Analyzing the Effects of Corporate Reputation on the Competitiveness of Telecommunication Industry Using the Structural Equation Modelling
Journal of Statistical Modeling and Analytics Vol. 2 No. 2, 29-42, 2011 Analyzing the Effects of Corporate Reputation on the Competitiveness of Telecommunication Industry using the Structural Equation Modelling: The Case of Kelantan 1 Zainudin Awang1 Faculty of Computer and Mathematical Sciences UiTM Kelantan E-mail: [email protected] uitm. edu. my ABSTRACT The competition for customers among telecommunication firms in Malaysia is fierce. The competition is not only limited to new customers but also to the existing customer base.
In this fiercely competitive environment, customers are highly exposed to offers and counter offers from the competing firms. At the same time various persuasive messages are delivered to encourage customers to switch their service provider. Perhaps the corporate reputation of a firm could provide certain competitive edge which could help the growth and survival of a firm into the future amid the highly competitive environment. This study attempts to assess the influence of corporate reputation of the firms on their competitive advantage in the market from the customers’ perspective.
The study sampled 1000 individual customers in Kelantan who have been using the mobile service at a minimum of three years. The selected respondents have been experiencing the service provided by more than one telecommunication operators. The data were collected using self-administered questionnaires and analyzed using Structural Equation Modeling (SEM) in AMOS 16. 0. The study found that the direct impact of firms’ corporate reputation on their competitive advantage is not significant at ? = 0. 05. Instead, the impact of corporate reputation on competitive advantage is indirectly through perceived value and perceived quality of the service.
In other words, the firms should communicate their favorable corporate reputation effectively to the market so that the customers’ perception level towards their products and service would arise. In other words, the firm’s corporate reputation could help the marketability of its products or services if it could trigger the positive perception of quality and value of products or services in the mind of their potential customers. The findings provide important implications to the telecommunication operators in their effort to increase their customer base and, more importantly, to ensure the interest the customers towards the firm is preserved!
Keywords: Corporate Reputation, Perceived Quality, Competitive Advantage Introduction The competition for customers among telecommunication services providers in Malaysia is very stiff. In this highly competitive marketing environment, the existing customers as well as potential customers are heavily exposed to various advertising messages from the competing firms through all sorts of media communication. The existing customers of a service provider are encouraged to switch their service to the competing firm by offering certain incentives.
Among the incentives offered to the switchers are switching benefits, price reduction, flexible service, and attractive package. Certainly, there are service providers which would feel threatened that their customer base could be affected by the persuasive offer. These firms, in turn, would design their own loyalty programs in order to retain their customer base at bay, and at the same time would launch their own switching incentives to attract customers of other service providers into their service. In the end, customers are being exposed to various offers and counter offers from these competing service providers.
ISBN 978-967-363-157-5 © 2010 Malaysia Institute of Statistics, Faculty of Computer and Mathematical Sciences, Universiti Teknologi MARA (UiTM), Malaysia * An earlier version of this paper was presented at the Regional Conference on Statistical Sciences 2010 on 13 – 14 June 2010 at Kota Bharu, Kelantan, Malaysia, jointly organized by Institut Statistik Malaysia and Universiti Teknologi MARA (UiTM). It has been published in the Conference Proceeding 29 Analyzing the Effects of Corporate Reputation on the Competitiveness of Telecommunication Industry using the Structural Equation Modelling: The Case f Kelantan Today, the telecommunication customers in the country are facing difficulty in selecting the most reliable service provider for their needs since the range of products and services offered by the competing firms are almost similar in nature. The existing customers who qualify to enjoy price reduction through loyalty programs would probably stay put with their current firm. However, those who do not enjoy loyalty incentives offered due to certain reasons as well as potential customers would always be looking for the best service provider for them.
The corporate reputation literatures revealed that competing firms offering similar range of products and services could differentiate themselves from their competitors and could enjoy certain competitive advantage by deploying their valuable resources and capabilities that are superior, scarce, and inimitable (Roberts and Dowling, 2002). This study was interested to determine the influence of corporate reputation of the competing telecommunication service providers in term of customers’ intention to subscribe for their services.
