ABSTRACT
This study sought to establish factors that determine consumers’ patronage to mobile phone service providers in Kenya with a specific focus on Safaricom Kenya Ltd. Safaricom has faced intense competition in recent years in the Kenyan mobile phone market due to entry of other service providers in the industry. The competition has been mainly price based with competitors emphasizing on price reductions. While Kenyans generally exhibit price sensitive buying behaviour, in this case, they are behaving contrary to expectations. This study, therefore, sought to determine why this seeming contradiction. The main objective of this study is to identify factors that determine consumer patronage to mobile phone service providers in Kenya, with a case of Safaricom. Earlier researches in the mobile telephone sector with regards to patronage carried out in Nigeria and University of Malaysia found; customer satisfaction, service quality, brand image and switching cost are determinant factors to patronage. This study therefore, sought to establish if there exists an effect of switching costs, service quality, consumer satisfaction and brand image on consumer patronage to Safaricom Kenya ltd. The study employed descriptive research design. Sampling was done using snowball method. The sample size was of 180 respondents .Data was collected from a sample of mobile telephone subscribers in four major towns in Kenya: Nairobi, Kisumu, Mombasa and Nakuru. The clusters were further divided into three categories based on social classes depending on their disposable incomes (Lower, Middle and Upper classes). Data was collected using a structured questionnaire with close ended questions. The data collected was edited, coded and analyzed using SPSS package. Descriptive statistics such as the means and standard deviations was calculated to summarize the data. Regression analysis was also done to establish if there was a relationship among variables. Regression analysis results showed a significant effect on customer patronage by service quality, switching cost and customer satisfaction. However, the relationship between, customer patronage and brand image was not significant at 5% level of significance. The findings of this study are expected to assist both the telecommunication companies and corporate brand-management teams to better understand the value of service quality, significant switching cost and customer satisfaction in getting service and product patrons. This research was only able to explain patronage in the mobile phone sector by 79.4%.there is a 20.6% cause for patronage that was not explained. Future researchers should try to find out what the 20.6% is composed of.
CHAPTER ONE
INTRODUCTION
Background of the study
The modern business environment is characterized by cutthroat competition. The competition is spurred by globalization, technological change, more demanding customers and higher levels of uncertainty which have made management of organizations more challenging than before (Oliver,2005).To survive, organizations require innovative strategies to reduce costs and improve performance. In this regard telecommunication firms in Kenya have examined brand patronage as a major route to gaining the competitive edge required to make businesses successful. According to Fearme and Fowler (2006) consumer patronage is the route to competitive advantage in such an environment to cope with high levels of uncertainty and turbulence (Christopher et. al., 2000).
In 2013 the communications sub-sector accounted for 56.0% of the total earnings in the transport and communications sector. Moreover, the sector registered a growth of 14.5 percent from Ksh.605.5 billion recorded in 2012 to 693.1 billion in 2013(KNBS, 2014).Therefore services go to the heart of value creation within the economy (Rust and Oliver, 2004). The growth and usage of mobile phones in Kenya has reached unprecedented heights with the highest growth experienced in 2007 (Phoebe, 2011).
This trend has seen a fray of entry by mobile phone subscribers into the Kenyan market. Due to the nature of competition, the telecommunication companies have from time to time developed innovative products to enable them stay competitive and increase their market share. The notable routes that have been pursued in this regard include the introduction of M payment, M banking, loyalty schemes, and data services.
Mobile Telephony Industry in Kenya
In Kenya, the growth of mobile phone subscribers has been tremendous. The subscriber base expanded to 31.309 million from 31.301 million between the last quarter of 2013 and the first quarter 2014(CCK, 2014). This growth resulted in an increase in mobile penetration rate from 52.2% in June 2013 to 64% at the end of April 2014.This was above the penetration rates estimated by the International Telecommunications Union (ITU) at 41.0% during the same period.
According to Phoebe (2011) the telecommunications industry is one of the fastest growing in the Kenyan economy, resulting in saturation and tending towards maturity. Over time brand patronage has been noted as a focal point of marketing, resulting in a myriad of changes in the industry, as scramble for market share intensifies. This has prompted more innovative products and tariff wars among the industry players: Safaricom, Bharti -Airtel, Essar-Yu and Telkom Kenya- Orange.
Safaricom was the first mover to the market in 1999 August and followed by Ken cell some months later in December 1999. Safaricom has maintained its brand name as such throughout the years, whereas Kencell has rebranded and changed ownership Three times: from Ken-cell to Celtel, Celtel to Zain and finally Zain to Airtel in 2010. Orange and Yu have been new entrants in the market. Both Orange and Yu joined the market in 2008-2009.
