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The effectiveness of customer loyalty programs: A Study Case

of Telekom Malaysia (TM) Kota Bharu, Kelantan



CHAPTER 1
INTRODUCTION

1.0 INTRODUCTION

The research topic that will be conducted by the researcher is The
Effectiveness Of Customer Loyalty Programs: A Study Case Of
Telekom Malaysia Kota Bharu. For the introduction it will discuss
the background of study that planned by researcher. It is including
statement of the problem, objectives of study, research questions,
research hypotheses, the theoretical framework, and also scope of
the study. The contents of this proposal consist of the introduction
part, the literature review and research methodology. Each of
these chapters is explained in detail with the sub topics that
discuss the essential procedures and steps in completing this
study. This chapter also explains on why the researchers chose to
carry out this research.


1.1 BACKGROUND OF THE STUDY

In an increasingly complex and competitive marketplace, many
firms have implemented loyalty programs as a means of forging
stronger relationships and insulating their customer base from
competitors. Alternately referred to as frequency programs
(Kivetz, 2002), loyalty programs seek to bond customers to the
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

firms by offering incentives that reward them for their continued
support.

Through enrollment, customers receive benets such as frequent
yer miles, customer loyalty bonuses, free gifts, and personalized
coupons (Peterson, 1995). A recent census of the US loyalty
program industry found individual program memberships now top
1.3 billion, an increase of over 35 percent from 2000 (Ferguson,
2007). The widespread appeal of the programs spans a broad
array of service industries and rms, including credit card issuers
(e.g., American Express), restaurants (e.g., Subway), hotels (e.g.,
Holiday Inn), rental car companies (e.g., Hertz), and entertainment
rms (e.g., Walt Disney).

In the race to expand program membership numbers, however, it
would seem many rms have lost sight of the aim of building long-
term, mutually beneficial relationships. Shugan (2005) proposes
many programs are no more than price promotions in sheeps
clothing when service failures represent a threat for rms, creating
both customer dissatisfaction and incentives to switch service
providers (Dube & Maute, 1996) (Fornell & Wernerfelt, Defensive
marketing strategy by consumer complaint management: a
theoretical analysis, 1987) (Hirschman, 1970) (Keaveney, 1995).

Basically, this study is to find out whether the loyalty programs
created by Telekom Malaysia will affect customer satisfaction who
became the loyal customer of Telekom Malaysia, Kota Bharu. The
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

service quality provided by Telekom Malaysia, Kota Bharu includes
tangible, reliability, responsiveness, assurance and empathy.


1.1.1 BACKGROUND OF THE ORGANIZATION

Telekom Malaysia Berhad (TM) is the largest integrated
communications solutions provider in Malaysia, and one of Asias
leading communications companies, with market capitalization of
RM11 billion and an employee force of 24,744 (Telekom
Malaysia (TM) Annual Report, 2009).

TM was established as the telecommunications Department of
Malaya in 1946; it was privatized in 1987, and listed on bursa
Securities in 1990. Since then, its growth has been phenomenal. In
2007, it was decided that a demerger of the mobile and fixed
services would be strategic. This exercise was completed in April
2008, allowing TM to focus more intently on its core business of
providing communication services and solutions in Internet and
multimedia, data and the fixed line.

TM has always been a partner in nation-building, enabling
Malaysias development with the latest technologies. As it
transformed its network infrastructure from analog to digital
and, now, to an IP base, the nation has benefitted from new
communication possibilities as well as better and faster
connectivity. TM was one of the pioneering companies in
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

facilitating Malaysias entry into the Internet age with Streamyx, its
broadband service introduced in 2001. Serving 1.43 million
Malaysian customers as at end of 2009, TM today is Malaysias
leading broadband service provider.

TMs latest nation-building endeavor involves rolling out the most
exciting telecommunications service to date, the High Speed
Broadband (HSBB). In September 2008, it signed a Public-Private
Partnership with many parties to develop an HSBB network and
services that will deliver speeds of 10Mbps (Megabits per second)
and beyond via fiber optic infrastructure, to high economic impact
areas (Telekom Malaysia (TM) Annual Report, 2009). Under this
initiative, 1.3 million premises are to have high speed broadband
access by 2012. The infrastructure needed will be developed over
10 years, with the Government co-investing RM2.4 billion and TM,
RM8.9 billion.

