MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS - HOCHIMINH CITY NGUYỄN THỊ MỸ TRANG THE EFFECTS OF SWITCHING BARRIER ON THE CUSTOMER RETENTION A STUDY OF CERAMIC COMPANIES IN VIETNAM MASTER’S THESIS MASTER IN BUSINESS ADMINISTRATION Ology Code: 60.34.05 Supervisor PhD TRẦN HÀ MINH QUÂN Ho Chi Minh City -2012 ABSTRACT Many previous researches proved that retaining customers plays an important role for business in service sector and end-user or consumers are their oriented-object However, there is a lack of research in the areas of evaluation of B2B customer retention in product sector in Vietnam Therefore, the purpose of this study is to determine critical factors of switching barrier that potential influence on customer retention in business-to-business (B2B) sector in Vietnam ceramic companies Based on previous studies on switching barrier, four major factors will be calculated as move-in cost, benefit/loss cost, interpersonal relationship and the attractiveness of alternatives The overall purpose of this research is to develop a conceptual foundation of customer retention, with the use of the concepts of switching barrier and customer retention, and provide management significance of customer retention for marketers of Vietnam ceramic companies in developing strategies for retaining B2B customers i ACKNOWLEGEMENTS Although I have taken efforts in this research but it would not have been finished without the kind support and help of people Therefore, I would like to extend my sincere thanks to all of them First of all, I would like to express my sincere gratitude towards my direct supervisor PhD Tran Ha Minh Quan for his great guidance, support and encouragement in completing the research I am very thankful managers of My Duc Ceramics Limited Company for their share opinions, experiences and providing necessary information regarding to the research I would like to express my special gratitude to my family and my friends for the love, support and encouragement during the whole process of my project which helps me in starting the first difficult step and completion of my thesis Finally, my thanks and appreciations also go to my colleagues in developing the project and agents of MDC for their kind co-operation in answering the questionnaires I also thank to person who willingly helped me out with their abilities My heartfelt thanks to you all! Nguyen Thi My Trang Ho Chi Minh City, April 2012 ii STUDENT DECLARATION I affirm that the research titled ―The effects of switching barrier on the customer retention – A study of ceramic companies in Vietnam‖ is my own work The work is original except where indicated by special reference in the text The research has been conducted in studying by the academic knowledge and with the assistant of my supervisor and MDC‘s managers By this letter, I would like to undertake that it is my own research All data, resources, references using in this research are clearly identify SIGNED: DATE: iii TABLE OF CONTENT ABSTRACT i ACKNOWLEDGMENTS ii STUDENT DECLARATION iii TABLE OF CONTENT iv LIST OF FIGURES vi LIST OF TABLES vii LIST OF ABBREVIATIONS .viii CHAPTER 1: INTRODUCTION 1.1 Rational of the study 1.2 The statement of the problem 1.3 Research objective 1.4 Research questions 1.5 Scope of the research 1.6 Research methodology 1.7 The structure of the research CHAPTER 2: LITERATURE REVIEW 2.1 Ceramic tile 2.2 B2B customer 2.3 Customer satisfaction 2.4 The relationship between customer satisfaction and customer retention 10 2.5 Customer‘s retention 11 2.5.1 Define of customer retention 11 2.5.2 Benefit of customer retention 12 2.5.3 Switching barrier 13 2.6 2.5.3.1 Switching cost 17 2.5.3.2 Attractiveness of alternatives 19 2.5.3.3 The interpersonal relationship 19 Research model and hypothesis 20 2.6.1 Proposal of research model 20 2.6.2 Initial hypothesis 21 CHAPTER 3: 3.1 RESEARCH DESIGN 23 Research design 23 3.1.1 Research purpose 23 3.1.2 Research approach 23 iv 3.1.3 3.2 Research process 24 Official research 25 3.2.1 Measurement scale 25 3.2.2 The questionnaire design 27 3.2.3 Research sample and sampling 28 3.2.4 Data collection methods 28 CHAPTER 4: DATA ANALYSIS AND FINDINGS 29 4.1 Characteristics of the samples 29 4.2 Statistical Result 30 4.2.1 Variables for measuring switching barrier 30 4.2.2 Variables for customer retention 32 4.3 Data Analysis 32 4.3.1 Reliability evaluation through Cronbach‘s Alpha 33 4.3.2 Evaluation the measurement scale by using Exploratory Factor Analysis 36 4.3.2.1 Some rules in EFA test 36 4.3.2.2 EFA for switching barrier 37 4.3.2.3 EFA for customer retention 40 4.3.3 The adjusted research model 42 4.3.4 Modeling