Factors affecting customer perception

CHAPTER 1: INTRODUCTION

Introduction

This is a report on the survey of the factors that affecting the customer perception in choosing their mobile service provider. The use of “customer perception” is to require the company figure out what their customers think. Customers always evaluate the perceived benefits before they decide to purchase a particular product. They also include costs of usage, the lost opportunity to use other offering, potential switching costs etc. Consumers always value these added benefits when making a purchasing decision. Therefore this is making it important for company to understand the customers’ need when marketing to their customers.

Recently, the hottest topic in the Malaysia’s mobile industry which is Mobile Number Portability (MNP) are discussing by everyone. In simple, Mobile Number Portability (MNP) is taking our Mobile Number from one mobile phone network to another. It enables us to maintain their existing mobile phone numbers when changing from one mobile network operator to another mobile network operator. This removed one of the major restrictions on changing mobile network operator, and allows users to freely select from among the mobile network operators on offer. In Malaysia, there are four main mobile service providers – Celcom, Maxis, DiGi and U-Mobile. A desire for cheaper calls is the reason that most consumers cite for possibly changing to a new network. Everybody is looking to change networks give a heavy weighting to four major factors: cost, coverage, technology and service options. This indicates that service providers need to take a multidimensional approach to managing their corporate customer bases.

MNP will allow further flexibility in the mobile phone market, as a result of which mobile network operators will be subject to other competition. This will cause mobile network operators to clarify their features in various policies such as fees and services. We have seen some of the mobile network operators introducing measures such as fixed price for calling other users of the others mobile network operator.

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There are five factors that has been found out how on what factor that influence the customers to select the certain telecommunication service provider- peer influence, product quality, customer service quality, promotion and network coverage. The consumer are getting the benefits from the result of this fierce competition among the telecommunication service provider in Malaysia because these company will keep improving and offer more attractive promotion in order to maintain and attract the new customers.

Background of the research

Malaysia’s telecommunication infrastructure market was opened in 1989 when a second mobile operator, Celcom, launched service. From 1993 to 1995, the market was further opened when three additional companies were granted various operating licenses such as fixed, long distance, mobile cellular allowing them to compete as full service operators. The telecommunication companies are competing among each other and create a competitive environment in the telco industry. There are some of the companies had merged with others big company and some of them gone bankruptcy. Today, four companies make up the major telecommunication market segment. The companies are DiGi, Maxis, Celcom and U-mobile.

Celcom (Malaysia) Berhad is the oldest mobile telecommunications company in Malaysia that was established in 1988 and Celcom had transform itself as the market leader by offering the quality services to the customers. It continues to spread its wings and is undeterred by the dynamic nature of the mobile communications industry. Currently, Celcom offers its mobile postpaid and prepaid services under the access codes 019 and 013, serving a combined customer base in excess of 5 million with network coverage spanning over 95 per cent of the populated areas in the country. Furthermore, businessman was the major user of this Celcom service provider due to the stable network coverage.

According to the Maxis website, Maxis Mobile Sdn Bhd, which started operations in 1995, Maxis has steadily built up its role to become leading telecommunications service provider in Malaysia by focusing its core business, adding 600 base stations during 2003. In 2003, the company acquired an additional 25 MHz spectrum in the 1800 MHz band and with a 3G license which launched by 2006. Being the leader within the telecommunication industry, the corporation is the fifth largest Public Company in Malaysia with total subscribers of 6.4million, providing a wide range of innovative mobile, fixed and international network services to their customers. Maxis Mobile Sdn Bhd first used the Cardax System (CC Unix) since 1998 when they moved their operations into Menara Maxis, owned and managed by Tanjong City Centre Property Management (Tanjong Plc Group of Companies).

DiGi Telecommunications is smallest of the major mobile service provider that is majority controlled by Telenor, is holding its own in the face of its two bigger rivals. DiGi is supported by Telenor with the financial and technical stability. DiGi as the smallest of remaining mobile cellular companies has benefited from the sustained growth in market demand for cell phones in Malaysia. DiGi tend to serve their customers with high quality services and products by offering an affordable price, convenient and easy to access the broadband services in order to enrich the customers’ life. DiGi is the first mobile service provider to launch the prepaid concept for mobile services in Malaysia and till today, DiGi Prepaid remains the market leader. To achieve the quality and innovation services, DiGi is placing a lot of emphasis upon backend systems, efficient billing system and customer relationship management system. Now they had come out the broadband package which has a higher speed so called 3.5G.

