Switching determinants in subscription service markets : banking and electricity in New Zealand : a thesis presented in partial fulfilment of the requirements of the degree Master of Business Studies at Massey University, New Zealand

Abstract

This study examines the important role switching costs play in consumer loyalty to service providers. Banking and residential electricity consumers were studied in New Zealand using the framework developed by Burnham, Frels & Mahajan (2003). An attempt was made to replicate their measurement model using Burnham et al.'s eight first order constructs. An acceptable fit to the data was achieved, however, their instrument's scale items did not load as predicted indicating limited convergent and discriminant validity. In replicating Burnham et al.'s three factor second order model, of their three factors - procedural, financial and relational - only relational costs proved significant in influencing a consumer's intention to stay with their current service provider. A relationship between satisfaction with a service and a greater intention to stay with that service was confirmed. Possible explanations for the poor performance of the Burnham et al. structural model might be that their measurement model violates some basic rules for scale development. The lack of validity of some scales leads to speculation that the significant results reported by Burnham et al. were the result of fortuitous fit to their USA data. The value of a theory is in its general applicability to situations outside its original context. While the Burnham et al. (2003) theory may have been intuitively sound, this attempt to operationalise their model was hindered by a measurement instrument which lacked convergence, discriminance and reliability. The Burnham et al. model demonstrated in this replication an adequate fit to the data, but goodness-of-fit alone does not indicate a structurally sound model. It also requires validity. The findings of this thesis are that their model may require modification to some scales before it will be universally useful. Keywords: Customer retention, confirmatory factor analysis, structural equation modelling, switching costs, loyalty, satisfaction, switching, defection, subscription markets, services.