CUSTOMER RELATIONSHIP MANAGEMENT AND ITS INFLUENCE ON CUSTOMER LOYALTY AT LIBERTY LIFE IN SOUTH AFRICA by Leon du Plessis MINOR DISSERTATION Submitted in partial fulfilment of the requirements for the degree MAGISTER COMMERCII in BUSINESS MANAGEMENT in the FACULTY OF MANAGEMENT at the UNIVERSITY OF JOHANNESBURG Supervisor: Dr Mornay Roberts-Lombard MAY 2010
ABSTRACT Very little research with specific reference to the Long-Term Insurance industry in South Africa exists, that focuses on Customer Relationship Management and Customer Loyalty. The study investigates Customer Relationship Management and its influence on Customer Loyalty at Liberty Life in South Africa. Over the past twenty years, the importance of the services industries to the world economy has grown. In the South African economy the services sector contributed 71.4% of South Africa s total GDP in 2006. The world economy is struggling in the aftermath of the global financial crisis. Customers are cancelling their policies as they struggle to survive the down turn in investment and credit markets. Liberty Life experiences persistency problems as customers cancel their policies. Liberty Life is required to focus on its relationship with customers to increase customer loyalty. To establish the influence of trust, commitment, two-way communication and conflict handling on Customer Relationship Management and its influence on Customer Loyalty at Liberty Life in South African, an empirical investigation was conducted. The sample consisted on 254 customers visiting the customer walk-in-centres situated in Johannesburg, Cape Town, Pretoria and Durban. The study indicated that a significant positive relationship exists between trust, commitment and conflict handling, and Customer Relationship Management at Liberty Life. The study further revealed that a significant negative relationship exists between two-way communication and Customer Relationship Management at Liberty Life. In addition, the empirical investigation revealed that there is a significant positive relationship between Customer Relationship Management and Customer Loyalty at Liberty Life in South Africa. The study provided strategies for Liberty Life to improve and maintain its relationships between the organisation and customers if Liberty Life exhibits trustworthy behaviour, shows genuine commitment to service, communicates information to customers efficiently and accurately, thereby also listening to their ii
customers and handling potential and manifested conflicts skilfully. This will ultimately, contributes to Customer Loyalty, which will ensure economic prosperity for Liberty Life. iii
DECLARATION I, Leon du Plessis, declare that this dissertation is my own, unaided work. Any assistance that I have received has been duly acknowledged in the dissertation. It is submitted in partial fulfilment of the requirements for the degree of Master of Commerce at the University of Johannesburg. It has not been submitted before for any degree or examination at this or at any other university....... Leon du Plessis (Day, month, year) iv
ACKNOWLEDGEMENTS I thank the almighty God, Jesus Christ, for his love, strength, protection and inspiration, without which I would not be able to face the everyday challenges. Further I would like to thank the following people and institutions for their contributions to my dissertation: My mother and father, Lida and Leon du Plessis, for their continued love, advice and assistance in all areas of my life. My supervisor, Dr M Roberts-Lombard, for his advice, guidance and patience. As a committed supervisor, he assisted me in overcoming the challenges experienced during my dissertation. Richard Devey for his assistance with the data processing and analysis. My family and friends for always supporting and encouraging me. The Liberty Group for their financial support in completing the degree and allowing me to utilise the experience gained in the organisation to further my studies. v