U mobile Sdn Bhd is Malaysia’s new established mobile service provider by offering value added services such as 3G video call to attract the youth market. U Mobile is using 018 prefix and provide the call charges with per second per block charges. This uniqueness had become their strength and a point to attract the light users of mobile. They just need to pay as how many second they are using. In April 2007, U Mobile signed Malaysia’s first ever nationwide roaming memorandum of understanding as a precursor to an agreement with Celcom (Malaysia) Bhd. This initiative allows U Mobile’s customers to experience nationwide coverage from day one of service availability, whilst U Mobile continues to progressively rollout its own unique HSDPA – driven mobile network. KT Freetel of South Korea and NTT DOCOMO of Japan’s combined investment of USD$200 million in December 2007 marked an exciting new chapter for U Mobile. This strategic partnership supports U Mobile’s rapid go-to-market and product enhancement and diversification plan. U Mobile introduced 3G mobile phone bundling packages for its U38, U68, and U98 Postpaid plans at attractive prices in August 2008.

These few company’s core business is segmented of the Malaysia telecommunication market, mobile markets and also the broadband markets. Besides, the telecommunication companies are also provided mobile services such as Short Message Service (SMS), Wireless Application Protocol, subscription services, General Packet Radio Services (GPRS), and Third Generation known as 3G that enable the customer to connect with a video call. These companies are offering the price promotion in order to attract the customers. Now there is an aggressive competition among these companies, so the company should figure out the factors of playing a vital role to choose the telecommunication service providers

The Malaysia mobile industry is going the new era of competition. Therefore, all these mobile service provider need to differentiate themselves from others and presence itself well to become the one of the market leader in telecommunication industry. They can differentiate themselves by delivering more value added service such as the superior call charges and quality and improve their network coverage to maintain their market position and generating more innovation in their performance to meet the customer expectation.

Problem Statement

“To what extent do the peers influence, customers’ services quality, products quality, promotion and network coverage affect the customer perception in choosing their mobile service provider?

Research Objective

The overall goal of this study is to determine and identify the factors that affecting customers’ perception in choosing their mobile service provider. The following objectives are built to achieve the goals of this study:

1. To access that how peer influence, customer service quality, product quality, promotion and network coverage going to become the factor for customer to using specific telecommunication service provider.
2. To determine whether the customers like the mobile service providers’ marketing activities
3. To determine the mobile service provider positioning strategies in serving their customers.

Justification for the research

The telecommunication industry is undergoing in a dramatic changes. The value of the paper will indicate the consumer behavior in the competitive market. This study provides insights of the factors that affecting the customer perception in choosing their mobile service provider nowadays. This research is done for the contribution that will bring for the family; society, country, and it also lead us to a better living environment with advanced technology.

The result of this research will be beneficial for the telecommunication operator to serve as a guideline in implementing their business strategy. With the information, those telecommunication provider will be able to design packages that satisfying consumers to improve their company performance as well as to maintain their market share. This research is important because it can outline what the factors that affecting the consumers’ perception in choosing their mobile service provider.

Also, this research able to provides the factors that cause the switching behavior. When service provider understand what is the wants and needs of the consumer. Thus, it helps to reduce their cost in research and development. By then, service provider can focus to increase their product features or quality that serves to the consumers. Superior customer service and products quality can affect customers’ perception in choosing their mobile service provider.

Through this study, service provider can focus on what is the best business quality and services to consumers in order to maintain their life long relationship to create maximum life time value to the company itself. This research can figure out the relationship between product and service quality with the customers’ perception in choosing the mobile service provider. Therefore, Telecommunication Company should emphasis on its product quality and customer service aspect in order to improve customers’ satisfaction.

Before taking any actions to change the customer perception, the most crucial thing is to understand what factors influence customer satisfaction, and then try to make improvements in these critical areas so that they can have more satisfied and loyal customers.

Methodology

The methodology used for the survey to collect data in this research is through questionnaire. The population of this study is individuals who are mobile users in Malaysia. It is impossible to get all mobile users to conduct the survey; therefore survey will conduct to selected samples to gather the data. Besides, non-probability purposive sampling method will be used as this is an exploratory study. Other than that, the questionnaire conducted would be self-administered and made from secondary data obtained from journals from other researchers due to the lack of local research on the topic. The methods used for this research also come from review of literatures and books from the internet as it is more time saving and less costly.

