Findings & Conclusions 26
6 Bibliography 27
7 Annexure 29
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List of tables and figures
Sl no List of tables and figures Page no
1 Tables 1 showing Descriptive Statistics of Respondent’s
Characteristics
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2 Figure 1 showing Descriptive Statistics of Respondent’s
Characteristics
21
3 Table 2 showing different service providers 22
4 Figure 2 showing the different service providers of the sample 22
5 Table 3 showing Correlation Analysis 23
6 Table 4 showing Regression analysis 24
7 Table 5 showing ANOVA 25
8 Table 6 showing Coefficients 25
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Chapter 1
INTRODUCTION
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Abstract
Due to the more and more fierce competition in today’s business, many companies are
required to build long-term profitable relationship with customers and to achieve customer
loyalty. Therefore, relationship marketing has become more and more important since last
decade of 20th century, especially in service industry. There are many different relationship
marketing tactics implemented for retaining customer. However, some of those tactics did not
affect customer loyalty effectively, and switching behaviors frequently occur among most of
targeted customers. Therefore, this study is aimed to investigate the impact of relationship
marketing tactics on customer satisfaction and trust, which in turn increase customer loyalty,
by focusing on Swedish mobile telecommunication sector. A analytical model is developed as
a guild line to test the relationships between relationship marketing tactics, relationship
quality (trust and satisfaction) and customer loyalty. a quantitative method with deductive
approach are chosen in this research. The SPSS for windows is used to process the primary
data.
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Background
As the competitive environment becomes more turbulent, the most important issue the sellers
face is no longer to provide excellent, good quality products or services, but also to keep loyal
customers who will contribute long-term profit to organizations (Tseng, 2007). To compete in
such overcrowded and interactive marketplace, marketers are forced to look beyond the
traditional 4Ps of marketing strategy, which are not longer enough to be implemented for
achieving competitive advantage. Therefore, relationship marketing has become an alternative
means for organizations to build strong, ongoing associations with their customers. As a part
of marketing strategy, relationship marketing seek to acquire and retain customers by
providing good quality customer services, and therefore has become one of the keys to
success in acquiring strong competitiveness in the present markets, because of its implications
for access to markets, generation of repeat purchase, creation of exit barriers, and the view
that it benefits all parties (Andaleeb, 1996). Relationship marketing has received much
attention in both academy and practice areas in the last few decades. It was during the last
decade of the 20th century that relationship marketing began to dominate the marketing field
(Egan, 2001). During this period relationship marketing became a major trend in marketing
and management business (Ibid). Relationship marketing is concerned about building
customer loyalty by providing value to all the parties involved in the relational exchanges
(Peng and Wang, 2006), as customer loyalty is the final goal of relationship marketing.
Buyers and sellers in markets achieve mutual benefits through developing relationships,
which are not simple that a customer is 100 per cent loyal to a vendor (Stone & Woodcock
&Machtynger, 2000). There are often switching behaviors occurred in different stages of a
partnership relationship. Relationship marketing tactics are thus approaches to apply
relationship marketing in practice (Tseng, 2007). Effective customer-oriented relationship
marketing tactics may help marketers to acquire customers, keep customers, and maximize
customer profitability, and finally build up customer loyalty.The telecommunication industry
is becoming one of the most important industries in the world. The telecommunication
industry delivers voice communications, data, graphics, and video at ever increasing speeds.
Telecommunication influences the world economy and the telecommunication industry’s
revenue was estimated to be $1.2 trillion in 2006. The competition is also becoming more and
more sharp. In order to obtain sustainable competitive advantage, telecommunication firms
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are forced to make innovation and do the best for customer satisfaction. Due to this, customer
relationship marketing plays an important role in telecommunication industry. It demands a
relationship-oriented strategy in marketing (Grönroos, 2004).Moreover, the new electronic
communication regulations suggested that the regulations would harmonize the legislation of
the EU countries and increased competition would favor the consumers. Considering the
significant importance of relationship marketing in today’s business, it will make sense to
understand how the relationship marketing are executed in practice and how this type of
marketing take effect, e.g. influencing long-term relationship building and customer loyalty.
Therefore, this study is aimed to develop and exam a analytical model regarding the field of
relationship marketing in practice, based on reviewing literatures and theories about
relationship marketing tactics, relationship quality and customer loyalty.
This developed analytical model is presented as Figure 1.1.
Figure 1.1: Analytical model
Service quality
Price perception
Brand image
Customer trust
Customer satisfaction
Customer loyalty
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1. Relationship marketing tactics: Relationship marketing is carried out with many
relationship marketing tactics, which are widely to be applied in today’s business. Many
tactics may have potential to influence relationship quality and retaining customers. On basis
of previous researches, ways of implementing relationship marketing tactics are focused on
this study, such as service quality, price perception and brand image. These
tactics will be discussed in detail in the next chapter.