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TABLE OF CONTENTS ABSTRACT DECLARATION ACKNOWLEDGEMENTS AFFIDAVIT LIST OF TABLES LIST OF FIGURES LIST OF APPENDICES Page ii iv v vi xv xvii xviii CHAPTER ONE: INTRODUCTION TO THE RESEARCH PROBLEM 1.1 INTRODUCTION 2 1.2 BACKGROUND TO THE STUDY 3 1.3 DISCUSSION OF TERMINOLOGY 5 1.3.1 South Africa 5 1.3.2 Gauteng Province 6 1.3.3 KwaZulu-Natal Province 7 1.3.4 Western Cape Province 7 1.3.5 South African Long-Term Insurance Industry 7 1.3.6 Liberty Life 8 1.3.7 Customer walk-in-centre 8 1.3.8 Consumer vs Customer vs Client 8 1.3.9 Liberty Life customer 9 1.3.10 Customer Relationship Management (CRM) 9 1.3.11 Customer Loyalty 9 1.3.12 Trust 10 1.3.13 Commitment 10 1.3.14 Two-way Communication 10 1.3.15 Conflict handling 11 1.4 PROBLEM STATEMENT 11 1.5 SIGNIFICANCE OF THE RESEARCH 14 1.6 RESEARCH OBJECTIVES 15 vii
1.6.1 Primary objective 15 1.6.2 Secondary objective 15 1.6.3 Research questions 16 1.6.4 Research hypotheses 16 1.6.4.1 Relationship between the independent variables and the intervening variable, CRM 16 1.6.4.2 Relationship between the intervening variable, CRM, and the dependent variable, customer loyalty 17 1.6.4.3 Relationship between the biographic variables and the intervening variable, CRM 17 1.6.4.4 Relationship between biographic variables and the dependent variable, customer loyalty 17 1.7 LITERATURE REVIEW 18 1.7.1 Customer Relationship Management 18 1.7.1.1 Defining Customer Relationship Management 20 1.7.1.2 Four variables of CRM 22 1.7.1.3 The importance of CRM in long-term relationship building 24 1.7.2 Customer loyalty 25 1.8 RESEARCH METHODOLOGY 28 1.8.1 Introduction 28 1.8.2 Research methodology 28 1.8.3 Data collection 29 1.8.4 Data analysis 30 1.8.5 Ethical considerations 30 1.9 LIMITATIONS OF THE STUDY 31 1.10 DIVISION OF THE STUDY 31 1.11 CONCLUSION 33 CHAPTER TWO: THE INSURANCE INDUSTRY IN SOUTH AFRICA 2.1 INTRODUCTION 35 2.2 THE ROLE OF THE INSURANCE INDUSTRY IN SOUTH AFRICA 35 2.3 THE LIFE INSURANCE INDUSTRY IN SOUTH AFRICA 37 viii
2.4 A PERSPECTIVE ON THE LIBERTY LIFE GROUP 39 2.4.1 Liberty Holdings restructure 40 2.4.1.1 LibFin 40 2.4.1.2 Individual Life 41 2.4.1.3 Liberty Properties 41 2.4.1.4 Liberty Corporate 42 2.4.1.5 Liberty Health 42 2.4.1.6 STANLIB 42 2.4.1.7 Liberty Africa 43 2.5 CHALLENGES FACING THE INSURANCE INDUSTRY IN SOUTH AFRICA 43 2.5.1 Economic outlook 43 2.5.2 Globalisation 44 2.5.3 Consumer behaviour 45 2.5.4 Technology 47 2.5.5 Regulation 47 2.5.6 Access to insurance for low income earners 48 2.6 A PERSPECTIVE ON CRM IN THE LIFE INSURANCE INDUSTRY IN SOUTH AFRICA 49 2.6.1 Customer satisfaction as a precursor for CRM 50 2.6.2 CRM aspects in the banking sector that could benefit Liberty Life in South Africa 51 2.6.3 CRM aspects in the medical sector that could benefit Liberty Life in South Africa 53 2.7 CONCLUSION 54 CHAPTER THREE: CUSTOMER RELATIONSHIP MANAGEMENT IN PERSPECTIVE 3.1 INTRODUCTION 56 3.2 CRM IN A SERVICE ENVIRONMENT 57 3.3 DEFINITIONS OF CRM 58 3.4 GENERIC ELEMENTS OF THE DEFINITIONS OF CRM 60 ix