Limitations of the research

Despite the useful findings of this study, this empirical study has several limitations to be acknowledged. First, the findings in this study depend on the honesty of the respondents. It is known individuals would agree more on socially desirable answers and disagree more towards socially undesirable answers rather than fully and truly express the feeling and opinions. Next, the limitation of this research is that the data of this study is collected through the surveys, so there is a high probability of inaccurate information. The sample size of 300 is not enough to determine the actual factor. There are too many factors that will affect the customer’s perception. More researches need to be conducted on the higher population in order to get the actual factors.

Outline of the research project report

This research paper is divided into five chapters.

Chapter 1: Introduction

The background of study is mentioned in this chapter. The discussion of the overall question and the relevance topic are being carried out. This chapter includes the objectives and the problem statement of this study. Besides that, the explanation of who is gaining benefits from this study is included. Lastly, important terms are clearly defined to avoid confusion amongst readers.

Chapter 2: Literature Review

This chapter is the part to cite those relevant studies from authors and year of the study. Both dependent and independent variables will then be identified and highlighted as the foundation to build the theoretical framework and hypotheses development. Arguments and opinions from different authors are included to support the study. During this chapter, readers will have a clear idea about the problems and the possible solutions that can be made to solve.

Chapter 3: Research Methodology

Theoretical framework and hypothesis of study will be stated. Theoretical framework shows the relationship between variables. Next, testable hypotheses will be developed based on their relationships. These hypotheses are to examine whether or not the framework is valid by using appropriate statistical analysis.

Chapter 4: Data Analysis

Before proceed into this chapter, data collection is needed from respondents through various methods. The results will then be tested to analyze the response in order to get a clearer and more concrete result.

Chapter 5: Discussions and Conclusion

Chapter 5 contains the conclusions and justification on the hypothesis constructed in the research. Other than that, the chapter also summarized the research findings and suggestions on the future findings are given supported by assumptions made from the research. Figure 1 below shows the outlines of the research.

Definition

1. Peer Influence

Past research shows that peer influence has emerged over the last 50 years to be the chief source of values and behavioral influence in adolescence, replacing the influence of adults. By examining the peer influence on the consumer perception, we can know why peer influence is a factor that affects consumer perception in choosing their mobile service provider.

2. Customer Service Quality

Customer’s service quality includes trust, reliability and responsiveness of the company in telecommunication industry. This study will figure out how this factor affects the consumer’s perception.

3. Product Quality

Product quality is the characteristics of a product that bear on its ability to satisfy stated or implied needs. Customers always focus on the product quality when they purchase a product/service.

4. Promotion

Promotion is one of the four elements of the marketing mix. Promotion able to attract the customers to disseminate the information of a product. This study will discuss how promotion works as one of the factors to affect the consumer perception.

5. Network Coverage

Network Coverage is the range of mobile network signal provided by the telecommunication mobile service provider. This study will also discuss about how the network coverage will affect the consumer perception.

Scope

This research is particularly interested in investigating consumers’ behaviors and perceptions such as motivations of changing or remaining with mobile operators with the introduction of MNP. This paper is tending to find out what are the factors that affecting customer perception in choosing their service provider through this study. All respondents are assumed to have basic mobile knowledge. There are many factors that cause the consumers to choose their mobile service provider. The study will also include the implications of switching cost on the telecommunication industry, service providers and consumers.

Conclusion

This research is aim to complete successfully within the time frame so that the result would accurate and will achieve the research objectives. This research had confirms the significant positive relationship of peer influence, customer service quality, product quality, promotion and network coverage to affect the consumers’ perception. It is expected to provide a broader understanding of mobile service provider in Malaysia and explore the real factors that affecting the consumers’ perception in choosing their mobile service provider. It is also hope that the successful completion of the survey would have positive impact on the mobile service provider strategies in order to grab the customers and maintain their customer relationship.

Chapter 2 Literature Review

Dependent Variable

Customer’s perception in choosing their mobile service provider

The understanding of consumer perception in a virtual environment is limited. It is important to develop an understanding of the factors that affect consumer perception in this market space. This will enable mobile service provider to develop more effective and focused strategies for optimizing the visibility of their product offerings and to attract more customers. There are various factors that can affecting the consumer perception when making buying decision on a product.

Independent Variables

Peer Influence

        Peer influence is commonly defined as the extent to which peers exert influence on the attitudes, thoughts, and actions of an individual (Bristol and Mangleburg, 2005). There will be some of the people will affect the perception of the customer when they decide to buy a product. When they decide using which mobile service provider, most of customers will think which mobile service providers are currently using by their friends and family. Peers influences include the spread opinions of friends, family, colleagues and reference group. Mostly individuals will be influenced and get into following their trend and take their opinions as a standard of their purchase decisions. Peers can influence each other either in a positive way or negative way.

