Determinants of customer loyalty in mobile telecommunication sector A case of VinaphoneDeterminants of customer loyalty in mobile telecommunication sector A case of Vinaphone

v ABSTRACT This study evaluates and investigates the relationships between the quality service of Vietnam’s mobile carrier, the customer satisfaction and customer loyalty.. The academic

TRƯỜNG ĐẠI HỌC MỞ TP.HCM

HO CHI MINH CITY OPEN UNIVERSITY

UNIVERSITEÙ LIBRE DE BRUXELLES SOLVAY BRUSSELS SCHOOL MBAVB4

TRAN ANH TUAN

MOBILE TELECOMMUNICATION SECTOR

A CASE OF VINAPHONE

MASTER PROJECT MASTER IN BUSINESS ADMINISTRATION

(PART-TIME)

Ho Chi Minh City

(2011)

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STATEMENT OF ORIGINAL AUTHORSHIP

I certify that the substance of this thesis has not already been submitted for any degree and is not currently being submitted for any other degree or qualification

I also certify that, to the best of my knowledge, any help received in preparing this thesis, and all sources used have been acknowledged in this thesis

-

Tran Anh Tuan

March 5th, 2012

Next, I own particular thank to my supervisor, Dr Le Thai Thuong Quan, for his valuable advice, recommendations and comments in earlier draft of my thesis

I wish to thank Mr Le Xuan Hien from Service Development Center of Vinaphone for useful information about mobile telecommunication service in Vietnam, especially Vinaphone context

In the process of data collection for this research, many people contributed to the task and I am particularly grateful for their contributions, especially Mr Le Xuan Hien and his colleagues from Vinaphone, Mr Tran Dang Khoa and my colleagues from NEO company

Finally, to my family, I would like to express my deepest gratitude to my beloved parents who give me a great encouragement for everything I want to do My loving thanks to

my wife and children for their love and support This thesis is the dedicated gift for them all

Tran Anh Tuan

March 5th, 2012

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SUPERVISOR’S COMMENTS

The topic has practical meaning and the author has successfully shown the ability to do

a marketing/behavioral research For this, the author has conducted a customer survey and used a very modern technique to analyze and test the hypothesis In overall, the presentation

is clear and the thesis is up to the standard I approve for the public presentation

-

Le Thai Thuong Quan

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ABSTRACT

This study evaluates and investigates the relationships between the quality service of Vietnam’s mobile carrier, the customer satisfaction and customer loyalty These relationships were tested using a sample of 284 mobile users in HCM City The result indicates that the call quality and convenience of procedure and support are the major factor that makes customers satisfied and loyal to mobile carrier The switching cost of does not affect customer loyalty In addition, factors of customer age and education level and income groups have significant difference on customer satisfaction through convenience of procedure and customer support Implications for managers and directions for future research are also discussed

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TABLE OF CONTENTS

STATEMENT OF ORIGINAL AUTHORSHIP ii

ACKNOWLEDGEMENT iii

SUPERVISOR’S COMMENTS iv

ABSTRACT v TABLE OF CONTENTS vi

LIST OF ABBREVIATIONS ix

LIST OF TABLES x

LIST OF FIGURES xi

Chapter 1 : INTRODUCTION TO THE STUDY 1

1.1 Rationale of the study 1

1.2 Research objectives 2

1.2.1 Research questions 2

1.2.2 Research objectives 2

1.3 Methodology 2

1.4 Scope and Limitations 3

1.5 Implications of research 3

1.6 Structure of the study 4

1.7 Conclusions 4

Chapter 2 : INTRODUCTION TO VIETNAM MOBILE SERVICE MARKET 5

2.1 Overview of Vietnam’s mobile telecom service market 5

2.2 Vinaphone’s profile 9

2.2.1 Brief of history 9

2.2.2 Vinaphone’s Strategy 10

2.2.3 Infrastructure and network coverage 11

2.2.4 Distribution and support system 11

2.2.5 Services and value-added services 12

2.2.6 Price structure & Promotion 13

2.2.7 Achievements 14

2.3 Conclusion 15

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Chapter 3 : LITERATURE REVIEW 16

3.1 Definition of services 16

3.2 Perceived service quality and customer satisfaction 17

3.3 Customer loyalty 19

3.4 Switching barrier 21

3.5 The testing model and hypotheses 22

3.6 Conclusion 24

Chapter 4 : RESEARCH METHODOLOGY & DESIGN 25

4.1 Research methodology 25

4.1.1 Research approach 25

4.1.2 Research processes 26

4.2 Research Design 27

4.2.1 Research model 27

4.2.2 Questionnaire 28

4.2.3 Data collection 30

4.3 Data analysis 31

4.3.1 Data analysis processes 31

4.3.2 Descriptive statistics analysis 31

4.3.3 Testing model and hypothesis checking 32

4.3.4 The effect of demographic characteristics 33

4.4 Conclusion 33

Chapter 5 : DATA ANALYSIS AND FINDINGS 34

5.1 Descriptive analysis and findings 34

5.1.1 Data collecting result 34

5.1.2 Evaluation of perceived service quality, satisfaction and loyalty 37

5.1.3 Evaluation of switching barrier 40

5.2 Quantitative analysis and findings 41

5.2.1 Assessment of measurement scale 42

5.2.2 Factor analysis 44

5.2.3 Hypotheses and Testing model 45

5.3 The impact of demographic variables 49

5.3.1 T-test for the variable having two group 50

5.3.2 Testing for multiple groups variables 50

5.4 Conclusion 52

Chapter 6 : CONCLUSIONS AND RECOMMENDATIONS 53

6.1 Conclusions related to research questions 53

6.1.1 Service quality measurement 53

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6.1.2 Factor of customer loyalty 54