2. Relationship quality: It is usually used to assess the effectiveness of relationship marketing
tactics. It is also considered to be antecedent of achieving customer loyalty. Customer
satisfaction and trust are two basic components for measuring relationship quality. Higher
level of relationship quality is reflected by higher level of customer satisfaction and trust.
3. Customer loyalty: It was defined by Oliver (1997, p.392) as “deeply held commitment to
rebury or repatronize a preferred product or service consistently in the future, thereby causing
repetitive same-brand or same brand-set purchasing, despite situational influences and
marketing efforts having the potential to cause switching behavior”. Customer loyalty is
thought to be the final goal that a firm applies relationship marketing tactics, by building
long-term mutual relationship with customers.
1.2 Problem Discussion
Confronted with the fierce competition in today telecommunication marketplace, there have
been many marketing strategies for service providers to plan and implement. However,
consumers are disturbed by a number of marketing activities ranging from aggressive sales
tactics, telemarketing, direct mail, doorstep selling, radio advertisement, TV advertisement,
and internet promotion to customer loyalty programmers (Peng and Wang, 2006). There are
also evidences shows that consumers tend to other competitors when they can not be satisfied
with the service quality. Relationship marketing strategy might be one of the best ways for
service providers to retain customers and building customer loyalty. Many empirical studies
have provided evidences that relationship marketing tactics have impact on behavioral loyalty
which affects customer retention (Peng and Wang, 2006). Therefore, well awareness of the
target consumers and building good relationship with them is the most significant issue. The
challenge for telecommunication service providers is to attract more customers, focus on
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building good relationship quality with customers, make customers satisfied and trust, and
step by step obtain customer’s loyalty, through relationship marketing tactics.
1.3 Research questions
Companies have implemented various relationship marketing tactics into practice. However,
some of those tactics did not work effectively, and there are phenomena showing that
switching behavior frequently occur among most of targeted customers. Accordingly, our
research questions are brought forward as follows:
(1) What kinds of relationship marketing tactics in practice positively contribute to customer
loyalty?
(2) How do different relationship marketing tactics impact on customer loyalty?
(3) Is the analytical model showed as figure 1.1 proved to be correct?
1.4 Purpose
The purpose of this research is to investigate the impact of customer relationship marketing
tactics on customer loyalty with mobile telecommunication sector, by analyzing the
relationship of every construct in the analytical model (show as figure 1.1). This study is
expected to exam the relationship between the six constructs in the model (service quality,
price, brand image, satisfaction, trust, and customer loyalty), which can be a reference for
mobile telecommunication industry. In order to achieve this purpose, the research focuses on
analyzing the developed conceptual model from consumer’s perspective, accordingly the
following hypothesizes are aimed to be tested.
H1: High service quality perceived by customers is positively related to customer
loyalty.
H2: Fair price perceived by customers is positively related to customer loyalty.
H3: Positive brand image perceived by customers is positively related to customer
Loyalty.
H4: The value offers perceived by customers is positively related to customer’s
loyalty.
H5: Customer trust is positively related to customer loyalty.
H6: Customer satisfaction is positively related to customer loyalty.
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Chapter 2
LITERATURE REVIEW
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2. THEORETICAL FRAMEWORK
This chapter consists of five parts, the theory of the relationship marketing will be discussed
firstly, and then followed by discussing the relationship marketing tactics, relationship quality
and customer loyalty, in which each construct showed in the model is discussed respectively,
and the research hypothesizes are proposed accordingly.
2.1 Relationship Marketing
During the last decade of the 20th century, relationship marketing has been seen as the
mainstream of though in planning a marketing strategy both in industrial marketing and
consumer marketing (Tseng, 2007). According to Morgan and Hunt (1994), relationship
marketing was defined as all the marketing activities that are designed to establishing,
developing, and maintaining successful relational relationship with customers.
Hougaard and Bjerre (2002, p.40) also defined relationship marketing as “company behavior
with the purpose of establishing, maintaining and developing competitive and profitable
customer relationship to the benefit of both parties”. Due to profitable relationship on a
lifetime basis may also create loss in some stages during the lifetime, Hougaard and Bjerre
(2002, p.40) argued that marketing management must pay attention to three different
objectives in terms of :
“The management of the initiation of customer relationships”;
“The maintenance and enhancement of existing relationships”;
“The handling of relationship termination”.
Wulf et al. (2001) suggested that different levels of relationship duration would result in
different levels of consumption experience, producing different results, satisfaction and
loyalty with different relationship marketing tactics.
Compared with traditional marketing, relationship marketing is more concerned about
building customer relationships in order to achieve long-term mutual benefits for all parties
involved in the exchanges. Relationship marketing essentially means developing customers as
partners, where a approach is different from traditional transaction (Bowen and
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Shoemaker,2003). Table 2.1 as below shows the differences between relationship marketing
and
traditional marketing.