The potential power of WOM (Word of Mouth) as a form of promotion is generally accepted (Arndt, 1967; Buttle, 1998; Dye, 2000). WOM is a strong factor to affect the customers’ perception. If the customer is less well understood the product, he/she will refer to the people around them. WOM can be negative or positive, so the company should utilize the effectiveness of WOM as a good promotional tool and build goodwill of the product in order to enhance their company reputation.

The influence that a source’s word-of-mouth information exhibits on the receiver has traditionally been explained by models of interpersonal influence (Bansal and Voyer, 2000; Bone, 1995; Cohen and Golden, 1972). Within this stream of research, it has often been suggested that interpersonal or social influence can be categorized as either informational or normative influence (e.g. Deutsch and Gerrard, 1955). Word of mouth can operate through both channels: Informational influence occurs when information is accepted as evidence of reality (e.g. Burnkraut and Cosineau, 1975). In contrast, normative influence operates through compliance, which means that the individual conforms to the verbalized expectations of referent others (Kelman, 1961)

Customer service quality

Service quality had become an important attention to the company due to its strong impact on their business performance. Customer service is a series of activities designed to enhance the level of customer satisfaction. That is, the feeling that a product or service has met the customer expectation.

Customer service quality is the perceived quality of service obtained by a customer when using the current mobile service providers. Customer service is what an organization provides to its customers and is relatively easy to measure. Typically the measures include response time, time required to provide service, ability to handle a customer’s issues on the first call, procedures for handling customer complaints. Customer service is always important and companies should enhance all the ways in which they touch their customer, the service they provide and their measures to continuously improve that service.

Superior service quality measurably increases a firm’s overall profitability. Mobile users always requested the fast connection either in calling or sending short message from the mobile service provider. They will make judgment based on the service quality given by their mobile service provider in order to change the mobile service provider or being loyal to their current mobile service provider. If the customers maintain loyalty to their mobile service provider, thus it will bring continuous revenue to the company.

Service quality is associated with the relationships between server and customer, The customers will consider the politeness, helpfulness, speeds of delivery, and pleasantness of the service (Berry, 1987) when they received the services from their mobile service provider. Customer service is playing an important role in mobile service provider; it helps to maintain the loyalty of consumer towards the company. According to Taylor, 1992, service quality enhancement differentiates the service providers from competitors. Consumer often compares the service quality within other mobile service provider companies. There is huge amount of support in the service quality literature for a link with customer loyalty and future purchases. Customers always put the service quality they receive as the factor that affects them to do purchase of the product. If the service is bad, the customer will tend to change to mobile service provider.

        Service quality is very important that companies have gone to great efforts to evaluate and keep records of service quality levels. Service quality is about the consumer’s judgment about the overall excellence or superiority of a service” (Zeithaml, 1988). If the mobile service providers provide the bad services in handling the customers’ issues, it will leave a bad impact of the brand name in the customers’ mind. In order to have a better understanding about service quality, there are few attributes about services:

• services are intangible;
• services are heterogeneous, meaning that their performance often varies with respect to the provider and the customer;
• services cannot be placed in a time capsule and thus be tested and re-tested over time; and
• The production of services is likely to be inseparable from their consumption (Gronroos, 1990).

The service evaluation can be associated with service delivery process, along with output (Cody and Hope, 1999). These two underlying processes generally explain the contribution of service quality to profitability. First, service quality is regarded as one of the few means for service differentiation and competitive advantage that attracts new customers and contributes to the market share (Venetis and Ghauri, 2000, p. 215). Second, service quality enhances customers’ intention to purchase again, to buy more, to buy other services, to become less price-sensitive and to tell others about their favorable experiences (Venetis and Ghauri, 2000, p. 215).

        Reichheld and Sasser (1995) had proposed that the high level of satisfaction lead to increase the customer loyalty. There is growing evidence that customer perception of service quality they received when using the mobile service provider will affect their behavioral intention.

