A Review of Literature on “Brand Switching is a Major Problem in the Telecom Industry” Submitted By Ayaz Ahmad Gondal (1036847) Date of Submission 15 May 2107 Name of the Professor Alan Dymond Number of Words 2500 Table of Contents Executive Summary ....................................................................................................................................... 3 1.1 Introduction ...................................................................................................................................... 4 1.2 Background ....................................................................................................................................... 4 1.2.1 Definition of Brand Switching ...................................................................................................... 4 1.2.2 Types of Brand Switching ............................................................................................................. 4 1.2.3 Brand Switching in the Telecommunications Industry ................................................................ 5 1.3 Market Analysis ................................................................................................................................ 7 1.3.1 Market Segmentation .................................................................................................................. 7 1.3.2 Marketing Strategies and Competitor Analysis ........................................................................... 8 2.1 Rationale of the Study ............................................................................................................................. 9 2.2 Importance of carrying out the Study ..................................................................................................... 9 2.3 Aims and Objectives ................................................................................................................................ 9 3.1 Research Methodology .......................................................................................................................... 10 3.2 Research Approach ................................................................................................................................ 10 3.3 Research Methods ................................................................................................................................. 10 3.4 Data Collection Tools and Techniques ................................................................................................... 10 4.1 Literature Review ................................................................................................................................... 10 4.2 Factors affecting brand switching in telecom sector ............................................................................ 10 5.1 Findings .................................................................................................................................................. 12 5.2 Conclusion .............................................................................................................................................. 13 5.3 Recommendations ................................................................................................................................. 13 References ................................................................................................................................................... 15 Executive Summary Brand switching is a major problem in the telecom sector as companies are unable to promote brand loyalty and retain customers. This assignment focused on reviewing available literature to understand the various factors that were related to brand switching and to apply them to Australian telecom operators. It was found that most of the customers stayed with the dominant player in the market, Telstra despite having high prices and low switching costs, which contradicts popular research. However, after further research, it was found that there are more factors such as the absence of competition in key areas and a virtual monopoly in certain regional areas, coupled with the customers being unaware of the high costs of mobile and broadband services. After analyzing these findings, a few recommendations and topics for future research were suggested as well. 1.1 Introduction Customers are vital in every business. Due to a steep rise in globalization over the past two decades, the market conditions have become more competitive with the entry of foreign players and companies are vying for a decent market share. The same holds true for the Australian Telecommunications sector as well. Due to intense competition in this sector, customers frequently switch from one brand to another and due to the dynamic nature of this sector, it is essential that companies retain their customers to ensure their success. Many authors have provided their insights into this phenomenon on brand switching and this assignment will focus on reviewing the available literature to identify gaps if any and provide recommendations. Through this assignment, I would also strive to bring up questions for future research as well. 1.2 Background 1.2.1 Definition of Brand Switching In order to achieve success, companies have to move forward with all their stakeholders. In all these stakeholders, customers play a very important part. Customers display diverse attitudes and perceptions towards different brands. They also switch from one brand to another depending on several factors. When customers shift their loyalty from one product to another, then this phenomenon is called as brand switching. (Garland, 2002) 1.2.2 Types of Brand Switching Brand switching can either be aggressive or defensive. Aggressive brand switching happens when customers are influenced by advertisements and offers by the competitors of the brand that they currently own. On the other hand, Defensive brand switching takes place when customers are induced to purchase the previously purchased brand again. This kind of brand switching is usually done to increase customer loyalty (KoeKemoer & Bird, 2004). 1.2.3 Brand Switching in the Telecommunications Industry Customer’s behavior in brand switching varies according to the respective industry. Some industries have a high brand switching rate, whereas some are characterized by a lower rate. The Telecommunications sector is characterized by high brand switching rates (Roos & Friman, 2008). In Australia, the telecommunications sector is dominated by four major players, whose market shares are as follows: Table 1 &2: Market Share of Australian Telecom Companies in the Mobile Handset Services and Wireless Broadband Services (ACC Commission, 2017) Due to such intense competition and the highly dynamic nature of the telecom industry, customers constantly switch from one brand to another. The above two tables clearly show how consumers have switched from one brand to another. Strengths: • Latest fiber optics technology • Customer Service • High performing cable equipment Weaknesses: • Brand switching • Slow service and poor sales • High overhead cost structure Opportunities: • New technologies (5G network) • Internet of things (IOT) • Migration to National Broadband Network (NBN) • Development of wearable devices • Mergers and Acquisitions Threats: • Poor economy • Increasing competition • Increasing Government regulation • Changes in population • Cyber security threats Table 2: SWOT Analysis of the Telecom Sector (Wigginton, 2017) (Deloitte, 2013) (ACC Commission, 2017) 1.3 Market Analysis 1.3.1 Market Segmentation There are basically four different approaches to segmentation (Bayer, 2010): ➢ Customer Value Segmentation: In this case, customers are sorted into various segments based on the contribution to overall profitability and relationship with the organization. ➢ Customer Behavior Segmentation: In this case, the customers are segmented based on the behavior they exhibit. For example: ➢ Customer Life Cycle Segmentation: This approach determined where customers are in terms of the relationship with the company. For example, key life cycle events could be when the customer joins the company, when they an upgrade (growth stage), when the phone use is stable (maturity stage) and when the service usage is reduced (decline stage). ➢ Customer Migration Segmentation: This approach shows those customer segments that are increasing in value and those which are declining. This can be shown in the below figure: It is argued by (Bayer, 2010) that over time, more value could be lost due to downward migration than brand switching or churning. Hence, identifying downward migration and having policies in place so that this downward migration is reduced or reversed is important. 