Brand Loyalty is an important factor which is responsible for increasing the sales of an organisation and also for ensuring the growth and sustenance of the organisation in the extreme competitive environment. This research has focused on the aspect of brand loyalty and branding strategies in ensuring sustenance in the B2B business environment. Though it is established that branding forms a vital part of the B2C marketing strategies, the role of branding in the B2B environment is not very clear. This research has aimed at providing the answers to these questions.
For conducting the study the research has collected data from the IT services industry. With branding the quality expectations of the customers’ increases and outsourcing, which is common in the IT industry, considerably affects the service quality. Thus a balance or equilibrium is required which is provided by project management philosophies. This research has dealt with all such issues and has provided a comprehensive evidence of the need of branding and brand loyalty for the growth and sustenance of business in this competitive environment.
This research has been carried out using the deductive approach wherein the hypothesis has been stated and then tested against the research data. The researcher has collected data from multiple sources which includes online databases, library and from the employees of the organisation concerned along with its customers. The data has been presented graphically for the ease of understanding of the readers. The data analysis provides comprehensive evidence that enables the researcher to establish the hypothesis that has been stated for this research.
The researcher has also provided the recommendations based on the primary and secondary data analysis. The recommendations are aimed at providing effective strategies for the organisation to improve its business. The limitations have been stated and the scope for future research in this domain has been highlighted at the very end of this report.
I would like to express my thankfulness towards the University of for providing me with the opportunity to complete my dissertation in the topic ‘Impact of Brand Loyalty on the growth and sustenance of an organisation’ It has been an experience for me. I have learnt to conduct a market survey which would surely be beneficial for me in the future. I would also like to express my gratitude towards my supervisor . Without his apt guidance this research would not have materialized.
This research has been successful due to the support extended by S M DIGITAL MARKETING. I would like to thank everyone from the organisation for showing their support for my research. I would also like to thank the customers who have voluntarily participated in this research. Without their co-operation this research could not have been completed.
Last but not the least, I thank my parents and my friends who have stood beside me and have provided me with the mental support and morale boost without which I would not have completed Introduction
In the era of globalization and extreme competition branding becomes a very important marketing strategy which ensures organisations growth and sustainability in the volatile economic market. Research has established that around 60% of the buying decision or consumer behavior is affected by the perceived value of a brand and the brand loyalty. This research focuses on all such factors and establishes the impact of branding exercises that are carried out by organisations in order to gain competitive advantages in the market. As this topic is a huge topic the case of a IT SME based in London has been evaluated in this research. The research illustrates the growth and sustainability the organisation has been able to maintain in the present volatile European markets by effective marketing strategies which has included efficient branding strategies. The impact of perceived brand value on the consumer behavior has also been evaluated in this research (Cooil et al., 2007).
This chapter provides the details about the aims and objectives of the research. This chapter introduces the readers to the central research question and breaks down the research questions into sub questions which have been evaluated in the course of the research. This chapter also presents the ethical considerations that the researcher has maintained while conducting the research. The chapter concludes with provisioning of a general structure for the entire research report so that the readers are aware about the contents of this report.
1.1 Purpose of the study
Brand loyalty and perceived brand value are major contributors to the revenue of an organisation. This research has focused on the service industry (IT services) to illustrate how much the brand value and the brand image contribute to the growth and sustainability of the organisation (Heding et al., 2009). Research has established that in B2C marketing the consumer decisions are emotional and hence branding activities are very much essential. In case of the B2B marketing (which is the case of IT services industry) the buying decisions are more practical than emotional. Yet it remains a fact that brand value counts as an important indicator for assuring the quality of services provided by the organisation. Thus this paper has studied the impact of brand loyalty and perceived value of the brand in case of the B2B marketing scenario (Kern & Willcocks, 2000).
1.2 Aim of the Research
The aim of the research has been to establish that perceived brand value and brand loyalty form important factors that assure quality of services to the customers and hence are capable of generating customer satisfaction and customer loyalty which in turn generates profitability for the organization in context. The aim has been achieved by researching a SME providing IT services in London. The impact of brand loyalty has been assessed through surveys and interviews both with the management as well as the customers of the organisation.
1.3 Contribution to Knowledge
Any research is aimed at building upon the existing knowledgebase in the domain/topic concerned. This research will provide the relevance of branding exercises in the B2B marketing scenario. There have been several researches that establish the impacts of branding activities in the B2C marketing strategies but when it comes to B2B marketing the concepts of branding are somehow overlooked as the buying decisions are more practical than emotional (Jones & Suh, 2000). However service industries like the IT industry illustrates that brand names and brand value is directly equated with the quality of service. The results of this research illustrate the impact of branding strategies on the B2B marketing strategies.