HSBB is an end-to-end project encompassing access, core and
international infrastructure network. The initial roll-out will be in
March 2010, in four exchange areas of Shah Alam, Subang Jaya,
Taman Tun Dr Ismail and Bangsar. HSBB will offer triple play
service of video, high speed Internet and voice. With HSBB as an
enabler, there are many, many potential high bandwidth next-
generation applications such as video-on-demand, online gaming,
interactive shopping and Internet Protocol Television (IPTV) that
can be made available which would make the overall experience
engaging for consumers. It heralds a digital revolution enabling
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

people to work together and collaborate more effectively than ever
before.

Committed to universal service excellence, TM has adopted a
business model that is tuned in to the marketplace. Operationally,
it is aligned to six principal customer segments: Consumer,
Small Medium Enterprise (SMEs), Enterprise, Government,
Wholesale and Global. Wholesale focuses on bandwidth and
other infrastructure to Telcos, ISPs, managed network service
providers, application service providers, global operators and
data centre providers; while Global provides satellite, terrestrial
and submarine fiber optic connectivity across Asia, Europe, the
Americas, Oceania, the Middle East and Africa.


1.1.2 Telekom Malaysia (TM) Vision statement

The vision statement for TM is "to be Malaysias leading new
generation communications provider, embracing customer needs
through innovation and execution excellence". It means that the
company will give new breath in communication provider and
improvise their products with the customer needs.





The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

1.1.3 Telekom Malaysia (TM) Mission statement

To achieve TM vision, TM is determined to do the following:
a) Strive towards customer service excellence and operational
efficiency.
b) Enrich consumer lifestyle and experience by providing
innovative new generation services.
c) Improve the performance of our business customers by
providing high value information and communications
solutions.
d) Deliver value for stakeholders by generating shareholder value
and supporting Malaysias growth and development.


1.1.4 TM Core Values

TM has inculcated the core value among their employees in
delivering the excellence service to the customers and nation. Our
main core values are:

a) Total commitment to our customer.
Means their commitment to total customer satisfaction is based on
the belief that if they take care of our customers, their customers
will of take care of the company.
b) Uncompromising integrity.
Means that Telekom Malaysia employees understand that their
business practices are held to the highest ethical standards. At
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

Telekom Malaysia Bhd they believe that sound corporate
governance maintained through a system of checks, balances
and personal accountability is absolutely vital in protecting their
reputation, assets, investor confidence and customer loyalty.
c) Utmost respect and care for others.
Means that Telekom Malaysia Bhd respect their employees and
customers and care for the society.


1.2 CUSTOMER LOYALTY PROGRAMS OF TELEKOM MALAYSIA
(TM), KOTA BHARU

Two aims of customer loyalty programs stand out. One is to
increase sales revenue by raising purchase/usage levels, and/or
increasing the range of products bought from suppliers. A second
aim is more defensive, by building a close bond between the brand
and current customers it is hoped to maintain the current customer
base. The popularity of these programs is based on the argument
that profits can be increased significantly by achieving either of
these aims.

To capture the consumer heart, TM has provided many programs
for their loyal customers. One of the examples is annual dinner
and gathering among the chosen customer of particular
geographic location. In that annual dinner, each customer will
receive certificate of appreciation, gifts, reward and many more.
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

TM also will send birthday card each years toward their loyal
customer, to show that they are always care for their customers.
Choosing loyal customers will be determined by TM who met their
criteria.

Loyal customers will be rated using customer loyalty system
(CLS). There are nine type of usage rate between R10 to R90.
R10 means customer usage rate is between RM10-50 per month
while R90 is between RM501 and above.

1.3 STATEMENT OF THE PROBLEM

Telekom Malaysia (TM) is the largest Telecommunication
Company in Malaysia. TM also faces problems to retrieve data
regarding customer satisfaction level after delivering their product
or services. Furthermore, TM has Consumer Loyalty System (CLS)
implemented, but TM only measured their customer satisfaction
traditionally and manually. Asking questionnaires through phones,
interview, customer opinion or informal discussion is current
approach to retrieve data. Some of the problem arises when
answering the questionnaires are as follow. First is to determine
whether the customer loyalty program created by TM is effective or
not. Second is to determine the most and least important factor in
influencing customer loyalty towards TM at Kota Bharu. Third is to
determine the most and least important factor in influencing
customer loyalty towards TM at Kota Bharu. Fourth is to determine
the relationship between each independent variable that effected
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

customer loyalty with the loyal customer of TM Kota Bharu. Finally
is to determine the characteristic of demographic profile of TM
Kota Bharu Customer.


