Impact of Sales Promotion on the Consumer Loyalty in the ...

ISSN 2090-4304 Journal of Basic and Applied Scientific Research www.textroad.com

J. Basic. Appl. Sci. Res., 3(5)901-907, 2013 © 2013, TextRoad Publication

Impact of Sales Promotion on the Consumer Loyalty in the Telecommunication Industry in Pakistan 1*

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Dr. Rashid Saeed , Fareeha Nisar , Rab Nawaz Lodhi , Dr. Moeed Ahmad , Dr. Hafiz Muhammad Arshad5 1,5

Assistant Professor, Department of Management Sciences, COMSATS Institute of Information Technology, Sahiwal, Pakistan. 2,3 Lecturer, Department of Management Sciences, COMSATS Institute of Information Technology, Sahiwal, Pakistan. 4 Assistant Professor, Department of Business Administration, Bahauddin Zakarya University, Sahiwal Campus, Pakistan ABSTRACT In today’s dynamic and competitive environment, every business depends on the acceptance of the customers. Customers have numerous choices to make the final decision and they are heavily influencing the companies in regard to the product price, quality and sizes. Among the different marketing communication tools, companies are giving attention to the sales promotion to attract the customers. Therefore, the aim of this research paper is to determine the impact of sales promotion on the consumer loyalty in the telecommunication industry of Pakistan. Survey method was used to collect the data from the mobile phone users. A sample of 157 was studied by applying the descriptive and inferential statistics techniques with the use of SPSS software. The results highlighted the fact that there exist a positive relationship between the sales promotion and consumer loyalty. It also adds that the non loyal customers exhibit more switching behavior than loyal customers. KEYWORDS: Sales Promotion, Consumer Loyalty, Telecommunication, Pakistan JEL Classification: M3 1. BACKGROUND AND PROBLEM In this region of the world, telecommunication industry is growing rapidly. Since 2004, after the deregulation, cellular market in Pakistan observed incredible growth rates of over 170% and the trend is continuing to the present. Many companies became the part of this sector in the last decade and competing fiercely for the market share. The total number of cellular subscribers is above 108.99 million at the end of the year 2011. Whereas in 2010 this 66 digit was 99.2%.The proportion of prepaid subscribers is 98% that is very high as compare to the post paid customers (Pakistan Telecommunictaion Authority, 2010-2011). The telecom operators are trying their level best to attract and retain the customers through various marketing techniques. There are five major telecommunication service providers Mobilink, Telenor, Ufone, Warid and Zong that are offering GSM (Global System of Mobile services) in Pakistan. The revenues in the telecommunication industry are also showing progress as they have reached the mark of Rs. 363 billion that is 5.4% raise than the last year (PTA, 2011). In order to compete successfully in this situation, the cellular operators have developed critical promotion strategies that include the drop age in the air time rates, free sms, free credit and small top ups. The aim of such strategies is not only to beat the competition and retain the customers; it also triggers the new customers by offering the attractive packages. There is no doubt that the ultimate objective of every company is to generate the certain level of sales that may create profit to continue the business activities. Every business develops the sales estimate and develops the strategies to achieve it, especially in the service industry. This is the critical link between the sales promotion and customer loyalty. The sales battle has created the need of continuously tapping the older customers and creating attraction for the perspective customers. The national and multinational companies are spending millions of the dollars to give a boost to the sales in the short time. Numerous research studies have been conducted on one of very important marketing promotion tool, Sales Promotion. The researchers of social sciences have a long debate on the influence of sales promotion on the behavior of customers. The general observation is that sales promotion motivates consumers to act positively towards offering of company. The customers are satisfied and they will keep on purchasing the products even on the normal price. Contrary to this, Dodson & Taybout, (2001) found

Corresponding Author: Dr. Rashid Saeed, Head of Department, Department of Management Sciences, COMSATS Institute of Information Technology, Sahiwal. E Mail: [email protected], Contact # +92-333-7822020 901

