FACTORS INFLUENCING CUSTOMER RETENTION AND

SWITCHING IN THE KOREA BROADBAND

INTERNET SERVICE MARKET

MoonKoo Kim, JongHyun Park

Electronics and Telecommunications Research Institute, Gajeongno 138 Yuseong-gu, DaeJeon, Korea

JongHyun Paik

Telecommunications Technology Association, 267-2,Seohyeon-dong, Bundang-gu, Seongnam, Korea

Keywords: Switching Incentives, Customer Behaviour, Switching Barriers.

Abstract: Korea’s high-speed Internet markets have all these characteristics, which is why the providers are doing

their utmost to retain their current subscribers and attract other companies’ subscribers. Therefore, the

starting point of a basic customer strategy involves 1) the identification of the characteristics of those

subscribers who maintain their membership or who have switched to another provider in Korea’s high-

speed Internet market, where switching between providers is becoming increasingly frequent among

subscribers, and 2) analysis of the factors affecting their behavior. One of the common findings of most

telecommunication service sectors including Korea’s high-speed Internet market is that customer

satisfaction does not always match customer behavior. In general, customers maintain their subscription to a

specific provider when they are satisfied, and drop their subscription otherwise. However, even satisfied

subscribers often switch to another provider and vice versa. This happens when factors other than customer

satisfaction affect customer behavior. In this regard, we examine the factors which affect customer behavior

in Korea’s high-speed Internet market in terms of service differentiation, facilitating conditions, the cost of

switching, and the attractiveness of the alternatives.

1 INTRODUCTION

There is a main characteristic in Korea’s high-speed

Internet market, which exhibits the features of the

typical maturity stage, where the saturation point has

been reached or even surpassed, with 90% of the

entire population enrolled. As new additional

services emerge - such as the Internet phone and

IPTV - the providers find themselves in the strategic

situation of having to market new services for the

existing subscribers. As the market is entering the

maturity stage, it is getting harder to attract new

customers, and as the market is making the transition

to a new service, Korea’s high-speed Internet

providers are engaged in relentless competition to

keep their customers and attract each other’s

subscribers. Therefore, the starting point of customer

strategy consists 1) in identifying the characteristics

of the subscribers who are maintaining their

membership or who have switched to another

provider in Korea’s high-speed Internet market and

2) in analyzing the factors which affect their

behaviour (Kim et al., 2004; Ahn et al., 2002).

When we put together the previous studies of the

factors affecting customer behaviour, we can see

that customer satisfaction is the primary reason why

the subscribers stay (Rust et al., 1993): thus, while

the satisfied customers stay, those who are

dissatisfied seek another service provider. In some

situations, however, customer satisfaction does not

explain everything. Even customers who are not

satisfied with the service they get sometimes stay

enrolled, and vice versa. The switching barrier

theory, which was introduced to explain this

phenomenon, argues that dissatisfied customers stay

enrolled due to what is referred to as the switching

barrier (Kim et al., 2004). However, only a few

analyses of the reasons why satisfied customers

move to another provider appear to have been

294

Kim M., Park J. and Paik J. (2009).

FACTORS INFLUENCING CUSTOMER RETENTION AND SWITCHING IN THE KOREA BROADBAND INTERNET SERVICE MARKET.

In Proceedings of the International Conference on e-Business, pages 294-297

DOI: 10.5220/0002228302940297

 SciTePress

conducted so far. In this study, an attempt is made to

systematically identify the factors which affect the

customer’s continuance/switch of subscription in

Korea’s high-speed Internet market, and on this

basis, we will state some of the implications for

Internet providers.

2 SUMMARY OF MARKET

SURVEY

We conducted a market survey of members of the

public across the country. The target sample

consisted of 800 people aged between 15 and 49

living in Seoul, the capital region, and six

metropolitan cities. The survey was conducted in the

form of one-on-one interviews, which some leading

research institutes were commissioned to carry out.

The variables of this survey are composed of

maintain or switching, satisfaction or dissatisfaction,

service differentiation, facilitating conditions,

switching cost and unattractiveness of alternatives.

3 ANALYSIS OF THE FACTORS

AFFECTING CONTINUED

SUBSCRIPTION AND

SWITCHING AMONG

HIGH-SPEED INTERNET

USERS

3.1 Factors Affecting continued

Subscription to High-Speed

Internet

We studied the influence of the cost of switching

and the attractiveness of the alternatives in order to

identify the factors which affect the users’ continued

subscription to the high-speed Internet as shown in

Table 1. Among the group of satisfied continuing

subscribers and the group of dissatisfied continuing

subscribers, the cost of the switching procedure and

the unattractiveness of the alternatives were both

found to have an influence. That is, even dissatisfied

subscribers tend to remain enrolled if the early

termination process is burdensome or if the other

providers are not attractive. Accordingly, the cost of

switching and the unattractiveness of the alternatives

can be said to be factors which incline dissatisfied

subscribers to remain with their service provider.