Table 2.1 Relationship marketing compared with traditional marketing
Source: Bowen and Shoemaker, 2003
Since the final purpose of relationship marketing is to gain the maximal value of a customer,
customer loyalty should be emphasized to achieve this goal. The benefits of relationship
marketing derive from the continuing patronage of loyal customers who as a partnership are
not sensitive to price cut over time (Bowen and Shoemaker, 2003). Interdependence, mutual
cooperation and commitment between supplier and customer tend to be essential in
relationship marketing, as such whole relationship is viewed as the key to competitive
advantage (Hougaard and Bjerre, 2002).
Relationship marketing compared with traditional marketing
Relationship Marketing Traditional marketingOrientation to customer retention Orientation to single sales
Continual customer contact episodic customer contactFocus on customer value Focus on product features
Long-term horizon Short-term horizonHigh customer-service emphasis little emphasis on customer serviceHigh commitment to meeting Limited commitment to meeting
Customer expectations customer expectationsQuality concerns all staff members Quality concerns only production staff
*Traditional marketing can also be considered transactional marketing, inwhich each sale is considered to be a discrete event. This table is based on an
idea from: F. Robert Dwyer, Paul Schurr, and Sejo Oh, “ DevelopingBuyer-seller Relationships.” Journal of Marketing, Vol. 51, April 1987, pp.
11-27.
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2.2 Relationship Marketing Tactics
There have been various ways for marketers to implement relationship marketing tactics,
which are expected to have impact on customer retention and loyalty. Bansal, Taylor and
James (2005) suggested that relationship marketing tactics can be executed through service
quality, price perception, value offered, alternative attractiveness, and so on. Tseng (2007)
discussed that tactics as direct mail, tangible rewards, interpersonal communication,
preferential treatment and membership could enhance long-term relationship and increase
relationship satisfaction, trust and commitment. Peng and Wang (2006) also examed the
application of relationship tactics in service quality, reputation (brand), price perception,
value offers. Based on the early theories, certain relationship marketing tactics which are
considered of importance in service industry, such as service quality, price perception, value
offers and brand image, will be focused in the following parts.
2.2.1 Service Quality
Service is different from physical products. Compared with physical products, Service is
thought to be intangible, heterogeneous, produced and consumed simultaneously, unable to be
kept in stock, etc. A widely accepted definition of service is proposed by Grönroos in 1990 as:
“A service is a process consisting of a series of more or less intangible activities that
normally, but not necessarily always, take place in interactions between the customer and
service employees and/or physical resources or goods and/or systems of the service provider,
which are provided as solutions to customer problems” (see Grönroos, 2000, p.46). This
definition implied that service is a process where interactions between customer and service
provider most often exist. Hence, in a service context, there are almost a relationship between
customer and service provider, such relationship can be used as a basis for marketing
(Grönroos, 2000).
In order to retain loyal customer who will bring long-term profit to the firm, the key issue for
service provider is to make use of this relationship in the way it manages customers by
offering what the customers needs and wants.
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The quality of a service is subjectively perceived by customers during the interactions with a
firm (Grönroos, 2000). Parasuraman et al. (1988) defined service quality as the consumers’
judgment about a firm’s overall excellence or superiority. What happens and perceived by
customers in the interaction process will obviously have critical impacts on customers’
evaluation of service quality (Grönroos, 2000).
Due to the peculiar attributes of service, the evaluation of service quality is more complex
than evaluation of product quality. There have been various ways for measurements of service
quality proposed by previous researches and literatures. The famous measurement model of
service quality is SERVQUAL developed by Parasuraman et al.(1988), who measured the
differences between customer expectations and perceptions cross five determinants as
follows:
Tangibles: Appearance of physical facilities, equipment, employees and communication
materials from a service company.
Reliability: A service company’s ability to perform the promised service dependably and
accurately.
Assurance: employees’ knowledge and behavior about courtesy and ability to convey trust
and confidence.
Responsiveness: A service company is willing to help customers and provide punctual
services.
Empathy: A service company provides care and individualized attention to its customers, as
well as having convenient operating hours.
Later, based on integrating previous studies and conceptual works, Grönroos (2000)
summarized seven criteria of good perceived service quality as: (1) professionalism and
skills;(2) employees’ attitudes and behavior; (3) accessibility and flexibility; (4) reliability and
trustworthiness; (5) service recovery; (6) serviscape; and (7) reputation and credibility. The
first criteria is outcome-related and thus a technical quality dimension; the last one is image-
related and fulfils a filtering function; and the rest five ones are process-related and present
the functional quality dimensions (Ibid).
