Effects of Service quality on Customer

Satisfaction and Customer Loyalty within

Telecommunication Industry of Pakistan
BRM Final Project Report
Submitted to: Professor
Zia Khan
Muhammad Zohaib

L12-4939

Usama Altaf

L14-4904

Arslan Malik

L13-4986

Musa Hassan

L12-4990

Submitted by:

Executive Summary
This research was counted at FAST university, Lahore. The sample of 372
peoples was used including students and teachers at the campus. The study amid
to measure the responsiveness of cellular users towards service quality offered
by the telecom operators in Pakistan. Moreover, attempt to measure effect of
service quality on customer satisfaction and customer loyalty was carried. The
construct variables were taken from the earlier literature (Kim, Park and Jeong
2004). Three constructs for service quality were used categorized as call quality,
pricing structure and customer service. Constructs for customer satisfaction and
customer loyalty were also taken from the same literature cited above.
Convenience sampling method was used for conducting research. Data collected
was analyzed with the use of two well known statistical software: 1) IBM SPSS
and 2) SmartPLS. Descriptive analysis of demographical characteristics and
Factor analysis was done using SPSS while SmartPLS was used hypothesis
testing. The result of study suggested that users within telecom industry in
Pakistan were highly responsive towards service quality provided by service
providers and performed vital role in retention of customers by enhancing
customer loyalty of users for the services. Moreover, according to the
implications of study, service quality also had a positive effect on customer
satisfaction and a positive but weak relationship between customer satisfaction
and customer loyalty was observed.

Introduction
Pakistan telecommunication industry with the advent of 2g cellular services in
2002 has grown at very rapid pace. Today, Pakistan telecom industry has 129.8
million customers according to Cellular Mobile Subscribers Base for the Year
2014-15 (PTA 2014-2015) with five cellular service providers in the country.
Countrys total population according to a recent survey (The World Bank Group
2014) is 182.1 million. More than 71 % of the population user to cellular
services makes this industry one of the biggest in country and the region as
well. Due to recent amendments in telecom policy, the criteria for acquiring new
number has been constricted causing decline in growth rates suggesting that
market has reached maturity giving rise to an intense competition.
Now companies have to focus on strategies to retain their existing customers. It
is implied by previous researches that quality, pricing, service and satisfaction
as collective set of variables affects customers purchasing behavior (J. Joseph
Cronin, Brady and Hult 2000). The aim of this research is to determine the
effects of overall service quality on customer retention and customer
satisfaction within telecom industry of Pakistan. The result is expected to
inform telecom operators about their customers perceived service quality and
its effect on customers switching intensions. Marketers may take indications
from this and improve their customer retention and satisfaction strategies.

Research questions:
1) Is there a significant gap between perceived and actual quality of services
according to the customers?
2) Does service quality impacts customers decision of repurchasing the
product in future?
3) What is the relationship between three concepts of service quality,
customer satisfaction and customer loyalty?

Literature Review
1)Service Quality: Quality is a multi-dimensional phenomenon. To measure it,
we should identify its different aspects. In telecom industry, those aspects
defined by previous study (Kim, Park and Jeong 2004) are call quality, pricing
structure and customer support. The firm's ability to create and sustain
competitive advantage depends upon the high level of service quality provided
by the service provider (Yoo and Park 1984). Companies can differentiate their
services or products from competitors by offering superior service quality.

2)Customer loyalty: Customer defection occurs when customers switch

between service providers in the service environment (Garland 1983).
Defection can be due to various controllable and uncontrollable factors. Among
many other price and low service quality are stated as controllable (Trubik and
Smith 1986). Defection may affect consumer re-purchasing behavior. Consumer

loyalty is critical to business sustainability in the industry as it determines the

re-purchasing behavior of the customers. In mature market like Pakistan, where
almost maximum pool of users has been achieved, strategies for customer
retention are critical to long term prospects of telecommunication operators.

