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Switching Cost And Customers Loyalty In The Mobile Phone Market

2504 words - 11 pages


Joseph Omotayo Oyeniyi, Joachim Abolaji Abiodun



Joseph Omotayo Oyeniyi, Joachim Abolaji Abiodun

Switching cost is one of the most discussed contemporary issues in marketing in attempt to explain consumer behaviour. The present research studied switching cost and its relationships with customer retention, loyalty and satisfaction in the Nigerian telecommunication market. Based on questionnaire administered to customers in the mobile telecommunication industry; the study finds that customer satisfaction positively affects customer retention and that switching cost affects ...view middle of the document...

Apart from these there is time and psychological effort of facing uncertainty with the new service provider (Dick and Basu, 1994; Guiltina, 1989).. Consequently, switching cost is more pronounced in mobile telecommunication because mobile telecommunication companies spread high fixed costs over an installed customer base. Departing customer, therefore, lowers future revenue streams, but not fixed costs. Even for new customers, it is argued that it costs more to acquire new customers than to prevent them from defecting (Zeithaml, Berry and Parasuraman, 1996). An inquiry into customers’ deflection and its attendants cost promised to be a profitable exercise. Therefore, the objective of this study is to examine, on the strength

of empirical evidences, the relationship between switching costs and customers’ loyalty. We are also concerned with the effect of switching barriers on the relationship that exist between customers’ satisfaction and retention.

Literature Review
Switching cost had been investigated extensively in literature. It is argued that switching is related to poor service quality in banks (Benkenstein and Stuhlreier, 2004); reaction to high price (Gerrard and Cunnininggham, 2004); and customer satisfaction (Bowen and Chen, 2001).Some other researchers, however, had different argument. There is an argument in literature of the benefits of switching cost to prevent consumers from switching service providers (Ganesh, Arnold and Reynolds, 2000; Keaveney and Parthasarathy, 2001). In terms of classification, Burnham, Frels and Mahajan (2003), classified switching cost as procedural switching costs, financial switching costs, and relational switching costs. These costs were found to be negatively correlated to consumers’ intention to switch service providers. Klemperer (1995) developed three types of switching cost: artificial cost, learning cost and transaction cost. In utility, however the most appropriate cost is the transaction cost. A consumer must be aware that he can switch service providers before he takes steps. The next step is to decide whether to search and then whether to switch. The effect of customers’ defection or switching could be significant on revenues and service continuity. Therefore, to reduce the level of customers switching to other service providers in a dynamic competitive environment, service providers develop strategies to respond to consumers’ switching cost (Farrell and Shapiro, 1988;

Business Intelligence Journal - January, 2010 Vol.3 No.1


Joseph Omotayo Oyeniyi, Joachim Abolaji Abiodun


Zauberman, 2003). More importantly, time is found to be a critical factor that influence consumers’ switching costs and lock-in (Zauberman, 2003). Empirical evidence, however, showed that reducing customer defections by five per cent increased profit by seventy five per cent and that defections have a stronger impact on profitability than market share, unit costs and many other factors usually...

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