Three dimensional modelling of customer satisfaction, retention and loyalty for measuring quality of service

Acknowledgments and Comments Vahid Pezeshki Page 2 PhD Abstract The aim of this thesis is to propose a model that explains the relationship between customer satisfaction, retention and loyalty based on service quality attributes. The three elements of satisfaction, retention and loyalty towards products represent ongoing challenges for the corporate financial performance. Customer behaviour analysis (known as business intelligence or customer relationship management or customer experience management) has become a major factor in the corporate decision making and strategic planning processes. Prevailing logic dictates that by improving service attributes one should expect better customer satisfaction levels. Consequently, improved satisfaction levels should increase the probability of customer retention and degree of loyalty. Substantial research work has been dedicated to explain the importance of customer behaviour measurement for industry. However, there is little evidence that there has been an overall integrating empirical research that relates the three elements of satisfaction, retention and loyalty with respect to service quality attributes. Empirical data collected from the UK mobile telecommunication for this research shows that such an objective model that is capable of capturing this three dimensional relationship will contribute towards more robust decision making and better strategic planning. The proposed thesis extracts the data about key service attributes from a combination of literature review, surveys, and interviews from the UK mobile telecommunication industry. Responses were analysed using multiple regression, regression analysis with dummy variables, logistic regression, logistic regression with dummy variables and structural equation modelling (SEM) to test variables and their interrelationships. This study makes a step forward and contributes to the body of knowledge as it: (a) highlights the role of service attribute performance towards customer satisfaction, consequently identifies attributes that affect satisfaction and dissatisfaction of customers, (b) maps the relationship between attribute importance and attribute performance, (c) optimise resource allocation process using importance-performance analysis (IPA), (d) classifies customers with respect to the role and length of relationship they have with the Abstract, Acknowledgments and Comments Acknowledgments and Comments Vahid Pezeshki Page 3 company (switching probability), and (e) describes the interrelationship between customer satisfaction, retention and loyalty. The novelty of the research lies in: (a) establishment of a framework that links service attribute performance to customer satisfaction and then to customer future intentions (customer retention and customer loyalty), and (b) provision of a model that could assist key decision makers in prudent usage of resources for maximum profitability. This dissertation presents a novel approach methodology and modelling construct for customer behaviour analysis. For proof of concept it presents a case study in the mobile telecommunication industry. It is worth noting that in this research work Customer Retention is interpreted as probability of switching between service providers. Customer Loyalty is interpreted as referral (word-of-mouth) activity by existing customers. Abstract, Acknowledgments and Comments Acknowledgments and Comments Vahid Pezeshki Page 4 ACKNOWLEDGEMENTS In presenting this thesis I would like to acknowledge the assistance of several persons for their support and influence during my own journey through this process. Firstly, I would like to thank my supervisor Dr. Ali Mousavi for his enthusiastic support and advice, patience and constant energy for idea sharing throughout the research effort. His influence is inherited in both the theoretical and practical aspects of this work. In terms of exchange of ideas, support, criticisms and intellectual stimulation, thanks are offered to Prof Charles Dennis. Also, thanks to all my fellow PhD students and members of academic staff in the School of Engineering and Design, Business School of Brunel University: Ardalan Keyhan, Bander Al Sajjan, Vasiliki Mantzana, Mohammad Reza Herfatmanesh, and Alexander Komashie. I owe special thanks to my family because of their constant and invaluable support all along three years PhD carrier in the UK. I could not have done it without you all! Abstract, Acknowledgments and Comments Acknowledgments and Comments Vahid Pezeshki Page 5 Declaration This dissertation gives an account of the research undertaken by Vahid Pezeshki. Some of the material displayed herein has already been published or is under review in the form of the following publications: Journal Paper Published [1] Pezeshki, V. and Mousavi, A. and Grant, S. (2009), “Importance-performance of service attributes and its impact on decision making in the mobile telecommunication industry”, Journal of Measuring Business Excellence, Vol. 13, No. 1, pp. 82-92. [2] Pezeshki, V. and Mousavi, A. (2009), “Measuring the importance of product features and its implication in resource allocation”, International Journal of Advanced Manufacturing Technology (IJAMT), accepted. Conference Papers Published or Accepted for Publication [1] Pezeshki, V. , Mousavi, A. and Rakowski, R. (2005), “Profitability through Customer Relationship Marketing”, International Computer and Industrial Management (ICIM), Bangkok, Thailand. [2] Pezeshki, V. and Mousavi, A. (2006), “Exploring Sources of Profitability in Customer Relationship Management (service industry)”, 2 International Conference on Business Management and Economics, Cesme, Turkey. [3] Pezeshki, V. and Mousavi, A. (2008), “Service attribute importance and strategic planning: An empirical study”, 6 International Conference on Manufacturing Research (ICMR08), London, UK. Abstract, Acknowledgments and Comments Acknowledgments and Comments Vahid Pezeshki Page 6 Table of contents CHAPTER 1: INTRODUCTION. 13 1. Research Background. 13 2. The Research Problem. 15 3. The Context of Study. 15 4. Research Aim and Objectives. 16 4.1 Aim. 4.2 Objectives. 16 16 5. Research Methodology. 17 6. Thesis Outline. 17 7. Chapter Conclusions. 19 Chapter References. 20 CHAPTER 2: LITERATURE REVIEW. 22 1. The Evolution of Marketing. 22 2. The Measures Defining Customer Relationship. 27 2.1 The Customer Satisfaction-Retention-Loyalty Chain (SRLC). 27 2.1.1 The Behavioural and Financial Consequences of Service Quality . 28 2.1.2 Customer Satisfaction (CS) . 31 2.1.3 Customer Retention (CR). 32 2.1. 4 Customer Loyalty (CL). 34 3. Marketing or Business Intelligence. 36 4. The Link between CRM and Database Marketing . 37 5. Costumers as Decision Makers. 39 6. Customer Value. 40 7. Customer Segmentation. 41 8. Customer Activity Measurement. 44 9. Chapters‟ Conclusions. 45 Chapter References. 46 CHAPTER 3: FOUNDATION OF MODEL DEVELOPMENT. 50 1. Customer Relationship Management (CRM). 51 2. The Relationship between Service Quality Attributes and Customer Satisfaction. 52 3. The Relationship between Attribute Performance and Importance. 56 4. The Relationship Between Customer Satisfaction and Future Intention. 57 4.1 Switching Costs. 59 5. Length of Relationship. 62 6. Testing the Conceptual Model (Service Quality-Customer Behavior). 63 7. Chapter Conclusions. 66 Chapter References. 68 CHAPTER 4: RESEARCH METHOLODGY . 73 1. Methods for Measuring Customer Satisfaction Factors. 73 1.1 Analysis of Complaints and Compliments. 73 1.2 Critical Incident Technique (CIT). 74 1.3 Kano‟s Questionnaire.