1.4 RESEARCH OBJECTIVES

The purpose of this paper is to extend research on customer
loyalty status, external equity, and satisfaction with service
recovery. Most people accept that rms give special treatment to
their best customers; but after service failures, will they accept
rms offering better compensation to loyalty program members?

1.5 RESEARCH QUESTIONS
1.5.1 Is the customer loyalty programs created by TM are effective?
1.5.2 What are the most and least important factors in influencing
customers loyalty at TM Kota Bharu?
1.5.3 What is the relationship between each independent variable with
customers loyalty at TM Kota Bharu?
1.5.4 What are the characteristics of demographic profile TM Kota Bharu
customers?
1.5.5 What are the recommendations that can be given to improve
customers loyalty towards TM Kota Bharu services?


1.6 HYPOTHESES STATEMENTS
This study is to verify the entire hypothesis below:
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan


Hypothesis 1
Ha 1 : There is a significance relationship between customer
satisfaction and loyalty programs.
Ha 1 : There is no significance relationship between customer
satisfaction and loyalty programs.

Hypothesis 2
Ha 2 : There is significance relationship between loyalty
programs and customer retention.
Ha 2 : There is no significance relationship between loyalty
programs and customer retention.

Hypothesis 3
Ha 3 : There is significance relationship between loyalty
programs and organizational brand images.
Ha 3 : There is no significance relationship between loyalty
programs and organizational brand images.

Hypothesis 4
Ha 4 : There is significance relationship between loyalty
programs and trust.
Ha 4 : There is no significance relationship between loyalty
programs and trust.


The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

1.7 THE SCOPE OF STUDY

The study focuses on the customers of TM around Kota Bharu
area in Kelantan. Besides that, the study is focusing on analyzing
the effectiveness of customer loyalty program created by TM Kota
Bharu.


1.8 THE SIGNIFICANCE OF STUDY

The outcome of this study will add a new dimension to the body of
knowledge by introducing customer loyalty programs another
determinant of customer satisfaction and organizational
commitment. With the positive result, company should take into
account concerning training to date with customer satisfaction and
organization commitment, which is an important factor in achieving
organizations mission and vision.

This study will improve the understanding among customer service
representatives towards will help them to achieve job satisfaction
and organizational commitment if it is proven that effective loyalty
programs leads to customer satisfaction and organizational
commitment. With a better understanding towards loyalty
programs, employees will try to participate and concentrate in any
methods provided and try to make use of the new skill learned in
their day-to-day activities.

The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

The result of this study will also benefit the top management and
employees of telecommunication providers in providing adequate
resources and facilities which will helps to facilitate and implement
strategies in enhancing customer satisfaction and organizational
commitment. Both parties will be aware of what kind of loyalty
programs that will be suitable and appropriate to their organization
and customers. Ineffective loyalty programs will be waste less and
useless in term of time and money.


1.9 LIMITATIONS OF THE STUDY

The survey was confined only to the loyal customer of TM products
in area of Kota Bharu. Thus, the sample did not represent the
whole population in the area. The responses were subject to
customer loyalty programs, customer satisfaction, brand images
and trust.

Since the survey is more on academic research and does not
affect their interest, respondent might not take it seriously in
responding to the question. Thus, this would generate inaccurate
information.


The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

CHAPTER 2
LITERATURE REVIEW

2.1 INTRODUCTION

This literature reviews for this research have several main areas. It
includes the definition of customer loyalty programs, customer
satisfaction, customer retention, brand images, and trust. This
chapter will explain and support the factors that contribute towards
customer loyalty and it relationships with customer satisfactions.
There are some articles from different authors that can be useful in
literature review.

2.2 CUSTOMER LOYALTY PROGRAMS

Dimitriades (2006) define a loyal customer as one who holds a
favorable attitude toward the service provider, recommends the
service provider to other consumers and exhibits repurchase
behavior. Customer loyalty is important primarily because of its
positive impact on sales, share of wallet, and customer retention
(Oderkerken-Schroder, De Wulf, & Schumach, 2003; Reynolds &
Beatty, 1999). The other research that supports the link between
satisfaction, trust and commitment, and customer loyalty (Wang,
Liang, & Wu, 2006; Rauruen, Miller, & K.E, 2007).

Oliver & R.L, (1997) also define customer loyalty a deeply held
commitment to rebuy or repatrionize a preferred product/service
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

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.

