The relationship between service quality, customer satisfaction, service quality and customer loyalty A study in Telecommunication Industry of Laos

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MINISTRY OF EDUCATION AND TRANING MINISTRY OF EDUCATION AND SPORT NATIONAL ECONOMICS UNIVERSITY NATIONAL UNIVERSITY OF LAOS VIETNAM LAOS PADAPPHET SAYAKHOT THE RELATIONSHIP BETWEEN SERVICE QUALITY, CUSTOMER SATISFACTION AND CUSTOMER LOYALTY: A STUDY IN TELECOMMUNICATION INDUSTRY OF LAOS Specialisation : Industrial Management Code : 62340414 Supervisor : Assoc. Prof. Dr. Truong Doan The A dissertation Submitted to the National Economics University, Vietnam and National University of Laos in fulfillment of requirements for the degree of Doctor of Philosophy in Economics HANOI - 2015 i DECLARATION I hereby declare that this dissertation is my own work and effort. The dissertation has not been submitted anywhere for any award. All the sources of information used have been well acknowledged. Signature PADAPPHET SAYAKHOT ii ACKNOWLEDGMENTS The path toward completion of a doctorate is long and often times can seem quite arduous. Yet it has been an enriching and rewarding experience for me both professionally as well as personally. I would like to express my thanks and appreciation to the many that have encouraged and lifted my spirits along the way. I especially want to thank Associate Professor Dr. TRUONG DOAN THE, my principal supervisor, for his patient and proficient guidance. He has shared expertise in research methods, inspired me to generate new ideas, and encouraged me to become a higher level scholar. My family has also been especially supportive in my journey to pursue a doctorate. To my loving wife for the patience she demonstrated, and the encouragement she provided throughout the long process. My children were always there to express their love and appreciation for their dad. Last but not least, I also would like to offer a special thanks to my friends and colleagues within my business organization who have provided their support along the way.Furthermore, I could not complete this thesis without the assistances and supports from interviewee team and interviewers, please receive my deepthankfulness from my heart. i TABLE OF CONTENTS DECLARATION ....................................................................................................... i ACKNOWLEDGMENTS ....................................................................................... ii TABLE OF CONTENTSTable of contents ............................................................ i ABBREVIATION ................................................................................................... iv LIST OF FIGURES ..................................................................................................v LIST OF TABLE..................................................................................................... vi CHAPTER 1: INTRODUCTION ............................................................................1 1.1. Rationale ...........................................................................................................1 1.2. Research objectives ..........................................................................................4 1.3. Research questions ...........................................................................................4 1.4. Research framework .........................................................................................4 1.5. Research method ..............................................................................................5 1.6. Structure of the thesis .......................................................................................5 CHAPTER 2: LITERATURE REVIEW ON THE RELATIONSHIP BETWEEN SERVICE QUALITY, CUSTOMER SATISFACTION AND CUSTOMER LOYALTY .........................................................................................7 2.1. Background of service quality, customer satisfaction, and customer loyalty ..7 2.1.1. Service quality ...........................................................................................7 2.1.2. Customer satisfaction...............................................................................26 2.1.3. Customer loyalty ......................................................................................36 2.2. Review of theory on the relationship between Service quality, customer satisfaction and customer loyalty ..........................................................................38 2.2.1. Service quality and customer satisfaction ...............................................38 2.2.2. Service quality and customer loyalty.......................................................38 2.2.3. Customer satisfaction and customer loyalty ............................................39 2.3. Telecommunications and Telecommunication Service..................................40 ii 2.3.1. Telecommunications ................................................................................40 2.3.2. Telecommunication services ...................................................................42 2.3.3. The role of telecommunications in economic growth .............................44 2.4. Quality of Telecommunication Service and customer satisfaction and customer loyalty ...................................................................................................51 2.4.1. Quality of Telecommunication Service ...................................................51 2.4.2. Dimensions of Quality of Telecommunication Service ..........................55 2.4.3. Quality of Telecommunication Service, customer satisfaction and customer loyalty.................................................................................................57 CHAPTER 3: OVERVIEW OF TELECOMMUNICATION INDUSTRY IN LAOS ........................................................................................................................60 3.1. Background of Laos .......................................................................................60 3.2. Economy overview .........................................................................................61 3.3 Demographic Outlook .....................................................................................63 3.4. Overview of telecommunication industry in Laos .........................................66 CHAPTER 4: METHODOLOGY .........................................................................85 4.1. Overview of the research design ....................................................................85 4.1.1. Approaches of the research ......................................................................85 4.1.2. Research hypotheses ................................................................................86 4.1.3. Evaluation indicators for potential constructs .........................................86 4.1.4. Reliability and item analysis ....................................................................88 4.1.5. Exploratory factor analysis ......................................................................89 4.2. Main Survey ...................................................................................................90 4.2.1. Survey Sample .........................................................................................90 4.2.2. Questionnaires Development ................................................................92 4.2.3. Data collection ........................................................................................95 CHAPTER 5.: ANALYSIS AND RESULT ..........................................................97 5.1. Descriptive analysis of measurement scales ...............................................97 5.1.1. Descriptive analysis of customer satisfaction ............................................. 97 iii 5.1.2. Descriptive analysis of customer loyalty ..................................................... 97 5.1.3. Descriptive analysis of service quality ........................................................ 98 5.2. Exploratory factor analysis ...................................................................... 101 5.3. Reliability Analysis .................................................................................... 105 5.3.1. Reliability of telecommunication service quality measurement scale ... 105 5.3.2. Reliability of customer loyalty measurement scale.................................. 107 5.4. The relationship between telecommunications service quality and customer satisfaction ........................................................................................ 108 5.5. The relationship between telecommunication service quality and customer loyalty ................................................................................................ 114 5.6. The relationship between customer satisfaction and customer loyalty 119 CHAPTER 6. ........................................................................................................ 121 DISCUSSION, CONCLUSION AND RECOMMENDATION. ...................... 121 6.1. Discussion ............................................................................................................ 121 6.1.1. Service quality scale ..................................................................................... 121 6.1.2. Relationship between service quality, customer satisfaction and customer loyalty ....................................................................................................................... 122 6.2. Conclusion ........................................................................................................... 122 6.3. Recommendation ............................................................................................... 123 6.4. Limitation of the study and suggestion for future research ..................... 124 6.4.1. Limitation ...................................................................................................... 124 6.4.2. Suggestion for future research .................................................................... 124 REFERENCES ..................................................................................................... 126 APPENDIX: QUESTIONAIRES ....................................................................... 144 iv ABBREVIATION 2G Second-Generation wireless telephone technology 3G Third-generation technology 4G Fourth Generation ADB Asian Development Bank ADSL Asymmetric Digital Subscriber Line AM Amplitude modulation ASEAN Association of Southeast Asian Nations BMI CDMA Code Division Multiple Access EFA Exploratory factor analysis ETL Enterprise Telecommunications Lao FM Frequency modulation GMS Greater Mekong sub-region GNI Gross national income GSM Global System for Mobile Communications ISPs Internet service providers ITU International Telecommunication Union Lao PDR Lao People’s Democratic Republic LAT Lao Asia Telecom LDB Lao Development Bank LTC Lao Telecommunications MDGs Millennium Development Goals MPT Ministry of Posts and Telecommunications NPTA National Post and Telecommunications Authority NSEDP National Social and Economic Development Plan PAF principal axis factoring UN United Nations v LIST OF FIGURES Figure 1: Research Model ...........................................................................................4 Figure 2. Laos' population pyramid for 2011 ............................................................63 Figure 3. Mobile market growth (2006 – 2014)........................................................68 Figure 