Literature Review Definition of Corporate Reputation Business literature defines corporate reputation as the stakeholders’ overall impression of an organization over time (Bailey, 2005), and it reflects the organization’s relative standing, internally with its employees, and externally with its other stakeholders (Fombrum et al. , 2000). The literature also suggested the corporate reputation as the outcome of managers’ efforts to prove their success and excellence in managing the organization.
The firms could achieve favorable levels of corporate reputation through acting reliable, credible, trustworthy and responsible in the market in the eyes of their stakeholders. The prominent researcher in the area such as Fombrum (1996) defines corporate reputation as a perceptual representation of a company’s past action and future prospects that describe the firm’s appeal to all its key constituents when compared to other leading competitors. Other researchers in the area, Shenkar and Yuchtman-Yaar (1997) associated the concept of corporate reputation of a firm to the perceived image, perceived prestige, and perceived goodwill.
However, still there are differences among the corporate reputation researchers themselves concerning the definition, and the issues are still on-going especially with regard to the reputation construct, the way in which the construct is operationalised and its contribution to the organization success. Corporate Reputation and Competitive Advantage The role of corporate reputation in the marketplace is similar to brand equity, particularly when the company’s name is a part of brand identification (Yoon et al. , 1993).
Some sectors in the service industry, especially banks, hotels, hospitals, consulting firms, and educational institutions rely heavily on their corporate reputation to attract and retain their customers (Nguyen and Leblanc, 2001). In fact, this study believes that almost all retailers in the market today regardless of what products they are selling are interested to develop and preserve their respective corporate reputation. The study done by Nguyen and Leblanc (2001) found that the customers are more inclined to purchase the products or services from companies whom they perceived as having favorable reputation among their competitors. 0 Journal of Statistical Modeling and Analytics Fombrum (1996) stressed that a good corporate reputation would enhance profitability because good reputation would attract customers to products, attract investors to securities, and attract employees to do their jobs properly. Thus, corporate reputation of a firm should be considered as an asset and wealth that gives that firm a competitive advantage because the firm will be regarded as reliable, credible, trustworthy and responsible for employees, customers, shareholders and financial markets.
Gupta (2002) found the empirical evidence between corporate reputation and competitive advantage for the firms by successfully differentiating it from competitors. Among the components of competitive advantage are willingness to purchase, willingness to pay premium price, customer satisfaction and customer loyalty. Meanwhile, the components of company’s reputation found by Gupta (2002) are corporate ability and corporate social responsibility. This inding supports the popular view in business literature that when customers are faced with parity in price and quality of a product, they would prefer to choose products from the company that contributes to corporate social responsibility when making the consumption related decision. The corporate reputation researchers such as Robert & Dowling (2002) and Eberl & Schwaiger (2005) have highlighted the growing body of literature describing the corporate reputation as a valuable resource which could influence the favorable financial performance of a company.
In other words, the companies scoring higher on the perceived corporate reputation are more likely to have healthier financial accounts. Likewise, Shapiro (1983) revealed the significant influence of corporate reputation on the customers’ market retention and increased sales volume. Further, the researcher (Shapiro, 1983) stressed the benefits to the company that flow from having a good corporate reputation, which has been associated with increased financial performance, include providing indicator of product quality when customers are faced with a choice among competing products in the market.
The excellent financial performance of any company could only be achieved through increased sales, premium price and customer retention. The findings of a study done by Robert and Dowling (2002) supports the results of Shapiro (1983) that good corporate reputation provides healthier financial performance through the reduced organizational costs. The reduced organizational cost is achieved through the attraction of high caliber staff and high staff retention rate. In the same note is the finding by Kotha et al. 2001) which relates good corporate reputation to reduction of supplier-buyer exchange uncertainty through increased sales and reduced transaction costs. Again, the final result would enhance the financial performance of a company. The same idea is supported by Podony (1993). In his study, he identified the inverse relationship between good corporate reputation and costs – whereby firms with good corporate reputation have lower costs (e. g. transaction, financial, advertising, and employee costs). And the lower operational costs would provide opportunity for such firms to further enhance their reputation.
