Consumers use services everyday, these ranges from taking the train or opening a bank account to talking on a mobile phone. Businesses also rely on a wide range of services on a daily basis, but on a much larger scale compared to consumers. However, customers are not always satisfied with a particular service that they maybe using and often resort to switching their service provider in order to resolve the issue or pursue better value from a less expensive service.
The objective of this study is to investigate customer-switching behaviour in the mobile industry, why it takes place and what factors influence it. This topic area has been chosen, as customer switching and the mobile phone industry are contemporary and relevant to the present day and will continue to evolve overtime.
Research has been undertaken using secondary and primary data collection methods. Secondary data provided a background to the mobile phone industry and an overview of customer switching behaviour in services. Primary data consisted of self administered questionnaires to a convenient sample of university students, this enabled data to be collected which would provide an idea of mobile phone users’ contemplation of switching and their understanding of why they believe they would switch from one service to another.
Findings revealed that a majority of customer switching is due to high call and monthly charges and consumers trying to obtain more free minutes and texts. This contrasts with the literature and precious studies, which have found other reasons to cause customer switching, which illustrates how causes of switching differ in every industry according to the nature of the service.
CHAPTER 1: INTRODUCTION
1.1 Project Aims
The aim of this project is to determine the reasons as to why consumers switch from one mobile phone network to another?
The research objectives that arise from the aim will therefore be:
1 To evaluate whether competitor’s offerings are causing consumers to switch from one network to another
2 To evaluate whether retail offerings are causing consumers to switch to gain a better deal
3 What actions of the service firms or their employees cause customers to switch from one service provider to another
The research will be UK based geographically using a convenient sample of university students and will be done using both primary and secondary research methods. The research may help managers and researchers understand service switching from a customers perspective in the mobile phone industry and the switching drivers may provides answers as to what has influenced customer behaviour. The results of the research will be analysed to provide recommendations.
The reason for choosing this topic area is that there appears to be a lack of research on customer switching behaviour in the mobile phone industry. This study aims to explore this topic are further.
1.2 Background on Mobile Phones Service
Mobile phones service refers to a service whose customer base includes firms using mobile phones for business and customers using it for their personal use. Mobile phones have become substitutes for fixed telephone lines and have led to the decline in calls made from fixed telephone lines.
The take up rate of mobile phones is constantly increasing and over the years the growth in the use of mobile phones has been dramatic. According to EMC mobile user numbers reached the 1.5 billion mark in June 2004 and is set to reach 2 billion by July 2006 and 2.45 billion by the end of 2009. (http://www.cellular.co.za, 2005)
Mobile phones today are not solely used to make calls, additional value added services such as Short Messaging Service (SMS), Multimedia Messaging Service (MMS), radio, internet access and so on. This means that the benefits and use of mobile phones is also expanding, which is also contributing to industry growth. This has become a focus point for the various operators as intense competition has led to increasingly lower voice call prices. SMS was first used in 1992 and is currently the fastest growing communications technology in history. Worldwide, 135 billion text messages were sent person to person in the first quarter in 2004 (http://www.cellular.co.za, 2005). Retail revenues from voice and data services (including MMS, SMS) account for 79% of the total revenue of the four main UK mobile operators (Vodafone, O2, Orange and T-Mobile), which accounted for £13.6 billion in revenues in 2003, (see appendix 1).
CEPG Research Company conducted a study of the mobile telecommunications industry in 2002, in which findings showed that turnover had reached £32 billion a year, with the sector contribution to GDP being £19.4 billion (2.2%), (ofcom.org.uk/research/telecoms, 2005).
The demand for mobile phones has never been so great as it has become a must have for people of all ages; consumers are constantly exchanging their outdated phones for the latest colour handsets. The popularity of mobile phones is immense and it is perceived that this interest in mobile phones will continue to grow over the next decade or so, as demand increases and new models and technology is introduced to mobile phones.