1.4 Objectives of the Research
The following have been the main objectives of the study:
To study the marketing strategies of the organisation in focus
To investigate literature regarding brand loyalty and perceived brand value
To identify the factors of brand loyalty which affects the profitability of the chosen company
To investigate literature regarding provisioning of quality of services in the IT industry
To investigate the quality of services provided by the chosen organisation
To investigate the growth and sustenance of the organisation as a result of brand loyalty
To make research recommendations about the incorporation of branding strategies in B2B marketing mix.
1.5 Rationale for the Chosen Topic
In this age of extreme competition every organisation is focusing upon the marketing strategies to ensure growth and sustenance. Without an effective marketing mix organisations would not be able to survive in the volatile markets. The concepts of branding and brand loyalty have been proven to deliver success in the B2C marketing scenario. In case of B2B marketing brand image and perceived brand value do add to the expected quality of service from the customers and hence is beneficial for the organisation (Cooil et al., 2007). However an organisation in the service industry needs to be extra careful about the quality of services that is being delivered because the expectations are high with brand names associated. The current IT services industry is based on outsourcing processes; hence quality can become an issue. Thus this paper has focused on all such factors to illustrate how organisations deal with the customer expectations regarding quality and how brand value and brand image are beneficial for the profitability of an organization.
1.6 Research Problem
The IT services industry has been extremely competitive. Organisations are constantly thriving to expand both vertically and horizontally. Outsourcing has been on the increase. Brands have the added pressure of maintaining high quality standards that is expected from the customers. The company that has been selected for this research faces all of the disadvantages that have been mentioned earlier. If the organization fails to deliver as per set standards customer switchovers are very common. This research will thus illustrate the marketing strategies and the operational strategies that are deployed by the organisation to ensure the growth and sustenance of the organisation.
1.7 Research Questions
The central research question for this research has been “How does brand loyalty and brand image affect the profitability of IT Services Company?” The research question has been broken up into several questions which have been answered throughout this research. The compilation of the answers forms for the answer of the central research question. The following questions have been answered through this research:
What is the role of branding in B2B marketing strategies?
How important is the quality of services for brands?
How is the quality maintained in the current outsourcing environment?
What role does the brand image play in the customer buying decisions?
What is the overall impact of branding strategies on the profitability of an organisation?
1.8 Research Hypothesis
The hypothesis for this research has been:
H1: Brand Value and Brand Loyalty are important indicators for the quality of services provided to the customers and also for the profitability of the organisation in the B2B marketing scenario
The null hypothesis for this research has been:
H0: The profitability and the services delivered are independent of brand value and brand loyalty in the B2B marketing strategies.
1.9 Structure of the Report
The research report has been split into five chapters which provide the relevant details about the various stages that this research has gone through and the various activities that have been carried out by the researcher in order to successfully complete this research. The research has been split into the following five chapters:
Chapter 1: Introduction: This chapter showcases the research topic and introduces the readers to the fundamental issues around which this research has been conducted. This chapter provides the readers with a comprehensive understanding regarding the need of this research and the value addition this research provides.
Chapter 2: Literature Review: This chapter presents the secondary data that has been collected by the researcher during the course of the research. The secondary data provides the conceptual framework for the research and hence is central to the research. The various theories and opinions regarding branding, brand loyalty, quality of services, customer satisfaction and B2B marketing strategies have been studied in this chapter.
Chapter 3: Methodology: This chapter provides the methods and approaches that have been selected by the researcher for conducting the study. This chapter provides details about the research strategies and the research instruments that have been selected by the researcher for conducting this research. This chapter is essential as it provides the readers with the ideas regarding the method and approaches that have been selected along with the limitations and the justifications for choosing the methods.
Chapter 4: Data Collection & Analysis: This chapter provides the results of the primary research that has been conducted by the researcher during the course of the research. This chapter provides the data that has been collected along with the analysis and interpretation of the data. The data has been presented in tabular and graphical formats for the ease of the readers.
Chapter 5: Recommendations & Conclusion: This is the ultimate chapter in this report and provides the recommendations based on the findings in the previous chapter. This chapter also links the research with the main objectives that have been defined in the first chapter. This is essential for establishing the success of the research. This chapter also illustrates the future scopes of research in the given topic.