6.1.3 Effect of demographics 54

6.2 Recommendations of the research study 54

6.2.1 Recommendations for Vietnamese mobile carrier 54

6.2.2 Recommendations for Vinaphone 55

6.3 Limitations and recommendation for further research 55

REFERENCES 57

APPENDIX 1: QUESTIONAIRES (VIETNAMESE) 59

APPENDIX 2: QUESTIONAIRES (ENGHLISH) 62

APPENDIX 3: FACTOR ANALYSIS 65

APPENDIX 4: DEMOGRAPHICS TEST 73

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LIST OF ABBREVIATIONS

x

LIST OF TABLES

Table 3 - 1: Theoretical mobile customer loyalty model 23

Table 4 - 1: Variables definition and measurements 28

Table 5 - 1: Statistics of respondent characteristics 35

Table 5 - 2: Statistics towards mobile carriers (per cent of using) 36

Table 5 - 3: Statistics on service quality, customer satisfaction and customer loyalty 39 Table 5 - 4: Statistics on switching barrier effect 41

Table 5 - 5: Cronbach's alpha of the scale of the survey 42

Table 5 - 6: List of factors 45

Table 5 - 7: Path coefficients of the structural model 47

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LIST OF FIGURES

Figure 2 - 1: Number of mobile phone subscriber 6

Figure 2 - 2: Mobile phone subscribers per 100 inhabitants 7

Figure 2 - 3: Basic mobile services revenue 7

Figure 2 - 4: Vietnam’s mobile telecommunication market shares 8

Figure 2 - 5: Asian churn rate vs prepaid penetration in 2011 9

Figure 2 - 6: Vinaphone revenues per year (Source: Vinaphone) 14

Figure 2 - 7: Vinaphone active subscribers per year (Source: Vinaphone) 14

Figure 4 - 1: Research processes 26

Figure 4 - 2: Proposal research model 27

Figure 4 - 3: Data analysis processes 31

Figure 5 - 1: Unstandardized estimates of the SEM model 47

Figure 5 - 2: The results of the SEM model 48

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1.1 Rationale of the study

In recent years, Vietnam mobile telecommunication sector has made a boom in many aspects, from the development of services and technologies to the growth of the market, of the provider’s business and of the number of subscribers Many new technologies have been applied to Vietnam as GSM, CDMA and 3G The newest technology of 4G is also being tested After 5 years from 2006 to 2011, the number of subscribers increate from 4.4 million

to 117.6 million The increase of mobile subscribers help Vietnam gained the eighth position

in terms of mobile phone subscriber development density from ITU in 2010 Until now, the mobile market has the participation of six providers with two of them are private company, breaking the monopoly previously The development of mobile telecommunication make the service is considered a luxury become popular with people

With above achievements, Vietnam mobile telecommunication still opens many opportunities for suppliers According the survey of MIC, the number of Vietnam mobile users was over 30.23 million mobile users in total nearly 86 million inhabitants It means the market is still open with about 2/3 of the population, corresponding to over 50 million people, not using mobile services

Besides above achievements, Vietnam mobile market has faced many difficulties and challenges After a quick development, the number of new customers per month tends to decline With more providers, the market becomes more competitive The price war has made the ARPU decrease much lower than others countries Specially, the ratio of customer churn is over 10%, and this index is even higher in real These difficulties forced the vendors

to find solutions to retain customers

The academic researches show that problems of customer retention in mobile telecommunication sector involve its service quality, customer satisfaction and customer loyalty To get the right solution, mobile carrier shall identify, measure level of the response

ò their services, determine the level of customer satisfaction, and identify the determinants of customer loyalty, from which to find the appropriate solution for customer retention

How do the customers of Vinaphone and other carriers perceive the service quality of their provider? How much do they feel satisfy? How much do their loyalty toward the operators

What are determinants of customer loyalty in Vietnam mobile market?

What are the differences between customer behaviors toward loyalty base on their demographic characteristics?

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secondary data and group discussion to build the measurement of mobile service quality and the trend of customer churn The primary research is implemented by quantitative methodology with a survey and data analysis by SPSS and AMOS software

The survey was chosen as a research technique in this study to measure and identify the determinants of customer loyalty The survey is carried out with the participation of university students, customers in transaction with Vinaphone’s shop, and internet users who use mobile phone Descriptive analysis is applied to measure the perceived service quality of mobile carriers Cronbach’s alpha and Exploratory Factor Analysis (EFA) of SPSS software, Confirmatory Factor Analysis (CFA) and SEM mode of AMOS software are used for factor analysis, hypotheses checking and measure the demographic characteristics effect

1.4 Scope and Limitations

The primary research carried out base one the measurements of previous research of Kim M K et at (2004) and Ky (2007) The customer loyalty is evaluated by group of customer satisfaction and switching barrier variables The measurement of the study has limited observed variables It is sure that the measurement could not reflect all the factors that influence customer loyalty

