Importance of Customer Loyalty - Essay Example

?SERVICES MARKETING Table of Contents Introduction 2.      Literature Review 2 Importance Loyalty 2.2 Loyalty and Satisfaction 2.3 Customer Satisfaction and Service Quality 2.3.1 Core Service 2.3.2 Service Delivery Quality 3.      Research Methods 3.1 Research Methods 3.2 Research Design 3.2.1 Research Sample 3.2.2 Data Collection Instrument: Multiple Choice Questionnaire (Appendix A)   3.2.3 Data Collection Method: Survey Method 3.2.4 Data Analysis Method 4. Findings and Analysis 5. Conclusions and Recommendations 5.1 Summary of Findings 5.2 Recommendations 5.3 Research Limitations and Scope for Future Research 6. List of Tables Table 2: Average GAP Scores for 5 Quality Dimensions 7. References 8. List of Appendices Appendix A: Survey Instrument 1. Introduction London Travel Agency is a privately owned company that arranges tours and accommodation for customers across Europe.  The company’s head office is located in London, and it has small branches in various European cities like Berlin, Paris and Bern among others. The main operations of London Travel Agency consist of laisoning with carriers like road, rail and airlines for booking travel and networking with hotels across Europe for accommodation bookings. The company primarily organizes tours from the UK, but it also takes some direct bookings from its smaller branches in other cities. The main problem that the organization is currently facing is of customer retention or customer loyalty. This is partly due to the growing competition and aggressive marketing by other organizations, many of which are funded by large multi-nationals (Edmunds, 2002). However, London Travel Agency has also invested in advertising and in expanding to provide services to a larger number of locations. The company also provides discounts and additional facilities like redeemable points that can be exchanged for products in foreign cities. In spite of these efforts, the company’s sales are not increasing (even though the marketing department maintains that a large number of new customers are added yearly). The company identifies its main problem as lack of customer satisfaction which prevents the customers from maintaining a long term relationship with the company and also leads to a bad reputation or image for London Travel Agency. 2.      Literature Review 2.1 Importance of Customer Loyalty Customer retention has been identified by researchers as a major contributor to the financial performance (Parasuraman and Grewal, 2000), and especially in the case of service marketing firms that can hope to see an increase spend from loyal customers over a period of time (Wong and Sohal, 2003). Customer loyalty has also been found to be linked with increased customer advocates who advertise the service provider’s offering through word-of-mouth and (Johnston and Michel, 2008). Customer retention also means that less marketing expenses are incurred as more efforts and costs are needed to attract new customers rather than to retain existing ones (Gounaris, 2005). The literature therefore highlights the fact that customer retention is essential for the financial prosperity of the organization as well as for building its image.   2.2 Customer Loyalty and Customer Satisfaction Customer satisfaction has been found to be a direct reflector of future intentions of the customers as regard the service provider.  It is found that customers that are satisfied with the service provider would be more inclined to repeat their purchase or become long term customers (Johnston and Michel, 2008).  Several studies have found that customer satisfaction affects relationship market and is a central determinant of customer retention (Hennig-Thurau and Klee, 1997). Other scholars have found that behavioural intention – or the positive attitude towards purchasing from the same supplier – is a direct correlate of customer satisfaction with the service quality (Cronin, Brady and Hult, 2000).     2.3 Customer Satisfaction and Service Quality Customer satisfaction for service marketing firms has been extensively researched in literature Parasuraman et al., 1988; Brown, Churchill, and Peter, 1993). The antecedants conditions that lead to satisfaction and the consequents of customer dissatisfaction have been researched and studied in great depth. According to (Parasuraman et al., 1988) customer satisfaction in service organizations is largely dependent on factors related to service quality. The service quality is perceived through two criteria – the core service or the service package that is being provided; and the relational aspect how the service delivery occurs. 2.3.1 Core Service The core service is the promise of the service package or the total offering that the organization is selling to the customers for a price. The customers assess the individual components of the package in comparison to the price that they are paying and then make an assessment of their perceived value (Ravald and Gronroos, 1996). If the customers believe that the price for the package is high, they will experience dissatisfaction (Dabholkar and Bagozzi, 2002) and hence may be disinclined to do business in future with the same service provider. 