1.10 Ethical Considerations
The researcher has strictly maintained the ethical code of conduct that has been provided by the University during the course of the research and while reporting the same. The researcher has acknowledged the sources from where the secondary data has been gathered. The researcher has also ensured that the research participants have been informed about the nature of the research along with assurance that the data would strictly be used for academic purposes. The SME that was contacted and agreed for participating had requested anonymity and hence the real name of the organisation has not been mentioned in the report. The researcher had taken prior permissions before taping conversations that serve as the qualitative data for this research. The researcher has ensured that the research has been ethical and no norms have been violated.
1.11 The United Kingdom IT services Industry: A Brief Overview
This section will provide the readers with a few interesting facts about the UK ICT market. This section will illustrate how competitive the market has been of late. Every organisation thus needs to maintain the marketing strategies along with quality standards and customer satisfaction in order to achieve desirable outputs. The UK market forms the biggest consumer market within Europe with an estimated spending capacity of £140 billion per annum. The United Kingdom has a potential ICT market and has a huge base of ICT graduates. United Kingdom boasts itself of producing the largest number of ICT graduates in the whole of Western Europe. The UK ICT market has an annual spend of £140 billion which is approximately 12% of the GDP. The industry employs 600,000 direct employees (http://www.ukti.gov.uk).
The market value of the software and IT services of the United Kingdom is highest within Europe and has been estimated at £58 billion. Research conducted by Microsoft establishes that the market can provide opportunities for 2500 new companies and also create 78,200 jobs by the end of the year 2013. The United Kingdom has an annual budget of £930 million for software Research & Development and is home to about 100,000 software organisations and hosts all the big brands including Microsoft, IBM, HP, etc. Apart from software the United Kingdom is also home to cyber security, cloud computing technologies and data centres all of which have sizeable contribution to the economy and GDP of the country. However, since this research focuses on a software development organisation the other services and industries have not been discussed in this section (http://www.ukti.gov.uk).
This chapter introduced the readers to the basic questions that will be answered by the researcher during the course of this research. This chapter forms the basic ideas in the minds of the readers regarding the IT industry in the United Kingdom and the quality of services provided. Because of the extreme competition of the market the organisations need to focus on quality of services and need to meet the expectations of the customers. Branding activities and brand loyalty form a part of the marketing strategies but these also increase the quality expectations. This chapter introduces all these concepts and provides a summary of the following chapters so that the readers have a basic concept regarding what to expect in the rest of the report.
Chapter 2: Literature Review
This chapter will focus on the literature that has been selected for this research. The literature has been summarized and reviewed and the findings have been presented in this chapter. The literature review has provided the researcher with essential insights into the concepts of brand loyalty and branding strategies along with quality of services. The UK IT market is extremely competitive and hence the organisations need to focus on all aspects to maintain stable growth and sustenance. This chapter will illustrate the various concepts and theories in the domains of brand loyalty and quality of services in the IT service industry. This chapter provides the conceptual framework on which the research has been based upon.
2.2 Conceptual Framework
The conceptual framework for this research accommodates the fact that the UK IT services industry is heavily competitive and hence branding strategies and brand loyalty could form an effective means of assuring growth and sustenance. On the other hand the IT services industry is also heavily outsourcing projects to cut down on the costs and to maximize the profits. With branding activities and brand loyalty the customer expectations are heightened and hence the organisation needs to look into the quality of services provided. Thus there needs to be equilibrium to sustain the growth and ensure customer satisfaction. The following diagram illustrates the conceptual framework around which this research has been framed.
2.3 Brand Loyalty
In the age of globalization and extreme competition the businesses focus on multifarious strategies to ensure the growth and sustenance of the organisation. Among the other strategies most entrepreneurs focus on the concept of branding strategy and brand building activities in order to create a mark in the market and establish the business more effectively. Branding concepts are very effective in the B2C marketing strategies as with these types of products the consumer decisions are more emotional than logical. However the B2B marketing environment is different; in this the buying decisions are according to the need and the decisions are triggered by rationality and practicality and are not based on emotional criterion (Abramovsky et al. 2004). However in the field of services industry the brand value and the brand name are important indicators of the assured quality. As quality of services is the ultimate goal of any customer therefore rationality or sensibility also prefers brand names to non brands. Thus it can be stated that the IT services consumers are more inclined towards the branded companies as these provide better assurances regarding the deliverables (Aaker and Keller, 1990).
