When Customer Satisfaction Isn't Good Enough: The Role of Switching Incentives and Barriers Affecting Customer Behavior in Korean Mobile Communications Services

Introduction

When a market matures, the supply of new customers gradually dwindles, and companies are forced to fight harder to retain existing customers and win over the customers of competitors. In a market nearing the point of saturation, retaining existing customers or winning over competitors’ customers is a more efficient approach, both in terms of resources and cost, than developing entirely new customers. Suppliers also compete for shares of existing customers in situations where a new product or service replaces existing products or services, rather than creating its own market. Hence, knowledge of customer loyalty and switching behavior is key, both for markets in the maturity phase and those undergoing a transitional phase. Knowing which factors influence customer behavior in a transitional or mature market helps expand our theoretical understanding of consumer behavior. This knowledge can also practically assist businesses with navigating through these market phases.

The Korean mobile communications service industry is exhibiting classical signs of a maturing market, with the number of mobile subscribers remaining stagnant ever since the mid-2000s. The industry is nevertheless in a transitional phase, as 3G HSDPA services are progressively replacing 2G services that have so far dominated the market. The competition for shares of subscribers has become particularly fierce among Korean mobile operators, following the introduction of number portability and unified mobile prefix in 2004. Its three suppliers are faced with the need to both retain their shares of the Korean mobile communications service market and seize the lead in new service areas. They are currently concentrating their organizational resources in efforts to retain customers and win over competitors’ customers. As of the end of 2007, over 40% of Korean mobile subscribers have switched their carriers at least once (information published at the website of the Korean Ministry of Information and Communication).

It is the consensus in the prior literature on factors influencing customer retention and switching that customers stay with incumbent suppliers mainly due to the satisfaction felt about their services. In other words, customer satisfaction, as it positively affects customer loyalty, incites consumers to remain with their existing suppliers (Rust et al., 1993; Caruana, 2002). Customer satisfaction has proved a fundamental solution to prevent subscriber desertion, also in mobile communications services (Kim et al., 2004). However, there are cases in which customer behavior cannot be entirely explained by customer satisfaction alone. For example, some customers who are not satisfied with their current mobile service, nevertheless choose to stay with the existing carrier. Some customers switch to a new provider, even if they are satisfied with their incumbent provider. These are clearly cases in point suggesting that customer satisfaction is not a one-size-fits-all explanation for customer behavior.

Switching barrier is a concept introduced to explain cases of customers staying with incumbent suppliers, despite a low level of satisfaction. In recent years, this concept has been widely used in many empirical investigations of customer behavior in service industries, including mobile communications service. Concretely, switching barrier refers to the economic or non-economic cost switching entails, having the effect of dissuading customers from leaving the incumbent supplier, in spite of dissatisfaction; in other words, locking in customers.

There is, however, no equivalent concept to explain cases where satisfied customers, nevertheless, switch suppliers. Attempts to explain the phenomenon of customer desertion occurring in situations in which customers are satisfied have been surprisingly few. The phenomenon has been largely overlooked in favor, for instance, of lock-in among dissatisfied customers, a subject of much attention, both theoretical and empirical. Richard (1997) found that the ability to retain customers is crucial for service firms, as customer desertion has a tremendously negative impact on their company value. Hence, concepts like switching incentives may be needed to explain why satisfied customers change suppliers, as well as empirical investigations validating such concepts with actual data.