CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The Nigerian telecommunication industry is a very important industry in the country, as the
industry contributes enormously to the Nigerian economy. According to the report on the
Nigerian Communications Commission‟s (NCC) website, the telecommunication industry
contributed 9.8 percent to the country‟s gross domestic product as at June, 2016 (NCC,
2016). This figure shows the importance of the industry to the Nigerian economy. The
continuous development of the telecommunication industry in the country has the potential to
boost economic growth and development (Salisu& Ibrahim, 2014). The industry facilitates
speedy communication which helps in facilitating business activities all over the country. The
activities of the telecommunication industry have led to more people in the country being
informed. Without doubt, the telecommunication industry has led to economic growth of the
country and generated thousands of employment for Nigerians (Salisu& Ibrahim, 2014).
The telecommunication industry in Nigeria has been growing at a fast pace. This is clearly
evident in the number of subscribers in Nigeria. Report shows that in 2010 there were a total
number of 81,195,684 active subscribers in the country (NCC, 2010). As at July 2016, the
total number of active subscribers grew as high as 149,708,077 (NCC, 2016). This
demonstrates the viability of the Nigerian telecommunication market and the development
overtime as a result of the deregulation of the industry.
Ibok and George (2013) observed that the deregulation of the telecommunication industry in
Nigeria has led the industry into hyper-competition leading to intense rivalry among service
providers. These authors noted that the industry has been maturing and that there is the need
for service providers in Nigeria to know important factors that makecustomers loyal even in
the face of hyper competition.They further argued that subscribers frequently switch service
providers or patronise more than a single service provider. Affirming what Ibok and George
(2013) said, Rashmi and Krishnakumar (2015) related that winning and retaining existing
customers is always an important issue to telecommunication service providers due to intense
competition.
Because of the competition to win and retain more subscribers by service providers, a
Subscriber Identification Module (SIM) card sell at a very cheap amount (Adeleke&Aminu,
2012).Therefore, subscribers may find it very easy to switch service providers as a result of
the very cheap cost of buying a SIM card. A loyal customer may find it very difficult to
switch to other competitors even when faced with various reasons to switch (Lovelock
&Wirtz, 2007).
Most customers were still apprehensive in switching even with the very cheap cost of
purchasing a new SIM card, because of the fact that they do not want to lose their mobile
number. (http://www.ncc.gov.ng). With this sense, came in the Mobile Number Portability
(MNP). MNP is a service that enables a subscriber keep his mobile phone number even when
changing from one mobileservice provider to another. So, when people switch between
serviceproviders, they do not have to go through the pain of sending their new numbers to
friends, family, colleagues and other contacts because their number stays the same
(ncc.gov.ng). This invention has made it easy for customers to switch, and has further
intensified the scramble by service providers to win and retain customers.
Since the founding of the MNP in March, 2013, a total of 670,326 subscribers have used the
porting system between May 2013 and October 2016 (NCC, 2016). More precisely, for only
the month of October 2016, 5,243 subscribers ported out of Airtel Nigeria to patronise other
service providers. Similarly, 1,369 ported out of 9mobile, while 4,638 ported out of
Globacom to patronise other service providers. MTN Nigeria had the highest numbers of
subscribers porting out with 6,409. In total, for the month of October only in 2016, 17,659
subscribers ported from their service providers to other service providers. These figures show
subscribers are actually using the MNP scheme on a steady base, making it more difficult for
service providers to keep hold of their customers.
As of December 2015, MTN Nigeria was having 61,252,387 million subscribers (NCC,
2015). As of March 2016, their number of active subscribers dropped by over five million to
57,045,721 active subscribers (NCC, 2016). As at September 2016, the number of their
subscribers increased by 3,512,848 to 60,558,569, which contributed to a 1.13% drop-off in
growth (ncc.gov.ng) between December 2015 and September 2016. Globacom subscribers
have been increasing over the years. As of December 2015, they had 32,999,384 active
subscribers (NCC, 2015). As of March 2016, they had 34,608,793 active subscribers (NCC,
2016), which indicates an addition of over 3million subscribers and this led to a 4.88% gain
in growth (NCC, 2016). Then as at September 2016, they had 36,967,712 subscribers, which
indicates a 6.82% growth between December 2015 and September 2016.