2.3.2 Service Delivery Quality Service delivery quality is measured using a variety of different approaches. One approach is to differentiate service delivery into functional and relational/emotional. The functional aspects of service delivery pertain to the efficiency and reliability with which the service is performed. The relational service quality is assessed in terms of the relationship, bonding, and emotional impact that the customers feel with the employees who deliver the service (Sanchez-Hernandez et al, 2010).    However, a more popular and comprehensive model for service quality dimensions is the 5 Service quality dimension model developed by (Parasuraman and Zeithaml, DATE) Service delivery quality dimensions are noted as reliability, assurance, tangibles, empathy and responsiveness (Zeithaml, Berry and Parasuraman, 1996). Reliability is presumed when the organization’s service is delivered in a standardized manner every time (Gounaris, 2005). Assurance is reflected when the organization is able to project itself as a qualified and well suited service provider of that specific service (Gordon, McDougall and Terrence, 2000). Tangibles are the physical objects, equipment, or the servicescape (the physical layout of the equipment, facilities or the offices), employee’s uniforms, employees’ mannerism and communication skills. The tangibles provide a concrete evidence about the quality of the service provider and greatly impact on how the customers perceive the service delivery. Next, empathy is an essential aspect of service delivery. It is through empathy that the organization is able to develop a bond with the customer and make them believe that the oganization understands their need and that it is committed to their interests. Finally, responsiveness is reflected in the promptness, honesty and sensitivity that the organization displays in resolving customers’ problems. The 5 service quality dimensions are rated by customers in terms of what the organization is promising (the service delivery promise) and what the customers perceive that they get when they actually avail of the service (customer perception of the service delivery).   The above discussion highlights that the dimensions that affect the customer satisfaction are varied and the organization needs to be aware of what factors to focus on more and develop its strategies accordingly.   The review of literature has also brought forth the understanding that service quality dimensions are intricately linked with customer satisfaction, and that customer satisfaction is crucial for customer loyalty. The literature review therefore provides the background for exploring the performance of London Travel Agency in terms of service delivery quality, so that recommendations can be made to solve its problem of customer retention.   3.      Research Methodology 3.1 Research Methods The research was conducted using a survey method where the company’s customers were asked to give their opinion on a SERVQUAL scale. The following section highlights the research methods and the research design Research Method – The research was conducted using quantitative methods as a large number of respondents can be contacted and their perceptions and opinions obtained in a time-effective and relatively easier manner (Creswell, 2007). In contrast to the quantitative method, qualitative methods are more effective in getting an in depth data via interviews. However, as the current research framework is based on obtaining customer information on the SERVQUAL scale of customer satisfaction, there is no need to gather in depth detailed information and hence a quantitative survey is found to be useful.   3.2 Research Design 3.2.1 Research Sample Sample Unit: The customers of London Travel Agency   Sample Size: 50 Sample Selection Method: Random Sampling The sample was selected in a random manner from among the existing or past customers of the company. The researcher obtained the database of the customers from the company and selected the customer database range for customers who were relevant for the years 2009-2011. This list contained over 600 individual names and the researcher picked every 10th name to contact. This way, around 60 customers were contacted but a positive reply and consent to participate in the survey was obtained only from 50. 3.2.2 Data Collection Instrument: Multiple Choice Questionnaire (Appendix A) The research questionnaire is based on Parasuraman, Zeithaml and Berry's SERVQUAL questionnaire (1996) which is modified to suit the travel agency operators. As such, the questionnaire draws from the original Parasuraman, Zeithaml and Berry's instrument as well as from another research that had modified this very scale to suit a requirement similar to the current research (Ryan and Cliff, 1997). The research questionnaire therefore has 5 questions with 2 parts each.  3.2.3 Data Collection Method: Survey Method The data was collected by contacting the respondents and asking them to fill out the questionnaire and return it. The researcher ensured that the respondents answered all the questions as he was continuously present to provide answers and explanations if needed. This reduced the probable bias that is inherent in email surveys or surveys where the researcher leaves the respondents to fill out the answers and return the forms at a later date (Fisher, 2004). 