1.3 Mobile Phone Service Industry
The mobile phone industry is one of the fastest growing sectors of the British economy, with the UK making up the second largest mobile market in Europe, with a share of 18% (Datamonitor, Nov 2004). This growth is due to factors such as changes in government policies towards communication (deregulation), economic growth and developments in information technology. The more recent growth has come from existing mobile phone users upgrading their handsets, which have led to mobile phone companies and network operators targeting first time buyers (Datamonitor, Nov 2004). Mobile phones are not only seen as a vital element for success in business but also as a much wanted item for social use. This is evident in the increasing number of individuals both young and old who now have at least one mobile phone.
As indicated by an Oftel report, in Britain over one million people own a mobile phone instead of a fixed telephone line. 2.3 million UK residents live without a fixed line telephone at home. The popularity of the fixed line phone drastically declined after the mass introduction of mobile phones to the UK. It is worth noting however, that fixed phone line companies have not taken this lightly and have retaliated by introducing mobile phones linked to fixed home lines and companies such as BT setting up their own mobile networks i.e. BT until recently owned O2 and also offering special discounted rates to encourage customers to use their fixed lines.
There are four main network providers in the UK; they are T-mobile, O2, Vodafone and Orange. In 2004 there were 342.43 million mobile subscribers, which is an increase of 8.54 percent from the previous year and a penetration rate of 87.63 percent. T-mobile UK accounted for 15.06 million subscribers, Orange UK had 13.75 million, O2 UK had 13.06 million and Vodafone UK had 12.98 million (mobile communications).
Recently there have been changes in terms of ownership of the major mobile phone networks. T-mobile is now one of the three strategic growth areas of Deutsche Telekom, a German network provider and O2 is now owned by Spanish firm Telefonica. Orange was sold to German mobile phone network Mannesman, which was then taken over by Vodafone, who sold Orange to France Telecom. Orange has a strong network in the UK and overseas but recent management decisions by France Telecom have reversed their user growth and subscriber numbers, which has been partly due to customers switching to other networks. Customers can become concerned that, if their chosen network provider is owned by a firm overseas, their needs will not be met as well as they could by a UK owned provider. Additionally events such as these can contribute to switching behaviour through customer confusion, as found by Oftel (2003), where many consumers switched due to confusion over re-branding of the network.
1.4 Customer Switching Behaviour in the Mobile Phone Industry
According to research by TNS Telecom Trak, consumers tend to use their handsets for about twenty months before upgrading to a new one. Telecommunications regulator OFTEL found that this is also the average amount of time that a majority of mobile phone users will stay with the same mobile provider for. Oftel’s research ascertained that 90% of consumers thought about changing their network when changing handsets.
Oftel published a report in April 2003, which provided an overview of the key findings of trends in consumer behaviour in the mobile market based on a residential consumer survey conducted in February 2003. Research was carried out by Recom (Research in Communications) amongst a representative sample of 2,289 UK adults, 75% of who claimed to have a mobile. Findings revealed that 26% of mobile customers have switched network/ supplier. There was a strong indication that the rise in switching in the last quarter was a reflection of confusion over re-branding and rise in mobile penetration. One in ten (9%) of mobile customers were found to have switched network at least twice since owning a mobile, including customers switching back to a previous operator.
Men (37%) and younger mobile users, 15-34 (38%) were found to be most likely to switch multiple times, which included returning to a previously used network. Although the switching differed according to type of package, 36% of contract customers had switched multiple times compared to those on prepay (33%).
24% of customers had switched once in the last 6 months, compared to three in ten (28%) of those that had switched twice and 43% that had switched more than 3 times.
The same survey also revealed that in November 2002, 34% of consumers stated that they had switched mobile network, which was believed to have a result of customer confusion caused by the re-branding of O2 (formally BTCellent) and T-mobile (One2One). Yet this rise was temporary and soon returned to the previous level of 27%.
