Essay: Loyalty and customer retention in the telecoms industry

Background
In a service oriented industry like the telecommunication industry, loyalty is of the greatest importance. Several studies have been conducted on the correlation between increased levels of customer retention to increased revenue and profits. Cultivating customer loyalty is one of the key goals of relationship marketing (Palmer, Dant, Grewal, & Evans, 2006). Various strategies and programs are implemented by service providers to ensure their customers stay loyal and to reduce the number of customers who switch their services to other service providers.
One of the many strategies adopted by telecommunication service providers to improve customer loyalty is to implement customer loyalty programs. Having a customer loyalty program does not automatically guarantee customer loyalty, but it does help an organization to get close to its customers through its customer engagement activities. This study is to investigate how an organization can increase customers’ emotional attachment through its loyalty program and how this emotional attachment affects customer loyalty.
The goal of these programs is to establish a higher level of customer retention especially in the high values customer segments by providing increased satisfaction to these customers (Bolton, Kannan, Bramlett).
Description of Interviews ‘ Variables
In 2010, Telekom Malaysia (TM) has launched a point based customer loyalty program called TM Rewards. A customer who enrolls in the program can accumulate points every time they pay their bills promptly. These points can be used for bill rebates or to redeem various redemption merchandises. The following are the program basic characteristics:
‘ Membership are offered only to Telekom Malaysia customers.
‘ Point rewards are given to members who pay their bills promptly.
‘ Members can use their points for bill rebate or for merchandise redemption.
‘ Rewards points expire after 3 years.
Two sets of interviews were conducted. The first set involved management personnel and operational personnel of TM Rewards. The second set of interviews involved two active TM Rewards members. The two sides of interviews will allow us to get information from two different perspective ‘ the organization view and the customers’ view.
Interviews with TM Rewards Personnel
The interviews cover the following areas:
1. Program objectives ‘ What are the program objectives and how does the company measure if the objectives are met?
The key objectives of the program are to have a closer engagement with customers and to develop a long lasting emotional attachment between customers and Telekom Malaysia.
TM Reward measure the effectiveness of the program is based on the following measurement criteria:
‘ Comparison on the behavior of customers who are TM Rewards members against the behavior of overall customers of Telekom Malaysia in term of average revenue per user (ARPU) and in term of payment behavior.
‘ Comparison on the percentage of program active members against the industry standard. TM Rewards defines an active member as a member who has at least made one contact with the program through its various touch points within one year.
2. Customer feedbacks ‘ How customer perceive the loyalty program based on their feedbacks and how the program can be improved based on these feedbacks?
Customer feedbacks provide valuable information on loyalty program effectiveness. Positive feedbacks enhances the value of the program whilst negative feedbacks represent potential problematic areas that need to be addressed. TM Rewards gets customer feedbacks from various touch points ‘ call center, customer self-service portal, service counters, email, social media, account managers and channel partners. Customers usually complaint about the negative experience they encounter such as difficulties in using the self-service customer portal, delay in getting redemption merchandise, incorrect point statement, and others. Since one of the goals of customer loyalty program is to enhance customer experience which can contribute to the overall effort of customer retention, customer complaints need to be addressed promptly and effectively.
3. Program improvement plans ‘ What kind of improvements are planned for the program?
A good customer loyalty program continuously improves its program based on customer needs and feedbacks. In the case of TM Rewards, one of the major constraints of the program from customer perspectives is the waiting time to accumulate enough points for redemption. This is due to the nature of the program reward scheme where most of the points collected by customers only come from the monthly bill payment they make. For example, the average bill of Telekom Malaysia customer is RM60 which translated to 60 points. A member will have to wait for a few months to have enough points before he or she can use the points for redemption. In order to address this problem, Telekom is embarking on a coalition program where customers can collect additional points from participating merchant partners. Other improvement plans include point plus cash redemption, engaging more program partners to provide soft benefits in the form of discount vouchers offered to TM Rewards members only, point exchange program where TM Rewards points can be exchanged with other point programs and the use of social media to improve program awareness.
Interviews with TM Rewards Active Members.
The following are the set of questions used to interview the two active loyalty members:
1. How long have you participated in TM Rewards?
2. Do you make sure you pay your bill promptly in order to collect points?
3. Do you constantly visit TM Rewards website?
4. How do you make use of your rewards points?
5. How do you feel about the program?
Based on the interviews, both members have actively participated in the program since it was launched.