Similarly, Airtel Nigeria has also experienced an addition of over 2.5million subscribers from
September 2015 to March 2016 (NCC, 2015). This contributed to a 4.95 percent gain in
development according to the NCC. But as at September 2016, they had 0.28 percent dropoff in growth (NCC, 2016) between December 2015 and September 2016. 9mobile recorded
over 1.6million decrease in the number of subscribers (NCC, 2016), which means 1.28
percent drop-off in growth. But overall, 9mobile had an increment of 1.68 percent as at
September 2016.These figures show how easily subscribers switch service providers easily,
and how difficult service providers are finding it hard to keep customers loyal.
Thus, it is clearly evident that subscribers are on frequent basis switching between service
providers. This frequent switching by subscribers is loyalty related. This means subscribers
are loyal to some service providers above other service providers. Consequently, it means
subscribers value some service providers over others, which may be as a result of the benefits
they get from the relationship with their valued service providers.
Customer loyalty has been identified as key to the survival and growth of any business
organisation (Oghojafor, Ladipo, Ighomereho & Odunewu, 2014). According toNimako
(2012b), service organisations should not be interested only in acquiring new customers, but
more importantly, retaining existing customers through customer loyalty.Nimako (2012b)
argued that service providers in the mobile telecommunication industries in many developing
countries are in fierce competition with one another, and are therefore always developing upto-date and effectivestrategies towards achieving customer loyalty. Yet, according to
Oghojaforet al., (2014), subscribers still switch from one service provider toanother or mostly
patronise more than one service provider even with the efforts put in by these service
providers. Thus, this study set out to assess factors that make customers loyal to a particular
service provider even when they are faced with various options and marketing efforts
produced by rivals.
1.2 Statement of the Problem
The commitment-trusts theory developed by Morgan and Hunt (1994) posits that trust can act
as a mediator in the relationships between price, service quality and customer loyalty. The
authors concluded that price and service quality may directly influence customer loyalty, and
also trust could mediate such relationships.
Price is seen as very important predictors of customer loyalty (Ojo, 2010). Price is seen as an
important feature because it determines the value of a product (Meldrum &Mcdonald, 2007).
According to Kotler and Armstrong (2006), price is one of the key factors that affect buyers‟
decisions. Therefore, price is a key element that should not be overlooked, as it may ensure
customer loyalty (Fifield, 2008). However, most previous related studies (e.g., Haghighi,
Dorosti, Rahnama& Hoseinpour, 2012) have majorly considered the direct relationship
between price and customer loyalty, largely ignoring the mediating role of trust in such a
relationship, as propounded by the commitment-trust theory. Even studies (e.g., Iddrisu,
Nooni, Fianko & Mensah, 2015)that have considered including a mediating variable in a
studies as this, have largely considered customer satisfaction as a mediating variable and not
trust. This study, hence fills this knowledge gap by examining the mediating role of trust on
the relationship between price and customer loyalty.
Service quality on the other hand as observed by Ullah, Khan and Shahzad (2015) in most
cases influences buying decisions of consumers. Lovelock and Wirtz (2007) argued that
delivering quality of services might be a solid foundation for organisations to build customer
loyalty. The authors further argued that service quality serve as a prerequisite for
organisations to achieve customer loyalty. Therefore, service quality might be regarded as a
key concept that may influence customer loyalty. Similarly, as in the case of price, most
previous related studies (e.g., Mahmudi & Abdoli, 2016; Lee & Moghavvemi, 2015) have
mostly examined the direct relationship between service quality and customer loyalty. Some
previous related studies have included a mediating variable on the relationship between
service quality and customer loyalty. However, in most cases, previous related studies (e.g.,
Iddrisu et al., 2015; Roostika, 2011) used customer satisfaction as a mediating variable, other
than trust, as proposed by the commitment-trust theory. This study therefore fills this gap in
the literature by examining the mediating role of trust on the relationship between service
quality and customer loyalty.