In February 2003, 7% of T-mobile customers said that they had switched network having previously being with One2One, this was the same for O2 customers who had switched from BTCellnet. This accounted for 3% of all switchers who were confused by the re-branding during February. The current percentage of mobile consumers that have switched mobile network remains at 26%.
When looking at multiple switching, two in ten (18%) of mobile customers had changed their network once, and seven out of ten claimed to have never switched network.
CHAPTER 2: LITERATURE REVIEW
This chapter will review all existing literature related to the mobile phone industry with a focus on customer switching habits and their surrounding elements such as consumer lifestyles, services themselves, competitor offerings and loyalty to help understand the research problem.
This chapter will also review the contributions other researchers have made to the concepts of switching behaviour, yet it should be noted that literature on mobile phone choice is sparse and issues relating to why customers actually switch services remains unexplored in marketing literature which will be explored through this study.
2.1 Classification of Services
There is no one single definition of services that is universally accepted, although many authors have attempted to define it. Yet very few products are 100% service or 100% tangible, they usually consist of a combination of both.
Gronroos (1990) defines services as:
“A service is an activity or series of activities of more or less intangible nature that normally, but not necessarily, takes place in interactions between the customers and the service employee and/or physical resources or goods and/or systems of the service provider, which are provided as solutions to customer problems”.
This illustrates the fact that services can take place through physical form, for example this project is concerned with customers switching network provider service (which is intangible) but to have that service to begin with, customers need to purchase a mobile phone, which is a tangible product. Therefore switching behaviour in such a situation may differ from switching a service, which is not integrated with hardware; this may be due to the fact that when physical products are also involved, the costs and risk of switching is different to when there is just a service alone. Brassington (2003) acknowledged that most products tend to have a combination of both physical goods and service e.g. purchasing a gas appliance; this would require the professional fitting service as well as purchasing of the appliance itself.
Kotler (1997) also recognised that some services are a combination of both a service and a product and has incorporated this in his definition of services:
“Any act or performance that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product.”
This emphasises two key elements:
1. Intangibility – A Service cannot be experience before it is purchased,
2. Lack of ownership – there is no ownership in a pure service as there is no physical product involved.
This is further illustrated in the Figure 1 below which illustrates Kotler’s (1997) four categories of products, which are:
1. A pure service
2. A major service with accompanying minor goods/services
3. A tangible good with accompanying service
4. A pure tangible product
New services are being introduced on a daily basis to satisfy and meet all customer needs from individual consumers to business consumers. The service industry comprises the majority of today’s economy. In 2001, it represented 80 percent of the GDP of the USA (U.S Bureau of Economic Analysis).
Keiningham et al (2003) said “there is a growing recognition among managers of the importance of measuring the share of business a customer conducts with a particular service provider (share-of-wallet) as opposed to simply repurchasing a product or service at some point in the future or continuing to keep a business relationship with a service provider”. This indicates the importance of retaining and maintaining customers and the importance of the relationship with them.
Research carried out by Bitner (1990); Boulding at al, (1993) looked at service quality in service organisations, Crosby Evans and Cowles (1990); Crosby and Stephens (1987) researched relationship quality and Cronin and Taylor (1992) looked at overall satisfaction with regards to the issue of customer retention in service organisations. These researchers all agreed that service organisations could improve the likelihood of customers’ intention to remain with a particular service organisation, as it is these features that contribute to customer satisfaction and the growth of the organisation. The above studies all illustrated strategies relating to customer retention in services. Yet issues relating to why customers actually switch services remain unexplored in marketing literature.
2.2 Characteristics of Services
When describing the main characteristics of a service, it can be depicted as being intangible, as a service has no physical dimension but can take place through a tangible product as is the case with mobile phones and network providers, as discussed earlier. A service can also be described using a tangible noun as Shostack (1987) exemplified that an ‘airline’ means transportation and a ‘hotel’ means lodging rental. Berry (1980) described a good as ‘an object, a device, a thing’ in comparison to a service which is ‘a deed, a performance, an effort’. This further illustrates the fact that consumers cannot see, touch, hear, taste or smell a service; all they can do is experience the performance of the service as said by Carman and Uhl, (1973) and Sasser et. al, (1978) but, the experience may not be possible in all cases without some form of hardware in addition.