Saeed et al., 2013

that promotion acts as an external stimulus and there is less probability that the customers will repurchase the products after the campaign is over. It may change the customer attitude to purchase the product on the normal price. Price discounts may also encourage low-probability purchasers to try. However they are customers who are not likely to make repeat purchases and thus the promotions have a negative impact on long-term sales. Price is used as a measure of quality for many service consumers. In certain situation, the price cuts sometimes devalue the worth of brand in the mind of the customers. In US, this study was conducted in the retail businesses. Even Das (2009) conducted the same for the Indian Retail market. The same study was conducted in Nigeria in 2009. In Pakistan, the impact of sales promotion on profitability and customer’s preference has been analyzed in the shoe industry (Zehra Rizvi & Malik, 2011). The uncertainty associated with the impact of sales promotion on the customer behavior in context to the loyalty has developed the need for the study. There is less work is done in Pakistan particularly in the service sector like telecommunication. Thus, this study aims to cover the empirical gap in literature. 1.1 Research Objectives Based on the research questions, research objectives are formulated in this section:  To determine relationship between sales promotion and customer loyalty.  To investigate the role of sales promotion in retaining the customers.  To assess the influence of sales promotion in helping the customers to search out the information about the telecom services.  To explore the sales promotion programs that are liked among the telecom users in Pakistan. 1.2 Significance of the Study The study on the impact of the sales promotion on the customer loyalty in the telecommunication industry is of significant value because:  It is very useful for the telecom service providers to recognize how their sales promotion campaigns influence the customer behavior and the status of the effectiveness of their activities in a particular way.  It also carries importance for the policy makers and regulating bodies to make an understanding of the role of sales promotion in changing the behavior of the customer in this dynamic industry.  It may provide support to the academic researchers to understand the customer behavior of the telecom industry by filling the gap in the literature by investigating the relationship between sales promotion and customer loyalty. 2. Theoretical Background and Research Hypotheses 2.1 Sales Promotion Marketing literature supports this fact that the regular customers, who purchase the product frequently, are profitable and are primary concern of the companies (Nagar, 2009). Peattie & Peattie (1994) defined the sales promotion as marketing activity specific to a group of customers, a particular place and/or time bound, which encourages an immediate or direct response from customer by offering additional valuable benefits. It highlights the concept of the commitment that every supplier expects from its customers. In order to cater the need of making the repeat purchase possible, the companies develop extensive marketing programs to retain and motivate the buying behavior of the customers. The concept of sales promotion has been discussed in different ways in literature. It has been described as a pressure that is time bound and applied to customers to stimulate the process of trial, choice and ultimately the purchase of the product/brand (Marketing, 2011). There have been different uses of sales promotion described in the literature. It is used to persuade the new customers to make the decision of the purchase of the particular brand/product, lowers the switching barrier/price of the brand/product for the brand switchers to attract them, encourages the competitors loyal to change the buying decision and provides the incentives/ extra value to own loyal customers (Peattie & Peattie, 1994). Sales promotion has multiple effects on the purchase decisions of the customers. It may influence the quantity purchased and responsible for the switching in brands (Nijs, 2011). The phenomenon of sales promotion can be divided into two different groups. The activities that are used to target the consumer such as free gifts, bonuses, free samples etc are called consumer sales promotion methods. The other category is called the trade sales promotion that is directed towards the members of distribution channels (wholesalers, distributors, retailers or sales persons) in the form of free merchandise, sales contest and coupons (Kotler, Armstrong, Agnihotri, & haque). Sales Promotion has been explained in context to the monetary and non monetary promotions as well. According to Luk & Yip (2008) monetary promotions are incentive-based like convenience, saving in cost, quality and provide immediate rewards whereas non-monetary promotions are related to the self esteem and entertainment etc. Monetary sales promotion aims to provide the instant benefits to the customers such as coupons, price packs, shelf discount, free top ups while non monetary are non transactional in