According to the original goals of the study, the survey’s participants are people who are using mobile phones, and they are classified into groups according to the province of Vietnam Due to the limited resources, the study only focuses on students of universities and customers on transaction with Vinaphone in Ho Chi Minh City These limitations also affect

no less to the general results of the study

1.5 Implications of research

The study brings practical implications for the mobile telecommunications service provider Firstly, the result help Vinaphone and others understand the customer evaluation with their services, from which they build plan to improve their services Secondly, the study identifies the determinants of customer satisfaction and customer loyalty It also point out the effect of demographic characteristics on factors of customer loyalty The above information helps the mobile carriers to build customer loyalty and appropriate strategy for each

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customer segment

1.6 Structure of the study

This research is structured into 6 chapters Chapter 1 introduces the research including research background, research problem, research questions, research objectives and methodology of the research Chapter 2 provides an overview of Vietnam mobile telecommunication service market and particularly the Vinaphone context Chapter 3 make a tour of literature review of customer loyalty in mobile telecommunication services Chapter

4 discusses methodology utilized in the research Chapter 5 analyses the data collected and presents the findings of the research Chapter 6 points out conclusions and the implications

of the research in the world of business administration

1.7 Conclusions

This research measures and identifies factors effect customer loyalty in mobile telecommunication sector in Vietnam This research is designed as a combination of descriptive and quantitative research in which a sample of 284 interviews of mobile users in

Ho Chi Minh City

Gathered data will be processed by computer, using both SPSS and AMOS software Descriptive statistical techniques will be applied to measure the customer’s perception of service quality of mobile carriers in Vietnam Factors analysis and SEM model are built to find the factors and their effect on customer loyalty (chapter 5) The conclusions related to research question and recommendations for mobile carrier is presented in the final chapter (chapter 6)

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MOBILE SERVICE MARKET

2.1 Overview of Vietnam’s mobile telecom service market

In recent years, Vietnam’s mobile telecommunications service market has made a great progress showing by the number of service providers as well as the number of

subscribers using the service By the end of 2011, the market has the participation of six service providers including Vinaphone (VNPT), Mobifone (VMS-VNPT), Viettel (Viettel Group), S-Fone (SPT), Vietnamobile (Hanoi Telecom Corp.), E-Mobile (EVN Telecom) and Beeline (Gtel) with 117.6 million mobile subscribers (Source: General Statistics Office)

In 1993, Mobifone was the first GSM mobile telephony services provider in Vietnam and had been run under cooperation between Mobifone and Comvik, a subsidiary of

Millicom International Cellular SA (Sweden) After 3 years, Vinaphone was established as the first 100 percent state-owned company in 1996 In July 2003, S-Fone joined the mobile market and was the first CDMA technology A short time later, Viettel mobile network was founded in October 2004, and Viettel is a first military-run telecom company in Vietnam with strong points of the army After that, other mobile networks appeared one after another include: E-mobile in May 2006, HT Mobile in January 2007 (change to Vietnamobile in 2009), and Beeline in July 2008

At the beginning, Vietnam mobile carrier deployed both GSM and CDMA technology Three major networks, Mobifone, Vinaphone and Viettel use GSM, while S-Fone, HT Mobile and E-Mobile use CDMA After one year of operation, HT Mobile switched to GSM technology and changed its name to Vietnamobile in April 2009 Until now, there is only S-Fone and E-mobile using CDMA technology E-mobile is acquired by Viettel in January

2011 Thus, in near future GSM is the ones dominates completely in Vietnam

In general, the development of Vietnam has gone through three stages, including development, growth and maturity stage The development stage begins in 1993 to end in

2004 when three main operators (Vinaphone, Mobifone and Viettel) and one CDMA

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operator (S-Fone) entered the market During 10 year, the market reaches totally 4.4 millions

of mobile subscribers and operators took time to preparing for future by completing their service infrastructures and expanding the network coverage

The second stage begins in 2005 when the number of mobile subscriber exceeds the number of fixed phone subscriber with the ratio 57% over 43% At the end of 2006, the number of subscriber was over 18 million, up threefold since 2004 After that, the ratio of increased subscriber was over 2 digits each year and the revenue rose over 40% for many years At the end of 2010, the number of subscriptions was over 111 million, it was over 5 times of the number of subscribers in 2004 The Vietnamese mobile market continues to expand with the new entrants, E-mobile (EVN Telecom), HT Mobile and Beeline The entrance of new players has increased competitiveness in the market Cheaper service prices and rapidly expanding coverage have made the market more accessible to the subscribers, even to the low-income users Prices have been cut off by years and are in tendency to be adjusted more, allowing mobile services to penetrate into the low-income population, attracting more potential users

There were some signs that the mobile market in Vietnam are getting into the maturity stage One of the signs is the falling of the number of subscribers grows by year From 2006

to 2008, the number of new customer increased more than 20 million each year, but this number decrease to 17 million in 2010 At the end of 2011, the number of mobile subscribers

is 117.6 million, so the new subscribers were only 1.9 million, much smaller than previous years

Figure 2 - 1: Number of mobile phone subscriber

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Figure 2 - 2: Mobile phone subscribers per 100 inhabitants

Figure 2 - 3: Basic mobile services revenue

(Source: Vietnam ICT White book 2011)

Today, the mobile telecommunication market shares is quite stable with three majors, military-run telecom group Viettel accounted for 36.72% of the market, followed by Mobifone with 29.11% and Vinaphone with 28.71% Other small providers, including S-Fone, E-mobile (EVN Telecom), Vietnamobile and Beeline, accounted for only 5% The mobile market is more competitive now, so that customers could easily choose their providers, and the operators will try to retain their subscribers because it will be difficult to develop new ones