Because services are delivered by individuals, each service experience will differ from another; as a result each purchaser will receive a different service experience. Additionally, when a consumer purchases a good, they own it, yet with a service the consumer only has temporary access or use of it, as the service is not owned, only the benefit of it is. Wyckham et al (1975) and Kotler (1986) defined this concept as ownership.
2.3 The Services Marketing Mix
As previously discussed above, many features separate services from tangible products, yet the marketing principles remain the same for both. One particular difference is that there is close contact between individual employees from the supplier organisation and the customer themselves. Because of this, the traditional marketing mix needs to be re-evaluated in terms of the 7p’s.
Product: This refers to the features of the product or surrounding it, which in this case would be a good service or supplementary services surrounding it. These features should be benefits, which the customer would desire, and the surrounding features would be competing products performance. (Lovelock and Wirtz, 2004).
Place and Time: Delivering a service to customers involves place, time of delivery and distribution channels used. Delivery can be done both physically and through electronic distribution channels according to the nature of the service being provided. Services can be delivered directly to customers or through intermediary firms, e.g. rental outlets. (Lovelock and Wirtz, 2004).
Promotion and Education: these are three fold, firstly information and advice needs to be provided to customers, target customers need to be persuaded towards a product, and they need to be encouraged to take action. Service promotional communication are usually educational, informing potential customers of the benefits of the service, where and when to obtain it and how. These communications are delivered through individuals (sales people) or media (TV, radio, newspapers etc.). (Lovelock and Wirtz, 2004).
Price and Other User Outlays: In services monetary values refer to rates, fees, admissions, charges, tuition, contributions, interest etc. (Gabbott and Hogg, 1997).
Physical Environment: A firm’s service quality can be perceived through the appearance of buildings, landscaping, vehicles, interior furnishing, equipment, staff members, signs, printed materials and other visible cues. These are physical evidence and impact customer impressions. (Lovelock and Wirtz, 2004).
Process: A service is delivered to a customer through a process, which is the method and actions in the service performance. Poor processes can result in slow and ineffective service and unsatisfied customers. Front line staff may also find it difficult to do their jobs well as a result of poor process, which can again lead to service failure. (Lovelock and Wirtz, 2004).
People: Services tend to involve direct interaction between customers and firms employees. The experience of the interaction, for example talking to call centre staff, can influence the customer’s perceptions of service quality. The implication is that firms need to train and motivate their employees to ensure good service quality. (Lovelock and Wirtz, 2004).
2.4 Marketing in Services
Image is often a key factor in differentiating a service from its competitors. Marketing is therefore important in service because it enables the customer to link an image with a brand. Examples of these can be seen on delivery vehicles, which are painted, hotel soap and shampoos etc.
When consumers have no experience with a product, they tend to ‘trust’ a favoured or well-known brand name; therefore service marketers need to build a favourable brand image.
Some consumer theorists have linked service quality with consumer behaviour intentions, in that the quality of the service will determine whether the consumer remains with that particular provider or defects to a competitor. When consumers perceive high service quality, the behavioural intentions will be positive, as they will remain with the service provider. In contrast, poor service quality will lead to the relationship with the customer weakening resulting in defection to a competitor.
Financially the firm will benefit more by retaining customers through increasing service quality; this is demonstrated in the figure 2 below.
The figure above shows that the more favourable a firm’s service quality is, the more likely the customer is to remain with the firm, benefiting the firm. But when the service quality is poor, the customer will show unfavourable behavioural intentions, which will result in defecting/ switching. This highlights that in order to prevent customers from switching and to enable the firm to continue making profits, the firm needs to retain customers through good service quality.