4. Fixed-Line MarketGrowth 2006 – 2011 ....................................................72 Figure 5. Fixed-Line MarketGrowth 2012-2014 ......................................................73 Figure 6. LaosInternetMarketGrowth (2003-2011) ..................................................75 Figure 7. LaosInternetMarketGrowth (2012-2015) ..................................................76 Figure 8. LaosBroadband Market Growth (2005-2011) ...........................................78 Figure 9. Laos Broadband Market Growth (2012-2014) ..........................................79 vi LIST OF TABLE Table 1. Summary previous models on dimensions of telecommunication services quality ........................................................................................................................56 Table 2: Laos' Population By Age Group, 1990-2020 ('000) ...................................64 Table 3: Laos' Population By Age Group, 1990-2020 (% of total) ..........................65 Table 4: Laos' Key Population Ratios, 1990-2020 ...................................................65 Table 5: Laos' Rural And Urban Population, 1990-2020 .........................................66 Table 6: Mobile market growth (‘000) .....................................................................69 Table 7: Laos Telecommunications Subscriber MixSubscriber Mix .......................70 Table 8: Laos Internet Market by Service .................................................................77 Table 9: Competitive Landscape ...............................................................................83 Table 10: Telecoms sector in Laos – Historical Data and Forecasts ........................84 Table 13. Summary of characteristics of the sample ................................................91 Table 11. Items of customer satisfaction and customer loyalty ................................93 Table 12. Items of telecommunication service quality .............................................94 Table 14. Descriptive Analysis of Customer Satisfaction Items ..............................97 Table 15. Descriptive Analysis of Customer Satisfaction Items ..............................98 Table 16. Descriptive Analysis of Service Quality Items .........................................99 Table 17. KMO and Bartlett's Test ........................................................................ 101 Table 18. Total Variance Explained....................................................................... 102 Table 19. Rotated component Matrix ..................................................................... 103 Table 20. Constructs measure telecommunication service quality in Laos ........... 104 Table 21. Item-Total Statistics ............................................................................... 105 Table 22. Item-Total Statistics ............................................................................... 106 Table 23. Item-Total Statistics ............................................................................... 106 Table 24. Item-Total Statistics ............................................................................... 107 Table 25. Correlation matrix of relevant variables ................................................ 108 vii Table 26. Model Summaryb ................................................................................... 109 Table 27. ANOVAa ............................................................................................... 109 Table 28. Coefficients ............................................................................................ 110 Table 29. Dummy variables ................................................................................... 111 Table 30. Model Summary..................................................................................... 112 Table 31. ANOVAa ................................................................................................ 112 Table 32. Coefficientsa ........................................................................................... 113 Table 33. Correlations ............................................................................................ 114 Table 34. Model Summaryb ................................................................................... 115 Table 35. ANOVAa ................................................................................................ 115 Table 36. Coefficientsa ........................................................................................... 116 Table 37. Model Summary..................................................................................... 117 Table 38. ANOVAa ................................................................................................ 117 Table 39.Coefficientsa ............................................................................................ 118 Table 40. Model Summaryb ................................................................................... 119 Table 41. ANOVAa ................................................................................................ 119 Table 42. Coefficientsa ........................................................................................... 