1.3.2 Marketing Strategies and Competitor Analysis In the final report, (Economics, 2015) observed that Australian customers pay a substantial price premium of $20 for using Telstra’s fixed line services and $9 for their mobile services over other operators. This additional cost to customers amounts to $3.1 billion per year. This shows significant structural issues within the Australian telecommunications market and reflects limited competition and difference in service quality. The report has also observed that there are several regions in Australia where Telstra is the sole service provider, which is heavily affecting over 3.5 million customers in those areas. Also, the grants, contracts subsidies and spectrum holdings from the National Broadband Network (NBN) are most often provided to Telstra, which results in increase in their market share rather than benefitting the consumers in the form of lower prices. 2.1 Rationale of the Study “To evaluate the factors affecting brand switching in the Australian Telecom Industry” 2.2 Importance of carrying out the Study There is a severe dearth in research carried out in the Australian telecom industry, hence 2.3 Aims and Objectives a. To understand the existing market conditions in the telecom sector. b. To understand brand switching behavior of customers. c. To examine the various factors that affect brand switching in the Australian telecom industry. d. To propose recommendations to the telecom industry so as to increase customer loyalty. 3.1 Research Methodology The research methodology adopted in this assignment was descriptive in nature 3.2 Research Approach The approach adopted for conducting this research was more inductive and went from understanding the general view to a more specific viewpoint. 3.3 Research Methods Both qualitative and quantitative methods have been adopted. Qualitative methods were used in the literature review, while quantitative methods were utilized to understand the various factors that influenced brand switching. 3.4 Data Collection Tools and Techniques For this assignment, mostly secondary data was used and collected via books, journals, reports and various online sources. 4.1 Literature Review This section will revolve around evaluating and analyzing available literature and compare each factor to get a more detailed and specific understanding. 4.2 Factors affecting brand switching in telecom sector Switching Cost: Switching Cost refers to the cost that is borne by the customers for moving from one operator to another (Grzybowski, 2004). According to (Fornell, 1991), high switching costs make it difficult for customers to switch brands and vice versa. So, if competitors have to convince the customers of a rival operator to switch to their service, they need to offer lower tariffs or more benefits in order to compensate for the high switching costs. However, it can be pointed out that customers are willing to stay with Telstra despite low switching costs (Kidman, 2014), which is contrary to popular opinion. Price: This is one of the major factors for brand switching among consumers. (Lee & Murphy, 2005) According to (Munnukka, 2005), a reduction in prices of mobile services attracts customers, in other words, changes in prices greatly affects brand switching. However, (Rajkumar & Chaarlas, 2011) argues that price is not the most important factor that influences brand switching. Companies may offer higher prices to attract those customers who are willing to pay higher prices to get better quality. This is evident in the earlier analysis, where customers of Telstra pay a premium of $20 for fixed line services and $9 for mobile services to get better quality. Telstra owns around 41% of the market share and this amounts to around $3.5 increase in profits of the company. Service Quality: Service is intangible in nature and hence difficult to measure accurately. Service quality refers to the impression of customers regarding the superiority or inferiority of the services provided by service providers (Bitner & Hubbert, 1994). It was found that service quality is directly associated with satisfaction (Noor-Ul-Ain-Nawaz, 2014). According to (Bennett, 2001), satisfaction is an emotional response to good service provided. (Lee et al, 2001) advocated that high satisfaction and customer loyalty are highly correlated. If companies provide better quality of services, then the image of the company rises and the customer’s interaction levels with the company increases. On the whole it was found that the financial performance of a company is improved if service quality is improved (James, 1998) Chart and Table showing overall customer complaints and complaints by type of service provided (ACC Commission, 2017) The above tables show that while the overall complaints have reduced over the years, the table shows that the number of complaints related to internet service has increased over the past few years. 5.1 Findings The following are some of the findings from the research and review of available literature: 1. Many authors have suggested that Service Quality, Prices, Switching Costs and Trust are the major factors that affect brand switching. They advocated that better service quality, lower prices, higher switching costs and increase in trust can significantly reduce brand switching. 2. However, from the research, it was observed that Telstra owns about 45% of the market share in mobile services and about 65% in broadband services and the share has only increased over the years. This was despite the fact that the customers of Telstra pay a premium to be associated with the mobile carrier, which contradicts the popular opinions that low prices are key to reducing brand switching. 3. There are many regional areas where Telstra is the sole service provider and hence customers have to bear high costs due to a lack of competition in those areas. This is a key point as competition is vital for the benefit of consumers. 5.2 Conclusion It can be concluded that the Australian telecom industry is dominated by few operators and Telstra being the dominating force. While most of the literature advocates on lower prices, improvement in the service quality and increasing the switching costs, it was found that most customers continue to stay with Telstra despite of its high prices, low cost of switching and rising complaints relating to internet service. 5.3 Recommendations 1. Removal of certain impediments, for example, competition is more evenly spread out where customers have more choice, avoiding subsidies and grants given to a sole operator. 2. Creating conditions where competition is rewarded by providing relevant information to customers regarding the quality and prices available to them would be useful. 3. Competitors of Telstra should focus on improving their brand image, increase their presence in regional areas and improve their service quality in order to stay competitive in the future as in this case, customers are making a switch to Telstra despite of the low switching costs, high prices and relatively higher service quality. 4. Companies competing with Telstra can focus on a more humane approach to build empathetic and highly advantageous relationships as this can lead to an increase in their brand value. They can also diversify their marketing channels to target specific clients. 5.4 Future Research As highlighted in this report, there are several opportunities for research in the future. 1. Due to the highly dynamic nature of the telecom sector, it would be interesting to see if the advancements in technology can bring about a shift in customer perceptions of companies in the future. 2. The success of most of the telecom operators was because they were able to focus their strengths on the concept of “connectivity”. 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