3.2.4 Data Analysis Method The respondents are required to select an appropriate answer from the 5 choices mentioned after each question.  The customers’ responses are gauged on the following scale: Strongly Agree            5 Agree                           4 Neutral                       3 Disagree                     2 Strongly Disagree     1   Each question has a part, Part A and Part B. Part A that establishes the customers’ expectation from a travel and tour company. Part B of each question gauges the perception of the customers regarding London Travel Agency. For each question, the gap between the customer expectations and the customer perceptions are calculated by subtracting the Part B score from the Part A of the question. This figure is called the GAP (Parasuraman, Zeithaml, Berry, 1988) and it is a reflection of the customer satisfaction. The following sample table illustrates the data tabulation and analysis: Table 1: Sample Data of Data Analysis Resondents Question 1 Reliability Question 2 Assurance Question 3 Tangibles Question 4 Empathy Question5 Responsiveness A B Gap (A-B) A B Gap (A-B) A B Gap (A-B) A B Gap (A-B) A B Gap (A-B) 1 4 2 2 2 3 4 5 6 7 ....50 For example, if the customer has selected ‘Agree’ on Part A of Question 1, the score is 4. On the Part B of the same question if he selects ‘Disagree’, his score on perception of service quality dimension will be 2.  GAP is calculated as 4 – 2= 2.  The higher the positive gap, the lower the customer satisfaction (Parasuraman, Zeithaml, Berry, 1988).  The total Gap scores of each question (service quality dimensions) are calculated and then divided by 50 (the number of respondents) to arrive at the average gap. 4. Findings and Analysis The researcher collectd the survey responses and analysed them as outlined in the research method, data analysis section. The main findings as highlighted from the analsysis are presented below: Table 2: Average GAP Scores for 5 Quality Dimensions Quality Dimension Average Gap Score Reliability 4 Assurance 3 Tangibles 1 Empathy 4 Responsiveness 4 The above table shows that on an average, there are positive Gaps between perception of service delivery quality and the expectations that the customers may have. The findings therefore indicate that customers are not satisfied with any of the service quliaty dimensions that they consider for a travel and tour company. The maximum Gap in service quality is seen for Reliability and Empathy. These findings indicate that the customers do not really get what they are promised – their expectations are laregly formed on the basis of the extensive advertising and promotional claims that London Travel Agency makes. The customers are attracted by the offers and the benefits that the company advertises, but, once they actually avail of the service, they find it lacking – both in core values as well as in terms of the interactions with the employees and service consumaton. Reliability, or the standardization and professionalism, and delivering on promise that is shown by the service provider is an important criteria for customer satisfaction and retention, and London Travel Agency is seen to be lacking in this. Next, empathy is a factor where the customers want that their specific needs be understood (Wong and Sohal, 2003). This is especially true in the case of travel and tour services, where the customers want to derive the best value in their budget. They expect the travel organization to provide them with an offer that suits their budget but which also enables them to have maximum fun (Cronin et al, 2000). Here again, there is a large gap in what the customers expect and what they get at London Travel Agency. The same is the case with responsiveness – the travellers need their operators to be alert to their needs, to provide quick resolutions to problems and to have a customer support system that is sensitive and responsive to them. The company London Travel Agency is again found to be lacking in terms of responsiveness. Assurance, or the presence of a professional environment where the customers feel they are in safe hands (Dabholkar and Bagozzi, 2002), is also not up to the mark. The customers of London Travel Agency think that London Travel Agency is not a professionally managed organization and that they can end up getting bad deals or suffering due to inefficiencies. Finally, there is a gap also in the perception of Tangibles, though it is less in comparison to the other service quality dimensions. 