Testing 42 4.3.4.1 Correlation coefficient analysis 42 4.3.4.2 Regression Analysis 44 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 48 5.1 Conclusions 48 5.2 Recommendations 49 5.2.1 Benefit/loss cost 49 5.2.2 Interpersonal relationship 50 5.2.3 Move-in cost 51 5.3 Research limitations 53 REFERENCES 54 APPENDIX 60 APPENDIX 1: Questionnaire 60 APPENDIX 2: Cronbach's alpha analysis result and Factor analysis result 64 v LIST OF FIGURES Figure 2.1: Kim et al (2004) 17 Figure 3.1: The suggested research model 21 Figure 3.2: Research process 24 Figure 4.1: Sample characteristics 30 Figure 4.2: Research model 42 vi LIST OF TABLES Table 2.1: Define of switching barrier variables 15 Table 3.1 :Summary of retention factors and measurement scale 27 Table 4.1: Descriptive statistics of switching barrier measurement 32 Table 4.2: Descriptive statistics of customer retention measurement 32 Table 4.3: Reliability test of switching barrier and customer retention 34 Table 4.4: Final Reliability test of switching barrier and customer retention 36 Table 4.5: Rotated Component Matrixa 38 Table 4.6: Rotated Component Matrixa 39 Table 4.7: KMO and Bartlett‘s Test 40 Table 4.8: Total Variance Explained 41 Table 4.9: Final EFA analysis result of customer retention 41 Table 4.10: Pearson correlation matrix 43 Table 4.11: Model Summaryb 44 Table 4.12: ANOVAb 45 Table 4.13: Coefficientsa 45 vii LIST OF ABBREVIATIONS B2B: Business to Business B2C: Business to Consumer DONG TAM: Dong Tam Group EFA: Exploratory Factor Analysis MDC: My Duc Ceramics Limited Company VND: Vietnam Dong WHITE HORSE: White Horse Ceramics Company viii CHAPTER 1: INTRODUCTION 1.1 Rational of the study Infrastructure construction is one of top interests in Vietnam as well as other countries in the world Moreover, with high growing rate of urbanization and increasing demand for housing of middle class in society pushing up the construction of public works and high-floor projects by Government and investors Based on that, the building material industry in Vietnam get opportunity to develop and ceramic industry is not an exception with the quite stable growth in the last ten years According to Vietnam building ceramic association, the building material market has grown by 10%/year in the last 2000-2005 period and 20%/year in years after Therefore, Vietnam ceramic tile is an attractive market drawing investors in both domestic and overseas as its potential profits and has had the participation of 20 companies up to now In order to compete and grow in this competitive markets, each ceramic company must strongly focus on retaining existing customer, special for business customers who tend to be fewer in a number and each is more valuable, and gaining new ones as the more customers company has, the more profits it get Business is in a constant race to increase profits Therefore, ceramic companies should invest on retaining customers, especial for difficult times But striving to maintain unprofitable customers is not a good business strategy Companies should identify 20% of potential customers who bring 80% of profits to business In ceramics industry, agents are company representatives who create 80% of revenues to companies So we need a research to find the critical factors adjusting to their retaining Its aims to help organizations build effective customer retention strategy in a way that both firms and the customer get the most out of exchange, providing both parties with long term benefits 1.2 The statement of the problem Many previous studies have identified the benefits of retention to an organization (Colgate et al., 2007; Reichheld and Sasser, 1990) but relatively little research on B2B customer retention And although many companies have realized the economical advantage of keeping existing customers against acquiring new ones, almost ceramic PART 2: SERVEY OF CUSTOMER RETENION Please give your opinion about these issue following, assuming that you are going to It takes time and costs for learning about new Mov.1 products, services and processes of new suppliers You could spend money and time to change Mov.2 the business‘s plan or strategy when moving to new providers You may spend a lot of money and couldn‘t Mov.3 have the profit in the first time with new providers It takes time to convince customers to use or Mov.4 buy products of new providers It takes time to negotiation with new Mov.5 providers about supporting equipment, sales policy, etc It takes time and cost to invest on new Mov.6 equipment with new providers You will miss promotion programs of current Ben.7 providers You will miss benefit of loyal customer of Ben.8 