THE EFFECT OF PRODUCT QUALITY ON CUSTOMER RETENTION: CASE STUDY OF MANUFACTURING ORGANISATIONS IN OMBE

ABSTRACT

The marketing paradigm is shifting, with a new focus on customer retention rather than client acquisition in order to build long-term connections with customers. The study examines the effect of product quality on customer retention of manufacturing organizations in Ombe. Specifically, the study sought to examine the influence of product price, product attributes and product image on customer retention in Ombe. The study used customer satisfaction as a mediating variable between product quality and customer retention. To achieve the objectives, the study employed an explanatory research design and a quantitative approach along with simple random sampling techniques to sample 200 customers of Samco papers and Chariot Quarry in Ombe, using structured-questionnaire. Collected data were analysed using Statistical Package for Social Science (SPSS, 21.0) where descriptive statistics and inferential statistics such as correlation and regression were employed to test for relationships between variables. Findings reveal that product price has a significant positive effect on customer retention. Product attributes has a significant positive effect on customer retention, product image has a significant positive effect on customer retention. It was concluded that product quality has a significant effect on customer retention. The study recommends that marketers should enhance innovative strategies for packaging their brand products that will meet the desire of the customer.

Key Words:  Product price, product attributes, product image, customer retention

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Product quality is an effort to meet or exceed customer expectations. A product that has a quality that meets the standards of quality that have been determined, and quality is a continually changing condition as the consumer’s taste, or expectation of a product is always changing.

So that the better-quality change and improvement are meant to keep the product created to a standard that has been set for consumers to lose confidence in the product concerned. Quality is a factor in a product that causes the product to be worth the purpose of what the product is producing. Quality is a mix of properties and characteristics that can determine the extent to which the output can meet the needs of the consumer. The quality of a product, whether goods or services can be determined through its dimensions

The dimension is called product quality dimension (Tjiptono, 2008). According to Garvin in Tjiptono and Diana (2003), there are eight dimensions of product quality. The dimensions are 1) Performance.2) Features.3) Reliability.4) Conformance to specifications. 5) Durability. 6) Serviceability. 7) Aesthetic. 8) Perceived quality. Kotler and Amstrong (2001) use three dimensions to measure the quality of a product, namely:1) Performance. 2) Reliability. 3) Conformance. Furthermore, Mowen and Minor (2002) simplify the four main dimensions, namely:1) Features 2) Reliability. 3) Durability. 4. Safety.

Customer retention is the primary goal for organizations that practice relationship marketing (Coviello et al., 2002). Once a customer is retained it means that the amount of purchase grows which in turn reduces the customer replacement costs. Retained customers may pay higher prices and purchase regularly without any discount offers which is the tool used to acquire new customers (Ang & Butle, 2006). Interesting findings by Lindgreen, et al. (2000, p.295) state that “it can be up to ten times more expensive to gain new customer than to retain a customer and the cost of bringing new customer to the same level of profitability as the lost one is up to 16 times more”. This emphasizes on the significance of customer retention and its desirable outcomes for organizations.

Customer retention and service quality have been studied by many researchers in various industries (Venetis and Ghauri, 2004; Ranaweera and Neely, 2003) and their results have shown positive relation between service quality and customer retention. It has been found that service quality boosts customer’s inclination to buy again, to become fewer prices sensitive, and to share with others their positive experiences (Bolton et al., 2000). Similarly, these findings can be applied in retail setting where in today’s competitive retail sector, retailers no longer will afford to dissatisfy their customers on services side. Moreover, the significance of product quality in retail sector should also not be overlooked because the higher the quality in relation to price, the higher the value for customer. Quality of product can be assessed from Garvin’s (1987) eight product quality dimensions i.e., performance of products, features of products, reliability and conformance of products, durability, serviceability, aesthetics, and perceived quality of products.

Both quality of services and products in retail sector are vital for survival and success of the firm. Highly intensified and competitive retail industry has compelled firms to pursue strategies which could yield higher value for customers. Many small retailers could not survive in market because large retailers provide greater value both from service quality and product quality perspectives (Clarke, 2000).

Product quality and customer retention have long been recognized as playing a crucial role for success and survival in today’s competitive market. Product quality entails constant anticipation of what customers expect from the product provider. Organizations and businesses are seeking ways to forge and maintain an on-going relationship with their customers to protect their long-term interest. Retention of existing customer is cheaper than attracting new ones. This simply means that building loyalty through long-term customer relationships is important.

Quality in a product business has become a measure of the extent to which the product provided meets the customer’s expectations. Companies have found that to increase profits and market share, they should pay much attention to the quality of products they provide to their customers (Kemp & Rotmans, 2005). Product quality plays a vital role in every organization of a nation; it decides growth and survival of the organization in this hugely competitive market in the modem era. Product quality has been revealed as a key factor in search for sustainable competitive advantage, differentiation, and excellence in the product sector (Iniesta & Sanchez 2002). According to Heskett (2002) the product quality is considered essential for the success and survival in a competitive environment, and this influence the consumer behaviour in a decision-making process, and the level of relationship between customer and company and can impact customer’s loyalty. In terms of attitude and behaviour, retention appears as a brand preference or emotional commitment. Therefore, it is measured with the intention of buying, rejection of better alternatives, price tolerance, and intention of recommending the product or product to others. Retention behaviour can take on several forms but is usually viewed as future intention to repurchase products or continue a working relationship (Dick &Basu, 2009). Most often, when people are satisfied with a product, they tend to make repeat purchase of that product.