120 1 CHAPTER 1. INTRODUCTION 1.1. Rationale Telecommunication technology plays a significant role in the flow of information. It is an extremely useful tool to spread knowledge and new ideas, which can reduce infrastructure development gap between people in rural and urban area. Furthermore, it can improve education, health care services, and encourage business activities. In addition, it also plays the crucial role in the national economic development, especially in the developing country like Laos. Therefore, telecommunication technology is a way that Lao government uses to generate revenue and create job opportunity for people. In addition, the Lao government aims to improve people living standard and increase the ability to compete in global trade for Lao business by giving priority to the development of telecommunication technology with the intention to promote sustainable development of the nation. In line with the new Economic mechanism, the Telecommunication sector in Laos was privatized at the year 1996 as a joint venture with a Thai investor (Shinawana International Public Company Limited). However, this telecom privatization policy has been revised due to the importance of a national telecommunications development strategy which is able to resolve keen issues such as digital divide among regions and the frequent telephonic traffic congestion caused by a deficiency in the nationwide telecommunication facilities (eg. switching and telephone line capacity and human resources) (MCTPC, 1982; MCTPC, 1990 &1995; MCTPC, 1990 – 2007). Besides, Lao P.D.R has a responsible position for promoting telecom development programs planned for the Greater Mekong sub-region (GMS). This development concept of GMS proposed by Asia Development Bank (ADB) and is applied to an area or regional development approach to GMS, promoting networks 2 among the six Mekong riparian countries, including supporting activities for a common standard of telecom services availability which is increasing in Laos. Telecommunication increased steadily from 2007 to 2011 (MCTPC, 2007 – 2011). At the present, there are five authorized enterprises which are providing fixed and mobile telecommunication services in Laos. All these providers have the government ownerships, including: Lao Telecommunication Corporation Limited (LTC) with Government of Laos (GOL) and Shinawatra (Thailand) share 51% and 49% of possession respectively; Enterprise of Telecommunication Laos (ETL) with GOL 100% but currently become to ETL public; Star Telecom (STL): GOL 51% and Viettel Global 49% (now has been renamed to Unitel); Million international cellular SA (now has been transferred to Vimpelcom Russia (Beeline): GOL 22% and Vimpelcom 78%; and SKY communication Laos (SKY) with private retort 100% (since 2010). The number of Internet service providers (ISPs) has grown from two forms in 1990s to about seven after nearly 15 years. They are STEA, ETL internet, Lao telecom Planet online, Lane Xang internet, Sky telecom KPL and Mill com. The entry of Million and Sky, the large shareholding by Shincorp, the operation of Planet and prevalence of Voice Over Internet Protocol (VOIP) operators show that private investors are willing to invest in Laos even under the current policies and regulatory regime (MPT, 2011). As a result, they face intense competition, including competition from sources not previously existing. Over 10 million Laos consumers own and use a mobile phone. The Laos government's recent restructuring of state owned monopolistic telecommunication system and further deregulation has led to a more open and free market system. Recent reports show that a cloud of uncertainty seems to be hanging over the whole Laos telecommunication market. Subscriber growth is weak after the market had gone backwards for a while. The providers are now operating in an environment where the regulator is keeping a tight hold on pricing and competition is in effect discouraged. A further problem emerging for the mobile operators is that 3 network performance is deteriorating across the board. This in turn highlighted two important issues – there has been insufficient investment by the operators in the areas of network maintenance and upgrades, and, secondly, there are obvious deficiencies in the regulatory environment in how the authorities apply and manage network performance standards. How does a firm survive under such turbulent conditions? Traditionally, mobile and land phone providers competed fiercely for new customers. In some countries, customers were provided with financial incentives to sign up or switch service from one provider to another. Over time, and with the increased saturation of the market, companies have come to realize their performance can improve by focusing more on retaining customers than constantly a conquest mode. As the Laos market provides an increasing range of opportunities for consumers, how can telecommunication service providers maintain customer loyalty? Those question require more research in Laos telecommunication context. A comprehensive survey of the literature reveals that the relationships between service quality, customer satisfaction, and customer loyalty have been examined by numerous scholars, in many studies conducted in varied business/services settings. These studies led me to look more closely at the possible positive role of service quality on customer satisfaction and customer loyalty as well as of customer satisfaction on customer loyalty. Additionally, in recent research in multinational telecommunication companies’ performance. Kommasith (2014) finds that cultural differences are one of the important factors affecting the performance of multinational telecommunication companies in Laos. That means although the relationships among service quality, customer satisfaction and customer loyalty has been well studied, there is a need to confirm each entity’s components and their relationship in different contexts. To date no published work on those relationship has been found in the context of telecommunication industry in Laos. 4 1.2. Research objectives This research aims to examine a model of relationships among service quality, customer satisfaction, and customer loyalty in the Laos telecommunication sector. That addresses the lack of research of these relationships in terms of research setting and provides information for telecommunication companies in Laos improving their performance and competitive abilities. 