When Airtel took over Zain cost leadership became their penetration strategy into the market. They charged ksh.1 for text messages and ksh.3 for voice calls while safaricom charged Kshs.8 and Kshs. 3 for text messages. With time, however, cost leadership didn’t deliver and tariffs were reviewed again, as those who migrated from Safaricom due to low tariffs have thronged back to the provider as well as new subscribers signing up. This is despite the fact that Safaricom is the highest tariff charger while Airtel, Yu and Orange are all season low in tariff charges, free calls and minimal charges within service provider, kshs.3 across other service providers for voice calls, cheaper internet and lower rates for mobile money transfer. Airtel even offers no cost to send money across all networks .Despite all these lower tariffs from its competitors Safaricom still retains 67.9% of the total market share with the highest number of new subscriptions (CCK, 2014).
According to CCK, April, 2014, the total number of mobile subscribers rose to 31.309 million recorded in the 2014 first quarter: Safaricom gained 593,036 new subscribers, Essar Telkom (Yu) gained 223, 974, Airtel gained 91,283 subscribers while Telkom Kenya Orange lost 609,321. Safaricom thus leads by 67.9%, followed by Airtel with 16.5%, Orange with 7.2% and Essar Telkom (Yu) with 8.5%.
YU, the last entrant into the market, wants to get out of the Kenya market despite it being the cheapest service provider in voice calls, messaging and data. One would expect it to penetrate the market but it seems getting the market share from the most expensive service provider, Safaricom is an uphill task. Telkom Orange Kenya too is sourcing for an investor as it seeks to leave the Kenyan market, despite it charging kshs.2 per minute to all networks in comparison to Safaricom’s kshs.4 per minute. In addition, the portability of mobile telephone numbers showed substantial growth in the last quarter by 72.8% (CCK, 2014). This has significantly reduced the high switching cost which was significantly reducing the buyer power while significantly raising the supplier power in the economical perspective. The entry of mobile virtual networks by Equity bank and Tangaza riding on the airtel network has not changed this trend.
These statistics do not portray the typical Kenyan market, where consumers tend to be price sensitive. Instead subscribers are shifting from cheaper tariff providers to the more expensive provider, Safaricom. It is not clear why Safaricom has a high consumer patronage despite their higher tariffs. Could then the perceived exclusive value added to their services, quality network and perceived quality service, switching costs and brand image be the reason for consumer patronage of Safaricom in Kenya?
Statement of the problem
A number of studies have been done in Marketing especially in relation to mobile telephone sub sector. Maina (2001) investigated perceived quality service and found that there is a difference between customer expectation and management perception in mobile telephony business. Murugu (2008), studied the level of customer satisfaction and its impact on loyalty in Airtel (then known as Zain) and found out that customers consistently want certain attributes like ease of use, timeliness, and certainty in virtually all service products Gichuru (2003) investigated brand switching in the mobile telephony business in Kenya and found out that value added services was cause for significant switching cost while other studies such as Ogwo E. (2012) looked at Factors Influencing Attitudes to Patronage of GSM Services in Nigeria and Mokhtar (2011) examined the relationship between service quality and satisfaction on customer loyalty in the Malaysian mobile communication industry.
These studies did not prove sufficient to gain a comprehensive explanation of the factors that affect customers’ intentions to adopt or reject the use of mobile phone services, nor did any of them incorporate key constructs in explaining consumer patronage of mobile phone service providers in Kenya. Consumer patronage enables an organization grow its customer base through customer referrals to their peers, it helps an organization cut advertising costs due to word of mouth referrals from customers and repeat purchases by patrons thus maximizing profits.
This study sought to investigate consumer patronage in the mobile phone industry, especially in the face of value added services which result in getting value for money and cost effectiveness to the subscribers.
Safaricom has faced intense competition in recent years in the Kenyan mobile phone market. This is due to entry of other service providers in the industry. The competition has been mainly price based with competitors emphasizing on price reductions. However cheaper mobile service providers continue losing subscribers to Safaricom while those who migrate to other networks, at some point, return to Safaricom (Phoebe, 2011).Despite it being the most expensive mobile service provider in Kenya today, Safaricom commands 67.9% of the total market share of this sub sector (CCK, 2014). While Kenyans generally exhibit price sensitive buying behavior, in this case, they seem to be behaving contrary to expectations. This study, therefore, sought to determine why this seeming contradiction.
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Item Type: Kenyan Topic | Size: 47 pages | Chapters: 1-5
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