DETERMINANTS INFLUENCING CUSTOMERS’
DECISION TO STAY OR SWICTH WITH THEIR SERVICE PROVIDER: A CONCEPTUAL STUDY OF
Harpreet Kaur #1 Sangeeta Arora
#1 Research Scholar, Commerce
Department, Guru Nanak Dev University, Punjab
#2 Associate Professor, Commerce
Department, Guru Nanak Dev University, Punjab
paper, the researchers have projected a conceptual framework to investigate the
determinants influencing customer’s decision to stay or switch with their
service providers. Switching behavior and customer retention is possibly an
effective contraption that banks can exercise work out to get a strategic pro
and survive in today’s escalating banking competitive situation This study is
an attempt to study the factors influencing switching behavior of the customers
and customer retention in the banking sector. In order to even the development
of managerial action, we thrash about what are those determinants and how are
these connected to the switching behavior and customer retention by reviewing
the literature. Our approach and findings have meaningful implications for
managing customer retention in the service sector
retention, Service quality, Customer satisfaction, Customer Loyalty, Switching
must drive sustainable competitive advantage which must be on top of their
marketing strategies. At present, banks have large customer base but are not
acquiring ample share of wallet of their customers. There is a great need to
develop a new product or service, not a breakthrough type of innovative product
in order to distinguish their product or service from other banks to make sure
of customer retention and get back their share of wallet. Customer retention is
a vital element of bank’s strategy in today’s competitive era. The banks are
required to explore these factors that can limit customer defection rate.
Customer retention can act as a vehicle of strategic marketing as defensive
marketing policies or offensive marketing policies of banks. In a service
sector, the longevity of customer relationship with its service providers is
the customer retention (Menon and O’ Connor, 2007). The propensity of customers
to stay with their service providers is customer retention. Some researchers studied
that the service providing firms which keeps their existing customers
significantly can improve their firm’s performance and success rate (Jones,
Beatty and Mothersbaugh, 2000; Colgate, Stewart and Kinsella, 1996). The
defensive marketing policies considers the impact of marketing resources to be
better spent on keeping existing customers rather on attracting new one as
recent surveys shown that keeping existing clients is more profitable than
acquiring new one.
the marketing literature contains extensive research devoted to the
consequences of switching costs in terms of customer retention and customer
switching behavior, little is known about the drivers of these costs and
behavior. However, knowledge about the factors that generate and enhance the
level of switching costs can be of great interest to both academics and
practitioners. Switching behaviour and customer retention is potentially an
affective mean that banks can work out to add a strategic pro and survive in
our day’s competitive situation. In
the current era of the competitive business environment and challenging
economy, switching cost is a critical factor in an organization. If service
providers don’t give their customers any good reason to keep on, their
competitors would give them a very tough reason to leave.
the use of customer retention strategies service providing firms can be assured
of customers’ support as they are getting benefits ( Peppers and Rogers, 1999),
which escorts the firm to higher profits and enhanced success levels (Bergeron,
Roy and Fallu, 2008). Moreover, a firm can also anticipate for profits in
terms of word-of-mouth marketing strategies, cost savings and an increase in
profits and revenues with chalking out well-made customer retention strategy. Additionally,
customer defection (when service providers lose their customers as opposed to
retaining them) rate can also be decreased. As a result of well-known
relationship of the customers with their service providers, some retained
customers may feel their risk of making use of, acquiring and maintaining the
product or service is trimmed down.
it is becoming an industry-wide belief that the best core marketing strategies
for the future is to try to retain existing customers by heightening customer loyalty
and taking into consideration its link with switching barriers. Most of the
previous studies considered the factors influencing customer retention from
customer’s point of view. They perceive customer retention as a propensity of
consumer to remain with the service provider and therefore they conceptualize
the customer retention as a behavioral factor.
paper analysis the determinants influencing switching behavior of the customer
taking banking sector as an example. The remainder of this article is organized
as follows. In the next section, we provide the review of literature and then
present the main constructs of switching behavior and its connection with
retention of customers. Then conclude with an assessment of managerial
implications, limitations and directions for future research.
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, psychological and social burden felt by a customer when
switching to a new service provider. (Fornell, 1992). Therefore the higher the
switching barrier, the more a customer is forced to remain with his or her
existing provider i.e. bank. According to a previous study, the switching
barrier is made up of switching cost, the attractiveness of alternatives, and
interpersonal relationships. It’s obvious that a key element in customer
retention program is switching cost and service quality of service firms.
