THE IMPACT OF DEMOGRAPHIC FACTORS TOWARD CUSTOMER LOYALTY: A STUDY ON CREDIT CARD USERS.

Transcription

1 THE IMPACT OF DEMOGRAPHIC FACTORS TOWARD CUSTOMER LOYALTY: A STUDY ON CREDIT CARD USERS. INSTITUT PENGURUSAN PENYELIDIKAN UNIVERSITI TEKNOLOGI MARA SHAH ALAM, SELANGOR MALAYSIA DISEDIAKAN OLEH: RAMLI BIN SAAD HADZLI BIN ISHAK NUR RASHIDI BIN JOHARI JUNE 2010

2 THE IMPACT OF DEMOGRAPHIC FACTORS TOWARD CUSTOMER LOYALTY: A STUDY ON CREDIT CARD USERS. DISEDIAKAN OLEH: RAMLI BIN SAAD HADZLI BIN ISHAK NUR RASHIDI BIN JOHARI JUNE 2010

3 GROUP MEMBERS RAMLI BIN SAAD Project Leader Tandatangan HADZLI BIN ISHAK Member Tandatangan NUR RASHIDI BIN JOHARI Member Tandatangan i

4 ACKNOWLEDGEMENT IN THE NAME OF ALLAH S.W.T. THE MOST GRACIOUS AND THE MOST MERCIFUL Alhamdulillah with the grace and bless from Allah S.W.T. we managed to complete this research. Many people have contributed their time, ideas and suggestions in preparing and completing this report. To all individuals involved, we indebted and thankful. First of all, we would like to express our gratitude and appreciation to UiTM Kedah Campus Director, Professor Dr. Zaliha Haji Hussin, Deputy Campus Director Research and Industrial Linkage, Associate Professor Dr. Maznah Wan Omar and fellow friends for their encouragement, understanding and advice by providing us with great comments and suggestions regarding this research. We would like also to thank to our respondents who make this research happen. Without their response this research will not come into existence. Special thank also goes to bankers of all level involved for their guidelines and information that they gave during completing this research. Last but not least, we would like to thank our family for their support and encouragement that allowed us to complete this task. Also to those whose names are not mentioned above but have assisted us on this thesis, thank you very much. ii

5 TABLE OF CONTENTS Page Group Members i Acknowledgement ii Table of Contents iii List of Tables vii List of Figures ix List of Attachment x Abbreviations xi Abstract xii CHAPTER ONE: INTRODUCTION 1.0 General Significance of Study Problem Statement Research Objective 5 iii

6 1.3.1 General Objective Specific Objective Research Questions Research Assumptions Scope of the Study Limitation Organization of the Study Operational Definition 9 CHAPTER TWO: LITERATURE REVIEW 2.0 Introduction Customer Loyalty Defined Demographic Profile Defined Loyalty and Age Loyalty and Gender Loyalty and Income Level Loyalty and Occupation 20 iv

7 2.7 Loyalty and Lifestyle Theoretical Framework of the Study Hypotheses 24 CHAPTER THREE: METHODOLOGY 3.0 Introduction Research Design Population Sampling Sampling Frame Sampling Technique Sampling Size Data Collection Method Questionnaires Design Measurement and Scales Data Analysis and Interpretation Reliability Testing 34 v

8 3.5.2 Frequency Analysis Pearson Correlation Standard Error of the Estimate 35 CHAPTER FOUR: FINDINGS AND DATA ANALYSIS 4.0 Introduction Reliability Analysis Frequency Statistic and Percentages Hypotheses of the Study Overall Result 65 CHAPTER FIVE: CONCLUSION AND RECOMMENDATION 5.0 Introduction Discussion on Findings Recommendation 69 References 71 Appendix vi

9 LIST OF TABLES Table Topic Pages Table Reliability Test 37 Table Age Group 38 Table Gender 39 Table Income Range 40 Table Occupation 41 Table Types of Credit Card Usage 42 Table Credit Limit 43 Table Credit Card Company Currently Used 44 Table Length of Relationships 46 Table Average Monthly Credit Card Usage 47 Table Complaint to Card Centre 49 Table Switching Frequency 50 Table Purpose of Having Credit Card 51 Table Main Usage of Credit Card 53 Table Main Factor of Stay Loyal 54 Table Why credit card is so important? 55 Table Satisfaction and Switching Barriers 57 Table Customer Retention and Loyalty 58 vii