As illustrated in the definition above, loyalty has both an attitudinal
and behavioral dimension (Dick, A.S., Basu, & K., 1994). It is
assumed that customers who are behaviorally loyal to a firm
display more favorable attitudes towards the rms, in comparison
to competitors. However, in some cases behavioral loyalty does
not necessarily reflect attitudinal loyalty, since there might exist
other factors that prevent customers from defecting (Aldlaigan,
Buttle, & F., 2005; Liljander & Roos, 2002; Reinartz & Kumar,
2000).

Customer satisfaction and loyalty are highly correlated
(Athanassopoulos, Gounaris, & Strathakopoulos, 2001); (Hallowell,
1996); (Silvestro & Cross, 2000), but form two distinct constructs
(Bennett & Rundle-Thiele, 2004); (Oliver R. , Whence consumer
loyalty, 1999). Customer satisfaction with a bank relationship is a
good basis for loyalty (Bloemer, De Ruyter, & Peeters, 1998);
(Pont & McQuilken, 2005), although it does not guarantee it,
because even satisfied customers switch banks (Nordman, 2004).
One important reason for switching is pricing (Colgate & Hedge,
2001); (Ennew & Binks, 1996). Hence, banks have launched
customer loyalty programs that provide economic incentives.
Although the effectiveness of loyalty programs has been
questioned (Dowling & Uncles, 1997); (Sharp & Sharp, 1997);
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

(Stauss, Schmidt, & Schoeler, 2005) research has shown that they
have a significant, positive impact on customer retention, service
usage, and/or share of customer purchases (Bolton, Kannan, &
Bramlett, 2000); (Verhoef, 2003).

The literature also provides evidence that loyalty and experience
gained over the relationship are positively related (Wang, Liang, &
Wu, 2006). Liang & Wang, (2007), for example, suggest that
satisfied longer-term customers are more likely to buy additional
services and spread favorable word-of-mouth communication than
shorter-term customers. Similarly, Bitner, (1995) alludes to the
differential effect of experience on customer loyalty, suggesting
that events occurring early in a service experience contribute more
to building customer loyalty than those occurring later in the
relationship. While the literature suggests that loyalty may be
differentially impacted by relationship perceptions across the
duration of the relationship, prior research has not examined this
effect explicitly.


2.3 CUSTOMER SATISFACTION

Satisfaction is often used as a predictor of future consumer
purchases (Newman & Werbel, 1973; Kasper, 1988). Satisfied
customers have a higher likelihood of repeating purchases in time
(Zeithaml, Berry, & Parasuraman, 1996) of recommending that
others try the source of satisfaction (Reynolds & Arnold, 2000;
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

Reynolds & Beatty, 1999) and of becoming less receptive to the
competitors offerings (Fitzell, 1998).

More specifically, satisfaction is found to be a necessary precursor
of customer loyalty (Fitzell, 1998); (Fornell, 1992; Reynolds &
Arnold, 2000; Sivadas & Baker-Prewitt, 2000; Zeithaml, Berry, &
Parasuraman, 1996). Whereas satisfaction and loyalty are
recognized as strongly related by most studies (Anderson &
Sullivan, 1993; Fornell, 1992; Rust, Zahorik, & Keiningham, 1995;
Taylor & Baker, 1994), some consider the relationship to be
interchangeable (Hallowell, 1996; Oliver R. , 1999), and some to
be unidirectional, that is, progressing from satisfaction to loyalty
only (Strauss & Neuhaus, 1997). Satisfied customers tend to be
loyal customers with (Rowley, 2005) or without the mediation of
other variables (Coyne, 1989; Fornell, 1992; Oliva, Oliver, &
McMillan, 1992).


2.4 CUSTOMER RETENTION

Customer retention has been shown to be a primary goal in rms
that practice relationship marketing (Gro nroos, 1991; Coviello et
al., 2002). While the precise meaning and measurement of
customer retention can vary between industries and rms (Aspinall
et al., 2001), there appears to be a general consensus that
focusing on customer retention can yield several economic
benets (Dawkins & Reichheld, 1990; Reichheld, 1996; Buttle,
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

2004). As customer tenure lengthens, the volumes purchased
grow and customer referrals increase. Simultaneously, relationship
maintenance costs fall as both customer and supplier learn more
about each other. Because fewer customers churn, customer
replacement costs fall. Finally, retained customers may pay higher
prices than newly acquired customers, and are less likely to
receive discounted offers that are often made to acquire new
customers. All of these conditions combine to increase the net
present value of retained customers. Lindgreen et al. (2000, p.
295), for example, compute that it can be [up to] ten times more
expensive to win a customer than to retain a customer and the
cost of bringing a new customer to the same level of profitability as
the lost one is up to 16 times more..