Service firms and service marketers need to recognise the significance of these reasons as they can lead to negative effects on share and profitability as noted by Rust and Zahorik (1993). This can arise from negative word of mouth, which will in turn deter potential customers. These reasons can also help markets to plan their promotional campaigns according to the aspects that are causing customers to switch. As maintained by Reichheld and Sasser (1990) companies can boost profits by almost 100% by retaining just 5% more of their customers.
2.5 Marketing in the Mobile Phone Industry
As the market becomes more competitive, firms will endeavour to maintain their market share by focusing on retaining their current customers. It can be said that recent competition amongst mobile phone networks has become aggressive, especially with all the competitive price plans and handsets on offer, which are being promoted by the networks. More recently a ‘camera wars’ are taking place between mobile brands as consumers are considering this an important feature when purchasing mobile phones, Marketing magazine (2004).
When network 3 entered the market, they were able to encourage many consumers to switch mobile networks from their existing providers to 3. this was done using challenging and direct advertising comparing brand and product features with those of competing networks. Marketing magazine (2004). As a result of this, 3 were able to reach the one million-customer mark faster than any other network since launching.
It is evident that mobile phone networks are being innovative in their marketing tactics in the aim of securing higher customer bases. Much of the marketing the mobile networks today to do this are directed towards consumer confusion tactics. Consumer confusion tactics are where consumers are provided with large amounts of decision-relevant information, in regards to mobiles, this is seen in the form of deals, discounts, leaflets, newspaper adds and television advertising line rentals from as little as 99p per month. Confusion marketing and overload aims to confuse consumers into a state of stress and frustration, resulting in information overload and sub-optimal decisions. Price confusion is the most common confusion marketing tactic used in the mobile telephone market today in order to assist companies to gain a competitive advantage. It has been found that this tactic of confusion marketing appears to work and confuses customers to such an extent that they end up being persuaded by this marketing literature and the information overload that they are provided with that they purchase the plan that is sold to them without investigating it further as they feel that they have all the information that they need and have made an informed choice.
Confusion usually arises from 3 main sources:
i) Over choice of products and stores – there are independent mobile phone shops opening up regularly, and new mobile phones are being introduced to the market every month.
ii) Similarity of products – all the price plans available are very similar in terms of price as well as network call charges.
iii) Ambiguous, misleading or inadequate information conveyed through marketing communications – For example, many retailers are offering line rental for 99p per month, what consumers are not aware of is that they have to pay the full line rental for the first six months and then they claim their cash back.
But using confusion marketing can have adverse effects on consumers. The ‘information overload’ can cause consumers to shop around, which can reduce brand loyalty towards the firm.
2.6 Decision Making Process for Mobile Phones
When customers purchase a product or service they go through a complex process of three stages: the pre purchase stage (decision to buy), the service encounter stage and the post purchase stage. This can be applied to the purchasing of mobile phones.
The post purchase stage will determine the customers’ future intentions on whether or not to remain loyal to that service provider or to switch service. During the post purchase stage, customers evaluate service quality and their satisfaction/dissatisfaction with the service experience. This is done by comparing what was initially expected with what they perceived they received from a particular provider. If expectations are met, customers are likely to be satisfied and therefore more likely to make repeat purchases and remain loyal. If customer expectations are not met, customers may complain about poor service quality, suffer in silence or resort to switching service provider. It has become evident in recent years that customers no longer “suffer in silence” with bad service to the extent that they previously and if they experience service that they are not satisfied with then are more likely to switch in order to receive a better service/better value for their money.