10 Table Correlation 1: Relationship between Customer Loyalty and Age Group 60 Table Correlation 2: Relationship between Customer Loyalty and Gender 61 Table Correlation 3: Relationship between Customer Loyalty and Income 62 Table Correlation 4: Relationship between Customer Loyalty and Occupation 63 Table Correlation 5: Relationship between Customer Loyalty and Lifestyle 64 viii

11 LIST OF FIGURES Figure Topic Page Figure 2.8 Theoretical Framework of the Study 23 ix

12 LIST OF ATTACHMENT Attachment Topic Attachment A Sample of Questionaire Attachment B SPSS Results x

13 ABBREVIATIONS UiTM - Universiti Teknologi MARA UiTM Kedah - Universiti Teknologi MARA Kedah FMCG - Fast Moving Consumer Goods Demographic - (Age, Gender, Income, Occupation & Lifestyle) USA - United States of America SPSS - Statistical Package for the Social Sciences xi

14 ABSTRACT In today competitive, complex and dynamic environment of the banking industry, the very slight differences which exist in financial services and products together with an increasingly demanding customer have led to a great transformation in the industry. The traditional productoriented bank is becoming increasingly customer-oriented in accordance with the basic principles of relational marketing, which focuses on customer loyalty as its main goal (Gilmore 1997). Thus, the purpose of this paper is to empirically examine the extent to which demographics correlate with service loyalty focusing on credit card service. According to Naresh K. Malhotra (2003), convenience sampling attempts to obtain a sample of convenience elements. Taking this into consideration, sample of 200 respondents were randomly chosen in this survey which 150 respondents gave the feedback. Correlation Pearson test being used to determine the relationship between demographic factors (age, gender, income level, occupation and lifestyle) and customer loyalty. The result from hypotheses testing has shown that only income level having positive relationship with customer loyalty as compared to other four demographic factors. The evidence behind this statement is because of the value of r achieved in Pearson Correlation Test. The value of r for income factor was while for the occupation factor; the r-value was result and the rest age, gender and lifestyle do not influence much in the area of study. Thus, this finding is in line with what has been found by East (1995) indicated that shoppers who are more concerned about prices are less loyal, with high income groups being more loyal than low income groups. xii

15 Universiti Teknologi MARA (UiTM) Kedah Peti Surat Merbok, Kedah. Tel : Faks : Surat Tuan : 600-UiTMKDH(RMU 5/4/1/1/09) Tarikh : 1hb. Jun 2010 Tarikh : Yang Berbahagia Professor Dr. Abu Bakar bin Abdul Majeed Penolong Naib Canselor (Penyelidikan) Kepada Institut Pengurusan Penyelidikan Universiti Teknologi MARA Shah Alam Selangor YBhg. Prof., LAPORAN AKHIR PENYELIDIKAN THE IMPACT OF DEMOGRAPHIC FACTORS TOWARD CUSTOMER LOYALTY: A STUDY ON CREDIT CARD USERS. Merujuk kepada perkara di atas, bersama-sama ini disertakan 2 (dua) naskah Laporan Akhir Penyelidikan bertajuk The Impact of Demographic Factors toward Customer Loyalty: A Study on Credit Card Users. Sekian, terima kasih. UiTM KEDAH MENGAMALKAN SISTEM PENGURUSAN KUALITI ISO 9001 : 2000 Yang benar, RAMLI BIN SAAD Ketua Projek Penyelidikan

16 CHAPTER ONE INTRODUCTION 1.0 GENERAL As markets become more competitive many companies recognize the importance of retaining current customers and some have initiated a variety of activities to improve customer loyalty. Indeed, the benefits associated with customer loyalty are widely recognized within business. These include lower costs associated with retaining existing customers, rather than constantly recruiting new ones especially within mature, competitive markets (Ehrenberg and Goodhardt, 2000). It is known that long-term customers are more likely to expand their relationship within the product range and so the rewards from this group are long term and cumulative (Grayson and Ambler, 1999). Another widely perceived benefit is that repeat or behaviorally loyal customers are also thought to act as information channels, informally linking networks of friends, relatives and other potential customers to the organization (Shoemaker and Lewis, 1999). Much academic literature has sought to define customer loyalty and many of these reviews are discussed within this paper. However, consensus points to customer loyalty being characterized by the customer's preference to purchase a product, service or from an organization consistently when the need arises to purchase. The key issues of this characterization are preference and consistency. This study seeks to explore the levels of customer loyalty development and what is important to differing groups of customers in 1

