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