1.3. Research questions The following research questions have been addressed in this study: 1. Using a telecommunication services setting in Laos, what are the specific quality attributes that measure service quality, and influence customer satisfaction? 2. Using a telecommunication service setting in Laos, how service quality attributes and customer satisfaction influence customer loyalty? 1.4. Research framework Drawing from the literature on the relationships among service quality, customer satisfaction and customer loyalty. I proposed a research framework that describe the influences of service quality on customer satisfaction and customer loyalty and of customer satisfaction on customer loyalty (see Figure 1). Customer satisfaction H3 H1 Service quality Customer loyalty H2 Figure 1: Research Model 5 1.5. Research method After reviewing the literature which reveals that the relationships among service quality and customer satisfaction and customer loyalty has been studied by many researchers in various service fields including of telecommunication. Therefore, quantitative approach has been employed to confirm the relationship between service quality and customer satisfaction, service quality and customer loyalty, customer satisfaction and customer loyalty in Laos telecommunication setting. Data was collected in a survey of telecommunication customers in Vientiane, then was analyzed by SPSS 20. 1.6. Structure of the thesis This thesis comprises of six chapters. Chapter 1: Introduction (this chapter) has provided an overview of the research, in particular the research problem, research goals and research questions. In addition, the research method also has been identified. Chapter 2: Literature review on the relationship between service quality, customer satisfaction and customer loyalty discusses service quality, customer satisfaction, and customer loyalty in depth, and argues why these entities are worthy of investigation in Laos telecommunication context. Chapter 3: Overview of telecommunication industry in Laos briefly introduces the background of Laos’ economy and demography. This chapter focuses on reviewing the picture of Laos’ telecommunication industry. Chapter 4: Methodology provides explanation for and justification of the research approach used in this research. In particular, this chapter describes measurement scales of service quality, customer satisfaction and customer loyalty in telecommunication; analysis techniques; data collection. 6 Chapter 5: Analysis and result presents analysis procedures of collected data and the results. Main analyses are descriptive analysis, exploratory factor analysis, reliability analysis, and tests of proposed relationships Chapter 6: Discussion, conclusion, and recommendation provides overview of the key findings and identifies the theoretical and practical contributions that emerged from this research. This chapter also points out research limitations and suggestions for future research. 7 CHAPTER 2. LITERATURE REVIEW ON THE RELATIONSHIP BETWEEN SERVICE QUALITY, CUSTOMER SATISFACTION AND CUSTOMER LOYALTY The purpose of this chapter is to review and analyze previous research relative to the concepts of service quality, customer satisfaction and customer loyalty. Theory development in service quality over the past few decades has built upon earlier research that was initially conducted in the study of customer satisfaction models, most of which initiated with studies involving consumer satisfaction with products. This review of the literature seeks to identify and explain some of the key terminologies associated with service quality and customer satisfaction, including expectations and disconfirmation theory. Additionally, it will examine the differences and similarities in the constructs of perceived service quality and customer satisfaction, as well as investigate the degree and direction of causal links. The current research presents a basis for understanding the service quality and customer satisfaction constructs in the context of industrial technical field service. The following sections describe prior research from the service quality, customer satisfaction and customer loyalty literature, and seek to extend these concepts to the field service context, where heretofore very little attention has been placed. The dimensions of service quality will be examined relative to the existing literature and how they relate to the topic under study. The concept of customer expectations and its effect on the determination of perceived service quality and satisfaction will also be explored. 2.1. Background of service quality, customer satisfaction, and customer loyalty 2.1.1. Service quality 2.1.1.1. Conceptualization of Service Quality Service quality is a concept that has aroused considerable interest and debate in the research literature because of the difficulties in both defining it and 8 measuring it with no overall consensus emerging on either (Wisniewski, 2001). There are a number of different "definitions" as to what is meant by service quality. One that is commonly used defines service quality as the extent to which a service meets customers’ needs or expectations (cited in Dehghan, Zenouzi, & Albadvi, 2012). Service quality can thus be defined as the difference between customer expectations of service and perceived service. If expectations are greater than performance, then perceived quality is less than satisfactory and hence customer dissatisfaction occurs (Parasuraman et al., 1985; Lewis and Mitchell, 1990). The concept of service quality began to receive substantial attention in the early 1980s with the writings of Gronroos (1982; 1984), Lehtinen and Lehtinen (1982), Lovelock (1981) and others. The development of the SERVQUAL (Parasuraman et al., 1985, 1988) performance - expectations gap model, along with its subsequent refinements, played a key role in the establishment of an instrument for the evaluation of perceived service quality. Key criticisms of the SERVQUAL instrument on issues such as problems with difference scores and dimensionality inconsistencies across service environments were quickly pointed out by several researchers. This review will examine many of these criticisms. It will also as investigate alternative instruments used in the measurement of service quality, such as performance-only and subjective disconfirmation scales. 