A number of organizational processes can be associated with
customer retention, including the following: customer satisfaction
measurement process, customer retention planning process,
quality assurance process, win-back processes and the
complaints-handling process. Lawrence & Francis, (2005),
however, focuses on two of these processes: the customer
retention planning process and the complaints-handling process,
for reasons explained below. They investigate which of these two
processes is more strongly associated with excellent customer
retention outcomes (Lawrence & Francis, 2005).



The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

2.4.1 Customer-Retention Planning Process

The notion that companies should engage in planning if they want
to achieve desired business outcomes is deeply embedded in
modernist management literature. Kotler (2003), for example,
writes that successful companies... practice the art of market-
oriented strategic planning, with the clear implication that failure
can be traced to artlessness in planning disciplines. Most
marketing management texts contain material on the development
and implementation of marketing plans. Although critics of the
strategic planning school such as Mintzberg (2000) promote a
more uid and emergent approach to strategy, Miller and
Cardinals (1994) review of management research nds that formal
planning processes involving executive responsibility and
budgeting are generally associated with better business
performance.

There has been very little specic research into the development
and content of customer retention plans (DeSouza, 1992).
However, there have been some reports indicative of the relative
weight attached to customer retention budgets. According to
Weinstein (2002, p. 259) most companies spend a majority of
their time, energy and resources chasing new business. He
suggests that 80% or more of marketing budgets are often
earmarked for getting new business (Weinstein, 2002, p. 260).
This is in line with Payne and Frows (1999) nding that only 23
per cent of marketing budgets in UK organizations is spent on
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

customer retention. Aspinall et al. (2001), in contrast, found that 54
per cent of companies reported that customer retention was more
important than customer acquisition.


2.5 BRAND IMAGES

Brand image is defined as a set of perceptions about a brand as
reflected by the brand associations held in consumers memory
(Hsieh & Lindridge, 2005). Country image is the overall
perception consumers form of products from a particular country,
based on their prior perceptions of the countrys production and
marketing strengths and weaknesses (Roth & Romeo, 1992).
Brands as well as countries have different images. With the
accelerated movement of globalization (e.g. Levitt, 1983), the
emergence of brands across nations revitalizes the age-old issue
of which brand strategies, standardization vs. customization,
should be used in which market. The emergence of global brands
gives rise to the issue of whether brand-image appeals affect
consumer responses differently in different countries (Hsieh et al.,
2004). A firm involved in multiple markets should identify the
national characteristics that could affect the success of its brand-
image strategies. As one brand may be produced in different
countries earning different characteristics, brand images held in
consumer mind are likely to be affected differently across countries
of production. Ultimately, the power of a brand lies in the minds of
consumers or customers (Keller, 2000) and that the meaning that
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

customers attached to a brand may be different from that which
the firm intends.


2.6 TRUST

In this study, trust is defined as the willingness of one party to be
vulnerable to the actions of another party based on the assumption
that the other will perform a particular action to the trustor (Mayer
et al., 1995). Trust defined this way involves uncertainty, and
require confidence in the party's ability and faith in the other party's
benign intention (Huff & Kelly, 2003). At the individual level,
Deutsch (1960) saw trust as an individual's confidence in the
intentions and capabilities of a relationship partner and the belief
that a relationship partner would behave as one hoped. As
members of a society, individuals' trust for other individuals will be
influenced by both their specific evaluation of the other's
trustworthiness and their own general propensity to trust (Mayer et
al., 1995). People's general propensity to trust others can be
termed societal trust, which describes the extent to which
organizational members have a collectively-held trust orientation
toward the others in the same society. Fukuyama (1995) argues
that the trust inherent in a society is shaped by a society's culture.
Thus, individuals' propensity to trust (or social trust) could be a
function of both personality and culture. The level of trust towards
others has been shown to enhance firm performance, such as
marketing channels (Andaleeb, 1996), market research and
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

firm/client relationships (Moorman et al., 1992; Moorman et al.,
1993), and manufacturer-retailer relationships (Kumar, 1996).
Employees with higher societal trust will tend to have higher level
of customer orientation.

