Executive summary: Increase in demand for cellular phone services in Indian market has led to new entrants in the cellular industry. However with major players looking at expanding nationally, there have been number of acquisitions. The biggest challenge faced by cellular industry today is churn rate. This paper looks at reasons for consumer switching behavior and highlights the fact that inspite of high switching cost imposed on clients in this industry churn rate is still high.
The primary research results indicate that although all service providers are viewed positively on most of the factors that cause switching, it falls short on the three main factors namely network coverage, customer service and offers. This study examines the customer satisfaction through an empirical investigation of about 80 cellular subscribers. The satisfaction index of these subscribers is calculated overall. The Good customer service and low price are valued highly by consumers and focusing on these two aspects will enable the service provider to differentiate itself from its competitor and reduce churn rate.
This study attempts to examine the effect of switching cost, service quality and customer satisfaction on customer churn rate in mobile telecommunication services. As many has 80 users of GSM services were surveyed in Hyderabad city. The data was analyzed by “paired T test” and “correlation analysis”. The study shows that the switching cost, service quality and customer satisfaction have negative association with churn rate. Introduction: The Indian mobile services market is highly competitive with six to eight players operating in each of the 23 telecom circles that the country is divided into.
The intensity of competition has increased in recent months following the launch of GSM services by Reliance Communications and Tata Docomo, and the continuing pan-Indian GSM rollout by Aircel, Idea Cellular (Idea), and Vodafone Essar (Vodafone). These players have introduced attractive schemes like per second billing (moving away from the industry norm of per minute billing) and aggressive tariff plans for local and STD calls to capture market share. The incumbents, facing a decline in subscriber additions, have also had to follow suit and reduce tariffs, which in turn has led to a decline in ARPU.
While India remains one of the fastest growing mobile services markets globally by subscriber addition and still presents an opportunity for further growth, the rates of revenue growth and margins of the mobile service providers are expected to decline as the intensity of competition increases further. Telecom operators spend substantial resources on adding customers and thus customer retention is of critical importance for them. Loss of subscribers is measured by “churn”, which is the ratio of subscribers leaving the network to the current subscriber base.
One of the biggest “concerns” for the mobile services industry is that with the introduction of MNP, the churn rate, which is already quite high in India, may increase even further, thereby leading to a drop in revenues and an increase in costs, which in turn would weaken their competitive positions. Customer churn is a basic unit of the telecommunication industry, which is used to describe customer loss, more precisely defined as the gross rate of customer attrition during a given period.
It assesses a service provider’s customer retention efforts and provides an insight into the growth or decline of the subscriber base as well as the average length of participation in the service. In the telecommunication industry, customers are able to choose among multiple service providers, thus actively exercising their right to switch from one operator to another. There is a significant relationship between customer loyalty, customer satisfaction, trust and switching costs in the mobile phone market. Theoretical background:
Switching cost: switching cost can be defined as the cost involved in changing from one service provider to another. These costs include elements such as the customers’ time effort and knowledge that they invest in products services or relationships. The effect of customer’s satisfaction or loyalty in customers is less when switching cost is perceived to be high rather than low. Customer satisfaction: Customer satisfaction is an output resulting from the customer’s pre purchase comparison of expected performance with perceived actual performance and incurred costs.
Customer satisfaction is influenced by service quality and price. Customer satisfaction has got a positive effect on customer retention thereby implying that the customer satisfaction has a positive effect on loyalty and prevents customer churn. Service quality: Perception of service quality could occur at multiple levels in an organization for example with the core service, physical environment, interaction with the service providers. Customer’s expectations and perceived performance of services have been found to be the main antecedents of perceived service quality. Scope of the study:
Scope of this study is limited to Hyderabad region only. It also studies the high preference of the customer towards a particular brand. Objective of this study: 1) The primary purpose of this research is to identify and analyze the factors that influence the churn rate and customer retention in mobile services. 2) To study the customer satisfaction towards mobile service providers. 3) To assess the requirements and expectations of the customers in order to assess their current satisfaction level. Limitations of the study: 1) Due to time constraint a convenience sample of 80 respondents is used.