When considering the purchase process of mobile phones, again there are complex factors, which influence the decision the decision process which include both macro and microeconomic conditions, but it generally tends to follow the traditional buying process. When faced with the problem of whether or not to purchase a mobile phone, consumers will initially take part in an information search before choosing which one to buy. The consumers’ decision-making process is directed by preferences that the consumer has already formed regarding a particular brand. Beatty and Smith (1987) and Moorthy et al (1997) argue that this means the consumer is most likely to make a choice based on a limited information search and without evaluating fully all the alternative brands available. As indicated by Dhar and Wertenbroach (2000), limited information search and evaluation of alternatives can result in a situation where the consumer’s choice is driven by hedonic considerations. Utilitarian goods are considered to be instrumental and functional whereas hedonic good are seen as being fun and exciting, but some goods can have both features, as stated by Barta and Ahtola (1990). With relation to mobile phones the choice has both utilitarian (e.g. communication, SMS, planning) and hedonic (e.g. games, music, camera) features. Wilska (2003) believes the younger the consumer gets, the more they value the hedonistic features in their mobile phones. The mobile phone market is a technology driven market, therefore products are created based on consumers’ possible future needs which tend to be hedonistic features.
Riquelme (2001) explored the level of knowledge consumers have when choosing between different mobile phone brands. The study focused on main factors, which were: telephone features, connection fee, access cost, mobile-to-mobile phone rates, call rates and free calls), which respondents had to rate according to importance. Findings revealed that respondents with previous experience about products predicted their choices well, although they over-estimate the importance of features, cal rates and free calls and under-estimated the importance of the monthly access fee, mobile-to-mobile phone rates and the connection fee.
2.7 Customer Switching Behaviour
There is no one clear definition of customer switching, due to the lack of research into this area, although very few authors have attempted to define it. According to Brassington (2003) customer switching refers to “consumers who are not loyal to any one brand of a particular product and switch between two or more brands within the category”.
Switching behaviour has also been referred to as defection or customer exit (Hirschman, 1970; Stewart, 1994) and refers to a customer’s decision to stop purchasing a particular service or patronising the service firm completely as agued by Bolton and Bronkhurst (1995) and Boote, (1998). Yet it can be argued that this is not a valid definition of customer switching as this definition refers to the consumers behaviour as abandonment of the use of a product/service although, whereas switching is concerned with consumers using one product/service provider and then deciding to switch to another.
Many models have attempted to portray customer switching behaviour in services yet they all imply that switching derives from a gradual dissolution of relationships as a result of multiple problems encountered over time as found by Bejou and Palmer (1998) and Hocutt (1998).
2.8 Causes for Dissatisfied Service and Switching
Bitner et al (1994) has looked at the events that lead to satisfying and dissatisfying service encounters for customers from an employee’s point of view. Bitner et al’s (1994) study found that employees were inclined to describe the customer’s problems with external causes such as delivery system failures as the most prominent followed by problem customers. A small percentage of dissatisfactory incidents were classified as spontaneous negative employee behaviours such as rudeness or lack of attention. It was evident that the employees were biased in terms of not blaming themselves for failures.
Past research associating customer and employee views on critical factors compelling customers to switch offers assorted assumptions. Schneider and Bowen (1985) and Schneider, Parkington, and Buxton (1980) found a strong relationship between employee and customer attitudes regarding service quality on the whole in the banking service. The results from their study contradicted those of a study carried out by Brown and Swartz (1989). Data was collected from patients based on experiences with their physicians and were compared to what physicians’ perceived of the experiences of their patients. Results showed large differences inversely associated to patient satisfaction in general. Thus researchers have different views regarding customer and employee attitudes on service quality. When considering switching in the financial service, Mintel International Group believes the critical factor causing consumers to switch providers is price. Price is a sensitive issue and one that is close to the heart of customers so it is perceived that they may consider switching on the basis of this if they are not satisfied with the service they are receiving. But it can be concluded that the customers view holds greater value, as it is their opinion that brings in business for a firm.
Bolton & Brankhurst (1995) and McDougal (1996) have looked at customer switching behaviour in relation to complaints, which they believe leads up to the defection. They suggested, that this field should be further explored, as there is a lack of research that tries to investigate the correlations between the factors that influence service switching and those that influence complaints before switching. Complains are again another major area of concern. The first