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nature and tend to be more relationship based (Campbell & Diamond, 1990). Monetary sales promotion does have negative impact on the brand value of a product. The price reductions may enforce the customer to switch to other brand and thus it may eliminate the criteria of the quality and develop price elasticity in the purchase of the product (Aaker, 1996). Therefore, the monetary promotions are more preferred over non monetary because of their power to persuade the customer to change their purchase decisions (Luk and Yip, 2008). The discussion on sales promotion shows that its impact depends upon the level of commitment of the customer. Mariole and Elina (2005) argues that the customers who are less committed exhibit the high level of attention towards the sale promotion and those who are highly committed show lower level of influence. 2.2 Consumer Loyalty It is very usual to explain consumer loyalty in terms of repurchase intention of products and services that is the goal of every business. All the businesses in the world desire for the customer loyalty because they know that it’s very cheaper to retain a customer than to win the new one (Rust & Zahorik, 1993). A group of researchers has used repeat purchase and repurchase intentions to measure the brand, product or service loyalty (Jones, Haskett, Loveman, Sasser, & Schlesinger, 1994). According to Jones and Sasser (1995) customer loyalty can be categorized into three parts. First one of them is the re-buy intention, the second is primary level behavior and the third is the secondary level behavior. Re-buy intention relates to the future purchase intention of the customer to re-purchase the desired product or the service. Secondary level means the customer himself physically visits the place to purchase the product. While in the third level customer deliberately recommends the product or the service to the people around him and thus exhibits the loyalty by human interaction. Oliver (1999) elaborated loyalty as a situation, in which customer consistently uses and recommends the product and prefers the same brand over the time. Prus and Brandt (1995) pointed out customer loyalty through attitudes and behavior. The attitude includes the intention to repurchase the product, the intention to recommend and the immunity to competitors. The behavior consists of behavior of repurchase, purchasing other products from the company, and recommending it to others. After studying the previous literature, following indicators are used for measuring customer loyalty: a) The intention and behavior of frequent repurchase b) The intention and behavior of recommending product to others, and c) The immunity to the promotional activities of competitors. 2.3 Sales Promotion and Consumer Loyalty Sales promotion is one of the very exciting tools of marketing communication. This technique not only works for grasping the attention of the customer but also facilitates the customer to purchase the product by encouraging through different incentives (Omotayo, 2011). The consumer loyalty can be divided into the two different categories, hard core loyal and brand switcher. A hard core loyal customer is one who does not affect from the price change and makes the repeat purchases on the normal prices. He is less prone to the price cuts or discounts (Evans, Moutinho, & Raaij, 1996). Lau, Chang, Moon and Liu (2006) described the difference between hardcore loyal and the brand switchers. According to them hardcore loyal shows the highest level of commitment and makes the repeat purchase of the same product, even in the case of premium price. Whereas the brand switcher keeps on moving within one or two of the brands in order to satisfy the needs fully. Brand switchers do not satisfy from one particular brand and sales promotion is very useful tool to attract brand switchers. The gap still exists in literature to find the relation of sales promotion with both loyal as well as switchers in the emerging economy like Pakistan. 2.4 Theoretical Framework Monetary sales promotions influencing the consumer loyalty are: Utilitarian Benefits Monetary Savings Quality

Consumer Loyalty

Convenience Hedonic Benefits Value Expression Exploration Entertainment

Figure1. A Benefit Congruency Framework of Sales Promotion Effectiveness (Chandon, 2000)