However, service quality and customer satisfaction need not to be the only
element of firm’s strategic marketing efforts. The barriers to customer
defection in service sector like strong interpersonal relations, customer
loyalty, customer satisfaction, price perceptions, inertia also depicts the
additional marketing strategies in service industry. Hence, the driving
variables of customer retention should be long-established so as to deal with
the policies and ways to avert customer defection.
studies suggest that customer loyalty makes the foundation of a firm’s
sustained competitive advantage, and that developing and increasing customer
loyalty is a crucial factor in a firm’s growth and performance (Reichheld,
1996; Lee and Cunningham, 2001).
and Lee (1999) studied
the link between customer satisfaction and customer loyalty; identify the
customer segment with asymmetric level of satisfaction and loyalty. They also
studied the influence of switching cost on customer retention. The findings of
this study reveal that in segment 1, none of the switching cost variables is
important as if customers decide to switch to other provider. Switching cost is
not a barrier. In segment 2, the quality element is more important as compared
to price element of customer satisfaction because customer loyalty is less
concerned and influenced with pricing plan and hence they are willing to pay
the price premiums. In segment 3, customer shows high loyalty then low to
medium satisfaction. They are dissatisfied with the services but information
elements act as a switching barrier for them. Therefore, it affects the
customer retention rate. Jones, Mothersbaugh and Beatty (2000) tested a
customer retention model which encompasses contingencies between the
switching barriers and customer satisfaction. The proposition of this
exploration was to know whether the higher levels of core- service
satisfaction, strong interpersonal relationships, higher perceived switching
cost, lower attractiveness of competing alternatives is/ are associated with
higher repurchase intentions. The results disclosed that the influence of core
– service / product satisfaction on repurchase buyer’s intent decreases when
customer perceived high switching barriers like strong interpersonal
relationships, switching cost and attractiveness of alternatives etc. They also
concluded the fact that firms should build up many switching barriers for
retaining the existing customers despite of their being deficient in customer
satisfaction with service offerings. And, they also revealed that the switching
barriers have no impact on repurchase intension when customer satisfaction is
high. The switching barriers influence the repurchase intentions in positive
way only when customer satisfaction is low. Ranaweera and Neely (2003) developed
a model of customer retention including service quality perceptions, price
perception, customer indifference and inertia, switching barriers with special
emphasis on repurchase intentions dimension. They found in their study that
service quality perception has direct linear association with customer
retention even in mass services with low customer contact. Customer
indifference and price perception also have a direct affect on retention. To
moderate the relationship between perceptions of service quality and retention,
Switching Behavior, customer indifference and price perceptions act as
moderator whereas inertia has no association with customer retention. They also
suggested that if we combine service quality and price strategy, which can work
as best strategy for service providers. Gustafsson, Johnson and Roos (2005)
scrutinized the effect of customer satisfaction, affective commitment created
through personal interaction and calculative commitment, as created through the
cost of switching the providers, on customer retention. The qualitative
interviews and periodic surveys are conducted. The results of the study reveal
that 1) Customer satisfaction has positive effect on customer retention. 2)
Affective commitment is when combined with customer satisfaction does not
predict a churn because when satisfaction is measured as a complete factor of
performance evaluation, it predicts churn. 3) The another important finding of
this study was that calculative commitment has negative effect on churn.
However, the triggers have no influence on churn models or retention
strategies. Akbar and Parvez (2009) analyzed a conceptual framework
empirically that states the interrelationships of customer’s perceived service
quality, customer loyalty, switching barriers and trust and customer
satisfaction. The results of this study show that trust and customer
satisfaction are very important variables and positively associated to customer
loyalty. It also helps to retain the customers by making loyal customer base.
They suggested that managers should focus on customer satisfaction for which
service quality is an antecedent for achieving the goal of creating loyal
customer base and switching barriers. Ladhari et al. (2011)evaluated the
customer service quality perceptions regarding bank’s services of Tunisian and
Canada. They also determined certain dimensions of switching behavior that
influences overall customer loyalty and satisfaction. The results show the fact
that both the country’s respondents reported high degree of perceived service
quality in banks. But, Canadian customers reported high level of perceived
service quality as compared to Tunisian respondents. They opine that the
Canadian bank managers should acknowledge the significance of “empathy” in
service delivery by implementing best customer-oriented strategies and Tunisian
bank managers should concentrate on giving trustworthy services efficiently and
barriers plays a role of a regulating variable that describes the relationship
between customer satisfaction, loyalty with customer retention. The concept of
switching barriers is employed as the marketing strategies which turned out
switching costly for its customer to another organization. Such barriers build
customer defection costlier and difficult. Switching barriers comprises of
interpersonal relationships, attractiveness of alternatives and perceived
switching costs . Switching barriers influences customer’s decision to stay or
leave the organization. Ahmed and Buttle (2001), explores some benefits of
retaining the existing customers as a 5 percent increase in customer retention
rate leads to an increase between 25 – 85 percent in net present value of
customers. These benefits are as:-
customer acquisition and replacement costs.
the base profits as already continued customers are likely to have minimum
spend per period.
operating costs as firm can spread this cost over many more customers for a
long period of time.
relationships denote social and psychological relationship that is evident
itself as intimacy, communication, trust and care. It implies to the power of
personal bonding that build up between customers and their service providers.