The BNET Business Dictionary defines brand loyalty “as keeping preferable to a specific product or service” Thus it can be stated that brand loyalty is a behavioral pattern and has its bases in the emotional half of the human brain rather than the logical half (Acemoglu et al. 2003). Brand loyalty is the behaviorism of the customers to stick to the same product or company due to reasons which are more emotional than logical. The quality of services or the perceived value of the brand is more important for the brand loyalty than the actual services provided. Gonring (2008) illustrates how the organisations have shifted focus from quality towards customers. In the pre 1980’s branding exercises were more quality centric but the late 80’s and the 1990’s evidenced a change in the notion and organisations started becoming customer centric for the branding strategies. Rowley (2005) states that brand loyalty can be broadly categorized into four types which are: “captive, convenience-seekers, contented and committed”
The captive brand loyalists are those who stick to a product or company because there are no alternatives available to them. Thus lack of other products or the necessity to stick to the same product/service is the main reason behind this type of brand loyalty (Aghion and Tirole, 1997). The next type of brand loyalists are the convenience seekers; in this case the loyalists may not be actually interested in the brand itself but are more interested with the convenience associated with the products and/or services. The contended loyalists have a positive attitude towards the brand but would not consume extra because of the brand name or brand image. The committed loyalists are the ones who project positivism in both their attitudes and behavior towards the brand (Bandyopadhyay, Gupta and Dube, 2005).
Brand value is an important aspect for ascertaining brand loyalty. Brand value depicts the associated perceived value that is expected from the products and or services of a specific organisation. As Moisecu (2006) quotes the definition by the American Marketing Association: “the situation in which a consumer generally pays money for the same manufacturer-originated product or service repeatedly over time rather than buying from multiple suppliers within the category” Brand value associates a certain degree of expected quality from the products and services and also provides a certain degree of mental satisfaction to the buyers. Hence brand value is an important indicator and parameter for ensuring brand loyalty (Greenhalgh and Gregory, 2001).
Brand Loyalty can be achieved in many ways. Some of the strategies that are used by strategists to maintain the customer satisfaction and customer loyalty have been noted in this paragraph. Reichheld (2000) reveals that sellers usually need to incur four times the costs to lure new customers rather than keeping the loyal customers. The research illustrates that a seller needs to spend just around 5% of the wealth to keep the loyal customers which accounts for about 75% of the profits that the loyal customer generates. Hence cutting costs to some extent is a major way of ensuring customer loyalty. However Reilly (2008) argues that brand loyalists are generally less sensitive to price. Quality of the products and services is more important than the price for brand loyalists and hence pricing strategies cannot alone ensure brand loyalty. Kust (2008) illustrates that organisations have grown globally in the last decade and hence organisations need to maintain the brand globally for the growth and success of the organisation. Organisations need to focus on the trust factor with the customers and need to deploy customer royalty programs on a global scale to ensure that there is the trust factor among the customers on a global platform (Grossman and Hart, 1986).
There are other indicators of brand loyalty which will be discussed in this paragraph. These indicators are as essential as that of brand value and trust on the brand. The first is the brand reputation. Selenes (1996) points out that brand reputation stands out as one of the most important drivers of brand loyalty. Brand Reputation ensures customer reliability and hence good reputation ensures that the customers have a preferable attitude towards the product. To quote Selenes (1996) “brand reputation contributes to brand loyalty by increasing willingness and belief so that the attitude may change to behavior.” Thus it is clear that brand reputation is one of the most important parameters for achieving brand loyalty. The next important aspect is the brand image. As illustrated by Reichheld (2001) brand image helps in imposing a perceived value of the brand and is totally dependent on the public relationship machinery deployed by the organisation. Effective PR machinery ensures that customers are optimistic about the products and services and hence are more positive in attitude and behavior towards the product/service (Grossman and Helpman, 2002).
2.4 Branding Strategies
Branding strategies are most important to ensure brand loyalty. The first step towards assuring brand loyalty starts with the branding strategies. Effective branding strategies ensure brand loyalty whereas incompetent branding strategy would result in disloyalty and loss of trust towards the brand. Branding strategies include various plans such as awareness campaigns, press releases, celebrity endorsements and CSR activities (Grossman and Helpman, 2003). These days organisations are involving into corporate social responsibilities which not only are beneficial for the environment and the community but also provide the organisations with a good brand image. The following diagram illustrates the four quadrants which must be assessed by an organisation for strategizing the branding activities. These factors if not carefully assessed would not project the organisation as per the mission and vision of the company (Chang and Wildt, 1994).
A Branding strategy goes through the following stages:
Developing the Vision of the Brand: A Brand needs a vision just as an organisation. The vision of the brand should be in sync with the vision of the organisation but the vision should also be practical and the management should be able to consider what the brand can achieve within the next five years. The vision should clearly articulate operational and financial capabilities of the brand (Ho, 2007).