17 terms of sustaining and developing further their relationship with the organization and its products and/or services. Besides understanding customer loyalty, it is very useful to characterize a demographic profile that may have an association with customer loyalty. It is the objective of this study to relate between demographic factors with customer loyalty. Understanding demographic factors or profiles such as gender, age as well as income level is important in obtain satisfaction and loyalty among customers. 1.1 SIGNIFICANCE OF THE STUDY In the highly competitive, complex and dynamic environment of the banking industry, the very slight differences which exist in financial services and products together with an increasingly demanding customer have led to a great transformation in the industry. The traditional product-oriented bank is becoming increasingly customer-oriented in accordance with the basic principles of relational marketing, which focuses on customer loyalty as its main goal. In this sense, Gilmore (1997) considers that constant customeroriented behavior is a requisite for improving the implementation of quality in services marketing. Indeed, factors such as financial products and distribution have attained similar levels of development and technology and have thus been relegated to a secondary role as reference points for distinguishing between one bank and another (Rodríguez Sánchez and Rodríguez Parada, 1993). In this sense, Barnes and Howlett (1998) argue that, given that many financial services are parity offerings, it can be stated that a customer is 2

18 unlikely to be overly impressed by core product attributes when all companies are providing similar offerings. 1.2 PROBLEM STATEMENT Key customer retention constructs (affective and behavioral commitment, loyalty, repurchase intentions) have been extensively researched and reported in the literature over the past decade (Dick and Basu, 1994; Gwinner et al., 1998; Patterson and Smith, 2001b; Mittal and Kamakura, 2001; Wong and Sohal, 2003; Yi and Jeon, 2003; Bennet and Rundle-Thiele, 2004). However what has not been systematically researched is which consumer segments are more or less predisposed to exhibiting loyal behavior in a service context? In the literature there are conflicting views as to whether consumer demographics are correlated with brand loyal behavior (Snyder, 1991; Gameau and Sharp, 1995; Lymberopolous et al., 2004). In particular, are older consumers more brand loyal than their younger counterparts? Does loyalty vary by gender? This is an important question with the rapid aging of the population in many western countries (e.g. the number of Americans 65 and older is projected to double over the next 25 years from 35.9 million to 70 million, comprising 20 percent of the population in 2030, compared to 13 percent now (Crary, 2004)). This phenomenon has generated a growing interest in how this demographic shift will impact consumer behaviour, decision-making processes and purchasing patterns, especially amongst the older cohort (Moschis, 1994; Lumpkin and Hunt, 1989; Rousseau et al., 1998; Lymberopolous et al., 2004). Importantly this cohort is known to have considerable discretionary income. 3

19 Where gender is concerned, Kinsey (1981), and Slocum and Matthews (1970) found gender and marital status to be significant determinants of credit card usage. White (1975), and Adcock et al. (1977), suggested that single males were more likely to use credit cards than females. Contradicting this, both Kinsey (1981) and Arora (1987) found females used their credit cards more frequently, while Hayhoe et al.(1999) and Armstrong and Craven (1993) found that females tended to have a higher average number of credit cards than males. Ingram and Pugh (1981) concluded that the least number of credit cards were owned by single member households, young married couples, retirees, and sole survivors. Studies that focus on the relationship between credit card use or selection, and attitudinal, demographic and socio-economic characteristics include those of Slocum and Matthews (1969, 1970), who discovered that social class affects consumer attitudes towards credit card usage within certain income categories. Research by Gan et al. (2006), Kinsey (1981), Barker and Sekerkaya (1992), Wasburg et al. (1992), Heck (1987), Arora (1987), Mandell (1972) also found a high income to be an important determinant for increasing the number of credit card accounts as well as increased credit card usage. However, Choi and DeVaney (1995) found income level to be insignificant in determining the use of credit cards while Danes and Hira (1990) showed that middle-income families actually used credit cards more than families of higher income. Correspondingly, the knowledge of how aging, gender and occupation affects consumer behavior will not only enable marketers to better satisfy their customer but may also allow them to develop stronger interpersonal relationships, and in turn retention strategies (Jones et al., 2000). The purpose of this paper is to empirically examine the extent to 4

