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CUSTOMER RELATIONSHIP MANAGEMENT AND ITS INFLUENCE

ON CUSTOMER LOYALTY AT LIBERTY LIFE IN SOUTH AFRICA

by

Leon du Plessis

MINOR DISSERTATION

Submitted in partial fulfilment of the requirements for the degree

MAGISTER COMMERCII

in

BUSINESS MANAGEMENT

in the

FACULTY OF MANAGEMENT

at the

UNIVERSITY OF JOHANNESBURG

Supervisor: Dr Mornay Roberts-Lombard

MAY 2010

ii

ABSTRACT

Very little research with specific reference to the Long-Term Insurance industry in

South Africa exists, that focuses on Customer Relationship Management and

Customer Loyalty. The study investigates Customer Relationship Management and

its influence on Customer Loyalty at Liberty Life in South Africa.

Over the past twenty years, the importance of the services industries to the world

economy has grown. In the South African economy the services sector contributed

71.4% of South Africa’s total GDP in 2006. The world economy is struggling in the

aftermath of the global financial crisis. Customers are cancelling their policies as they

struggle to survive the down turn in investment and credit markets. Liberty Life

experiences persistency problems as customers cancel their policies. Liberty Life is

required to focus on its relationship with customers to increase customer loyalty.

To establish the influence of trust, commitment, two-way communication and conflict

handling on Customer Relationship Management and its influence on Customer

Loyalty at Liberty Life in South African, an empirical investigation was conducted.

The sample consisted on 254 customers visiting the customer walk-in-centres

situated in Johannesburg, Cape Town, Pretoria and Durban.

The study indicated that a significant positive relationship exists between trust,

commitment and conflict handling, and Customer Relationship Management at

Liberty Life. The study further revealed that a significant negative relationship exists

between two-way communication and Customer Relationship Management at Liberty

Life. In addition, the empirical investigation revealed that there is a significant positive

relationship between Customer Relationship Management and Customer Loyalty at

Liberty Life in South Africa.

The study provided strategies for Liberty Life to improve and maintain its

relationships between the organisation and customers if Liberty Life exhibits

trustworthy behaviour, shows genuine commitment to service, communicates

information to customers efficiently and accurately, thereby also listening to their

iii

customers and handling potential and manifested conflicts skilfully. This will

ultimately, contributes to Customer Loyalty, which will ensure economic prosperity for

Liberty Life.

iv

DECLARATION

I, Leon du Plessis, declare that this dissertation is my own, unaided work. Any

assistance that I have received has been duly acknowledged in the dissertation. It is

submitted in partial fulfilment of the requirements for the degree of Master of

Commerce at the University of Johannesburg. It has not been submitted before for

any degree or examination at this or at any other university.

.............................. ............................

Leon du Plessis (Day, month, year)

v

ACKNOWLEDGEMENTS

I thank the almighty God, Jesus Christ, for his love, strength, protection and

inspiration, without which I would not be able to face the everyday challenges.

Further I would like to thank the following people and institutions for their

contributions to my dissertation:

My mother and father, Lida and Leon du Plessis, for their continued love, advice

and assistance in all areas of my life.

My supervisor, Dr M Roberts-Lombard, for his advice, guidance and patience.

As a committed supervisor, he assisted me in overcoming the challenges

experienced during my dissertation.

Richard Devey for his assistance with the data processing and analysis.

My family and friends for always supporting and encouraging me.

The Liberty Group for their financial support in completing the degree and

allowing me to utilise the experience gained in the organisation to further my

studies.