Creating a Brand Position: This is the next step in creating a brand. The organisation needs to consider how it wants to be perceived by the customers. A strong position is required which delivers the customers some value when they think about the particular brand. This is the stage where the organisation creates the perceived value. A well articulated brand position statement defines the target market, the nature of the business or the industry and the differentiation that is offered by the brand. A brand positioning strategy is effective if it adheres to the following five principles:
Fit: The positioning statement should aim at leveraging the strengths of the business
Value: The positioning statement needs to focus on the perceived value and the benefits that are provided to the customers
Unique: The positioning needs to make the organisation stand out from the rest
Sustainability: The positioning should provide maximum window of time for the organisation without being challenged by the competitors
Credibility: The positioning needs to be credible and the organisation needs to be in a position to fulfill the commitments
Brand Contract: The Brand Contract is a list of the promises or commitments that the brand makes to the customers. The brand contracts are internal to the organisation but the contracts are validated by the marketplace. It is essential that the brand maintains the brand contract so that the reputation and image is not tarnished. Brand contracts should change over time and new promises and commitments need to be delivered by the organisation whereas irrelevant commitments need to be removed (Grossman and Helpman, 2005). Brand contracts are important for the brand position as these define the customer perceptions and expectations and also force the management to be honest about the capabilities. A typical example of a brand contract is Starbuck’s contract which states “Provide the highest quality coffee available on the market today” (Peng, 2006).
Brand Based Communications: This is very important for creating awareness about the brand in the masses. Market penetration is achieved by successful communication strategies. In today’s age the social media plays an important role in the communication strategies. The brand position is important to be considered while determining the communication strategies. Celebrity endorsements are an effective way of establishing brand communications. The PR machinery is also vital in generating positive communications (Abraham and Taylor, 1996).
Return on Brand Investment: This is the most essential phase of the branding strategies. The organisation needs to calculate the effectiveness of the strategies. The calculation of the return on branding investment is based on a few metrics which have been discussed below:
Brand Awareness: The awareness about the existence of the company. The market penetration that the brand has been able to achieve using the strategies.
Contract Fulfillment: The degree to which the commitment has been fulfilled by the organisation is measured. This provides an indicator regarding perceived value (Rossini and Lambertini, 2003)
Acquired Customers: The number of customers that the organisation has been able to acquire based on the strength of the brand
Customer Loyalty: The number of customers who have been loyal to the organisation and the length of time they have been loyal
Financial Value: The financial performance of the brand
Price Premium: The percentage premium that the brand is able to generate over the competitor products (Heshmati, 2003).
2.5 Impact of Brand Loyalty on Buying Decisions
Aaker (1996) states the ability to recognize and recall the name of a brand by the retailers and the customers is termed as brand awareness. Brand awareness is critically important in the retail segment as customers identify with products on the brand recall. The customers and even the retailers think of a brand when conceptualizing about a particular product and this is the impact of huge brand awareness. Hoeffler and Keller (2002) illustrate that the buying decisions of the customers in the retail section is immensely affected by the brand image and the brand value. The perceived value of a brand provides it easy penetration and acceptance in the market. Kan (2002) notes that heavy brand awareness will lead to fondness of the product and thus will increase the market share of the concerned product which ultimately leads to increased profitability for the organisation. Cavero & Cebollada (1997) argue that brand devotion is the state or condition where the buyers will not consider other brands or products while buying whereas brand faithfulness defines the behavioral state where the buyers will repurchase the same brand. Brand faithfulness and brand devotion establishes organisations in the retail industry. With brand devotion and faithfulness arises the aspect of perceived quality and hence organisations need to be typically aware about the quality that is being delivered (Williamson, 1985). The following model illustrates the impact of brand loyalty on the profitability of an organisation. The model illustrates all the variables that are important for assessing the impact of brand loyalty on the profitability
While Branding activities and branding strategies are of high importance in the B2C marketing scenario experts believe that branding activities are not so important in the B2B marketing scenario. Since these are rational decisions and is about relationships between the buyer and the seller. In B2B scenario the products are complex and hence cannot be brought down to a tag line (Khong and Nair, 2004). Pricing is the most important factor that dictates the sales in this type of businesses. Moreover in vase of B2B marketing the target audience is pretty narrow and hence creation of a brand is not advisable. Geoffrey Moore the Managing Director of TCG in one of his recent blogs argues:
“…while [branding] has extraordinary relevance to B2C volume operations enterprises, it has virtually no relevance to B2B complex systems enterprises… IBM, GE, Cisco, Oracle, SAP, Siemens, Accenture, and Caterpillar are great companies, but it is highly misleading to think of them as great brands…”