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Figure 2 - 4: Vietnam’s mobile telecommunication market shares

(Source: Vietnam ICT White book 2011)

Besides the competitive environment and decrease in new subscribers, operators have

to face with the sharp fall in ARPU over the years According to Business Monitor

International (BMI), the mobile ARPU in Vietnam averaged at $5 in 2010, down from $5.52

in 2009 The mobile ARPU reached US$6 in 2008 and $6.5 in 2007 It also predicted the ARPU will fall to US$4.49 in 2011 before decreasing to US$3.51 by 2015 MIC reported that Mobifone has had the largest ARPU in Viet Nam, followed by Vinaphone Viettel ranked third despite having the largest market share

There are many reason of ARPU decline One of the reasons relates to the impact of the economic slowdown on customer spending patterns Another more important one is the competition in charge cuts, which were introduced by the leading mobile operators over years The fall in mobile ARPU is also determined by the amount of prepaid subscribers Vietnam mobile market has about 70%-80% of prepaid subscribers A report of MIC in June

2008, this ratio is about 90% prepaid over 10% postpaid

To improve mobile ARPU, an India’s telecommunication cooperation, IMImobile, pointed out value-added services will increase mobile ARPU The experience of developed countries shows revenues gained from voice services will proceed to totally free for users, but 85% of their revenue comes from services and information content Vietnam’s mobile carriers have deployed many services on 3G technology With more than 12.8 million of 3G subscribers (MIC, Jan 2012), mobile services promise to thrive in the future

in accordance with the market

Figure 2 - 5: Asian churn rate vs prepaid penetration in 2011

2.2 Vinaphone’s profile

2.2.1 Brief of history

In 1996, the company is established with the name GPC which the mission to manage and exploit 3 services: GSM mobile services, Paging service (P) and Card-based phone services (C) Paging network was stopped operating in September 2004 by VNPT due to the fact that it was no longer suitable for the market after ten years in operation

A subsidiary company of Vietnam Posts and Telecommunications Group, Vinaphone was officially established on June 26, 1996 as a nationwide mobile phone network using next generation and modern GSM technology, with an eye towards creating healthy competition in Vietnam's mobile communication market By the end of 2000, Vinaphone had completed its coverage of nearly all residential areas, industrial zones, highways, tourism spots and border-gates throughout the country

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Many popular new services such as prepaid mobile phone service and international roaming have been launched Vinaphone was the first mobile operator in Vietnam to launch 3G services in the country

In 2006, Vietnam officially became the 150th member of the World Trade Organization (WTO) The name GPC was changed into Vinaphone and the new logo was introduced The new logo was made of water-drop circles connecting to one another softly but closely and meaningfully The water-drops connecting to one another express the connectivity and spreading, which are business characteristics of Vinaphone The image of three connecting water-drops creates a stable and powerful posture (Source: Vinaphone website)

2.2.2 Vinaphone’s Strategy

The vision of Vinaphone is to be the leading mobile network in Vietnam and stays close anywhere with our customers Their vision also shows in the slogan “Available everywhere” To bring the vision into reality, Vinaphone established their missions are trying their best to apply advance telecom technologies effectively, expanding their mobile network anywhere and making make a great contribution to the socio-economic developments of Vietnam

Higher than the vision, Vinaphone desired to contributes values toward future of community – human value, communication value and Vietnamese spiritual value First, the best value that Vinaphone want to deliver is human value by bringing the best services to our customers, upgrading material and spiritual life of our employees, making interest to our partners and making contribution to create benefits for the whole community All is

"because of human, toward the human and among human being” Then, the wide telecommunications network coverage allows people living everywhere in Vietnam to connect easily with each other and to bring them closely together by sharing experience, emotion, success and knowledge Finally, Vinaphone is the pioneer in expanding mobile information in remote regions in Vietnam We are doing business to provide good services in order to promote local socio-economic developments, not just for profit only

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2.2.3 Infrastructure and network coverage

To be the first state-owned mobile service provider, Vinaphone was substantial

infrastructure investment to meet the target of nationwide coverage By the end of 2011, Vinaphone has 23.500 base transceiver stations (BTS) nation-wide, a mobile infrastructure with more than 50 million account capacity Its Short Message System is considered the largest system in Vietnam with the bandwidth of 30 million messages per hour Vinaphone network coverage is regarded as the second after Viettel (50,000 BTS) (Source: MIC

website)

Upon introduction of 3G services, Vinaphone is the first mobile carrier deployed 3G services national wide In 2009, Vinaphone had installed the number of 6,000 BTS and expanded to 10,000 BTS by the end of 2011 Comparing with 17,000 3G BTS of Viettel, Vinaphone has gotten the second position in 3G services providers

2.2.4 Distribution and support system

Vinaphone has three centers with the task of management, operation, and service development corresponding with three regions of Vietnam: the Northern, the center and the southern Each center has collaborated with 64 provincial VNPT companies to provide services Along with the cooperation of 64 provincial VNPT companies, each province has

at least one transaction office, big city like Ho Chi Minh City and Ha Noi has nearly 20 points Totally, Vinaphone has transaction office nationwide with more than 200 transaction office These transaction points are also the supporting point of Vinaphone

Besides the official transaction office, Vinaphone has thousand of retailers which is developed by each provincial VNPT, example Ha Noi VNPT has developed the retail system with 5,400 retail points