We conducted a multiple logit analysis of Group

2 with the others, the results of which are shown in

Table 6 below. Group 1 was found to be affected by

the switching cost and the unattractiveness of the

other service providers; Group 3 was affected by the

switching cost; and group 2 by the switching cost

and the unattractiveness of the other service

providers. In short, the cost of switching and the

unattractiveness of the other service providers were

found to influence dissatisfied subscribers into

remaining with their service in general.

Table 1: The factors affecting continued subscription.

Factors Satisfied Dissatisfied F Value

Signific

ance

level

Cost of

switchin

Penalty 0.08 0.11 0.875 0.350

Termination

procedure

0.07 0.40 44.284 0.000

Unattractiveness of the

alternatives

0.11 0.45 41.167 0.000

Table 2: Factors which influence customers to remain with

their provider.

Factors

Group1/

Group 2

Group 3/

Group 2

Group4/

Group 2

B S.E B S.E B S.E

Cost

switc

hing

Penalty -0.260 0.679

0.187

0.540

0.39

0.618

Switchin

3.075

0.603

0.952

0.577

1.88

0.616

***

Unattractiveness

of the alternatives

2.907

0.506

0.516 0.469

1.19

0.529

-2log likelihood 86.603

Chisquare/degree

s of freedom

118.568

***

/ 9

*: <0.1, **<0.05, ***:<0.01

3.2 Factors Affecting Subscribers’

Decision to Switch Providers of the

High-Speed Internet

We examined the influence of service differentiation

and the facilitating conditions to identify the factors

which affect the decision to switch providers of the

high-speed Internet, as shown in Table 3. Among the

group of dissatisfied people who switched and the

group of satisfied people who switched, facilitating

conditions such as service upgrade, additional

discounts, and free gifts were found to have an

influence on their decision. That is, even satisfied

subscribers are likely to switch due to such

facilitating conditions. This shows that service

FACTORS INFLUENCING CUSTOMER RETENTION AND SWITCHING IN THE KOREA BROADBAND

INTERNET SERVICE MARKET

295

differentiation and the facilitating conditions can

persuade satisfied subscribers to switch.

We further divided the subscribers who switched

into 4 groups in order to study more deeply the

factors which affect the decision to switch providers

of the high-speed Internet. Group 4 (26) was

composed of those who were dissatisfied with both

the quality and the charges; Group 3 (59) of those

who were satisfied with both the quality and the

charges; Group 1 (69) of those only dissatisfied with

the quality; and Group 2 (45) of who were only

dissatisfied with the charges. We conducted a

multiple logit analysis of group 4 with the others, the

results of which are shown in Table 4. Compared to

Group 4, Group 3 was affected by the additional

discounts and free gifts, while Group 1, like Group

2, was not affected by service differentiation and

facilitating conditions. In summary, the factors

affecting switching differed between those who were

dissatisfied overall and those who were only

partially dissatisfied.

Table 3: Factors affecting switching.

Factors

atisfie

Dissatisfied

Value

Signific

ance

level

Service

differentia-

tion

Service

upgrade

0.20 0.08

4.09

0.044

Contents

improveme

0.07 0.11

0.96

0.328

Facilitating

conditions

Additionas

l discount

0.25 0.15

2.77

0.097

Free gifts 0.22 0.07

7.05

0.009

Table 4: Factors affecting switching.

Factors

Group3/

Group 4

Group 1/

Group 4

Group2/

Group 4

B S.E B S.E B S.E

Servic

diffe-

rentia-

tion

Service

upgrade

0.755 0.723 0.330 0.700 0.355 0.746

Contents

improve-

ment

1.144 0.853

0.641

0.950 0.298 0.915

Facilita

-ting

condi-

tions

Additio-

nasl

discount

1.083

0.625

0.502

0.676 0.819 0.638

Free gifts 1.513

0.689

0.319

0.752

0.010

0.783

-2log likelihood -99.404

Chisquare/degrees

of freedom

35.424

***

/ 12

4 CONCLUSIONS

In this context, we studied the characteristics of

continuing and switched subscribers analyzed the

factors which affect their behavior, and tried to give

the implications in order to provide useful

information for high-speed Internet providers’

customer strategy. We recommend that the providers

adopt the following customer strategy shown in

Table 5. Thus, the appropriate customer strategy is

summarized as one of retaining their own customers,

attracting other companies’ customers, and

strengthening their services.

Table 5: Customer strategy for Korea’s high-speed

Internet providers.

Strategy

Retain existing

customers

Attract

customers

Strengthen

services

Direction

 Raise

customer

satisfaction

 Raise cost of

switching

 Strengthen

brand

 Differentia

 Strength

facilitating

conditions

 Strengthen

service

values

 Extend

service

lines

Details

 Enhance

quality

continually

 Offer

continued

discounts by

economy of

scale and

scope

 Continue the

development

of payment

plans suitable

for a

segmented

market

 Raise cost of

switching

such as long

subscriber

discount

 Strengthen

brand relative

to the

competitors

 Performance

differentiati

on of

service

 Differentiate

service itself

 Differentiate

company

image

 Develop

differentiate

d payment

plans

 Differentiate

facilitating

conditions

 Strengthen

service

values by

IPTV and

Internet

phone (TPS

or QPS)

 Develop

bundle

packages of

high-speed

Internet and

WiBro

 Adopt up-

selling

strategy

The customer retention strategy can be divided

into: enhancing customer satisfaction, raising the

cost of switching, and strengthening the brand, as

follows.

