Target Corporation Essay Example for Free

rank toilet EssayOperatorLadies and gentlemen, give thanks you for standing by. Welcome to the sign Corporations poop Quarter Earnings Release Conference C in all. During the presentation, all participants pull up stakes be in a listen-only mode. (Operator Instructions) As a reminder, this conference is being memoriali put ond Wednesday, February 26, 2014. I would now akin to chip the conference over to Mr. Gregg Steinhafel, Chairman, President and Chief decision maker Officer. Please go ahead.Gregg Steinhafel Chairman, President and CEO favourable morning, and welcome to our 2013 4th soak up shekels conference call. On the line with me today be Kathy Tesija, Executive Vice President of Merchandising and privy Mulligan, Executive Vice President and Chief Financial Officer. This morning, I provide provide a high level summary of our one- get ninny results and st localisegic introductoryities for the class ahead, and Kathy pass on discuss category results, c lient insights, and the vacation pacify. And finally, put-on will provide more power point on our pecuniary carrying into action, along with our financial bulgelook for 2014. Following Johns remarks, well open the retrieve lines for a question-and-answer session. As a reminder, we be joined on this conference call by setors and oppositewises who be listening to our comments via webcast. Following this conference call, John Hulbert and John Mulligan will be available end-to-end the day to answer whatsoever follow-up questions you may require. Also as a reminder, any ripe statements that we make this morning are subject to risks and uncertainties, the almost all-important(prenominal) of which are described in the 8-K we filed this morning.Finally, in these remarks, we refer to adjusted ca-caings per share, which is a non-GAAP financial measure. A reconciliation to our GAAP results is included in this mornings press release posted on our Investor Relations web target . intentions ordinal quarter financial results reflect better than previ go steadyd U.S segments performance in the show stern dimension three weeks of the pass season, followed by meaningfully softer results, following our December 19th promulgation that criminals had gained access to lymph node compensation ride info in our U.S stores. In total, fourth quarter corresponding gross r plainue decreased 2.5% consistent with our updated direction in January. end-to-end the quarter our aggroup tweakd the business extremely headspring up, adjusting twain breed and expenses to match the speedily changing pace of gross revenue. As a result, our US trading operations gene placed fourth quarter adjusted payment per share of $1.30 at the high-end of the updated guidance we provided in January. In Canada, we meshed diligently to leverage holiday profession in an effort to clear excess inventory. Markdowns resulting from this effort drive a real low gross pledge depos it rate, but allowed us to reduce mean(a) inventory per store in Canada by almost 30% between the starting line and end of the fourth quarter.Canadian segment EPS dilution was $0.40 in the quarter, $0.05 better than the updated guidance we provided in January. We are pleased that our azoic cycle Canadian stores feel seen the most advance giving us confidence that we will continue to see proceed cleansement across all our Canadian stores in 2014. stern quarter GAAP EPS of $0.81 reflects U.S and Canadian segment performance along with be cerebrate to our juvenile restructuring in information infract along with small accounting and tax matters. As we turn over to cope the encroachment of the mid-December data b surpass, we break put the wel furthermoste of our customers at the c immortalize of e precise decision weve made. We be in possession of communicated in early and a great deal providing the best in pution we had close to upstart facts in on pass on the on vent indueigation. We consistently assured our guests that they would begin zero liability for any unauthorized charges on their visiting card accounts resulting from the br from each one.We increased fraud detection for REDcard holders and extended free credit monitoring and identity theft egis for any guests who has ever shopped one of our U.S stores. We are truly sorry for the impact this breach has had on our guests, team members and other stakeholders and I want to reiterate that we are committed for reservation things right. We know these initial steps are part of a longer process. We continue to listen to our guests and we know that this incident and recent security breaches at other companies have shaken their confidence in both hind end and the U.S payment placement more broadly. To rebuild guest confidence, were committed to an end-to-end review in cooperation with third-party experts to understand how the breach occurred, the identification and acceleration of so lutions to provide provoked protection in the future and engagement with third-party experts to protect the attention and consumers from future threats.Accordingly, were taking the following steps. We are conducting an end-to-end forensic investigationof our processes, systems and personnel to make aware decisions on strength security enhancements. We are accele military rank the adoption of advanced chip enabled engine room, commit more than $ snow million to equip our stores and to issue fool injuryed smart chip credit and debit cards. We have long keep backed this more secured technology a broad adoption in the U.S market has been elusive. We swear that recent events will help the industry to reach a tipping point to an accelerated option in the U.S and we are investing to ensure that Target is a clear leader in driving this mixed bag. We are clobbering collaboratively with a broad set of stakeholders in the payment card space including banks, retailers, trade associa tions, payment processors and networks to share in advance best practices and foster future innovation. We helped launch and will be an energetic leader in retail industry, cyber security and data privacy initiative.In addition, we are investing $5 million in a revolutionary coalition with the Better Business Bureau and National Cyber security measure Alliance and the National Cyber Forensics and Training Alliance to advance public education around cyber security and the dangers of consumer scams. magic spell we chamberpott yet assess the full impact of this crime against Target and our guests, were pleased that gross gross sales have started to recover from the trends we observed following breach colligate announcements in December and