The respondents view may not be the true representative of the entire population even though they are cell phone users. 2) Use of small sample may possibly lead to insignificance of certain tests. However a different result may be attained if a larger sample size is used. 3) This study has certain geographical limitations. 4) This study has confined to GSM and pre paid users. Hypotheses of the study: On the basis of the objective of the study and secondary data analysis the following hypotheses has been formulated. H1: Higher level of switching cost is associated with lower level of customer churn rate.
H2: There is no significant difference between perceived and expected service quality. H3: The higher the level of customer satisfaction, the lower the churn rate. Research design Data collection: Primary data was obtained from the customers of cellular mobile services in Hyderabad city with the help of structured questionnaire. Secondary Data was obtained from journals, magazines, newspapers, books and the internet. Research Instrument: For doing the survey research, Structured Questionnaire with both open ended and closed-ended questions was used. Mode of Survey:
The mode of survey was Personal Interview with the respondents during the filling up of the questionnaires. Sampling: Convenience sampling method was used to collect the data from the customers. Only the prepaid subscribers of GSM services were included in the present study. A total of 100 questionnaires were distributed in Hyderabad city and out of those 80 questionnaires were completed in all aspects showing a response rate of 80%. Sampling unit: This study was basically an opinion survey of the residents of Hyderabad who are cell phone users, about the cellular service providers. Respondent: 1) User of GSM service ) Age ranging form 18- 40 years. 3) User of pre-paid service and postpaid service. 4) Gender was either male or female. Measurement: For the validation of research hypotheses four attributes were derived from the secondary data. To measure the perceived switching cost of the customers, the questions were framed, the construct included time, cost and efforts of the customers involved in order to switch from one service provider to another. All the answers were measured on a five-point scale. In order to measure customer perceived quality, three dimensions like quality, personal requirements and reliability were included in the study.
Each of the items was evaluated on a five-point interval scale. Customer satisfaction scales includes two questions, the measures in this scale used are over all customer satisfaction and conformity with pre-purchase expectations of the customers. To measure the churn rate, a question was included in the questionnaire asking the respondent about how likely is he/she to shift from the present service provider. The evaluation was done on a five-point scale interval scale. Analysis procedures: First hypothesis is been tested by using Regression. Second hypothesis is been tested using a paired Z test.
Third hypothesis has been tested using Correlation. Analysis: After the collection of data and analysis, following are the results: Q1) Gender of the Respondents – A. Male B. Female. From the first question analysis, it is clear that among 70 respondents, 53% are male and remaining 47% are female. Q2) Operator’s services utilization by respondents Airtel 19 BSNL 10 Vodafone 11 Docomo17 Reliance2 Idea9 | | | | | | | | | | | | | | Q3). Influencing factor that made respondent to switch to other operator. | | | | | | | | | | | | | | Q4) Attracting factor of the Brand that made respondent to switch to the brand Operator’s services.
Attraction| | Network Coverage| 25| Offers| 19| Low Price| 11| Customer Support services. | 6| schemes| 6| Q5) Nature of the Operator’s Connection Connection Type| | Prepaid| 67| Postpaid| 3| Q6) Average usage time of the operator’s service of the respondent. Usage Time| | Less than 1 hour| 14| 1-3 hours| 21| 4-6 hours| 19| More than 6 hours| 16| Q7) How many of the respondents would like to switch to other operator. Switch rate Yes 32. No38. Hypothesis testing:- Hypothesis 1:- For testing the first hypothesis, regression tool is used.