20 which demographics correlate with service loyalty. From a managerial viewpoint, demographic correlates of service loyalty have much to offer given their value in firms' segmentation and communications strategies. 1.3 RESEARCH OBJECTIVE General Objective The objective of this study is to determine the impact of demographic factors toward customer loyalty. This study will highlight the level of customer loyalty among credit card users based on demographic factors Specific Objective Apart from that, the research also attempts to fulfill this objective as follows: 1. To determine the impact level of demographic factors toward customer loyalty. 2. To identify difference dimensions of customer loyalty such as usage, length of relationship, brand-switching, word-of-mouth and perceived service quality. 3. To identify difference determinants of demographic factors such as age, gender, income level, occupation and lifestyle towards customer loyalty. 5

21 1.4 RESEARCH QUESTIONS The purposes of the research were addressed by answering the following questions: Is there any relationship between customer loyalty and demographic factors? Are there only certain demographic factors having impact to customer loyalty while the rest aren t? If relationship exist, how strong the impact of demographic factors toward customer loyalty? 1.5 RESEARCH ASSUMPTIONS This study assumes that all the respondents involved and selected in the survey understood all the questions in the questionnaire and they faithfully, calmly and ethically answered all the questions without internal and external interference. 6

22 1.6 SCOPE OF THE STUDY The scope of this study is to report an empirical research which assessed the demographic factor and customer loyalty behavior of northern people of Malaysia as well as identifying and examining how these variables and demographic factors relate to each others. 1.7 LIMITATION The scope of this study is to report an empirical research which assessed the customer loyalty and customer satisfaction behavior of credit user among people in states of Perlis, Kedah and Penang as well as identifying and examining how these variables and elements relate to each others. Our approach is based on a framework put forward by Oliver (1999) to analyze the relationship existing between the act of purchase of the customer, his satisfaction, his trust and commitment and, at the end, his loyalty. The data for this study will be gathered using a questionnaire. Research is based on questionnaires depends on the voluntary cooperation of the participants. Participants can differ from non-participants, compromising the interpretation and generalizability of the results (Isaac & Michael, 1990). 7

23 Furthermore, another limitation for this study is when the problems occurs in getting the right information from the primary and secondary data due to the limited number of resources available in the books and journal on customer loyalty behavior and another sources relate to the study. Due to that, resources from the internet are seemed very important in conducting the research and sometimes beyond the researcher capability and capacity as well. 1.8 ORGANIZATION OF THE STUDY This study is structured into five chapters. Chapter one has been discussed thoroughly in this chapter. Chapter two addresses the literature review and comprises of as follows: (a) Customer Loyalty Defined, (b) Demographic Factor Defined, (c) Loyalty and Its Variance (d) Demographic and Its Dimensions (e) Theoretical Framework of the Study, (f) Measurement of This Study, and (g) Hypotheses. Chapter three explains the research methodology applied and includes a description of the research populations as well as the participants, type of instrumentation used, data collection method and sampling procedures. Chapter four contains the findings of the survey and data analysis. Finally, discussion and conclusion will be including in Chapter five. 8

24 1.9 OPERATIONAL DEFINATION For the purpose of this study, the following definition of terms will be used: 1. Customer Loyalty: a deeply held commitment to rebuy or repatronize a preferred product or service consistently in the future, causing repetitive same brand or same brand-set purchasing, despite situational influences and marketing efforts (Oliver, 1999, p. 34). 2. Demographic Factors: population statistics with regard to socioeconomic factors such as age, income, sex, occupation, education, family size, and the like. Each demographic category is broken down (by the various research companies) according to its characteristics. A marketer must know and understand demographics to assess the size, reach and efficiency of the market (Kotler and Armstrong, 1991). 3. Age: behavior in later life is believed to be the outcome of the physical and cognitive aging process and accumulated life experiences. It is widely accepted that people age as biological beings, psychological beings and social beings (Moody, 1988) 4. Social Exchange Theory: life is a series of social exchanges that provide a degree of satisfaction, power and prestige (Dowd, 1975; Moschis, 1994) 9