Though it remains a fact that B2B decisions are rational oriented but it still remains a fact that the decision makers are human and hence the emotional factor remains in the buying decisions. Gladwell (2009) points out that “…buyers make most decisions by relying on their two-second first impressions based on stored memories, images and feelings.” Research has revealed that buying decisions are affected by heuristics. Heuristics are simple processes that simplify the decision making processes. Randall (2011) notes that in a typical B2B buying decision a lot of data is generated in the RFP process, and compiling all of this information is well beyond the capacity of the decision makers. Hence heuristics comes into play and the decision making is simplified by emotional behavior of the decision makers. It has often been noticed that the decision process is sub consciously taken and is executed much before the actual purchase is executed. B2B marketing needs to adopt branding strategies so that the emotional aspect can be tapped into along with the rational aspect. Branding strategies are aimed at affecting the ‘amygdala’ portion of the human brain. The stimulation of the limbic system provides the emotional support that is required and in many cases it can be noticed that the business can be closed even before the start of the selling (Lewis, 2000)
2.6 Brand Loyalty and Service Quality
In the previous sections it has been illustrated how brand image and brand perceptions creates a trust and acceptability about the products and services. It is important to note here that brand loyalty brings in the additional responsibility of maintaining the service quality that is expected from the customers. In this age of extreme competition customer satisfaction is the ultimate goal of organisations and for achieving desirable customer satisfaction levels service quality is extremely important. Service quality has been defined as “a result of comparison between the received and the expected services.” Parasuram et al., (1985) conducted a study to illustrate the metrics that are important for achieving service quality. The definition provided by the research stresses on the following factors that are responsible for the ‘SERVQUAL’: ‘reliability, responsiveness, empathy, assurance, and tangibility.’ The study illustrates that the service that is provided by the organisations are multi faceted and hence the multiple dimensions need to be looked into for defining the service quality of the organisations. Grönroos (1984) proposed that there are two dimensions that are equated by the customers for the services received. The services are assessed technically and functionally. While the functional dimension deals with the question regarding how the service was delivered (courtesy, timeliness, professionalism) the technical dimension measures the service itself. It measures the competence of the actual services being provided against the commitments made by the organisation. Rust and Oliver (1994) proposed an additional dimension; that of environment in which the service is delivered. There have been several researches that have linked the provision of quality in the attainment of customer satisfaction and hence profitability. With brand image there is the additional perceived value and actual value and hence organisations need to maintain the quality that is perceived about the brand. If there is a wide gap between the promised value and the actual value the brand image will be tarnished. The following diagram establishes the relationship between service quality and customer loyalty. The diagram also illustrates the various researches on which the model has been based upon
2.7 Impact of Outsourcing on service quality
“Subcontracting as many non-core activities as possible is a central element of the new economy”. Financial Times, 31 July 2001, p. 10.
With the current trends of globalization outsourcing has been one of the key players for large organisations. According to a report by the World Trade Organisation (1998) the production of an American Car has been described as:
“Thirty per cent of the car’s value goes to Korea for assembly, 17·5% to Japan for components and advanced technology, 7·5% to Germany for design, 4% to Taiwan and Singapore for minor parts, 2·5% to the United Kingdom for advertising and marketing services and 1·5% to Ireland and Barbados for data processing. This means that only 37% of the production value . . . is generated in the United States”
This illustrates the nature of the outsourcing industry. Researchers have shown that outsourcing is prevalent in every industry and organisations are focusing only on key competencies while other processes are outsourced to experts. Survey conducted by PriceWaterCoopers (2000) demonstrates that 75% of the organisations have been making better profits due to outsourcing while the rest 25% claimed to improve their focus upon the core business areas. Outsourcing is majorly aimed at profit maximization and better utilization of resources. Outsourcing needs to be carried out effectively so as to ensure that the quality of the end product/service is not affected. Outsourcing should be delegation of processes and not abdication of processes. The following table illustrates the core differences between delegation and abdication
Lyson & Farrington (2006) observe that services that are outsourced are majorly resource intensive and are fluctuating in nature. As the amount of work varies with time there is no sense in investing upon infrastructure. Organisations thus have become resource specific and focus only on core business areas. Processes are outsourced to vendors who specialize in the relevant fields. IT outsourcing has been one of the major processes that is common for almost every organisation. IT requires specialized resources and organisations do not require such resources over time. Hence investing on such resources is not feasible for the organisations. Jacobs (2009) illustrates that the major advantages of outsourcing are time saving and cost benefits. However with extensive outsourcing and profit maximization strategies the service quality can get affected. The IT industry in the UK has been outsourcing majorly to countries like India and Philippines because of the low labor costs in these countries along with the low infrastructure costs. The registered number of IT companies in India has been estimated at over 54000 while the profits have been estimated at around $15 billion for the financial year 2010-11 This illustrates the kind of competition that exists in these markets. For profit maximization quality is more than often compromised. Survey conducted by the Aberdeen Group (2011) reveals the following:
Roughly 50% of the IT projects that are outsourced for saving costs turn out to be complete failures or fail to meet the expectations of the clients
76% of the organisations that were surveyed revealed that the final costs of outsourcing were much higher than they had initially expected. There were many hidden costs and therefore the final cost benefits were not much
30% of the participants were dissatisfied with the outsourcing programs as there were no methods of conflict resolution
An average of 26% cost benefits could be arrived upon in the survey.