vii

TABLE OF CONTENTS

Page

ABSTRACT ii

DECLARATION iv

ACKNOWLEDGEMENTS v

AFFIDAVIT vi

LIST OF TABLES xv

LIST OF FIGURES xvii

LIST OF APPENDICES xviii

CHAPTER ONE: INTRODUCTION TO THE RESEARCH PROBLEM

1.1 INTRODUCTION 2

1.2 BACKGROUND TO THE STUDY 3

1.3 DISCUSSION OF TERMINOLOGY 5

1.3.1 South Africa 5

1.3.2 Gauteng Province 6

1.3.3 KwaZulu-Natal Province 7

1.3.4 Western Cape Province 7

1.3.5 South African Long-Term Insurance Industry 7

1.3.6 Liberty Life 8

1.3.7 Customer walk-in-centre 8

1.3.8 Consumer vs Customer vs Client 8

1.3.9 Liberty Life customer 9

1.3.10 Customer Relationship Management (CRM) 9

1.3.11 Customer Loyalty 9

1.3.12 Trust 10

1.3.13 Commitment 10

1.3.14 Two-way Communication 10

1.3.15 Conflict handling 11

1.4 PROBLEM STATEMENT 11

1.5 SIGNIFICANCE OF THE RESEARCH 14

1.6 RESEARCH OBJECTIVES 15

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1.6.1 Primary objective 15

1.6.2 Secondary objective 15

1.6.3 Research questions 16

1.6.4 Research hypotheses 16

1.6.4.1 Relationship between the independent variables and

the intervening variable, CRM 16

1.6.4.2 Relationship between the intervening variable,

CRM, and the dependent variable, customer loyalty 17

1.6.4.3 Relationship between the biographic variables and

the intervening variable, CRM 17

1.6.4.4 Relationship between biographic variables and the

dependent variable, customer loyalty 17

1.7 LITERATURE REVIEW 18

1.7.1 Customer Relationship Management 18

1.7.1.1 Defining Customer Relationship Management 20

1.7.1.2 Four variables of CRM 22

1.7.1.3 The importance of CRM in long-term relationship building 24

1.7.2 Customer loyalty 25

1.8 RESEARCH METHODOLOGY 28

1.8.1 Introduction 28

1.8.2 Research methodology 28

1.8.3 Data collection 29

1.8.4 Data analysis 30

1.8.5 Ethical considerations 30

1.9 LIMITATIONS OF THE STUDY 31

1.10 DIVISION OF THE STUDY 31

1.11 CONCLUSION 33

CHAPTER TWO: THE INSURANCE INDUSTRY IN SOUTH AFRICA

2.1 INTRODUCTION 35

2.2 THE ROLE OF THE INSURANCE INDUSTRY IN

SOUTH AFRICA 35

2.3 THE LIFE INSURANCE INDUSTRY IN SOUTH AFRICA 37

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2.4 A PERSPECTIVE ON THE LIBERTY LIFE GROUP 39