3)Customer Satisfaction: Customers decision for purchasing good in the

future depends on his/her satisfaction level (Mittal and Kamakura 2001).
Customers, own perception of service quality is the main factor of determining
customer satisfaction (Bitner, et al. 1990). Although satisfaction is defined as
the difference between expectation and performance but there are differences
between service and quality. Several searches have been done on the
relationship between service quality and satisfaction, some of them show that
satisfaction depends on service quality (Zeithaml, Berry and Parasuraman
1988).

Hypothesis:
H1: Higher service quality leads to higher customer loyalty among customers.
H2: There is a positive relationship between service quality and customer
satisfaction.
H3: Higher customer satisfaction leads to Higher customer loyalty (Positive
relation).

Research Methodology

Definition and Measurement of Variables

For the purpose of study, following variables of measurement were taken from
previous study. Service quality is a multi dimensional construct and we used
call quality, pricing structure and customer support as its constructs. Moreover,
switching intentions were predicted by using re-purchasing behavior.

Variable
Service Quality
Call Quality

Operational Definition

Measurement Items

Call quality according to customer

perception

Call clarity
Coverage
Reasonability of price

Pricing Structure
Pricing and price schedule
Customer Support

Ease of reporting complaint

Customer support system

Customer loyalty

Combination of customers favorable

attitude toward the service and intention to
re-purchase the service

Customer
Satisfaction

Customers reaction to the state of

satisfaction, and customers judgment of
satisfaction level

Intention to stay with the

carrier
Intention to recommend the
carrier to others
Overall satisfaction with the
carrier
Overall satisfaction with the
service

TABLE 1: OPREATIONAL DEFENITION AND MEASUREMENT OF VARIABLES (KIM, PARK

AND JEONG 2004)

Sample

This study was conducted to study the impact of service quality on customer
satisfaction and switching intensions among the cellular users of Pakistan based
on quantitative research design. The population includes telecom users among
five service providers within Lahore. A small sample of 372 people was taken
due to the limitations regarding cost and time. To avoid biasness within sample,
respondents from diverse demographics were selected. Furthermore,
convenience sampling method would be used. Table 2: Descriptive statistic
results explains the demographical segmentation of the sample taken from the
population. Majority of respondents were male (56%) while the others were
female. As survey was conducted within universities, most of the respondents
were students and the reaming were teachers from respective universities.
Moreover, the carrier used by majority of customers was Ufone and Warid with
37.1% and 28% respectively.

Variable

Frequency

Percentage

Gender
Male
Female

208
164

55.9
44.1

Age
17-25 (Students)
26 and over (Teachers)

351
21

94.1
5.9

Carrier
Ufone
Warid
Mobilink
Zong
Telenor

138
104
66
38
26

37.1
28
17.7
10.2
7

TABLE 2: DESCRIPTIVE STATISTIC RESULTS

Data Collection and Analysis

A closed ended questionnaire is developed for collection of primary data. It is
divided in two parts, first inquires about the demographical information of
respondent while second part is further subdivided into three constructs of
service quality, customer loyalty and customer satisfaction. Questionnaire
consists of 13 statements, adopted from relevant literature and descriptive
demographic measures. It also includes the regression analysis which is
important in compiling the final results for this study. Another software known
as SmartPLS was used for hypothesis testing, validity and reliability testing
purpose.

Reliability and Validity

To validate the reliability of our model, the consistency within the constructs
was tested through factor analysis using KMO and Bartlett test. Varimax
method of rotation was used and factors having Eigenvalue greater than 1 were
used. Consistency within the constructs was validated by using constructs factor
loadings (Table 3: Factor loadings) greater than .7 while others were removed.

Constructs of service quality were removed due to lower value which were
pricing structure and customer support. Validity was ensured by using
discriminant validity test through SmartPLS. The values in (Table 4: interconstruct correlation) suggest higher correlation of constructs among each other
than the outer ones ensuring validity among them.