The overall relationship a customer has with a company usually
incorporates a set of different but strictly interconnected
relationships, which can all contribute to build and reinforce (or
deteriorate) customer loyalty. In all these relationships, trust plays
a fundamental role (Claycomb & Martin, 2002). In consumer
services markets, a distinction can be made between individual-to-
individual and individual-to-firm relationships (Iacobucci & Ostrom,
1996). The first type is particularly relevant in service environments
(e.g. in retailing), where interpersonal interactions take place
between customers and other individuals (e.g. salespeople and
front line employees). The second type is characterized by
customers' familiarity with the selling organization in general, with
its brand(s) and products or services. If a consumer-centric
perspective is adopted (Bendapudi & Berry, 1997); Gwinner et al.,
1998), customer-to-firm, customer-to-brand, customer-to-
product/service, and customer-to-employee relationships can be
identified.

Generally speaking, customer trust in the salesperson is positively
associated to customer trust in the selling firm (e.g. Doney and
Cannon, 1997). In the specific context of retailing, it has been
demonstrated that interpersonal relationships positively affect
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

overall customer trust in the store (Wong & Sohal, Service quality
and customer loyalty perspectives on two levels of retail
relationships,, 2003). Wong and Sohal (2002) and Sirdeshmukh et
al. (2002) found that customer trust in the salesperson increases
customer trust in the store. It is important to underline that
interpersonal trust may not always be important in retailing.


2.6.1 Trust as a driver of customer retention

With conceptualise trust based on Morgan and Hunt's (1994)
interpretation of the construct in their seminal study of the
commitment-trust theory of relationship marketing. Morgan and
Hunt conceptualised trust as existing when one party has
confidence in a partner's reliability and integrity. Indeed, trust could
exist at the individual level (see Rotter, 1967) or at the firm level
(Moorman et al., 1993). Furthermore, trust, when conceptualised
as a dimension of service quality, could also be thought of as trust
in the service itself (see Parasuraman et al., 1985, 1988). In the
current study, I look at a customer's trust in his/her service
provider, and thus, in the firm.

Recent research suggests that, in some cases, service providers
may be unable to retain even those customers who are satisfied
(e.g. Heskett et al., 1994; Schneider and Bowen, 1999). Thus,
satisfaction alone may not be adequate to ensure long-term
customer commitment to a single provider. Instead, it may be
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

necessary to look beyond satisfaction to other variables that
strengthen retention such as trust (Hart & Johnson, 1999). This
view is consistent with research on marketing channels (e.g.
Morgan and Hunt, 1994), which shows that firms often look beyond
satisfaction to developing trust in order to ensure economically
viable, long-term relationships. Further, this recommendation is
based on the premise that once trust is built into a relationship, the
likelihood of either party ending the relationship decreases due to
high termination costs.

Although the consequences of trust in business-to-business
relationships have been firmly established, the same cannot be
said about trust in business-to-customer relationships. Indeed, in
the latter context, the trust construct has been used in a somewhat
ambivalent manner. Following the lead of Parasuraman et al.
(1985, 1988), many have used trust (together with assurance) as a
dimension of the service quality construct. Gremler and Brown
(1996) proposed trust as a conceptual antecedent of customer
loyalty. Hart and Johnson (1999) offered anecdotal evidence in
support of a similar argument. Gwinner et al. (1998) suggested
trust as a relational benefit. More specifically, they proposed trust
as a confidence benefit rated highly by customers in long-term
relational exchanges with service firms. Tax et al. (1998), in their
seminal paper on service recovery, studied trust in the context of
consumer complaint management. Based on an analysis of both
qualitative and quantitative data, they found trust, together with
commitment (an indicator of future customer behavioural
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

intentions) to be a consequence of satisfaction with complaint
handling. Levesque and McDougall's (2000) recent findings,
however, indicate that service recovery (similar to complaint
handling in Tax et al., 1998) could have a qualitatively different
impact on trust from that on satisfaction. These numerous uses of
the trust construct in business to customer relationships are likely
to have at least partly contributed to the lack of an extensive body
of literature on trust as a mediating construct in models of
customer retention. However, Garbarino and Johnson (1999) did
look at trust as a driver of customer behavioural intentions. In a
study of theatre customers, they segmented consumers based on
their relational (purchased season tickets covering a longer period
of time) and transactional orientation. They found that for relational
customers, trust, as opposed to satisfaction, mediates the
relationship between component attitudes and future intentions.
These findings suggest that where customers maintain long-term
contractual relationships (similar to the context of the current
study) with their telecommunications service provider, trust is likely
to be a strong driver of customer retention.