This indicates that once a company achieved favorable corporate reputation in the eyes of its customers, it would standout among its competitors to reap benefits, which would in turn further improve the reputation. Perceived Quality Quality is the most important factor underlying the long-term success not only for products and services, but also the survival of the organization itself. Everybody in the management is talking about improving quality as the main weapon to help the company to survive in difficult times.
However, it is now well established that it is not quality per se but customers’ perception of quality that drive preferences and consequently satisfaction, loyalty, sales, and profitability. (Zeithaml, 1988). Perceived quality is the overall subjective judgment of quality relative to the expectation of quality. 31 Analyzing the Effects of Corporate Reputation on the Competitiveness of Telecommunication Industry using the Structural Equation Modelling: The Case of Kelantan These expectations are based on one’s own and others’ experiences, plus various other sources including brand reputation, price, and advertising (Boulding et al. 993; Johnson et al. , 1995). Thus, it is not necessary to use or examine a product to form the perception of its quality. Perceived Value According to Nguyen and LeBlanc (1998), perceived value is a more comprehensive form of customer evaluation of service compared to perceived quality. Rust and Oliver (1994) conceptualized perceived value as the overall evaluation of service consumption experience. Just like perceived quality and customer satisfaction, perceived value can be encounter specific and can also be global evaluation of consumption experience.
Specifically speaking, perceived value represents the trade off between costs and benefits and arises from both quality and price. Zeithaml (1988) stressed that perceived value is more situational and personal than perceived quality and it can take on different meaning at various phases of service consumption process. Nguyen and LeBlanc (1998) hypothesized that customer choice is influenced by functional, social, emotional, epistemic, and conditional values. Functional value refers to economic utility derived rom choice, while social value is associated with the value gained from the notice of others. Emotional value is derived from acquiring goods that are liked, and epistemic value is the capacity of the choice object to provide novelty. Meanwhile, conditional value refers to situational conditions that influence the choice itself (Sheth et al. , 1991) The Objectives of the Study This study is designed to achieve the following objectives: 1) To assess the direct influence of corporate reputation of a firm on its competitive advantage in term of customers’ intention to subscribe its services. ) To assess the indirect influence of corporate reputation of a firm on its competitive advantage through customers’ perceived value towards its services. 3) To assess the indirect influence of corporate reputation of a firm on its competitive advantage through customers’ perceived quality towards its services. The Research Questions Leading to the Study This study is designed to address the following two research questions namely: 1) How significant is the role of perceived quality of service in linking the corporate reputation of a service provider to customers’ intention to subscribe for the service?
In other words, is there any indirect relationship exists between corporate reputation of a service provider and its competitive advantage through perceived quality? Or does perceived quality of service mediates corporate reputation with competitive advantage? 2) How significant is the role of perceived value of a firm in linking the corporate reputation to customers’ intention to subscribe for the service? In other words, any indirect relationship exists between corporate reputation of service provider and its competitive advantage through perceived value?
Or does perceived value mediates corporate reputation with competitive advantage? 3) How significant is the direct relationship between corporate reputation of a service provider and customers’ intention to subscribe for their service? 32 Journal of Statistical Modeling and Analytics The Research Hypotheses of the Study This study has put forward five research hypotheses to be examined empirically. H1: The favorable corporate reputation of a firm has a positive and direct effect on the customers’ perceived quality towards its services.
H2: The favorable corporate reputation of the firms has a positive and direct effect on the customers’ perceived value towards the firm H3: The customers’ perceived quality towards the services has a positive and direct effect on their intention to subscribe the services from the firm. H4: The customers’ perceived value towards the firm has a positive and direct effect on their intention to subscribe the services from the firm H5: The favorable corporate reputation of the firms has a positive and direct effect on the customers’ intention to subscribe the services from the firm.
The Research Methodology Population and Sample The Population for this study consists of the existing subscribers of three mobile telecommunication companies in the country namely Maxis, Celcom, and DIGI. These people have been using the service from their respective firms for more than three years. During the time, they have experienced the service provided by their firm, they have heard about the service provided by the competing firms through friends, families, and media. They also have been exposed to various advertisements offers either from their own firm or from the competing firms.