Ben.9 current providers You will miss sales policy (commission, 61 agree Strongly Agree Neutral Disagree The measure of switching barrier disagree Code Strongly switch to other suppliers transportation, debit or payment term, sponsor, etc.) from current providers You will lose the business opportunities with Ben.10 contractors, architectors or designers who will be introduced by current providers You will lose business with customers who Ben.11 interest in products and/or services of current providers You will reduce the diversity of goods in your Ben.12 store You are familiar with current providers and Int.13 its products and/or services You have relationship with current providers Int.14 and its staffs You have to build personal relationships with Int.15 new providers You feel uncertain about whether other suppliers Att16 can deliver as well as this supplier and, if you choose another suppliers you not know what you will get The quality of products and services of new Att17 providers is better than that of current providers Business strategy, image and reputation of Att18 Att19 new providers is suitable for you New provider has sales policy (commission, transportation, debit or payment 62 term, sponsor, etc) better than current providers New providers want to create more favorable Att20 advantage for your business Overall, you feel difficult in switching to Gen.21 other providers You will continue to business with current Gen.22 providers You are likely to recommend the current Gen.23 providers to others Thank you for your time and your support 63 agree Strongly Agree Neutral Disagree The measure of customer retention disagree Code Strongly With the current providers, please give us your idea with the question below: APPENDIX 2: CRONBACH’S ALPHA ANALYSIS RESULT I Reliability 1.1 Move-in cost Case Processing Summary % N Valid Cases Excluded(a) Total 121 100.0 0 121 100.0 a Listwise deletion based on all variables in the procedure Reliability Statistics Cronbach's Alpha N of Items 896 Item Statistics Mean Std Deviation N mov1 3.4215 77192 121 mov2 3.3388 73659 121 mov3 3.3140 69562 121 mov4 3.2149 90560 121 mov5 3.2397 76403 121 mov6 3.3306 91641 121 64 Item-Total Statistics Scale Mean if Item Deleted Scale Variance if Item Deleted Corrected Item-Total Correlation Cronbach's Alpha if Item Deleted mov1 16.4380 11.198 667 885 mov2 16.5207 10.935 772 870 mov3 16.5455 11.133 780 870 mov4 16.6446 10.098 751 873 mov5 16.6198 11.138 690 882 mov6 16.5289 10.318 693 883 1.2 Benefit/loss-cost Case Processing Summary N Valid Cases Excluded(a) Total % 121 100.0 0 121 100.0 a Listwise deletion based on all variables in the procedure Reliability Statistics Cronbach's Alpha N of Items 843 65 Item Statistics Mean Std Deviation N ben7 3.3058 87410 121 ben8 3.2975 90041 121 ben9 3.2727 83666 121 ben10 3.4628 85675 121 ben11 3.3719 87685 121 ben12 3.2893 78992 121 Item-Total Statistics Scale Mean if Item Scale Variance if Item Corrected Item-Total Cronbach's Alpha if Item Deleted Deleted Correlation Deleted ben7 16.6942 9.614 816 777 ben8 16.7025 11.977 323 875 ben9 16.7273 9.917 794 783 ben10 16.5372 10.701 600 822 ben11 16.6281 10.352 652 811 ben12 16.7107 11.041 597 822 Must be deleted Ben8 because of not fulfill the requirement Here is the result after deliminating it 66 Reliability Statistics Cronbach's Alpha Based on Cronbach's Alpha Standardized Items 875 N of Items 875 Item-Total Statistics Scale Mean if Item Deleted Scale Variance if Item Corrected Item-Total Deleted Correlation Squared Multiple Cronbach's Alpha if Correlation Item Deleted ben7 13.3967 7.341 817 793 820 ben9 13.4298 7.597 798 778 826 ben10 13.2397 8.217 616 386 870 ben11 13.3306 7.773 703 495 849 ben12 13.4132 8.594 596 362 873 1.3 Interpersonal relationship Case Processing Summary N Valid Cases Excluded(a) Total % 121 100.0 0 121 100.0 a Listwise deletion based on all variables in the procedure Reliability Statistics Cronbach's Alpha 859 67 N of Items Item Statistics Mean Std Deviation N int13 3.1405 84957 121 int14 3.2727 87560 121 int15 3.3554 85498 121 Item-Total Statistics Scale Mean if Item Deleted Scale Variance if Item Deleted Corrected Item-Total Correlation Cronbach's Alpha if Item Deleted int13 6.6281 2.569 700 834 int14 6.4959 2.285 810 729 int15 6.4132 2.561 696 838 1.4 Attractiveness of alternatives Case Processing Summary % N Valid Cases Excluded(a) Total 121 100.0 0 121 100.0 a Listwise deletion based on all variables in the procedure 68 Reliability Statistics Cronbach's Alpha N of Items 863 Item Statistics Mean Std Deviation N att16 2.4215 87323 121 att17 2.6446 81506 121 att18 2.5537 84607 121 att19 2.2810 