2.4.1 Liberty Holdings restructure 40

2.4.1.1 LibFin 40

2.4.1.2 Individual Life 41

2.4.1.3 Liberty Properties 41

2.4.1.4 Liberty Corporate 42

2.4.1.5 Liberty Health 42

2.4.1.6 STANLIB 42

2.4.1.7 Liberty Africa 43

2.5 CHALLENGES FACING THE INSURANCE INDUSTRY

IN SOUTH AFRICA 43

2.5.1 Economic outlook 43

2.5.2 Globalisation 44

2.5.3 Consumer behaviour 45

2.5.4 Technology 47

2.5.5 Regulation 47

2.5.6 Access to insurance for low income earners 48

2.6 A PERSPECTIVE ON CRM IN THE LIFE

INSURANCE INDUSTRY IN SOUTH AFRICA 49

2.6.1 Customer satisfaction as a precursor for CRM 50

2.6.2 CRM aspects in the banking sector that could benefit

Liberty Life in South Africa 51

2.6.3 CRM aspects in the medical sector that could benefit

Liberty Life in South Africa 53

2.7 CONCLUSION 54

CHAPTER THREE: CUSTOMER RELATIONSHIP

MANAGEMENT IN PERSPECTIVE

3.1 INTRODUCTION 56

3.2 CRM IN A SERVICE ENVIRONMENT 57

3.3 DEFINITIONS OF CRM 58

3.4 GENERIC ELEMENTS OF THE DEFINITIONS OF CRM 60

x

3.5 DIFFERENTIATING BETWEEN CUSTOMER RELATIONSHIP

MANAGEMENT AND CUSTOMER RELATIONSHIP MARKETING 63

3.6 THE CHARACTERISTICS OF CRM 65

3.7 THE ADVANTAGES OF CRM IN AN EVOLVING MARKET

ENVIRONMENT 68

3.7.1 The advantages of CRM for the customer in the service industry 68

3.7.2 The advantages of CRM for the organisation in the

service industry 70

3.8 WHAT CRM IS NOT 72

3.9 THE LINK BETWEEN CRM AND CUSTOMER SATISFACTION 74

3.9.1 What is customer satisfaction? 74

3.9.2 The determinants of customer satisfaction 74

3.10 THE CRM PROCESS 76

3.11 CONCLUSION 80

CHAPTER FOUR: THE VARIABLES INFLUENCING CUSTOMER

RELATIONSHIP MANAGEMENT AND CUSTOMER LOYALTY

4.1 INTRODUCTION 82

4.2 THE LINK BETWEEN CRM AND CUSTOMER LOYALTY 83

4.3 RELATIONSHIPS ARE DYNAMIC 87

4.4 TRUST 88

4.4.1 The concept of trust defined 88

4.4.2 Generic elements to the definitions of trust 89

4.4.3 Trust in Liberty Life 89

4.4.4 The influence of trust on CRM and customer loyalty 90

4.5 COMMITMENT 92

4.5.1 The concept: commitment 92

4.5.2 Generic elements to the definitions of commitment 93

4.5.3 Commitment in Liberty Life 94

4.5.4 The influence of commitment on CRM and customer loyalty 94

4.6 TWO-WAY COMMUNICATION 96

4.6.1 Two-way communication described 96

4.6.2 Different types of two-way communication 97

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4.6.3 The communication process 99

4.6.4 Two-way communication methods 102

4.6.5 Two-way communication in Liberty Life 103

4.6.6 The influence of two-way communication on CRM

and customer loyalty 103

4.7 CONFLICT HANDLING 104

4.7.1 A description of conflict handling 104

4.7.2 Guidelines on conflict handling 104

4.7.3 Developing a conflict handling process 106

4.7.4 Conflict handling in Liberty Life 109

4.7.5 The influence of conflict handling on CRM and customer loyalty 110

4.8 CONCLUSION 111

CHAPTER FIVE: RESEARCH METHODOLOGY

5.1 INTRODUCTION 113

5.2 THE RESEARCH PROCESS 113

5.2.1 Step 1: Identify and formulate the problem or opportunity 114

5.2.2 Step 2: Determine the research objectives 115

5.2.3 Step 3: Research design 115

5.2.3.1 Qualitative research 115

5.2.3.2 Quantitative research 116

5.2.3.3 Descriptive research 116

5.2.4 Step 4: Conduct secondary research 117

5.2.5 Step 5: Select a primary research method 117

5.2.5.1 Data gathering technique 118

5.2.5.2 Personal interviews 118

5.2.5.3 Covering letter 118

5.2.5.4 Questionnaire 119

5.2.5.5 Questionnaire design 120

5.2.5.6 Pre-testing of the questionnaire 125

5.2.5.7 Reliability of the questionnaire 125

5.2.5.8 Validity of the questionnaire 126

5.2.5.9 Face validity 127

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5.2.5.10 Content validity 127