In term of support system, Vinaphone developed three supporting system, include voice system (hotline), website and transaction office Voice system consist three support lines as 9191, 9192 and 18001091 The first one is consultancy service for national customers, the second line is consultancy service for international customers, and the last one includes automatic answering system and manual answering system to support direct sales

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channel, urgent requests for cutting and settle claims in the process of consultancy

2.2.5 Services and value-added services

Vinaphone offers the basic services including voice and SMS between subscribers Voice service includes prepaid, postpaid, long-term prepaid, 356 day prepaid services which depend on payment type

Besides the basic services, Vinaphone is considered as the leader in value-added service (VAS) provider The VAS services are divided into following catalogues:

Voice VAS service include: short dialing, international call, international roaming, national roaming, call forwarding, call restriction, call holding, call waiting, voice mail, fax data, calling line identification, calling line identification presentation,

Internet services: Mobile internet for mobile phone, ezCOM for USB 3G

Entertainment service: share & download game, image, ringtune, video, : Ringtunes, Vshare, 9292 , Linh Trieu Binh Ca VinaBox, FunTalk, VStore, Chacha, Vclip, V-live, Lottery service

Information services : 9108, VinaStock, Vnsport, Infoplus, Infor360, promotion information searching

Utilities services include: MMS, MCA, CallMeBack, Data safe, Call block, EZmail, Nokia Chat & Push maill

Value-added services: Music Gift, Say2Send, Voicemail

Payment services include: Advance Payment, EZpay, 2Friends, Topup, E-Topup, E-load, Momo, Smart Topup,

SMS to operator: 996, 997, 8XXX, 1900XXXX

Being the leader in 3G services, Vinaphone has deployed many 3G services, include: Video Call (call seeing the picture between the subscribers of VinaPhone), Mobile Camera (live view image status of intersections), advanced entertainment services such as Mobile

TV (watch live TV channel 15 on your mobile), and the 3G Portal (the world of information

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and entertainment on your mobile phone)

In 2009, Vinaphone joined the Conexus Mobile Alliance to develop and enhance international roaming and coorperate mobile services across Asian This coorperation bring the great opportunities for Vinaphone subscribers to use cheap and convinent roaming and VAS services in future

2.2.6 Price structure & Promotion

Base on two type of payment, Vinaphone has a reasonable and flexible price structure for users Firstly, postpaid starts when you pay a registration Then you will pay monthly subscription fee and the charge base on your monthly usage Vinaphone also proposes some bill packages that you could choose, basic package for every on use postpaid subscription, colleague package for group of student who talk to each other much, family package for family members You could select the individual package which set a fixed payment per month Most postpaid packages are cheaper than the basic ones

Secondly, prepaid brings more conveniences to customers, especially young customers who have the need to use mobile phone in a short time and do not like complicated registration procedures It is also suitable for organizations which want to control calling fee

of their employees In spite of convenience, prepaid charged for each call will be higher compared with postpaid

Prepaid users can choose any kind of cards: Vinacard with many level of value from 10,000 VND to 300,000VND; Vinadaily alllows users pay daily subscription charge, Vinatext for sending SMS only, etc For each kind of prepaid payment, there is a specific tariff for it and user can easily choose one of them for herself

In term of VAS services, each service has its own rate You only have to pay the services you registered and the charge will be pay immediately (prepaid) or accumulated into the monthly bill (postpaid)

Besides a reasonable price structure, Vinaphone offered promotion in some special holidays or special occasions like launching new services The promotions mainly offered to

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prepaid customers by giving more value of card, add more using days, free charge for some services, etc With postpaid users, promotions usually giving more time to use some services, discount amount of time or money Vinaphone has point-counting mechanism for customer care Awarding points of customers are calculated based on the service use time, charge arisen, package subscribed (for postpaid subscribers) or value of the card (for prepaid subscribers) Accumulated points of customers can be converted into gifts under regulations

of the program

2.2.7 Achievements

Being the pioneer of applied technology and development services, Vinaphone has achieved much successful in both revenue and network penetration The revenue has increase stable from 2006 to 2010, but tend to go down in 2011 Specially, the revenue of 2011 consists 40% of non-voice services (Source: Vinaphone) This shows the downward trend of the mobile market

Figure 2 - 6: Vinaphone revenues per year (Source: Vinaphone)

Figure 2 - 7: Vinaphone active subscribers per year (Source: Vinaphone)

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In addition to the success of sales, Vinaphone has won the top award by customer such

as "Mobile network with the best non-voice services in 2008" (Vietnam Mobile Award (VMA) - 2008), “Award for the best post-paid services providing and award for the best new services” (ICT Award 2009 Ceremony), "3G network of highest potential in 2009" (VMA 2009), etc

Besides the advantages and successes, Vinaphone also faces the problem of competitive and downward market, decline in revenue, and high churn rate Solving these problems is the motivation of this study

2.3 Conclusion

This chapter presented the current status of Vietnam mobile telecom service market The mobile carriers have applied modern technologies, expanding network and distributed systems Since then they reached many results about the number of users as well as revenue However, the market has also appeared on many issues need resolving such as the decrease

in new subscribers, the fall of ARPU by recent price war, specially the extremely high ratio

of customer churn Finding the solution for customer loyalty is the mission of mobile carriers, especially Vinaphone