The study obtains a sample of 600 bank customers using the self-administered questionnaire. The respondents selected falls in the bracket of middle to higher socio-economic status in terms of qualification, occupation and income. Their monthly income ranges from RM3, 000. 00 to RM 15,000. 00. The self-administered questionnaires were sent directly to the respondents at their workplace. The respondents were given the opportunity to respond the questionnaires at their own convenient time. They returned their responses through the self-addressed envelopes.
A total of 450 completed responses received within the specified time period. The response rate is quite satisfactory at 75%. The Variables involved in the Study Dependent variable The dependent variable is competitive advantage of a firm, which is the variable of primary interest in the study. From the search in the literature, the competitive advantage items consist of intention to subscribe the service, willingness to pay more for service, intention to provide positive words of mouth & recommendation, and market retention (intention to remain loyal).
Independent variable The independent variable is corporate reputation of a service provider. The study adopts three corporate reputation items namely the emotional appeal towards a firm, the corporate social responsibility of a firm, and the appeal towards its services. 33 Analyzing the Effects of Corporate Reputation on the Competitiveness of Telecommunication Industry using the Structural Equation Modelling: The Case of Kelantan Mediating variable The first mediating variable in the study is customers’ perceived quality towards the services provided by the firms.
The study adopted two perceived quality items namely the perceived quality of the contact personnel in the firm, and the perceived quality of the technology employed by the firm. The second mediating variable in the study is perceived value towards the firms. Zeithaml (1988) defined the customer’s definition of perceived value items as “what I get for what I give”, and “quality I get for the price I pay”. According to Rust and Oliver (1994), perceived value is the overall evaluation of service consumption experience.
And like perceived quality and satisfaction, perceived value can be encounter specific or a more enduring global evaluation by the customers. The Conceptual Framework for the Study Perceived Quality Corporate Reputation Competitive Advantage Perceived Value Figure 1: The schematic diagram of the model The Measurement of Data for Each Variable The respondents are asked to rate how strongly they agree or disagree with the items under each variable. They are free to indicate their response anywhere from 1 to 10, where the score of “1” indicates “strongly disagree” and “10” indicate “strongly agree” with the statement presented.
Since there is no “fixed and forced choice” to the respondents, the data obtained is considered interval and would theoretically be normally distributed. Somehow, the study still has to prove that the data is actually normally distributed before proceeding with further analysis. The “normally distributed” data would certainly meet the requirement for using the Parametric Statistical Methods for data analysis. 34 Journal of Statistical Modeling and Analytics The Data Analysis Procedure
Since there are more than one item used to measure each variable in the study (Corporate Reputation = 3 items, Perceived Quality = 2 items, Perceived Value = 2 items, Competitive Advantage = 4 items), the analysis of data using the Ordinary Regression Equation in SPSS is no longer appropriate and valid. Hence, the study employed the Structural Equation Modeling using SPSS-AMOS. First of all, the study needs to convert the conceptual framework into the AMOS Syntax as shown in Figure 2 below: e8 1 e12 PQ1 e1 1 e2 1 e3 1 Perceived Quality 9 1 PQ2 1 1 e4 1 e5 1 e6 1 e7 1 CR1 1 CR2 CR3 CA1 1 CA2 CA3 CA4 Corporate Reputation Competitive Advantage 1 Perceived Value 1 PV1 1 1 e14 e13 PV2 1 e11 e10 Figure 2: The Model in AMOS The key for each element in the Model is as follows: CR1 = emotional appeal towards the service CR2 = emotional appeal towards the firm CR3 = corporate social responsibility of the firm 35 Analyzing the Effects of Corporate Reputation on the Competitiveness of Telecommunication Industry using the Structural Equation Modelling: The Case of Kelantan
PQ1 = perceived quality towards contact personnel PQ2 = perceived quality towards technology PV1 = what I get for what I give PV2 = quality I get for the price I pay CA1 = intention to subscribe the service CA2 = willingness to pay more for the service CA3 = intention to provide positive words of mouth CA4 = intention to remain loyal with the company e1 to e11 are errors in measurement for the respective item of the variable e12 to e 14 are the errors in equation for the respective regression equation