Customer satisfaction is the primary factor in

persuading subscribers to remain with the provider.

Therefore, in order to enhance customer satisfaction,

the providers should continue to enhance their

service quality, reduce costs through economy of

ICE-B 2009 - International Conference on E-business

296

scale and scope, and create a mechanism whereby

charges decrease incrementally. As shown in the

aforementioned analysis, they need to segment the

market to reflect the demographic statistics and the

usage characteristics of the IT services and high-

speed Internet as much as possible, and continue to

develop the payment plans appropriate for the

characteristics of the segmented market. Especially

as the charges of telecommunication services are

becoming ever more burdensome as a proportion of

household expenditure, the development of various

payment plans will be significant. Another key to

ensuring customer satisfaction is that of

strengthening customer services continually in

addition to enhancing quality and lowering the

charges. The strategy of systematically

strengthening the mileage service, customer

response service, and after service, for example,

would be desirable.

Attention should also be paid to the fact that

what is commonly observed with most

telecommunication services - including Korea’s

high-speed Internet, is that customer satisfaction

does not always match their behaviour. Satisfied

customers generally remain with the service and get

out when they are dissatisfied; however, even

satisfied customers might switch, and the opposite

case may also happen. That is why the strategy of

raising the cost of switching is essential for retaining

the existing customers, which was analyzed in depth

above. The cost of switching refers to the

psychological, economic, and non-economic costs

that have to be paid when an existing subscriber

switches to another provider. Employing the

switching cost properly is therefore useful for

retaining one’s customers. A long-term contract

offers a good example in this respect. Although an

early termination penalty is effective, too, such a

strategy needs to bed modified because it is likely to

arouse customer complaints in the long term.

Strengthening the brand over those of the

competitors is also a good strategy for retaining the

existing customers, because the overall reliability of

the brand reinforces the customers’ loyalty to the

provider. Put another way, strengthening the brand

means strengthening the attractiveness of the current

provider over the competitors, for which strategic

means of strengthening the brand image, brand

association, and brand preference are required.

The strategy of attracting the competitors’

subscribers broadly divides into differentiation and

strengthening the facilitating conditions.

Differentiation in turn divides into the differentiation

of the product, service, and image. The

differentiation of service performance is the most

important factor for the high-speed Internet, as

providers especially need to provide services that are

at least equal to or better than their competitors

through continued investment in speed and

performance. It would also be desirable to achieve

differentiation in all aspects of the service by

differentiating the service itself. Effective

advertising and promotion is also recommended to

strengthen the company’s image. Furthermore, not

only absolute differentiation but also relative

differentiation is important: that is, differentiation

relative to the competitor is more efficient in terms

of cost and effectiveness. The strategic approach is

also effective in leading the customers to perceive

that the service is giving more benefits at a lower

price by continuing the differentiation of pricing.

Differentiation of the facilitating conditions is

also a good strategy for attracting the competitors’

customers. Attracting the competitors’ customers

should be done carefully because it might backfire.

Lavishing free gifts or discounts extravagantly, for

example, is likely to obtain no results because it

might harm profits and accelerate overheated

competition. Additional discounts might also bring

about losses rather than gains for the same reason.

Therefore differentiation should be based on gaining

slight advantages over the competitor or on other

means. A system which combines an additional

discount, long contract, and point system is one

example of this.

The strategies of strengthening the service value

and extending the service line exemplify the strategy

of extending the uses of a service. To that end, such

TPS or QPS strategies as strengthening the service

value through the IPTV and Internet phone,

extending the service line with bundle packages with

other telecommunication or mobile services such as

HSDPA, and adopting the up-selling strategy are

required. Because IPTV and the Internet phone, the

core elements of the Triple (Quattro) Play service,

are additional services that can be provided through

high-speed Internet networks with high

marketability, Korea’s high-speed Internet providers

should secure subscribers to those services in the

initial stages and thereby link it to the existing

customer strategies. Since it is hard to attract new

subscribers, and up-selling by the existing customers

are the key to creating profits, the providers need to

concentrate their resources and capabilities on them.

A bundle strategy of linkage with WiBro or HSDPA

is also required. For this, the customer strategy of

extending the high-speed Internet to wireless would

be desirable.

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INTERNET SERVICE MARKET

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REFERENCES

Ahn, K.H. D.H. Kim and Y.C. Kim(2002), Marketing

Strategy, HakHyunSa.

Kim, M.K. M.C. Park, and D.H. Jeong(2004), “The effects

of customer satisfaction and switching barrier on

customer loyalty in the Korean mobile

telecommunication services,” Telecommunications

Policy, 28(2), 145-159.

Rust, R.T. and A.J. Zahorik(1993), “Customer

satisfaction, customer retention, and market share,”

Journal of Retailing, 69, 193-215.

Http://www.mic.go.kr

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