Nowadays, the telecommunication industry is become more competitive and there are more new entrants of other small mobile service provider to grab the market. According to Melody (2001) public utilities is derived from the law in any country. Where the demand for a good or service is considered a common necessity for the public at large and the supply conditions are such that the public may not be provided with reasonable service at reasonable prices. Service is a form of attitude which is related to satisfaction and also leads to consumer loyalty (Johnson and Sirikit, 2002) and future purchase. In particular consumers prefer service quality when the price and other cost elements are held constant (Boyer and Hult, 2005). It has become a distinct and important aspect of the product and service offering (Wal et al., 2002). According to Leisen and Vance (2001) service quality helps to create the necessary competitive advantage by being an effective differentiating factor. Service quality was initiated in the 1980s as the worldwide trend when marketers realized that only a quality product could not guaranteed to maintain competitive advantage (Wal et al., 2002). Competitive advantage is a value-creating strategy, simultaneously which is not implemented by any existing or potential competitors (Barney, 1991). Service quality is essential and important for a telecommunication service provider company to ensure the quality service for establishing and maintaining loyal and profitable customer (Zeithaml, 2000; Leisen and Vance, 2001). Conversely, Johnson and Sirikit (2002) stated that service delivery systems have the ability to allow managers of company to identify the real customer feedback and satisfaction on their telecommunication service. Since, quality reflects the customers’ expectations about a product or service. Lovelock (1996) stated that this customer driven quality replaced the traditional marketing philosophies which was based on products and process.

Product quality

The quality of a product is a conceptualize service quality as the relative perceptual distance between customer expectations and evaluations of service experiences and service quality using a multi-item scale called the SERVQUAL model.(Parasuraman et al., 1988). The SERVQUAL model includes the five dimensions of tangibles which is the physical facilities and the appearance of personnel, reliability to perform the promised service dependably and accurately, responsiveness as the willingness to help customers and provide prompt service, assurance where employee knowledge base which induces customer trust and confidence, and empathy which is the caring and individualized attention provided to customers by the service provider.

        To get products or services in good quality is a must in customers’ perception. Especially for telecommunication industry, customers cannot touch the physical product before they make their decision. To gain trust in consumers, it is necessary for the mobile service provider to provide the identity and complete information of the company such as their physical location, pass record, product quality approved. Besides, telecommunication company have to ensure they provide only good quality product or service to consumer because can gain word of mouth. Once they fail to do it, they will suffer it.

According to lemons model (Akerlof 1970), product quality is the basic idea in a competitive market. Products only differentiated by their exogenous quality. If product quality is undistinguishable beforehand by the buyer, then there is one price. If cost are increasing in quality, then at that price the highest quality products may not be offered, and as a result buyers become reluctant to pay high price. They learn to expect low-quality products which mean the price must fall.

Product quality is always an important aspect of a purchasing decision and in market behavior. Since, consumers regularly face the task of estimating product quality under conditions of imperfect knowledge about the underlying attributes of the various product offers with the aid of personal, self-perceived quality criteria (Bedeian, 1971 adapted by Sjolander, 1992). According to Sjolander (1992), the consumer behavior in modern market is different from the theoretical case of consumer decision making in free markets.

Promotion

In order to promote a company’s product, a company often uses advertising to create brand and or product differentiation in order to soften the price competition. To the extent that persuasive advertising create customer loyalty through perceived differentiation over essentially identical products, they create market power in the sense that consumers may be willing to pay more for preferred brands, thus allowing Telco Company to raise prices above marginal costs. The most preferred outcome by firms is where one advertises while its competitors don’t, leading to market share and profitability gain at the expense of its rivals.

In the price promotion, the Telco companies are using game theoretic model (Axelrod and Hamilton, 1981) to provide a homogenous product and have sufficient capacity to serve the market demand. It is a non-cooperative game as there weren’t any enforceable agreements between them as they compete in the marketplace. It is a repeated one-shot simultaneous game as they were driven by quarterly performance accountable to shareholders. As such, they would decide on their pricing strategies independently and aware of rivals’ prices in the market while forming certain expectations about rivals’ pricing strategies. Actions available are Maintain Price and Undercut Price. Payoffs are ranked in order of preference (higher number is preferred). The most preferred outcome by firms is where one undercuts price while its competitors maintains price, leading to market share gain at the expense of its rivals. When all firms maintain prices, there is no change in market-share and profitability. When all firms undercut prices, market-share remains with reduced profitability. Price plays a vital role in telecommunication market especially for the mobile telecommunication service providers (Kollmann, 2000). It’s included not only the purchase price but also the call and rental charges. Generally, a price dominated mass market leads to customers having more choice and the opportunity to compare the pricing structures of different providers. Therefore, the company that will offer lower charges, the more customers will commit themselves to the telephone networks, so more call minutes will achieved.

It will be interesting to study the impact of the two or more mobile service provider having price competition. One of the impact will be the customers will keep switching from one mobile service provider to another one. For example, there is a new customer will think of reducing its switching cost. The customers that keep changing their customer due to price promotion offered by the mobile service provider