Bozarth (2008) also points at the mistakes that are often encountered in an outsourcing process. Firstly the vendors often make statements and claims about their capabilities that are not true. In this digital age it is a fact that the outsourcing company and the vendor never meet physically. The transactions are all done over the internet. The outsourcing organisation does not even have the physical evidence of the company that is being outsourced to. The web sites of many organisations make false claims regarding the infrastructure and the facilities that they have. In such cases it mostly happens that the final product that is delivered is not compliant with the requirements of the client. According to Samuel (1999) another mistake is that the customer requirements are not assessed properly. In such case the end product will not be aligned to the objectives of the organisation concerned. Communication is a big challenge in outsourcing programs. Lack of communication between the parties during the design and development process is very much responsible for the failure of IT projects. IT projects also lack organisation and thus there is improper flow of information and this leads to project failures. For the success of IT projects and for effective outsourcing procedures the Information Technology Infrastructure Library has laid out a set of best practices ITIL v3 which ensure effective management of IT projects and also ensures effective vendor management. These practices are aimed at providing proper organisation to the IT projects and hence ensure the success of the projects. The ITIL v3 is a layered architecture and at each stage provides best practices that ensure the success of the overall project. The ITIL v3 is aimed at providing effective project management structure for IT projects and reduce/eliminate IT project failures. The following diagram illustrates the various phases/layers in the ITIL v3
The ITIL v3 is a project management philosophy and provides best practices at every stage of an IT project. Discussing the entire ITIL v3 is a research in itself and is well beyond the scope of this report. This report has discussed the ITIL v3 framework just to illustrate the need of effective project management methodologies for ensuring the success of IT projects along with the quality of IT projects. This research looks into how organisations have sustained using branding strategies and in spite of outsourcing. The data analysis chapter reveals the importance of such project management philosophies for ensuring the quality of services which in turn generates customer satisfaction.
Randall (1993) states that for the success of an outsourcing program the organisations need to assess the need to outsource. The feasibility of outsourcing should be carefully estimated. Organisations that have a serious deficit of capital and human resources need to outsource to save both time and money. However the correct estimation of the project needs to be done and only after that the outsourcing should be carried out. Randal (1993) further points out that the success of the outsourcing program depends on the credibility of the vendor. The credibility of the vendor is established through the past operations and projects that have been handled, the complexity of the projects and also the similarity with the project in context. Thus a due diligence report is essential before sub contracting. Further for the success of the project there needs to be a project manager who will be responsible for the entire project. The communication should be maintained by the project manager and the project should follow a time line. In case the project deviates from the set time line action should immediately be taken. Elmuti (2003) suggests that for the success of the outsourcing program a reliable and effective partner is also important. The relationship between the executing company and the outsourcing organisation is critical for the timely delivery of the project along with maintaining the deliverables of the project.