Factor 1 Service quality (KMO and Bartlett = .51 )

SQ1

I am happy with the call clarity of my cellular network.

Factor
loadings
.846

SQ2

Signal coverage of my cellular network is satisfactory.

.879

Eigenvalue

1.685

%Variance
explained
Factor 2 Customer Loyalty (KMO and Bartlett = .50 )

84.239

CL1

I intend to stay with the carrier.

Factor
loadings
8.71

CL2

I intend to recommend the carrier to others.

8.74

Eigenvalue

1.517

%Variance
explained
Factor 3 Customer Satisfaction (KMO and Bartlett = .50 )

75.867

SQ1

Overall I am satisfied with the carrier.

Factor
loadings
8.98

SQ2

Overall I am satisfied with the service.

8.97

Eigenvalue
%Variance
explained
TABLE 3: FACTOR LOADINGS

1.614
80.691

Correlation of customer loyalty among its own constructs is higher (0.871) than
in the others. It means that constructs explain more variance among their
variable.

Customer
Loyalty
0.871

Customer
Satisfaction

Customer
Satisfaction

0.657

0.898

Service Quality

0.629

0.557

Customer
Loyalty

Service Quality

0.672

TABLE 4: INTER-CONSTRUCT CORRELATION

Hypothesis:
Hypothesis

Independent

Dependent

R2

Result

H:1

Service Quality

Customer
Loyalty

.555

.501

Accepted

H:2

Service Quality

Customer
Satisfaction

.366

.134

Accepted

H:3

Customer
Satisfaction

Customer
Loyalty

.281

Accepted

TABLE 5: HYPOTHESIS TESTING (PLS ANALYSIS)

PLS Algorithm was used to obtain R2 values which tell the variance explained
by independent variable and values. Bootstrapping operation was used to
obtain t values at a significant level of 0.05 with two tiled test. H1 was
supported due to positive beta value and t value grater than 1.6. Implying that
improved service quality has a positive effect on customer loyalty. H2 was also
accepted but demonstrates the weak relationship between service quality and
customer satisfaction. Statistics depict that enhancing service quality has a
minor effect on customer satisfaction based on sample data. H3 was accepted as

positive correlation was shown between customer satisfaction and customer

loyalty. However, the relation is very weak due to small beta value. The
conceptual model is given in Figure 1: Conceptual Model (PLS
Algorithm)Figure 2: Conceptual model (Bootstrapping), showing all the values
graphically. High composite reliability values of .863, .893 and .914 were
obtained implying that the factors of variables explained good variance outside
their respective constructs.

FIGURE 1: CONCEPTUAL MODEL (PLS ALGORITHM)

FIGURE 2: CONCEPTUAL MODEL (BOOTSTRAPPING)

Conclusion
The findings of this research helped us answer few question for the telecom
operators. Firstly, the most important finding was that users in telecom industry
of Pakistan are conscious about quality and enhancing it plays a big role in
developing loyal behavior towards the customers of the company. Results
suggest that re-purchasing behavior of a customer depends on service quality
within the telecom industry of Pakistan. Secondly, the service quality also
impacts the satisfaction of the customers. So, telecom operators need to improve
their quality of services as it plays important role in satisfying customers by
keeping them from switching to another carrier. The most important constructs
of service quality to with users were responsive are call quality and wide range
of signal availability. Companies can also increase their customers by satisfying
the current ones as satisfied customers are more likely to recommend the use of
service to others. Finally, the research implies that satisfaction among customers
impacts the customer loyalty. Dissatisfaction among users may result in
decreased number of customers as they would start to switch services. However,
decision of switching depends on switch costs and barriers, but users may start
using dual services as it usually happens in Pakistan. Telecom operators may
find the results of this study useful in devising future strategies for growth. As
in businesses have to keep growing in able to sustain in the market.

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