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The chapter 1 represented the introduction of the study, includes rationale of the study and its objectives Chapter 2 gives the overview of Vietnam mobile service market and its opportunities and challenges This chapter tends to summarize the theoretical basis of customer satisfaction and customer loyalty This chapter consists three parts, (1) Definition

of services, (2) perceived service quality and customer satisfaction, (3) Customer loyalty, (4) Switching barrier, (5) The testing model and hypotheses

is produced, and sometimes other customers are also present or involved, their behavior can determine the satisfaction that the service delivers to the individual customers

Third, as services involve people in production and consumption, there is considerable potential for variability Service variability means that the quality of services depends on who provides them, as well as when, where and how they are provided The performance of service can vary from producer to producer, from contract person to contract person, and

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from customer to customer As such, service quality is difficult to control

Fourth, services are perishable because they cannot be stored for later sale or use They must be consumed when offer, they cannot be held or stocked So the perishability of services is not a problem when demand is steady However, when demand fluctuates, service providers often have difficult problems Service firms can use several strategies for producing a better match between demand and supply such as differential pricing at different times, hide part-time employees or share services with other providers

Finally, using service is considered lack of ownership The service consumer often has access to the service for a limited time If it over, you have to renew it by paid the premium Because of the lack of ownership, service providers must make a special effort to reinforce their brand identity and affinity with the consumer

Mobile telecommunication service has all characteristics of a service Customer uses it without seeing how it is or how it work, without storing for later use They also have to pay for service monthly or the account decrease by time From provider’s aspect, to delivering the service involve many people, from the network operators to sale persons, from sale persons to customers, from customer care staff to customers, etc

3.2 Perceived service quality and customer satisfaction

Parasuraman et al (1985) summed up that quality is an elusive and indistinct construct and quality and its requirements are not easily articulated by consumers Explication and measurement of quality has been the object of many researches In the goods sector, quality

is "zero defects—doing it right the first time" as Japanese philosophy or as “conformance to requirements” For service quality, they summed that there was two approach methods Firstly, service quality involves a comparison of expectations with service performance How well the service level delivered matches customer expectations measure the service quality So delivering quality service means conforming to customer expectations on a consistent basis Secondly, service quality involves outcomes and processes Outcomes relate to actual outcome received from the service transaction, and process related elements concern the manner of interaction between customer and service provider So customers

To measure the five gaps above, Parasuraman et al (1985) revealed 10 key categories

of criteria which consumers used basically to evaluate service quality regardless of the type

of service - tangibles, reliability, responsiveness, competence, courtesy, credibility, security, access, communications, and understanding These 10 key categories were revised later by Parasuraman et al (1988) and the SERVQUAL service quality framework proposed with five dimensions include reliability, responsiveness, assurance, empathy, and tangibles

Tangibles: Physical facilities, equipment and appearance of personnel

Reliability: Ability to perform the promised service dependably and accurately

Responsiveness: Willingness to help customers and provide prompt service

Assurance: Knowledge and courtesy of employees and their ability to inspire trust and confidence

Empathy: Caring, individualized attention the firm provides for its customers According Kotler (Kotler et at - p.475), customer satisfaction with a purchase depends upon the product's performance relative to a buyer's expectations A customer might experience various degrees of satisfaction, he is satisfied if the product's performance matches or exceeds expectations, and he dissatisfied if the performance falls short of expectations So service quality has a direct impact on product performance, and hence on

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customer satisfaction

The empirical studies show that two constructs service quality and customer satisfactions are conceptually distinct (Bitner, 1990; Boulding, Kalra, Staelin, & Zeithaml, 1993) Sureshchandar et al, (2002) identify that the survey result shows that there are high relationships between service quality and customer satisfaction Sureshchandar et al (2002), have emphasized that the two constructs service quality and customer satisfaction do exhibit the independence and are indeed different constructs from the customers’ point of view

Turel and Serenko (2006) addressed the relationship between service quality and customer satisfaction by structural model The model investigated the effect of perceived quality and perceived value on customer satisfaction They showed the perceived value has direct and positive effect on customer satisfaction

3.3 Customer loyalty

According Kotler et at (p.482 – 483), more and more companies recognize the importance of retaining current customers today They recited that it might cost five times as much to attract a new customer as to keep a current customer happy And by reducing customer defections by only 5%, companies can improve profits by anywhere from 25% to 85% They also said that the best approach to customer retention is to deliver high customer satisfaction which results in strong customer loyalty

According to Johnny (2001), evolution of the conceptualization and measurement of service loyalty can be classified into three phases At the first phase, customer loyalty was defined as a behavior of customer, showed by repetitive purchase in terms of volume and value In the next phase, customer loyalty measured by incorporating behavioral and attitudinal simultaneously A sustainable loyalty could only be attained when customers enjoyed a high level of positive attitude toward the object, together with high level of repeat patronage behavior Lastly, service loyalty is the composite of three kinds of attributes: namely behavioral, attitudinal and cognitive attributes Service loyalty is determined by the degree to which a customer exhibits repeat purchasing behavior from a service provider, possesses a positive attitudinal disposition toward the provider, and considers using only this

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provider when a need for this service arises The next phase of developing loyalty should be developed in a sequence of “cognition-affect-conation” pattern, in which customers would hold strong commitment to have repurchase intention and to avoid any persuasion from other alternatives

Johnny (2001) also recited the formation of service loyalty in this study must satisfy three conditions: (1) the customer should have strong desire for the service continuously or periodically; (2) the customer should have freedom to choose their favorite service provider

or service company; (3) there should have more than one service provider within the same service industry