3.5 DIFFERENTIATING BETWEEN CUSTOMER RELATIONSHIP MANAGEMENT AND CUSTOMER RELATIONSHIP MARKETING 63 3.6 THE CHARACTERISTICS OF CRM 65 3.7 THE ADVANTAGES OF CRM IN AN EVOLVING MARKET ENVIRONMENT 68 3.7.1 The advantages of CRM for the customer in the service industry 68 3.7.2 The advantages of CRM for the organisation in the service industry 70 3.8 WHAT CRM IS NOT 72 3.9 THE LINK BETWEEN CRM AND CUSTOMER SATISFACTION 74 3.9.1 What is customer satisfaction? 74 3.9.2 The determinants of customer satisfaction 74 3.10 THE CRM PROCESS 76 3.11 CONCLUSION 80 CHAPTER FOUR: THE VARIABLES INFLUENCING CUSTOMER RELATIONSHIP MANAGEMENT AND CUSTOMER LOYALTY 4.1 INTRODUCTION 82 4.2 THE LINK BETWEEN CRM AND CUSTOMER LOYALTY 83 4.3 RELATIONSHIPS ARE DYNAMIC 87 4.4 TRUST 88 4.4.1 The concept of trust defined 88 4.4.2 Generic elements to the definitions of trust 89 4.4.3 Trust in Liberty Life 89 4.4.4 The influence of trust on CRM and customer loyalty 90 4.5 COMMITMENT 92 4.5.1 The concept: commitment 92 4.5.2 Generic elements to the definitions of commitment 93 4.5.3 Commitment in Liberty Life 94 4.5.4 The influence of commitment on CRM and customer loyalty 94 4.6 TWO-WAY COMMUNICATION 96 4.6.1 Two-way communication described 96 4.6.2 Different types of two-way communication 97 x
4.6.3 The communication process 99 4.6.4 Two-way communication methods 102 4.6.5 Two-way communication in Liberty Life 103 4.6.6 The influence of two-way communication on CRM and customer loyalty 103 4.7 CONFLICT HANDLING 104 4.7.1 A description of conflict handling 104 4.7.2 Guidelines on conflict handling 104 4.7.3 Developing a conflict handling process 106 4.7.4 Conflict handling in Liberty Life 109 4.7.5 The influence of conflict handling on CRM and customer loyalty 110 4.8 CONCLUSION 111 CHAPTER FIVE: RESEARCH METHODOLOGY 5.1 INTRODUCTION 113 5.2 THE RESEARCH PROCESS 113 5.2.1 Step 1: Identify and formulate the problem or opportunity 114 5.2.2 Step 2: Determine the research objectives 115 5.2.3 Step 3: Research design 115 5.2.3.1 Qualitative research 115 5.2.3.2 Quantitative research 116 5.2.3.3 Descriptive research 116 5.2.4 Step 4: Conduct secondary research 117 5.2.5 Step 5: Select a primary research method 117 5.2.5.1 Data gathering technique 118 5.2.5.2 Personal interviews 118 5.2.5.3 Covering letter 118 5.2.5.4 Questionnaire 119 5.2.5.5 Questionnaire design 120 5.2.5.6 Pre-testing of the questionnaire 125 5.2.5.7 Reliability of the questionnaire 125 5.2.5.8 Validity of the questionnaire 126 5.2.5.9 Face validity 127 xi
5.2.5.10 Content validity 127 5.2.5.11 Construct validity 127 5.2.6 Step 6: Determine the research frame 135 5.2.6.1 The survey area 135 5.2.6.2 The study unit 135 5.2.6.3 Population 136 5.2.6.4 Sampling method 137 5.2.6.5 Probability sampling method 137 5.2.6.6 Sampling technique 138 5.2.6.7 Sample size 140 5.2.7 Step 7: Data gathering 141 5.2.8 Step 8: Data analysis 141 5.2.8.1 Editing of data 142 5.2.8.2 Coding of data 142 5.2.8.3 Processing and statistical analysis of data 142 5.3 RELIABILITY OF THE RESULTS 143 5.3.1 Sampling errors 143 5.3.2 Response errors 143 5.3.3 Non-response errors 144 5.4 CONCLUSION 144 CHAPTER SIX: DATA ANALYSIS 6.1 INTRODUCTION 146 6.2 DISCUSSION OF THE EMPIRICAL RESULTS 146 6.2.1 Empirical findings on the different constructs of the study 147 6.2.2 The importance of the different constructs of the study as rated by the respondents a focus on the different means 157 6.2.3 Correlation between the independent, intervening and dependent variables 170 6.2.4 Empirical findings on demographical variables 172 6.2.5 Multiple regression analysis 178 6.2.5.1 Influence of the independent variables on the xii
intervening variable 179 6.2.5.2 Influence of the intervening variable on the dependent variable 182 6.2.5.3 Relationships between the demographical variables, the intervening variable and the dependent variable 183 6.3 MEASUREMENT OF OBJECTIVES 184 6.4 ACCEPTANCE OR REJECTION OF HYPOTHESES 185 6.5 EMPIRICAL MODEL 187 6.6 CONCLUSION 187 CHAPTER SEVEN: CONCLUSIONS AND RECOMMENDATIONS 7.1 INTRODUCTION 190 7.2 CONCLUSIONS 190 7.2.1 Trust 190 7.2.2 Commitment 191 7.2.3 Two-way communication 193 7.2.4 Conflict handling 194 7.2.5 Relationship between the intervening variable, CRM, and the dependent variable, customer loyalty 196 7.2.6 Relationship between the demographical variables and the intervening variable, CRM, and the dependent variable, customer loyalty 196 7.3 RECOMMENDATIONS 197 7.3.1 Trust 197 7.3.2 Commitment 198 7.3.3 Two-way communication 199 7.3.4 Conflict handling 200 7.3.5 Relationship between the intervening variable, CRM, and the dependent variable, customer loyalty 201 7.3.6 Relationship between the biographic variables and the intervening variable, CRM, and the dependent variable, customer loyalty 202 xiii