2.7 THEORETICAL FRAMEWORK

Theoretical framework is considered as an information provider on
how the variables should be operationalised and measured, as
well as how the researchers design and sample should be
selected (Malhotra, 2000). The theoretical framework used in this
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

study is the major possible factors that contribute to the customers
loyalty.

Figure 1.1: Theoretical Framework






Independent Variables

CUSTOMERS
SATISFACTION

Dependent Variable

TRUST
BRAND IMAGE
CUSTOMER
RETENTION
The effectiveness
Of customers
loyalty programs
at Telekom
Malaysia

The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

Figure 1.1 shows the research theoretical framework where there
are four independent variables which are customer satisfaction,
customer retention, brand image and trust that play a crucial role in
determining customers loyalty to Telekom Malaysia.

Satisfaction acts as an item that will enhance more customers
behavior to be loyal customers towards the service provided.
Satisfaction does play a big role in determining customers loyalty
and based on other independent variables, customers who are
satisfied with them will be loyal to Telekom Malaysia.

The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan


CHAPTER 3
METHODOLOGY

3.0 INTRODUCTION

This chapter presents the population, samples, research method and the
procedures that will be employed in conducting the study and summary of
hypothesis method. The purpose of the study is descriptive research
whereby the researcher will describe clearly the meaning of each
variables of the study. Correlation is use as type of investigation because
to study about the relationship among variables and the research design
is survey. A survey method is the most common of generating primary
data and the survey instrument is questionnaires.

As sampling design, the researcher use non-probability sampling as a
sampling technique. The target population for this study is the
customers of Telekom Malaysia Bhd.


3.1 Populations and Sampling

The population for this research comprised of Telekom Malaysia
customers in Kota Bharu Kelantan. The population of this study was large
because there are many Telekom Malaysia users in that particular area.
The selection of sample for the study was drawn largely from in crowded
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

places and certain organization that have been selected. This is due to
the nature of work of the sample.

A sample is a subgroup of the population selected for participation in the
study (Malhotra, 2003). The sample will represent the whole population
stated. For this study, a minimum number of respondents being used are
200 respondents. This selected sample should be enough in solving the
research questions in the questionnaires.

3.1.2 Data Collection Method
For the purpose of this research, the researcher uses both primary
and secondary sources to gather data for the study.

3.1.2.1 Primary Data
Primary data is defined as the data originated by
the researcher from specific purpose of addressing
the research problem (Malhotra, 1999). Primary
data is the final stage of the collection process. The
primary data is gathered from questionnaires that
are to be answered by respondents.

3.1.2.2 Secondary Data
Secondary data is defined as the data collected for
some purposes other than the problem in hand
(Malhotra, 1999). In this research, the researchers
have used both internal and external secondary
data searching methods in obtaining the
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

information. Some of the sources are gathered from
Telekom Malaysia company profile and company
data.

a) Internal sources
The internal secondary data that the
researchers have used is from Telekom
Malaysia company profile and data.

b) External sources
The external secondary data are from
journals, report and via the internet.

Journals/Articles/Reports- The researcher
has used and referred to journals, articles
and reports to complete the literature
review. The information gathered helped
the researchers to find out the determinants
that might contribute to this study and help
to develop the blueprint of this study as well
as to complete this research.

Internet- The researcher has surfed the
internet and website in order to find more
information and to gather the electronics
journals or articles that can help the
researcher to do the research well. The
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

researcher surf the net of Yahoo, Emerald
insight and Google to find the information
required.

3.1.3 Sampling Technique
The researchers use probability sampling and choose simple
random sampling technique in conducting this research because it
allows the researchers to gain data from the regular customers of
Telekom Malaysia based on the companys record.

3.1.3.1 Sample Population
The population for this research is the customers who
become customers of Telekom Malaysia services, a
telecommunication network service provider for people in
Kota Bharu.

3.1.3.2 Respondents
The respondents for this study were taken from the regular
customers of Telekom Malaysia based on the record
provided by Telekom Malaysia.