The main objective of using Regression analysis is to explain the variation in one variable called dependent variable based on the variation in one or more other variables called independent variables. The application of regression tool is in explaining variations in churn rate based on switching cost factors. Betas Predicting Basic y (col) from Basic x (row) Variables| | CHURN_RATE| CONCERN| -0. 330| MONETORY| -0. 284| MIGHT_NOT_BE_GOOD| -0. 281| ENERGY_AND_TIME_CONSUMING| 0. 267| OFFRE_UNUSED| -0. 145| Estimated (from x-set) y regression (R-square on diagonal)| | CHURN_RATE|
CHURN_RATE| 0. 428| The variation between q13 and q15 is measured using regression technique. In this analysis, churn rate (q13) is taken as dependent variable and all the factors of switching cost such as concern for the phone number, monetary cost, energy and time factor, offers unused are taken as independent variables. From the above analysis, it is clear that there is a negative correlation between switching cost and churn rate. From all the independent variables of switching cost, concern for phone number is highly negatively correlated with churn rate, the value being (-0. 30). The next highest factors that affect the churn rate are monitory costs and offers. An interesting inference which can be drawn from the results is customers are not giving much important for time and energy factor and this factor is not affecting churn rate. Thus this multivariate correlation supports the H1; higher level of switching cost is associated with lower level of customer churn rate. Hypothesis 2: Hypothesis 2 has been tested using Systat Application and two sample Z test. Variable| N| Mean| Standard Deviation| C3| 65. 000| 10. 585| 2. 256| C5| 65. 00| 9. 462| 2. 444| Variable| Mean Difference| 95. 00% Confidence Interval| Z| p-Value| | | Lower Limit| Upper Limit| | | C3| 1. 123| 0. 315| 1. 932| 2. 722| 0. 006| C5| | | | | | From the above analysis, it is clear that p value (0. 006) is less than z value (2. 722). So hypothesis has been rejected. H2 was that there was no significant difference between expected value and perceived value. But from this above result, we can infer that there is significant difference between perceived and expected value and in return this may lead to increase in churn rate.
Hypothesis 3: Hypothesis 3 has been tested using correlation technique. Correlation analysis is to measure the degree of association between two sets of quantitative data. In this we are measuring the association between churn rate and customer satisfaction. Pearson Correlation Matrix| | C1| C2| C1| 1. 000| | C2| -0. 532| 1. 000| The correlation table for the Pearson correlation procedure is shown in the above table. From the above table we can say that the two variables called customer satisfaction and churn rate are negatively correlated i. . if customer satisfaction is high, the churn rate will be low. Thus the third hypothesis is accepted. Managerial implications: 1. Out of 70 respondents, 38 respondents have switched in last 6 months. And in that 38 respondents, 18 respondents have shifted from Vodafone to Docomo, 12 have shifted from Airtel to docomo and remaining 8 respondents have shifted from idea to airtel, and the main reason for them to shift from one service provider to other service provider is that competitor (docomo) is offering service at low price.
Therefore we can infer that our respondents are price sensitive, and Airtel, Vodafone service providers have to take care of price to retain customers. 2. Most of the respondents preferred not to switch because they are emotionally attached to their number. But with new service introducing “Mobile Number Portability” in the recent future, customer may easily switch to other service provider because he/ she are able to retain their previous number. With this technology churn rate is expected to increase further. So market players have to bring in some attractive offers to retain their customers. . Cellular service provider can implement some reward programs to increase the benefits of subscription, and provide variety of recharge top-ups helping the customers to reduce call and SMS rate, which results in customer loyalty. Conclusion: The main focus of this study was to test the effect of switching cost, service quality and customer satisfaction on customer churn rate in cellular services. The results found a negative relationship between switching cost, perceived service quality, customer satisfaction and customer churn rate.
It has been revealed that customer satisfaction is the most significant predictor of customer churn rate. Switching cost and perceived service quality also affect the customer intension to stay with particular service provider. This paper furnishes implications for mobile service providers in order to retain their customers. Service providers should maximize service quality and customer satisfaction in order to enhance customer loyalty. Telecommunication companies must focus on customer oriented services to heighten customer satisfaction.
Service providers must concentrate their efforts on improving network quality, pricing and value added services. Switching costs contribute to increased loyalty and customer retention. References: 1. SK Chadha and deepa kapoor, “Effect of switching cost, service quality and customer satisfaction on customer loyalty of cellular service providers in Indian market”, The Icfai University Journal of Marketing Management, volume VIII, pp. 23-37. 2. Brady M K and Robertson C J, “Searching for a Consensus on the antecedent role of service quality and satisfaction”, Journal of business research, Volume 51, pp. 3-60. 3. Aneeta Sidhu, “Canadian Cellular Industry: Consumer Switching Behaviour”. 4. Sadia Jahanzeb and Sidrah Jabeen “Churn management in the telecom industry of Pakistan: A comparative study of Ufone and Telenor”, Journal of Database Marketing & Customer Strategy Management (2007) 14, 120 – 129. 5. Burham T A, ferls J K and mahajan V (2003), “ConsumernSwitching Costs: A Typology, Antecedents and Consequences”, Journal of the Academy of marketing Science, Volume 31, No 2, pp. 109-26.