5.2.5.11 Construct validity 127

5.2.6 Step 6: Determine the research frame 135

5.2.6.1 The survey area 135

5.2.6.2 The study unit 135

5.2.6.3 Population 136

5.2.6.4 Sampling method 137

5.2.6.5 Probability sampling method 137

5.2.6.6 Sampling technique 138

5.2.6.7 Sample size 140

5.2.7 Step 7: Data gathering 141

5.2.8 Step 8: Data analysis 141

5.2.8.1 Editing of data 142

5.2.8.2 Coding of data 142

5.2.8.3 Processing and statistical analysis of data 142

5.3 RELIABILITY OF THE RESULTS 143

5.3.1 Sampling errors 143

5.3.2 Response errors 143

5.3.3 Non-response errors 144

5.4 CONCLUSION 144

CHAPTER SIX: DATA ANALYSIS


6.2 DISCUSSION OF THE EMPIRICAL RESULTS 146

6.2.1 Empirical findings on the different constructs of the study 147

6.2.2 The importance of the different constructs of the

study as rated by the respondents – a focus on the

different means 157

6.2.3 Correlation between the independent, intervening and

dependent variables 170

6.2.4 Empirical findings on demographical variables 172

6.2.5 Multiple regression analysis 178

6.2.5.1 Influence of the independent variables on the

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intervening variable 179

6.2.5.2 Influence of the intervening variable on the

dependent variable 182

6.2.5.3 Relationships between the demographical variables,

the intervening variable and the dependent variable 183

6.3 MEASUREMENT OF OBJECTIVES 184

6.4 ACCEPTANCE OR REJECTION OF HYPOTHESES 185

6.5 EMPIRICAL MODEL 187

6.6 CONCLUSION 187

CHAPTER SEVEN: CONCLUSIONS AND RECOMMENDATIONS


7.2 CONCLUSIONS 190

7.2.1 Trust 190


7.2.3 Two-way communication 193


7.2.5 Relationship between the intervening variable,

CRM, and the dependent variable, customer loyalty 196

7.2.6 Relationship between the demographical variables

and the intervening variable, CRM, and the dependent

variable, customer loyalty 196

7.3 RECOMMENDATIONS 197

7.3.1 Trust 197


7.3.3 Two-way communication 199


7.3.5 Relationship between the intervening variable, CRM,

and the dependent variable, customer loyalty 201

7.3.6 Relationship between the biographic variables and the

intervening variable, CRM, and the dependent variable,

customer loyalty 202

xiv

7.4 LIMITATIONS AND DIFFICULTIES OF THE STUDY

AND AREAS FOR FURTHER RESEARCH 202

REFERENCES 203

xv

LIST OF TABLES

Page

Table 1.1: Definitions of Customer Relationship Management 21

Table 2.1: South African life insurance market share, % share

by value in 2007 37

Table 2.2: Liberty Holdings as a diversified wealth organisation 40

Table 3.1: Definitions of Customer Relationship Management 58

Table 4.1: Definitions of the concepts trust 88

Table 4.2: Definitions of the concepts commitment 92

Table 5.1: Reliability statistics 126

Table 5.2: KMO Interpretation 128

Table 5.3: KMO and Barlett’s test for item validity 129

Table 5.4: Anti-Image Correlation matrix 130

Table 5.5: Exploratory Rotated Factor Analysis results 131

Table 5.6: Communalities 134

Table 5.7: Determining the sample 141

Table 6.1: Trust results 147

Table 6.2: Commitment results 148

Table 6.3: Two-way communication results 150

Table 6.4: Conflict handling results 152

Table 6.5: CRM results 153

Table 6.6: Loyalty results 154

Table 6.7: CRM influence on loyalty results 156

Table 6.8: Cities where questionnaires were obtained 158

Table 6.9: Cities where questionnaires were obtained, test statistics 159

Table 6.10: Gender of respondents 160

Table 6.11: Gender of respondents, test statistics 160

Table 6.12: Policies with other long-term insurers 161

Table 6.13: Policies with other long-term insurers, test statistics 162

Table 6.14: Marital status 163

Table 6.15: Marital status, test statistics 163

Table 6.16: Age 164

Table 6.17: Age, test statistics 165

xvi

Table 6.18: Time period as a customer of Liberty Life 165

Table 6.19: Time period as a customer of Liberty Life,

test statistics 166

Table 6.20: Dependents 167

Table 6.21: Dependents, test statistics 168

Table 6.22: Qualification 168

Table 6.23: Qualification, test statistics 170

Table 6.24: Non-parametric correlations of variables 171

Table 6.25: Frequencies of demographic information, valid 173

Table 6.26: Customer Walk-in-Centres 173

Table 6.27: Gender 174

Table 6.28: Population group 174

Table 6.29: Age 175

Table 6.30: Other Long-Term Insurance companies 175

Table 6.31: Marital status 176

Table 6.32: Education 176

Table 6.33: Years of being a customer of Liberty Life 177

Table 6.34: Number of dependents 178

Table 6.35: Influence of the independent variables on CRM 179

Table 6.36: Influence of the intervening variable on Customer Loyalty 182

xvii

LIST OF FIGURES

Page

Figure 1.1: Conceptual framework 13

Figure 1.2: The relationship between RM, CRM and customer

management 19

Figure 1.3: Relationship marketing ladder of loyalty 20

Figure 1.4: The satisfaction-profit chain, customer satisfaction,

loyalty and business performance 26

Figure 1.5: Two-dimensional model of customer loyalty 27

Figure 3.1: The service profit chain 76

Figure 4.1: Conceptual framework 83

Figure 4.2: Communication process 100

Figure 5.1: Steps in the research process 114

Figure 5.2: Target population, sample units, sample elements and

actual sample size of the study 136

Figure 6.1: Modified empirical model 187

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LIST OF APPENDICES

ANNEXURE A: AN EXAMPLE OF THE COVER LETTER 210

ANNEXURE B: AN EXAMPLE OF THE QUESTIONNAIRE 213

ANNEXURE C: LETTER CONFIRMING LANGUAGE EDITING 221

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