In addition, most previous related studies have largely used statistically unacceptable number
of samples for their data analysis. For example, Vaghela, Shree and Shree(2012) used just
100 samples for data analysis. Similarly, John (2011) used only 100 cases for data analysis. A
study of this nature should use higher sample sizes. Studies as this deals majorly with
consumers, and consumers are mostly very high in number, with special reference to the
telecommunication industry. Some of related previous studies that use small sample sizes for
their study include Yee, Ling, and Leong(2015); Al-shammariand Kanina (2014); Hossain
and Suchy (2013); Ocloo and Tsetse (2013). Therefore, this study fills this gap in the
literature by using statistically acceptable sample size for data analysis. Thus having
statistically acceptable findings, conclusions and recommendations.
Most previous related studies used non-probability sampling in the form of convenience
sampling and purposive sampling to distribute questionnaires to respondents. This may create
an avenue for bias in such studies. Some of these studies include Yee et al., (2015); Poku,
Zakari, and Soali (2013) and Saeed et al. (2013). In empirical studies such as this, researchers
always try hard to avoid bias, and non-probability sampling might come with some form of
bias. Therefore, based on this identified gap in the literature, this study fills this gap by
employing probability sampling methods in the form of stratified and systematic sampling to
collect needed data from respondents. This automatically nullifies any form of bias in this
study.
Finally, the Nigerianeconomy as at the time of carrying out this study was experiencing
economic recession, according to the report of the National Bureau of Statistics in 2016.
According to Grundey(2009), customers may be more price sensitive and less loyal during a
period of economic recession. Findings of previous studies shows that there are variations
when ranking which of price and service quality affects customer loyalty the more. Previous
studies such asButt and Run(2009); Hanif, Hafeez and Riaz (2010); Rajpurohit and
Vasita(2011);Kouser, Qureshi, and Shahzad(2012)found price to be the most important factor
affecting customer loyalty amongst other determinants. However, Bhukyaand Singh (2013)as
well as Vaghela et al., (2012) found service quality to be the highest ranking factor that
affects customer loyalty. In the light of this, it is important for an investigation to be done to
determine which of the determinants (price and service quality) affects customer loyalty and
which has the most effect on customer loyalty during the period of economic recession.
In summary, this study will fill the aforementioned identified gaps in the literature, by
examining the mediating role of trust on the relationship between price, service quality and
customer loyalty, based on the propositions on the commitment-trust theory. It has earlier
been established in this section, that most previous related studies used largely statistically
unacceptable samples sizes for a study of this nature. This study thus improves the
knowledge in the literature by using more statistically acceptable sample size. In addition,
established in the literature that most previous related studies used non-probability sampling
method to sample respondents, which may in some way show the presence of bias in most of
the previous related studies. This was remedied by this study by using probability sampling
method to sample and collect data from respondents of this study. Finally, there has been
discrepancies in the body of knowledge, as to which of price and service quality predicts
customer loyalty the more. This study thus significantly enriches the body of knowledge by
examining which of price and service quality is the more important predictor of customer
loyalty, more so in the time of economic recession. This understanding is lacking in the body
of knowledge.
1.3 Research Questions
This study seeks to answer the following questions;
- Does price have an effect on customer loyalty in the Nigerian telecommunication industry?
- Does service quality have an effect on customer loyalty in the Nigerian telecommunication
industry? - Does trust mediate the relationship between price and customer loyalty?
- Does trust mediate the relationship between service quality and customer loyalty?