9. Conclusions and Recommendations 5.1 Summary of Findings It can be seen from the above findings that the London Travel Agency, even though it spends in advertising and also in expansion of its operations across Europe, is not patronized by a loyal clientele owing to the lack of service quality. Customers are largely not satisfied once they undergo the service and they find the company to be lacking in all service delivery quality dimensions. The London Travel agency appears to be lacking in quality in terms of the their competence to deliver what they promise and it is therefore percieved as a low quality service provider. This also means that while the company is able to attract new customers through its marketing and promotional programmes, it is not able to keep them as loyal customers. The problem of customer satisfaction has been traced to lack of quality in service delivery and hence several recommendations are outlined for London Travel Agency to follow in order to improve its service delivery quality to enhance customer satisfaction and to get loyal customers. 9.2 Recommendations The following recommendations are made to the travel orgaizations in general and to London Travel Agency in particular in order to improve customer loyalty and retention. 1. To Lower Value Promise in Advertisements and Promotions The London Travel Agency needs to develop and promote a customer offering that is feasible for it to actually provide the customers. The customers should be given an honest understanding of the prices and the scope of services that a travel agency is capable of providing them. At the moment, the London Travel Agency is found to make high promises in order to attract the customers in a highly competitive market, but, it is not able to fullfil the promise thus leading to customer dissatisfaction on the core value desired by them. 2. Improve Standardization and Professionalism To present a standardized and professional environment to the customers. The agency needs to adopt a highly professional approach where all the customers are provided with detailed and correct information and details using various modes like website, customer care help center, call center. The employee attitude and presentation of the premises as well as employees should reflect standardization and professionalism. This recommendation is aimed at improving the customer perception of reliability, assurance and tangibles. 3. Develop Customer Relationship Approach The research had found that the customers think in addition to lack of reliability and assurance, the London Travel Agency also lacks in empathy and responsiveness. This calls for developing better understanding of the needs of the individual customers which can be undertaken by managing customer database and by assigning individual executives to assist the clients and to follow up later. Further, there is a need to project itself as prompt in taking action to help the customers or to proactively provide them with alternatives that they can spend their money in a better manner. 9.3 Research Limitations and Scope for Future Research The research suffered from a limitation that only the customers of the selected company could be surveyed. It would have added to the scope and depth of the research if the managers or the employees of the organizations could have been interviewed or surveyed as their perception of the situation and their attituide towards dealing with the problem of customer satisfaction and retention would have added further to the understanding. Another limitation of the research is that the research instrument is developed by the researcher but it is not tested for validity or reliability using any statistical methods or pilot testing. This may lead to possible concerns over the validity of the customers’ responses. However, the research questionnaire is deeply grounded in the SERVQUAL model and hence it is expected to be suitably valid measure of service quality dimensions as well as the customer satisfaction. References Brown, T.J., Churchill, G.A. and Peter, J.P. 1993. Research note: improving the measurement of service quality. Journal of Retailing, 69(1), 126-139 Creswell, J.W. 2007. Qualitative & Research Design. Choosing Among five approaches. California: Sage Publications, Inc Cronin, J. J. , Brady, M. K. and Hult, G. T. M. 2000. Assessing the effects of quality, value, and customer satisfaction on consumer behavioral intentions in service environments Journal of Retailing, 76(2), 193-218 Dabholkar, P.A. and Bagozzi, R.P. 2002. An Attitudinal Model of Technology-Based Self-Service: Moderating Effects of Consumer Traits and Situational Factors. Journal of the Academy of Marketing Science. 30 (3), 184-201. Edmunds, M. 2002. A wake-up call for the industry. Financial Times.[Online] 12 March available at: http://specials.ft.com/ftit/march2002/FT3Z9WRBNYC.html. [Accessed on 11 July, 2011] Fisher, C. 2004. Researching and writing a dissertation for business students. Essex: Pearson Education Limited Gordon, H.G., McDougall, Terrence, L. 2000. Customer satisfaction with services: putting perceived value into the equation. Journal of Services Marketing, 14(5), pp.392 – 410 Gounaris, S. P. 2005.Trust and commitment influences on customer retention: insights from business-to-business services. Journal of Business Research. 