To measure service loyalty, Johnny (2001) proposed 8 measures in terms of behavioral, attitudinal and cognitive attribute:

Repeat purchase behavior

Word of mouth: It means recommending others to purchase through any common means

Period of usage: It means the time interval in which the customer keeping consumption from a particular service provider continuously

Price tolerance: Loyal customers willing to pay the premium even the price is increased because the perceived risk is very high, so they instead to pay the higher price for avoiding the risk of any change

Repeat purchase intention: Customer loyalty is basically referred as the extent of repeat purchase intention from the same service provider with affective commitment

Preference: Customer expressed strong positive preference as well as high repeat patronage on an entity and expressed preference over others

Choice reduction behavior:

First-in-mind: The extremely loyal customers will be ideally limited to only one choice that should be the first choice in their minds

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3.4 Switching barrier

According Kim M K et at (2004), the switching barrier refers to the difficulty of switching to another provider that is encountered by a customer who is dissatisfied with the existing service, or to the financial, social and psychological burden felt by a customer when switching to a new provider Therefore, the higher the switching barrier, the more a customer

is forced to remain with his or her existing provider

Also by Kim M K et at (2004), the switching barrier is made up of switching cost, the attractiveness of alternatives, and interpersonal relationships Firstly, switching cost means the cost incurred when switching, including time, money and psychological cost It also defined switching cost as perceived risk, potential losses which customer would perceives, such losses of financial, performance-related, social, psychological and safety-related nature Secondly, attractiveness means the reputation, image and service quality of the replacing provider, which are expected to be superior or more suitable than those of the existing provider Finally, interpersonal relationship means the means a psychological and social relationship that manifests itself as care, trust, intimacy and communication

Seo et at (2007) pointed out switching costs also consist of lost and gain costs Loss costs occur when customers leave their service provider, while gain costs occur when the customer starts to subscribe to a new service or gain a new product In a competitive environment, an organization can control its loss costs, but does not have control over competitors’ strategies on their gain costs to steal customers away

Srinuan et at.(2011) noted that there are some types of switching costs: transaction cost, search cost, learning cost, compatibility cost and contractual costs Transaction costs refer to the financial costs incurred when a customer ends an existing relationship with one provider and begins a new relationship with another Search, learning and compatibility cost relates to the cost consumers have to gather information about other operators and to learn how to use new product or service Contract cost refer to the cost of terminated the old contract and make new contract with providers, especially for post-paid subscribers

In an empirical study of mobile instant messages in China, Deng et at (2009) pointed

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out switching cost has a positively influence on customer loyalty Kim et at (2004) analyzed the adjustment effect of switching barrier on customer satisfaction and customer loyalty They found that switching cost is a factor directly affecting customer loyalty, and its influence on customer loyalty is produced through an interaction with customer satisfaction

3.5 The testing model and hypotheses

Customers churn is the great concern of mobile telecommunication services providers, especially to mobile telecommunication operators There are many researches about customer churn and customer loyalty in mobile service sector,

Lai et at (2008) proposes and tests an integrative model to examine the relations among service quality, value, image, satisfaction and loyalty in China telecoms They found that service quality directly influence both value perception and image perception, then value and image influence satisfaction, and both satisfaction and value are significant determinants

of loyalty

Customer satisfaction depends on how customers perceive service quality (Gerpott et al., 2001; Kim et al., 2004) In Gerpott et al (2001) study the relationships between customer satisfaction and retention behavior in wireless service markets, they identified three pertinent factors—call quality, price and customer support Kim et al (2004) used additional factors of handset, value-added services, and convenience in procedures Gerpott et al.(2001) found that network quality and price were significant in affecting customer satisfaction, but not customer support, while Kim et al (2004) in a survey of South Korean customers found that call quality, value-added services and customer support were significant, but not price, handset, and convenience in procedures The only factor in common between the two studies was call quality, while they differed in the significance of price and customer support

Deng et at (2009) and Kim et at (2004) studied the effect of switching cost on customers loyalty, they both revealed the positively influence on customer loyalty Kim et at (2004) found that switching cost is a factor directly affecting customer loyalty, and its influence on customer loyalty is produced through an interaction with customer satisfaction

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In Vietnam, Ky (2007) proposed a model of customer loyalty in mobile telecommunication service industry as Figure 3-1 This model is inherited from Kim M.K et

at (2004)

Table 3 - 1: Theoretical mobile customer loyalty model

To measure the customer perceived service quality of mobile carriers and identify the determinants of customer loyalty and the effect of demographics, the study applied the model of Ky (2007), its hypotheses and its measurements Thus, we have following hypotheses to prove:

H1-1: Call quality has a positive effect on customer satisfaction

H1-2: Price structure has a positive effect on customer satisfaction

H1-3: Value-added services have a positive effect on customer satisfaction

H1-4: The convenience of procedures has a positive effect on customer satisfaction

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H1-5: Customer support has a positive effect on customer satisfaction

H2-1: Loss cost has a positive effect on switching barrier

H1-2: Adaptive cost has a positive effect on switching barrier

H2-3: Move-in cost have a positive effect on switching barrier

H2-4: Attractiveness of alternatives has a positive effect on switching barrier

H2-5: Interpersonal relationship has a positive effect on switching barrier

H3 : Customer satisfaction has a positive effect on customer loyalty

H4 : Switching barrier has a positive effect on customer loyalty

H 5: Customer satisfaction has a positive effect on switching barrier

3.6 Conclusion

The objectives of this chapter were to review the literature about service quality, customer satisfaction and customer loyalty The relationship between them are mentioned, special in mobile telecommunication service sector