One of the member claimed that he has been paying his bills promptly even before the program was launched and he still pay his bills on time. However, the second interviewee only started to pay his bill promptly since this program was started. Reason wise the second interview wants to collect the rewards point.
Both interviewees constantly visit TM Rewards to check point balance and make redemption.
The first interviewee only used his points to get bill rebates. The second interview used his points for both bill rebates and merchandise redemption.
Both interviewees feel happy about the program. The first interviewee said he likes the bill rebate concept because he can save money. The second interviewee said he like the program because he can save money and redeem merchandizes.
Problem Statement
Having a customer loyalty program does not translate to customer loyalty. In the telecommunication industry in Malaysia, most if not all of the players have implemented customer loyalty programs in one form or another. An understanding on the variables influencing customer perceived value of customer loyalty program could help an organization to continuously engage its customers with the goal of creating greater customer experience which may lead to customer loyalty. Boltan et al. (2000) suggested that customer motives for loyalty program participation and perceived value of a specific customer loyalty program are linked to each other.
Many organizations found that a lot of members do not continuously engage with the loyalty program. The problem occurs when the loyalty programs fail to treat their members as their core element. The first step to achieve the effectiveness of customer loyalty program is by looking at it from members’ point of view. The entire structure of the program needs to be based on both the organization as well as the customer objectives and perspectives.
Research Questions
In this research, we will analyze the effectiveness of a customer loyalty program from the customer perspectives, the following research questions are defined:
1. What are the objectives to create the customer loyalty program?
2. Why an organization want to have emotional attachment with its customers?
3. What are the factors influencing loyalty members emotional attachment to the loyalty program?
4. How does the members perceive the reward and redemption schemes?
5. How do active members contribute to the success of the loyalty program?
The findings could be used by the organization to develop a strategy to increase participation of non-active members.
Research Objectives
The research objectives of the study are:
1. To investigate the influence of emotional attachment between loyal customers and organization through loyalty program.
2. To investigate the relationship utilitarian motives and customer emotional attachment to the program.
Literature Review
In order to get detailed insights on how customer loyalty program affects customer loyalty, various literature on the subjects are used as references. The keywords used when searching for these literature are ‘customer loyalty program’, ‘loyalty program perceived value’, ‘reward scheme’, ‘loyalty program effectiveness’, ‘telecommunication industry loyalty program’.
According to Kreis and Mafael (2014), ”customer loyalty program design acts as a moderator on the relationship between customer motives and perceived value.’
Practitioners (Gaughan and Ferguson, 2005) distinguish the benefits of customer loyalty programs into two broad classes: hard benefits (such as monetary rewards) and soft benefits (such as recognition or belonging). These benefits will directly affect the value perception of customers towards the program.
Bolton, Kannan and Bramlett (2009) Jones suggested that there is a strong correlation between the loyalty program perception value and customer loyalty. They wrote that ‘the important implication is that perception of a value hypothesis and loyalty programs are complementary and are necessary to build a lasting relationship with customers’.
Theoretical Framework
This research theoretical framework is derived from literatures on relationship between customer loyalty program perceive value, and customer loyalty. Among the keywords used when searching for publication included ‘customer loyalty program’, ‘loyalty program perceived value’, ‘loyalty program emotional attachment’. The concept that customer loyalty program perceive value has a direct relationship on customer loyalty was mentioned by Bolton, Kannan and Bramlett(2009). The determinant factor on customer loyalty program values were explored by Kreis and Mafael (2014). By using the two studies and other literature, we use the following theoretical framework for this research:
Independent Variable Mediating Variable Dependent Variable
Figure 1: Theoretical Framework
The main dependent variable is Customer Loyalty. Emotional Attachment to Customer Loyalty Program is the mediating variable. The independent variable is Utilitarian Motive ‘ Financial Advantages.
Hypothesis
The empirical research is to provide insight into the issues of emotional attachment relates to utilitarian motive to loyalty program and service loyalty in Malaysian context. The following hypothesis will be tested in order to assist in meeting the research objectives:
H1 There is a direct relationship between utilitarian motive and emotional attachment to loyalty program.
H2 High emotional attachment to customer loyalty program induce customers to be loyal to the organization.