2.8 Customer Loyalty and Profitability
Heskett et al., (1994) hypothesizes that customer satisfaction generates customer loyalty which in turn generates profitability. The research had been conducted as a generic research on the service industry and goes on to establish that customer satisfaction -> customer loyalty -> profitability. Hallowell (1996) further proves this and also states that the three are inter-related. According to Hallowell (1996) customer satisfaction <-> customer loyalty <-> profitability; this paper is about branding exercises and branding strategies and its impact on the business. Blanchard and Galloway (1994) establish that customer satisfaction is a directly proportional to the perceived value of the services received. Branding exercises are important for creating a perceived value and hence it can be stated that branding exercises are inter-related to profitability. Hallowell (1996) conducted OLS regression on 12000 customers of retail banks spread across 59 branches. The results illustrate that with higher customer loyalty the profitability increased. Profitability had been measured as Non-Interest Expense as a percentage of the total revenue (NIE/Rev). The following figure illustrates the results of the research
This chapter has revealed the theories and concepts about brand loyalty, branding strategy and the impact of brand loyalty on buying decisions. This chapter has revealed the controversy that branding exercises are suitable only for the B2C environment. Since this research has been framed around the B2B industry it is important to understand if the branding strategies and brand loyalty are part of the B2B decision making process. The literature analyzed in this chapter reveals that though B2B decisions are based on rationality still since human beings are responsible for the decision making the emotional factor plays a part in the decision process. Branding activities need to be carried out effectively and needs to be niche for the B2B segment. This chapter also illustrates that with branding activities customer expectations are increased. The perceived value of the brand becomes a criterion that the organisation needs to maintain. Organisations need to adhere to the brand contract in order to ensure customer satisfaction and customer loyalty. In the age of Globalization outsourcing is a common practice and as the literature reveals that without proper control measures outsourcing projects fail to meet the expectations and requirements of the customers. Hence for the success of outsourced projects effective management philosophies need to be in place. This chapter has provided the basics that have been measured and analyzed in the data analysis chapter (Chapter No. 4). The contextual model has been established by this chapter which will be verified in chapter four using research data that has been collected by the researcher during the course of this research. The compilation of the primary data and the secondary data forms the research results and research recommendations.
Chapter 3: Methodology
Chapter three of the research paper is the methodology paper that would discus in details the methods and approaches that were adopted for completing the research process. Besides illustrating the different measures and methods that were available for research this chapter would also illustrate the methods that the researcher chooses for this particular research work. Each and every research is conducted in a number of stages and thus follows a specific procedure. And the success of any research depends on the procedure adopted by the researcher for this research (Creswell, 2008). The chapter of research methodology would describe in details the methods that are available for research and the methods chosen by the researcher for this research along with the justification if choosing that method.
3.2 Research Process
The research process has been carried out in a number of layers which is very identical with the layers of an onion. Each of the layers illustrate the methods of carrying on the research and the researcher chose the best option from each of the layers that would be helpful in conducting the research in the most effective way. The researcher considering the constraints of time budget and the resources available for the research chose the methods wisely that would help the researcher to conduct his research in the most effective way. The onion (illustrated in a diagram below) shows six layers each layer consisting of the methods and steps of the research (Dillman, 2001). The first layer is that of the layer of philosophy which illustrates the philosophy chosen for the research. The second layer is that of the research approach which illustrates the approach the researcher chose for conducting a research on brand loyalty and brand value. The third layer consists of the strategies used in the research. The fourth layer shows the choices made by the researcher for conducting the research. The fifth layer consists of the time horizon followed by the researcher while conducting this research. The sixth layer which is also the core of the research process consists of the data collection and analysis method. This is the most important layer as the success of a research depends on the successful collection and analysis of data (Gauch, 2003).
3.4 Research Philosophy
Every research needs to have a research philosophy that would give the research a base. The researcher chose to conduct this research using the philosophy of post positivism. Post positivist philosophy totally rejects the positivist views and holds that scientific reasoning and common sense reasoning are very similar (Holiday, 2007). Scientists follow procedures to verify whether their observations are accurate and in the same way in the everyday life people tend to be cautious about their reasoning, whether they are accurate and consistent. However the post positivist philosophy holds that observations are not free from errors and concepts and theories are fallible. Thus to get close to the goal it is important that a researcher focuses on multiple data sources and multiple observations. Use of multiple data and multiple observations would ensure that the results are more reliable although not flawless. Thus for researching on a subject like brand loyalty and brand value which is not as such measurable by scientific standards it is important to use post positivism philosophy which will allow the researcher to use triangulation method and thus come to a desired conclusion. The use of post positivism philosophy has allowed the researcher to come up with more accurate results and findings that are important for the research (Fowler, 1998).
3.5 Research Approach
Every research is based on either of the two research approaches which are inductive approach and deductive research approach.
Inductive approach- inductive approach is also known as the bottom-up approach as the research starts from observation. And during the observations general patterns are formed. These patterns are observed to formulate a hypothesis and then a theory or a statement is formed from the observation of the patterns. In an inductive research tentative predictions are made from observations that help to
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