7.4 LIMITATIONS AND DIFFICULTIES OF THE STUDY AND AREAS FOR FURTHER RESEARCH 202 REFERENCES 203 xiv
LIST OF TABLES Page Table 1.1: Definitions of Customer Relationship Management 21 Table 2.1: South African life insurance market share, % share by value in 2007 37 Table 2.2: Liberty Holdings as a diversified wealth organisation 40 Table 3.1: Definitions of Customer Relationship Management 58 Table 4.1: Definitions of the concepts trust 88 Table 4.2: Definitions of the concepts commitment 92 Table 5.1: Reliability statistics 126 Table 5.2: KMO Interpretation 128 Table 5.3: KMO and Barlett s test for item validity 129 Table 5.4: Anti-Image Correlation matrix 130 Table 5.5: Exploratory Rotated Factor Analysis results 131 Table 5.6: Communalities 134 Table 5.7: Determining the sample 141 Table 6.1: Trust results 147 Table 6.2: Commitment results 148 Table 6.3: Two-way communication results 150 Table 6.4: Conflict handling results 152 Table 6.5: CRM results 153 Table 6.6: Loyalty results 154 Table 6.7: CRM influence on loyalty results 156 Table 6.8: Cities where questionnaires were obtained 158 Table 6.9: Cities where questionnaires were obtained, test statistics 159 Table 6.10: Gender of respondents 160 Table 6.11: Gender of respondents, test statistics 160 Table 6.12: Policies with other long-term insurers 161 Table 6.13: Policies with other long-term insurers, test statistics 162 Table 6.14: Marital status 163 Table 6.15: Marital status, test statistics 163 Table 6.16: Age 164 Table 6.17: Age, test statistics 165 xv
Table 6.18: Time period as a customer of Liberty Life 165 Table 6.19: Time period as a customer of Liberty Life, test statistics 166 Table 6.20: Dependents 167 Table 6.21: Dependents, test statistics 168 Table 6.22: Qualification 168 Table 6.23: Qualification, test statistics 170 Table 6.24: Non-parametric correlations of variables 171 Table 6.25: Frequencies of demographic information, valid 173 Table 6.26: Customer Walk-in-Centres 173 Table 6.27: Gender 174 Table 6.28: Population group 174 Table 6.29: Age 175 Table 6.30: Other Long-Term Insurance companies 175 Table 6.31: Marital status 176 Table 6.32: Education 176 Table 6.33: Years of being a customer of Liberty Life 177 Table 6.34: Number of dependents 178 Table 6.35: Influence of the independent variables on CRM 179 Table 6.36: Influence of the intervening variable on Customer Loyalty 182 xvi
LIST OF FIGURES Page Figure 1.1: Conceptual framework 13 Figure 1.2: The relationship between RM, CRM and customer management 19 Figure 1.3: Relationship marketing ladder of loyalty 20 Figure 1.4: The satisfaction-profit chain, customer satisfaction, loyalty and business performance 26 Figure 1.5: Two-dimensional model of customer loyalty 27 Figure 3.1: The service profit chain 76 Figure 4.1: Conceptual framework 83 Figure 4.2: Communication process 100 Figure 5.1: Steps in the research process 114 Figure 5.2: Target population, sample units, sample elements and actual sample size of the study 136 Figure 6.1: Modified empirical model 187 xvii
LIST OF APPENDICES ANNEXURE A: AN EXAMPLE OF THE COVER LETTER 210 ANNEXURE B: AN EXAMPLE OF THE QUESTIONNAIRE 213 ANNEXURE C: LETTER CONFIRMING LANGUAGE EDITING 221 xviii