At the end of the chapter, a model of customer loyalty in mobile service sector was chosen from previous research and 13 hypotheses were proposed Collecting data for evaluating and testing the model will be examined in chapter 4, which is designed to discuss aspects of research methodology, while chapter 5 will present the results of data analysis applied in this study

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Chapter 3 reviewed relevant literature on the link of customer loyalty, customer satisfaction and service quality of mobile telecommunication services At the end of chapter

3, a model to valuate Vietnamese user of mobile phone has been selected for this research

In this chapter, type of research methodology and research design is described Then, the sampling and data collection are explained respectively

4.1 Research methodology

There are three types of research methodology, namely exploratory, descriptive, or causal Exploratory is on the discovery of ideas and insights Descriptive research refers to set of methods and procedures that describe marketing variables Lastly, causal design is aimed to determine cause and effect of relationship (Burn and Bush 2006, p.205)

The study bases on the model proposed by Ky (2007) and the quantitative analysis approach is used

4.1.1 Research approach

There are two different research approaches: primary research, which data have not collected yet, and secondary research, which summary, collation and/or synthesis of existing research Both of them are employed for this research

Secondary data is the source collected by others for some purposes other than research purpose, but somewhat related to the research topic (Burn and Bush, 2006, p.147) The secondary data has been used to collect statistics data from GSO, MIC and other mobile carriers to find out the current situation and the orientation of Vietnamese mobile telecommunication services It also has been used to review previous studies to propose the model for this research

By applying the model of Kim M K et at (2004) and Ky et at (2007), a questionnaire was built and sent to interviewees The survey is one of three method collecting primary

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data, namely survey, observation and experiment This approach has many advantages such

as standardized questionnaires, easier administration and analysis and possible to tap into (Burn and Bush, 2006)

4.1.2 Research processes

The study carried out through two steps: preliminary research and primary research The preliminary research was conducted by using secondary data and group discussion to build the measurement of mobile service quality and the trend of customer churn The first step stopped at Pilot survey The primary research is implemented by quantitative methodology with the massive survey and data analysis by SPSS and AMOS software

Figure 4 - 1: Research processes

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4.2 Research Design

A research design is to come to a prediction of the consumer responses on large scale and is descriptive in nature As the result, the quantitative approach is applied It quantifies data and uses statistical analysis to fulfill the understanding of external causes which support

to answer the questions The result from statistical method is reliable to decide which factors are affecting to consumers habits

4.2.1 Research model

The study applied the model with its hypotheses and measurement items from research

of Ky et at (2007) Besides testing the model, the study investigate the effective of demographic variables on the factors of the model

Figure 4 - 2: Proposal research model

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4.2.2 Questionnaire

This research applies the proposed measurement of variables of Kim M K et at (2004) and Ky (2007) in Table 4-1 All these measurement is evaluate by 5-point Likert scale, ranging from 1 to 5, “1” for “strongly disagree”, “2” for disagree, “3” for neutral, “4” for agree” and “5” for “strongly agree”

Table 4 - 1: Variables definition and measurements

call1 Call clarity call2 Call drop rate call3 Network coverage Price Pricing and price

schedule

price1 Reasonability of price price2 Variety of price structure price3 Possibility of freely choosing price

schedules Value-added

services

convenience of value-added services

vas1 Variety of value-added services vas2 Convenience of use of value-added services vas3 Whether value-added services are up-to-

date vas4 The quality of value-added service meet

your requirements Convenience

in procedures

Subscription and change procedures

conv1 Ease of subscribing and changing service conv2 Convenience of enrollment, service

changing, bill payment conv3 Your problems be solved quickly conv4 Staff friendliness, when subscribing and

changing conv5 Transaction points have convenient

position and opening time Customer

support

Customer support

complaint processing

supp1 Variety of customer support systems supp2 Ease of reporting complaint

supp3 Speed of complaint processing

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Loss cost Perception of loss in

social status and performance

associated with the churn of service from an existing carrier

loss1 Difficulty of changing number loss2 Loss of benefits such as discount,

promoting or mileage program

Adaptive cost Perception of cost of

adaptation, associated with switching to a new carrier

adapt1 Inconvenience of having to search and

learn new services, new carrier adapt2 Need to get acquainted with new carrier,

new services

Move-in cost Perception of

economic cost involved in

switching to a new carrier

movein1 Cost of replacing mobile device movein2 Subscription fee for new membership

Attractiveness

of alternatives

Alternative carrier’s reputation, image and

service quality, according to the customer’s

intership1 Carrier’s care for customer intership2 Trust toward carrier intership3 Intimacy felt toward carrier intership4 Level of communication with carrier Switching

barrier

Economic and psychological difficulty perceived

by customer, when switching carriers

swbar1 Economic loss associated with switching

carriers swbar2 Psychological burden associated with

switching carriers Customer

satisfaction

Customer’s reaction

to the state of satisfaction, and customer’s judgment

of satisfaction level

satis1 Overall satisfaction with the carrier (the

current carrier is the right choice) statis2 Overall satisfaction with the services statis3 Satisfaction with on each transaction with

carrier Customer

loyalty

Combination of customer’s

loy1 Intention to stay with the carrier loy2 Intention to recommend the carrier to