2.1.1.2. Perceived Service Quality Service quality has been equated to the customer's judgment about a providers overall excellence or superiority (Zeithaml, 1987). Consistent with the concept of excellence or superiority, Parasuraman et al. (1988) liken perceived service quality to being a global judgment, similar to an attitude, and relating to the superiority of a service. They contend that this form of attitude results from the comparison of expectations with perceptions of performance, and is related to but not equivalent to satisfaction. Building upon Oliver's (1980) proposition that satisfaction is a function of the disconfirmation of performance from expectation, Parasuraman, et al. (1985; 1988) subsequently put forward that service quality is a 9 function of the differences between expectation and performance along an established set of quality dimensions. In other words, they proposed that the differences between perceived performance and expected performance ultimately determine overall perceived service quality (Lee, Lee, & Yoo, 2000; Parasuraman et al., 1985; 1988). Bolton and Drew (1991a) explored how customers integrate their perceptions of a service to subsequently form an overall evaluation of that service. Their findings suggest that customer's prior expectations, along with their perceptions of current performance, coupled with their disconfirmation experiences affect their satisfaction or dissatisfaction with a service. This in turn affects the customer's assessment of service quality. According to Parasuraman et al. (1985, p.46) a customer perceives service quality as "a function of the magnitude and direction of the gap between expected service and perceived service". Gronroos (1988), moreover, contends that customers often perceive quality in a much broader sense than do service providers. Therefore, quality within a service organization must be defined in a manner consistent with the way customers define it, so as not to spend time, effort, and resources inefficiently, by following ineffective courses of action. Bolton and Drew (1991b), however, assert that customers' attitudes about service depends largely on their prior attitudes, modified by their perceptions of current performance, along with their prior expectations about performance, and the discrepancy between those expectations and the subsequent perceptions of service quality — suggesting the overall importance of performance. They further conclude that attitudes are affected substantially by the assessment of performance and to a lesser extent by disconfirmation. O'Neill and Palmer (2003) likewise assert that customers' perceptions of service quality are significantly influenced by their past experience, or lack thereof, relative to a particular service product. An experimental design study utilizing college students and an amusement park confirmed their hypothesis. 10 2.1.1.3. Dimensions of Service Quality Johnston (1995) argues that the determinants (or dimensions) of service quality should be a central concern for service management, as well as for academics and practitioners, in that it is necessary to identify these determinants in order to be able to specify, measure, control, and improve service quality as perceived by the customer. Schneider and White (2004) explain that if a researchers sole goal is to predict other constructs, for instance, satisfaction, or behavioral intentions, with a service quality measure, an overall service quality measure would be sufficient. If, however, the primary objective is to manipulate service quality, it is essential to identify the various aspects that might be potentially influenced to affect the overall judgment. These factors are in essence the dimensions of service quality. Most conceptualizations of service quality thus far have considered the service quality construct to be multidimensional. As such it is reasoned that service quality associated with industrial technical field service should likewise be viewed as a multidimensional construct. Gronroos (1988) posits that the quality of service, as perceived by the customer, has two dimensions; a technical — or outcome dimension, and a processrelated dimension. Gronroos (1988) further suggests that the outcome dimension, or technical quality of the outcome, can be measured rather objectively by the customer, since it is what he/she is left with at the end of the process. The functional quality of the process itself, on the other hand, cannot be so readily measured and is often perceived quite subjectively by the customer. The behavior of a maintenance technician, for instance — how he or she performs the necessary tasks, what they say and how they do it — all influences the customer's perception of the service (Gronroos, 1988). Gronroos (1988) identifies six criteria of good perceived service quality to be used as guidelines for empirical and conceptual research: professionalism and skills, attitudes and behaviors, accessibility and flexibility, reliability and trustworthiness, recovery, and reputation and credibility. He classifies professionalism and skills as
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