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2.5 Research Hypotheses The sales promotion seems to have double edged impact on consumer behavior that merely depends on the level of commitment of the consumer on a certain brand/product. The certain kind of response opens a new insight into the effect of sales promotional efforts. Gedenk, K., & Neslin (1999) further explored that the sales promotion can create a decrease in the brand loyalty and led the customers to display more variety seeking behavior. This thought has created the need for more research. That’s why it is proposed that: H1: Sales promotion does not have any impact on customer retention. H2: There is no relationship between monetary sales promotion and customer loyalty. H3: Non loyal customers are more prone to brand switching in response to consumer sale promotion than loyal consumers H4: There is no significant difference in the switching behavior of consumers in response to consumer sales promotion. 3. RESEARCH METHODOLOGY The carried out study is based on the quantitative techniques of research. The research study regarding is based on the survey research design. The survey research design, theoretically, is intended to collect samples from a particular population for the purpose of analyzing the behavior and interaction of the variables that are relevant to a specific study (Linus, 2003). This method is adopted because of its economical characteristics and its potential to address the hypothesis adequately. The same methodology has been used in the similar studies conducted in Nigeria in 2011. 3.1 Target Population and the Sampling Method Target population of the study consisted of the users of different products that are advertised and their features are communicated to the audience through different marketing communication channels. For this purpose, the students of the higher education institutions of the Sahiwal city were selected as the target population of the study. Based on the number of students enrolled in each institution, proportionate sampling procedure was employed to get the enough response from the respondents. The sampling framework of this study was drawn from the user of telecommunication services among students of colleges and universities in Sahiwal. The simple random sampling was used as sampling method in order to ensure the equal participation a part from gender, language and background biases. 3.2 Data Collection Methods Self-administered questionnaire served as research instrument that was distributed among 180 respondents, 160 were collected and only 157 were in complete form. Total 24 items are measured with 5 point Likert scale that ranges from Strongly Agree (5) to Strongly Disagree (1). 3.3 Measures of the Study Variables The operational definition and measurement of the studied variables for the validation of the research hypotheses are in Table 1. There are two major independent variables, utilitarian benefits and hedonic benefits. The dependent variable of the study is consumer loyalty and there are four items to measure this variable. 3.4 Data Analysis Methods In order to describe and explain the demographic characteristics, descriptive statistics is used while the relational hypotheses are studied through developing the linear regression models. The software used for the data analysis is SPSS 18. 4. RESULTS This section offers the empirical results of the study. First, in order to test the reliability of the measures, cronbach alpha technique is employed. Second, items measuring each construct are clustered and average itemized score for each variable is computed. Third, descriptive statistics of the variables are computed. Fourth, to determine the association among variables of the study, paired correlation coefficients are calculated. Final, to determine the effects of predictors on outcome, simple regression is used.

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Table 1 Operational Definition and Measurement of Variables Variable Consumer Loyalty Primary Level Behavior

Operational Definitions

Measuring Items I would like to use this telecom operator again I will consider other services of this telecom operator I will recommend this telecom operator to my friends Even though other operators have cheaper rates, I won’t switch

Willingness to repurchase the product Willingness to recommend the product to others

Secondary Level Behavior Sales Promotions Utilitarian Benefits 1. Monetary Savings Lowering the unit price of the promoted product, by offering more of the same product for free ((Blattberg, 1990)

2. Quality

I really save money. I feel that I am getting a good deal. I really spend less. I can have a higher quality product at the same price. I can afford a better than-usual product. I can upgrade to a better brand. These promotions remind me that I need the product. These promotions make my life easy. I can remember what I need.

Increase in the quality of the product bought (chakarvarthi, 1984) 3. Convenience Reduction in search and decision costs Hedonic Benefits 1.Value Expression

2. Exploration 3. Entertainment

Expression and enhancement of self-concept and personal values (Holbrook’s, 1994)

I feel good about myself. I can be proud of my purchase. I feel like I am a smart shopper. I feel like trying new brands. I can avoid buying always the same brands. I can get new ideas of packages to buy.

Amusement and aesthetic value

Table 2 Descriptive Statistics and Correlations among the Variables of the Study Us UQ UC HVE HE HENT CL Notes

Mean 3.35 3.50 3.58 3.25 3.42 3.54 3.42

SD .83 .71 .88 .94 .99 .85 .79

Us .84 .174† .100 .064 -.008 .124 .167†

UQ

UC

HVE

HE

HENT

CL

.81 .192* .303** .236* .252** .455**

.89 .088 .449** .234* .291**

.91 .120 .350** .360**

.92 .133 .314**

.88 .171

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