The interpersonal relationship is highly noteworthy in the services specified a
high degree of personal bonding of customers with their service providers,
heterogeneity of service results; and customers play the high-flying role in
the service production (Bowen, 1986)
hypothetical point of view, switching costs in explaining customer retention
that leads too stable and long-lasting relationships (Ganesan, 1994; Dick and
Basu, 1994; Bendapaudi and Berry, 1997). From an empirical point of view,
researchers have shown that the mediating role of switching costs in
elucidating customer retention in numerous service industries including
banking, credit cards, airlines and telecommunications (Jones, Motherbaugh and
Betty 2000, 2002; Burnham, Frels and Mahanjan, 2003; Lam et al. , 2004; Harris
and Uncles, 2007). Customer switching costs are also a crucial driver of
customer retention but have received much less attention in the service
marketing literature. From a practical perspective, executives are mainly
concerned about the negative outcomes of customer switching in terms of the
market share and profitability (Rust and Zahorik, 1993).
attractiveness of alternatives denotes to service quality that the customer
expects from the present service provider in most excellent available
alternative. It is linked with the conception of service differentiation –
providing unique and value added service to the customers whom their contenders
do not offer (Jones, 1998; Kim et al., 2004). Depending on the quality of
challenging alternatives, the customer perceives a benefit in altering the
service provider (Oliver, 1997). The more attractive the alternatives are, the
higher the perceived benefits will be when switching (Jones et al, 2000).
Therefore, consumers are likely to switch as soon as they perceive alternative
offerings as being better-quality with respect to cost-benefit ratio. There is
also empirical evidence from Rusbult at al. (1982), reporting that the quality
of alternatives is connected positively with existing and negatively with
customer loyalty and then customer retention.
other determinants are there which influences customers’ decision to stay or
switch with their providers. The first of four factors contains reasons related
to apathy, the second one contains negative reasons for customers staying with
their current service provider, the third factor leads to relationship
variables and the final factor relates to service recovery (Colgate, 2006).
research, we study the drivers of customer switching behavior. In particularly,
we focus on exploring the extent to which such determinants influences
switching behavior and customers’ decision to stay or switch the organization.
Even though marketing literature as long underlined the significant outcomes of
switching barriers in terms of customer retention, research is limited. The
customer satisfaction does not anticipate the longevity of customer’s
relationship with the service providers (Curasi and Kennedy, 2002). Switching
cost is a very significant driver or construct of customer retention that
results in long-lasting and secure relationships of customers with their
service providers (Dick and Basu, 1994; Ganesan, 1994; Bendapudi and Berry,
1997). So far, the key focus of previous research scholars were on the customer
satisfaction and / or commitment as core motivational factor for customer’s
long-standing relationships with service providers (Morgan and Hunt,
1994; Garbarino and Johnson, 1999; Szymanski and David, 2001). So as to keep up
their customers in relationship with service providers, the firm emphasized
upon satisfaction as crucial retention tool (Fornell, 1992). In contrast, the
influence of switching cost is more on customer repurchase intent than satisfaction.
So, switching barriers and switching cost is highly important issue for
marketing strategy that ascertained the strategies and determinants influencing
the customer’s relationship with service providers and that may also makes
switching costly. So as a result, switching barriers are very important as they
can strive hard for greater customer retention and also facilitated the service
firms to handle the short term fluctuations in quality of services provided by
the organizations, if not that can result in customer defection.
best of our knowledge, this study signified the first effort to incorporate
marketing variables and relationship characteristics into a particular
framework about the determinants of switching barriers and to demonstrate the
influence of such barriers on the magnitude of the retaining the customers.
This approach offers a great contribution to the service marketing literature
for the reason that a better understanding of customer retention and switching
barriers is vital to the relationship marketing theories and formulating
management point of view it must be essential to incorporate attractiveness of
alternatives, switching costs and interpersonal relationships and not only
customer satisfaction in consideration of the customer retention and defection,
and then segment the customer base using these three variables, if negative
switching barriers are low, and as a result few constraints exist to defect, a
well built emphasis on service to create customer satisfaction should be
imperative. Alternatively, when switching barriers are high and possibly
expected to remain so, less emphasis on the customer retention programs must be
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