FACTORS INFLUENCING CUSTOMER LOYALTY: IMPLICATIONS FOR STRATEGIC CUSTOMER RELATIONSHIP MANAGEMENT AT KENYA AIRWAYS BY GRANT OCHIENG’ ONYANGO UNITED STATES INTERNATIONAL UNIVERSITY AFRICA SUMMER 2014 FACTORS INFLUENCING CUSTOMER LOYALTY: IMPLICATIONS FOR STRATEGIC CUSTOMER RELATIONSHIP MANAGEMENT AT KENYA AIRWAYS BY GRANT OCHIENG’ONYANGO A Project Report Submitted to the Chandaria School of Business in Partial Fulfilment of the Requirement for the Degree of Masters in Business Administration (MBA) UNITED STATES INTERNATIONAL UNIVERSITY AFRICA SUMMER 2014 STUDENT’S DECLARATION I, the undersigned, declare that this is my original work and has not been submitted to any other college, institution or university other than the United States International University in Nairobi for academic credit. Signed: ____________________________ _____ Date: ________________________ Grant Ochieng‟ Onyango (ID No. 615980) This project has been presented for examination with my approval as the appointed supervisor. Signed: ______________________________ Date: ________________________ Dr. Peter N. Kiriri Signed: ____________________________________ Date: __________________ Dean, Chandaria School of Business ii COPYRIGHT Grant Ochieng‟ Onyango. Copyright © 2014. iii ABSTRACT The general objective of the study was to establish the factors influencing customer loyalty to Kenya Airways‟ international flights from Kenya by adopting a strategic customer relationship management view point. The specific objectives were; to investigate the influence of technical quality on customer loyalty to KQ‟s international flights from Kenya; to determine the influence of functional quality on customer loyalty to KQ‟s international flights from Kenya, and; to establish the influence of internal customer satisfaction on customer loyalty to KQ‟s international flights from Kenya. The study adopted descriptive research design. The population of interest was the management and non-management staff of KQ based in Nairobi and corporate customers of KQ who have used the company‟s international flights from Kenya, both totalling to 460. Stratified sampling technique was used to select the internal customers (employees) and corporate customers of KQ‟s international flights from Kenya. The sample size was 60 respondents. Data was collected using structured questionnaires. Descriptive statistical technique of analysis used entailed the determination of the mean and frequency distribution of the datasets. Inferences were drawn using Spearman‟s Rank Correlation Coefficient technique. The use of the SPSS was made for this purpose. The data was presented in tables and figures. In terms of the influence of technical service quality, customer loyalty to KQ services was directly influenced by reliability of the airline‟s service; convenience of the schedule offered by the airline, timeliness of the flight departure, flexibility of the schedule, security and safety of the airline and cabin comfort. Regarding the influence of functional quality, respondents were generally satisfied with reservation services, potentially positively influencing customer loyalty. However, respondents were neither satisfied nor dissatisfied with check-in services. On the other hand, respondents were dissatisfied with boarding services, which potentially affected customer loyalty negatively. iv Concerning internal customer satisfaction, majority of the respondents disagreed: that there was synergy in the way services were offered internally. They also disagreed that all staff had undergone mandatory customer loyalty training program; that staff at KQ were adequately compensated for their contribution to the company; that compensation of employees at KQ was performance-based or that the company had work-life balance programs that ensured that staff maintain a happy and healthy personal life while being successful at work. The study concluded that all the technical quality dimensions significantly influence customer loyalty to KQ‟s international flights from Kenya. By order of importance, reliability of the airline topped the list, followed by timeliness, security, convenience, cost of air fare, comfort and flexibility. In terms of functional quality, with the exception of reservation services, all the other dimensions of functional quality potentially negatively influenced customer loyalty. Low levels of internal customer satisfaction potentially affected the quality of services offered to external customers thereby negatively impacting on customer loyalty. Internal service quality was characterized by lack of motivation, lack of synergy and cooperation between staff and departments, lack of CRM training, low staff commitment, inadequate compensation of staff, limited upward mobility opportunities for staff and an absence of work-life balance programs. The study recommended that KQ should strategically focus on the improving all the technical quality dimensions of service as they primarily determine the preference of corporate customers to an airline for international destinations. It should also launch an investigation into the reasons why it is registering a low satisfaction rating as far as its functional quality dimensions are concerned. Further, it should invest in improving the quality of services it offers to its internal customers as this has a direct bearing on the satisfaction of external customers and therefore, their loyalty. Other case studies should be undertaken for comparison purposes. v ACKNOWLEDGEMENT I would like to thank God Almighty for seeing me through this journey, and making it possible for me to reach the finish line. It‟s been a great pleasure. I wish to also acknowledge and thank my Supervisor Dr. Peter N. Kiriri, for his guidance, wisdom and patience during this project. I would also like to thank my loving wife and my children, for their support, understanding and encouragement during my pursuit of this MBA degree. I would also like to thank my Mom for leading the way in the pursuit of higher education and for encouraging me to pursue a graduate degree. Lastly, I wish to acknowledge and thank all those who contributed to this project both directly and indirectly through filling of questionnaires and providing insights, knowledge and information where gaps existed. God Bless You All Abundantly. vi DEDICATION Dedicated to my wife and children. vii TABLE OF CONTENTS STUDENT’S DECLARATION ....................................................................................... ii COPYRIGHT ................................................................................................................... iii ABSTRACT ...................................................................................................................... iv ACKNOWLEDGEMENT ............................................................................................... vi DEDICATION................................................................................................................. vii TABLE OF CONTENTS .............................................................................................. viii LIST OF TABLES .............................................................................................................x LIST OF FIGURES ......................................................................................................... xi LIST OF ACRONYMS AND ABBREVIATIONS ...................................................... xii CHAPTER ONE ................................................................................................................1 1.0 INTRODUCTION..................................................................................................1 1.1 Background to the Study ..........................................................................................1 1.2 Problem Statement ...................................................................................................5 1.3 General Objective ....................................................................................................6 1.4 Specific Objectives ..................................................................................................7 1.5 Significance of the Study .........................................................................................7 1.6 Scope of the Study ...................................................................................................8 1.7 Definition of Terms..................................................................................................8 1.8 Chapter Summary ..................................................................................................10 CHAPTER TWO .............................................................................................................11 2.0 LITERATURE REVIEW ...................................................................................11 2.1 Introduction ............................................................................................................11 2.2 The Influence of Technical Quality on Customer Loyalty ....................................11 2.3 The Influence of Functional Quality on Customer Loyalty ...................................20 2.4 The Influence of Internal Customer Satisfaction on Customer Loyalty ................25 2.5 Chapter Summary ..................................................................................................30 CHAPTER THREE .........................................................................................................31