76619 121 att20 2.6694 86012 121 Item-Total Statistics Scale Mean if Item Deleted Scale Variance if Item Deleted Corrected Item-Total Correlation Cronbach's Alpha if Item Deleted att16 10.1488 6.844 786 806 att17 9.9256 7.603 652 841 att18 10.0165 7.816 563 864 att19 10.2893 7.241 817 803 att20 9.9008 7.557 613 852 1.5 Customer retention – General Case Processing Summary N % Reliability Statistics Valid Cases Excluded(a) Total 121 100.0 0 121 100.0 Cronbach's Alpha N of Items 772 a Listwise deletion based on all variables in the procedure 69 Item Statistics Mean Std Deviation N gen21 3.2231 82146 121 gen22 3.1570 83674 121 gen23 3.1488 86276 121 Item-Total Statistics Scale Mean if Item Scale Variance if Item Corrected Item-Total Cronbach's Alpha if Item Deleted Deleted Correlation Deleted gen21 6.3058 2.297 560 742 gen22 6.3719 2.136 627 671 gen23 6.3802 2.054 635 661 II Factor Analysis 2.1 Switching barrier KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy Bartlett's Test of Sphericity 841 Approx Chi-Square 1786.669 df 171 Sig .000 70 Total Variance Explained Extraction Sums of Squared Loadings Initial Eigenvalues Rotation Sums of Squared Loadings Component Total % of Variance Cumulative Total % % of Variance Cumulative % of Total % Variance Cumulative % 8.522 44.855 44.855 8.522 44.855 44.855 4.112 21.641 21.641 2.030 10.683 55.537 2.030 10.683 55.537 3.366 17.718 39.359 1.561 8.215 63.753 1.561 8.215 63.753 3.196 16.821 56.180 1.391 7.322 71.075 1.391 7.322 71.075 2.830 14.895 71.075 930 4.897 75.972 790 4.156 80.127 621 3.268 83.395 550 2.897 86.292 468 2.461 88.754 10 452 2.381 91.134 11 343 1.806 92.941 12 328 1.725 94.665 13 254 1.336 96.001 14 215 1.132 97.133 15 163 857 97.990 16 128 671 98.662 17 110 579 99.240 18 094 493 99.733 19 051 267 100.000 Extraction Method: Principal Component Analysis 71 Rotated Component Matrix(a) Component mov2 785 mov3 761 mov1 757 mov4 744 mov6 677 mov5 639 411 att19 899 att16 831 att18 684 att17 676 -.440 att20 626 ben7 823 ben9 797 ben11 730 ben10 651 ben12 510 496 int13 880 int14 831 int15 721 Extraction Method: Principal Component Analysis Rotation Method: Varimax with Kaiser Normalization a Rotation converged in iterations After dropped Ben 12, here is the result: KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy Bartlett's Test of Sphericity Approx Chi-Square 72 829 1697.256 df 153 Sig .000 Total Variance Explained Extraction Sums of Squared Loadings Initial Eigenvalues Component Total % of Variance Cumulative Total % % of Variance Rotation Sums of Squared Loadings Cumulative % of Total % Variance Cumulative % 8.137 45.206 45.206 8.137 45.206 45.206 4.085 22.694 22.694 1.906 10.588 55.794 1.906 10.588 55.794 3.322 18.457 41.151 1.539 8.549 64.342 1.539 8.549 64.342 2.968 16.487 57.638 1.385 7.693 72.035 1.385 7.693 72.035 2.591 14.397 72.035 923 5.127 77.162 741 4.115 81.277 618 3.434 84.711 490 2.723 87.434 461 2.560 89.994 10 407 2.259 92.254 11 332 1.845 94.098 12 297 1.650 95.748 13 216 1.199 96.947 14 165 918 97.865 15 130 721 98.586 16 110 611 99.197 17 094 521 99.718 18 051 282 100.000 Extraction Method: Principal Component Analysis 73 Rotated Component Matrix(a) Component mov2 787 mov3 765 mov1 762 mov4 745 mov6 680 mov5 653 att19 890 att16 823 att17 694 att18 664 -.437 att20 649 ben7 826 ben9 804 414 ben11 720 653 ben10 int13 881 int14 835 int15 722 Extraction Method: Principal Component Analysis Rotation Method: Varimax with Kaiser Normalization a Rotation converged in iterations 2.2 Customer retention Total Variance Explained Initial Eigenvalues Extraction Sums of Squared Loadings Component Total % of Variance Cumulative % Total % of Variance Cumulative % 2.061 68.714 68.714 2.061 530 17.656 86.370 409 13.630 100.000 Extraction Method: Principal Component Analysis 74 68.714 68.714 Component Matrix(a) Component gen23 848 gen22 842 gen21 796 Extraction Method: Principal Component Analysis a components extracted Rotated Component Matrix(a) Dummy category a Only one component was extracted The solution cannot be rotated 75 ... of Spain, Italia, and ceramic tile of England, Netherlands and Germany are all prominent landmarks in the history of ceramic tile Nowadays some countries in Asia such as Malaysia, Thailand, Indonesia,... relatively little research on B2B customer retention And although many companies have realized the economical advantage of keeping existing customers against acquiring new ones, almost ceramic companies. .. is a lack of research in the areas of evaluation of B2B customer retention in product sector in Vietnam Therefore, the purpose of this study is to determine critical factors of switching barrier