3.1.3.3 Sampling Size
200 respondents are selected to be the sample for this
research. The rationale for choosing 200 samples because
according to Sekaran (1975) the following rules of thumb
for determining sample size where sample size larger than
30 and less than 500 are appropriate for most research.
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

3.1.4 Questionnaires
Questionnaire is a formalized set of questions for obtaining
information from respondents. It is the only element of a data-
collection package. Questionnaires are designed to help the
researchers to achieve the objectives of the research and
answering all the research questions. The researchers have used
four types of questions which are:

3.1.4.1 Multiple-choice questions
In multiple-choice questions, the researcher provides a
choice of answers and the respondents are asked to select
one of the alternatives given.

For example:
Educational background
SPM and below
Diploma
Degree
Master and above

3.1.4.2 Likert scale questions

The Likert scale questions use the rating scale that require
the respondents to indicate a degree of agreement or
disagreement which each of a series of statements about
the stimulus objects. Typically, each scale item has various
response categories, ranging from extremely disagree to




The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

extremely agree, but the researchers have used only ten
categories.
For example:
Strongly Strongly
Disagree / Agree /
Sangat Sangat
Tidak Setuju
Setuju

1


10



I am satisfied with the treatment given by Telekom Malaysia

For this study, the questionnaire is designed into several sections. There
are five sections, which consists of:

Section A
The questions on the demographic profile of the respondents.

Section B
The questions asked are related to the customers satisfaction with the
services provided by Telekom Malaysia.

Section C
The questions asked are related to the customer retention with the
products and services provided by Telekom Malaysia.


2 5 4 3 1 6 7 8 9 10
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

Section D
The questions asked are related to brand image of Telekom Malaysia.

Section E
The questions asked are about the customers trust made by Telekom
Malaysia.

Section F
The questions asked are related to the study which concern with the
customers loyalty towards the services provided by Telekom Malaysia.


3.2 PROCEDURES OF DATA ANALYSIS

Several procedures in analyzing the data have been taken by the
researchers. These procedures take place after the data collection
process. Then, the data is keyed in and analyzed using the
Statistical Package for Social Science (SPSS) Programs after
coding.

3.2.1 Reliability Analysis
Reliability is a measure of the internal consistency of a set
of scale items. It shows whether each scale is measuring a
single idea. The more reliable a set of scale items, the
more confident the scores obtained from the administration
of the scale that is being tested.

The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

3.2.2 Frequency Distribution Analysis
After the raw data is collected, the researchers use the
descriptive statistical tools from the SPSS program to
analyze the data. Tabulation data consists of simple
counting of cases that fall in various categories. From
tabulation of the data, the researchers aim to determine the
frequency distribution of the variables in the question and
also calculating the descriptive statistic.

Frequency distribution is a mathematical distribution where
the researchers try to obtain and count the number of
responses associated with different values of variables
which are then expressed in percentage form.

3.2.3 Mean Analysis
Mean analysis statistics computed include the means,
standard deviations, and rank orders of the study
populations response on the principal independence.
Descriptive analysis is used to measure how varied the
respondents are in answering each item in the
questionnaire.

3.2.4 Correlation
Correlation is the most convenient and understandable way
to look at the association between two metric variables.
When extended to multiple regressions, the relationship
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

between one variable and several others becomes more
understandable.

3.2.5 Hypotheses Testing
The hypotheses testing are used to determine the
relationship between independent variables with the
dependent variable in this study.

3.2.6 Test of Differences
This section is intended to provide the reader an
opportunity to become familiar with the characteristics of
the variables and demographic profiles.

a) Cross Tabulations
The cross tabulation is a statistical technique that
describes two or more variables simultaneously and
results in tables that reflect the joined distribution of
two or more variables that have a limited number of
categories or distinctive values.

The answer the research questions can be
determined by examining the cross-tabulations.
Whereas a frequency distribution describes one
variable at a time, a cross-tabulation describes two
or more variables simultaneously. A cross-
tabulation is the merging of the frequency
The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

distribution of two or more variables in a single
table.

3.3 Data Gathering Procedures

Prior to sampling and conducting the research, permission was
obtained from the management of the Telekom Malaysia Kota
Bharu. All the questionnaires were distributed among the
customers by the researcher, agent and staff of Telekom Malaysia.
This was due to the time constraint and in term of avoiding any
troubles.

In order to allay any fears and suspicious and hence reduce
respondent bias, the respondents were informed that the study
was an academic research project and not connected with certain
organizations. Therefore, the customers responses would be kept
completely confidential.









The effectiveness of customer loyalty programs: A Study Case
of Telekom Malaysia (TM) Kota Bharu, Kelantan

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