Various strategies are formulated to retain the customer and the key of it is to increase the product quality level. Product quality is particularly essential in product businesses because it provides high level of customer satisfaction, and hence it becomes a key to competitive advantage (Ahmossawi, 2001).

In addition, product quality has a significant impact on a businesses’ success and performance (Mouawad and Kleiner 1996). Nowadays, product quality has received much attention because of its obvious relationship with costs, financial performance, customer satisfaction, and customer retention (Duncan and Elliot, 2002). Consumers all over the world have become more quality conscious; therefore, customers’ requirements for higher quality product have been increased (Lee, 2005). Product businesses are obliged to provide excellent products to their customers in order to have sustainable competitive advantage. In spite of the criticality of product quality to businesses, measuring product quality causes difficulties to product providers, as of the unique characteristics of products (Douglas & Connor, 2003). In sight of this, products need a distinctive framework for quality clarification and measurement. Among the major frameworks, Quality Dimension model developed by Professor David, A. Garvin (2017) is most preferred and widely used model for measuring product quality in the product industry. Quality is such an important issue that it is considered a significant concept in our real life. It is regarded as a strategic organizational weapon. And the pressing need of developing product organizations and upgrading their products necessitates the measuring of product quality. This asset in checking the quality progress and providing bases for improving it.

As a result of economic changes throughout history, the concept of ‘quality’ has changed. ‘Quality’ comes from the Latin word ‘Qualities’, which refers to the nature of a person or the nature of an object. In the past Quality meant accuracy and perfection (Al-Dararkah, 2002). The study of Lee et al. (2000) suggests product quality leads to customer satisfaction. To achieve a high level of customer satisfaction, most researchers suggest that a high level of product quality should be delivered by the product provider as product quality is normally considered an antecedent of customer satisfaction. As product quality improves, the probability of customer retention increases. Quality was only one of many dimensions on which satisfaction and hence retention was based; retention was also one potential influence on future quality perceptions (Clemes, 2008).

Every customer of an organization or business has an insight and prospect concerning product delivery (Mengi, 2009). It is therefore very critical for businesses in the Limbe I Municipality to determine the level of product magnitude that will make its customers satisfied and be retained, since the customer is said to be the ‘King’. As Mahatma Gandhi puts it “A customer is the most important visitor on our premises. He is not dependent on us; we are dependent on him. He is not an interruption in our work; he is the purpose for it. We are not doing him a favour by servicing him. He is doing us a favour by giving us opportunity to serve him”. There is therefore the need to attain competitive advantage through product quality.

1.2 Statement of the Problem

The delivery of high-quality services is profitable strategy for success in today’s highly competitive market so is the case for retail industry (Reichheld and Sasser, 1990). Its significance in the success of business can be assessed by the shift occurred in contemporary businesses concentration. Previously, businesses were focused only on product, however, today their focus is both on the quality of products and services (Gummesson, 1994). Retail stores focus is on the quality of products but the way these products are delivered to the customers, the retail stores and its staff interact and communicate with the customers, these and many other features are included in the service category of retail stores.

Many studies have shown the importance of high-quality services and high-quality products to the success of business and the measurement of service quality in different models like SERVQUAL, SERVPERF and RSQS (retail service quality scale). It is also argued that those customers satisfied with service quality of the store are more likely to remain loyal to the store (Wong and Sohal, 2003). The higher the numbers of loyal customers the greater the customer retention for a firm, thus prevailing studies have some supporting points for the positive relation between customer retention and store service quality.

We consider the need to conduct such a study where we could compare the importance of service quality with that of product quality grocery stores from customer perspectives and to examine which of them has higher influence on customer purchase and repurchase decision. Various research (Douglas and Connor, 2003; Carpenter and Moore, 2006; Wong and Sohal, 2003; Parasuraman et al. 1988) have focused only service quality and customer retention and service quality measurement tools but our focus is on service and product quality and their relative influence on customer retention.

1.3 Research Questions

1.3.1 Main Research Question

What is the contribution of product quality to customer retention in manufacturing organizations in ombe?

1.3.2 Specific questions

1. How does product price influences customer retention in manufacturing organizations in ombe?

2. How does product attributes influence customer retention in manufacturing organizations in ombe?

3. How does product image influences customer retention in manufacturing organizations in ombe?

1.4 Research Objectives

1.4.1 Main Objective

The main objective of the study is to examine the effect of product quality on customer retention in manufacturing organizations in ombe

1.4.2 Specific objectives

Specifically, the study sought to;

1. Examine the influence of product price on customer retention in manufacturing organizations in ombe?
2. Investigate the effect of product attributes on customer retention in Manufacturing organizations in ombe
3. Examine the influence of product image on customer retention in manufacturing organizations in ombe

MANAGEMENT PROJECT TOPICS WITH MATERIALS