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High service quality is regarded as a key to succeed in competitive service markets. Many
researches have showed that service quality perceived by customers are will directly influence
customers’ satisfaction, as well as their trust in the service firm (Parasuraman et al., 1988;
Aydin and Özer, 2005; Ismail et al., 2006; etc.). Customers might be satisfied when a firm
provide better services than their pre-purchase expectations. Customer trusts also emerge
when customers perceive positive service quality from a firm, and believe the service firm
would bring preferable outcomes for them. In mobile telecommunication industry which
belongs to service industry, service quality is an important indicator to assess a service
provider’s performance. Offering a high quality service is considered to be a visible way to
create customers trust and satisfaction, as well as obtaining competitive advantages and
building a long-term relationship with customers. Therefore, the following hypotheses are
proposed based on the above discussion:
H1: High service quality perceived by customers is positively related to customer
loyalty.
2.2.2 Price Perception
Price is the monetary cost for a customer to buy products or services. It is the critical
determinant that influences customer buying decision. Customers usually select their service
providers strongly relying on perceived price. How much consumers are willing to pay differs
due to their different needs and wants. Thus, the price perceptions to the same service
products may differ among individuals. Higher pricing perceived by consumers might
negatively influence their purchase probabilities (Peng and Wang, 2006). Price perception is
also thought to be related to price searching (Lichtenstein et al., 1993). Consumers are likely
to be attracted by perceived high-quality services at perceived competitive prices during the
searching process.
Oliver (1997) suggested that consumers often judge price relating to service quality, and
accordingly generate satisfaction or dissatisfaction, depending on the equity principle. If a
consumer perceives price as fairness, he or she is willing to conduct this transaction with the
service provider. Based on previous studies, Cheng et al. (2008) proposed that price
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perception can be measured by two dimensions: one is reasonableness of prices, which
reflects the way that price is perceived by customers comparing to that of competitors.
Another is value for money, which implies the relative status of the service provider in terms
of price. In general, high-quality services are considered to cost more than low-quality
equivalents (Chitty et al., 2007)
Many researchers have pointed out that price perception influences customer satisfaction and
trust (Oliver, 1997; Peng and Wang, 2006; Cheng et al., 2008; Kim et al., 2008). Customer
often switch mainly due to some pricing issues, e.g. high price perceived, unfair or deceptive
pricing practices (Peng and Wang, 2006). Therefore, in order to increase customer
satisfaction, it is essential for service firms to actively manage their customers’ price
perceptions, e.g. carrying out attractive pricing, offering reasonable prices mix, lower prices
without decreasing quality, etc.
Based on above discussion, the following hypothesis is proposed:
H2: Fair price perceived by customers is positively related to customer loyalty.
2.2.3 Brand Image
Brand concept has been frequently discussed in marketing literatures. Brand building is not
only an important driving force for marketing physical products, it is also a vital issue for
service firms. Brand image was defined by Keller (1993, p3) as the “perceptions about a
brand as reflected by the brand associations held in consumers’ memory.” It is thought as the
perception or mental picture of a brand formed and held in customers’ mind, through
customers’ response, whether rational or emotional (Dobni and Zinkhan, 1990). According to
Grönroos (2000, p.287), “A brand is not first built and then perceived by the
customers.Instead, every step in the branding process, every brand massages, is separately
perceived by customers and together add up to a brand image, which is formed in customers’
minds”. Therefore, brand image is consequence of how a customer perceives the relationship
with a brand over time (Ibid).
The concept of relationship marketing within services displays the importance of one-to-one
relationships between businesses and customers as well as relationships between consumers
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and the brands (O’Loughlin, Szmigin, and Turnbull, 2004). The development of a brand
relationship with customers is based on a series of brand contacts experienced by
customers(Grönroos, 2000). What customer perceives the brand image during such
experience is critical issue for a service firm to realize. Furthermore, customers is likely to
form brand image in mind from inexperience ways, such as word of mouth from other
consumers, a company’s reputation in public, marketing communication, and so on. A
positive brand image make it easier for a firm to convey its brand value to consumers, also
generates favorable word of mouth among people; contrarily, a negative image affect people
in opposite direction; a neutral or unfamiliar image may not cause any damage, but it does not
increase the effectiveness of communication and word of mouth either (Ibid). The more
customers consider a brand valuable, the more sales can be expected to be achieved (Ibid).
Therefore, a positive brand image is supposed to meet customer’s expectation and offer more
benefits to customer, which may lead to customer satisfaction and trust. Hypotheses are thus
proposed as follows:
H3: Positive brand image perceived by customers is positively related to customer
loyalty
2.3 Relationship Quality
Relationship Quality (RQ) emerged from the field of Relationship Marketing (RM). Due to
the importance of relationship marketing in today’s businesses, relationship quality is
essential for assessment of relationship strength and the satisfied degree of customer needs