58(2),126-140 Hennig-Thurau, T. and Klee, A. 1997.The impact of customer satisfaction and relationship quality on customer retention: A critical reassessment and model development. Psychology and Marketing, 14(8), 737–764 Johnston, R. and Michel, S. 2008. Three outcomes of service recovery: Customer recovery, process recovery and employee recovery. International Journal of Operations & Production Management, 28 (1), pp.79 – 99 Parasuraman, A. and Grewal, D. 2000. Serving customers and consumers effectively in the twenty-first century: A conceptual framework and overview. Journal of the Academy of Marketing Science, 28 (1), 9-16, Parasuraman, A., Zeithaml, V. A., Berry, L. L. 1988. Servqual: A multiple-item scale for measuring consumer perceptions of service quality. Journal of Retailing. 64(1), 12-40, 1988. Ravald, A. and Gronroos, C.1996. The value concept and relationship marketing. European Journal of Marketing. 30(2), 19 - 30 Ryan, C. and Cliff, A. 1997.Do Travel Agencies Measure Up to Customer Expectation? An Empirical Investigation of Travel Agencies' Service Quality as Measured by SERVQUAL. Journal of Travel & Tourism Marketing. 6(2), 1-31 Sanchez-Hernandez, R.M., Martinez-Tur V, Peiro J.M. and Moliner C. 2010. Linking functional and relational service quality to customer satisfaction and loyalty: differences between men and women. Psychological Reports.106(2), 598-610. Wong, A. & Sohal, A., 2003. Service quality and customer loyalty perspectives on two levels of retail relationships. Journal of services marketing. 17 (5), 495 –513 Zeithaml, V., Berry, L., Parasuraman, A.1996.The behavioral consequences of service Quality. Journal of Marketing, 60(2), 31-47. . Appendix A: Name: Please choose the answers that apply to you. Question 1a: Expected Reliability: You believe that travel and tour companies must provide for all the services like bookings, transportation etc. that they advertise for or which they promise the customers in their brochures.   Strongly Agree            Agree              Neutral            Disagree          Strongly Disagree   Question 1b: Perceived Reliability: The travel and tour company that you used recently (London Travel Agency ) provides all the services that it promised you through its ads or promotional bruchures.   Strongly Agree            Agree              Neutral            Disagree          Strongly Disagree     Question 2a: Expected Assurance: You believe that the travel and tour companies must have experts that are competent and knowledgeable about rates and discounts and that they are able to understand your own needs and requirements Strongly Agree            Agree              Neutral            Disagree          Strongly Disagree   Question 2b: Perceived Assurance: You believe that London Travel Agency has experts that are competent and knowledgeable and that they are able to understand your own needs and requirements Strongly Agree            Agree              Neutral            Disagree          Strongly Disagree   Question 3a: Expected Tangibles: You believe that the travel and tour companies must have an office that has good furnishings, reception area, customer waiting area, computers and that the staffs are well dressed and courteous. Strongly Agree            Agree              Neutral            Disagree          Strongly Disagree   Question 3b: Perceived Tangibles: You believe that travel and tour company that you used (London Travel Agency ) has an office that has good furnishings, reception area, customer waiting area, computers and that the staffs is well dressed and courteous. Strongly Agree            Agree              Neutral            Disagree          Strongly Disagree   Question 4a: Expected Empathy: You believe that the travel and tour companies must show clarity and openness about their costs and services, and they should have personnel who can help you in understanding the package service better and in resolving any doubts that you may have. Strongly Agree            Agree              Neutral            Disagree          Strongly Disagree   Question 4b: Perceived Empathy: You believe that London Travel Agency shows clarity and openness about the costs and services, and that there are personnel available who can help you in understanding the package service better and in resolving any doubts that you may have. Strongly Agree            Agree              Neutral            Disagree          Strongly Disagree   Question 5a: Expected Responsiveness: You believe that the travel and tour companies must be responsive to your specific needs and must address your complaints or follow-up on your feedback Strongly Agree            Agree              Neutral            Disagree          Strongly Disagree   Question 5b: Perceived Responsiveness: You believe London Travel Agency is responsive to your specific needs and addresses your complaints or follows-up on your feedback.   Strongly Agree            Agree              Neutral            Disagree          Strongly Disagree   Read More