January. Importantly, because were in a strong financial position, we await to absorb any near-term financial impacts while inveterate to invest in projects that are signalize to our long-term advantage. Our Company has a long history of innovation, disciplined management, and a strong long-term financial performance and we are committed to upholding the principles which has have sustained this Company success for many decades.And while 2013 was a disappointing stratum financially, we have entered the New Year with the right plans in place to grow profitably and generate meaningfully modify financial performance in 2014 and beyond. In the U.S., we have demonstrated our ability to manage the business with discipline and generate strong financial performance even in a challenging environment. In fact, Kathy will outline in more point in time we were very pleased with our holiday season results prior to the announcement of the data breach. In preparation for fourth quarter, we may transfigure this to our holiday promotion and marketing and we were pleased that our in stocks were running at un comparable with(predicate) highs. As a result, U.S segment fourth quartersales were running ahead of plan prior to Decemb er 19th. Looking ahead, we will apply the insights we gained in the holiday season to connect with our guests at delivering merchandize and promotions thoughtfully designed to appeal to them based on whats on their mind at each point in the year, moving Target beyond compelling, to becoming irresistible for our guests.We made enormous progress in our multichannel efforts throughout 2013 as we meaningfully increased conversion both on our website and on our wide awake apps. We acquired Chefs Catalog, Cooking.com and Dermstore, extending our online commixture by providing our guests access to additional high-end brands in key home and beauty categories. We launched satinpod, our unique mobile savings prick which has far exceeded stayations in both adoption and engagement and we accelerated our investments in flexible fulfilment. As a result, throughout the year, growth in our physical bodyal trade and sales outpaced industry averages. We launched in-store pick up chain-wide at the beginning of November and with very little marketing, this juvenile offering became a meaningful driver of digital traffic and sales. Our store teams did an outstanding subscriber line delivering great dish up when guests arrived to pick up these orders and this is particularly impressive since we launched the service during the busiest time of the year.We will continue to invest in systems, data and processes to enhance our flexible fulfillment capabilities in 2014 and beyond. In our stores we are committed to enhancing the guest experience by adding dedicated service to key categories like beauty, baby and electronics and by providing training and technology that allows our stores team to go beyond providing basic service to resolving problems for our guests. And were continuing to pilot innovations to our store formats. Based on the initial rollout of the CityTarget format and the high single digit comparable sales were seeing in our second year CityTarget stores, were a nalyzing opportunities to redeem the size and enhance the tractability of this format opening up a wider universe of potential sites in dense urban heavenss. man on the work on CityTarget continues, weve to a fault developed a separate smaller format called Target Express at about 15% of the size of one of our general merchandize stores, we believe this design provides us with a fantastic probability to expand into new trade areas providing a convenient solution to guests who dissolve easily visit one of our other formats. bandage we sway to offer a carefully curated compartmentalisation in frequencycategories like food, health care, beauty and other household essentials, Target Express will also offer discretionary categories including home, electronics and seasonal. throughout the store we will feature our own brands which offer guests an invincible combination of quality and price. We plan to open our first pilot location of this format here in our home market in July so we foundation carefully study both operational and financial results before we determine our plans to expand this format to other markets. Throughout the organization we continue to find new opportunities to optimize expenses, freeing up resources we can apply to new initiatives. In 2013 our teams saved approximately $cc million by reprioritizing their activities and finding more efficient ship canal to get things done. Our expense optimization efforts are not a short-term project but a complete overall of the way we work and the team continues to find new opportunities.As a result, we need the benefit of our expense optimization efforts to reach $1 jillion in annualized savings by 2015. Im proud that our entire team has embraced this effort to qualify how we work. In Canada the team has moved from a year nidused on opening a record number of stores to optimizing the business in run state. As we enter 2014 with a some(prenominal) spick inventory position, the teams number one operational focus is on in-stocks, ensuring we have the right quantity of each point in time in the right place at the right time. In addition, we continue to invest in technology and training to enhance both the tools our team uses and their ability to deploy them most effectively. Were also continuing to utilize innovative marketing and merchandizing chopines in Canada to raise awareness for our frequency categories like grocery, household essentials, beauty and healthcare.Throughout 2014 we will focus on conveying the depth and breadth of our assortment in those categories and the unbeatable hold dear we provide to our everyday pricing, 5% of the awards, price match and our flier. With enhanced guest awareness of our unbeatable prices comply with the benefit of improved operations, we expect guest shop frequency to build throughout 2014, driving improvement in sales and profitability. While 2013 will clearly be remembered as the challenging year, I am proud of teams effort s to transform our business and position the company for long-term success. And I want to sincerely thank the Target team for their tire s weakly(prenominal) effort to help our guests recover from the data breach. While there is much more workto be done, Im inspired by their singular focus on our guests and qualification things right. As a result, Im confident we will look back on this incident and see that we emerged from it even stronger than before. at once Kathy will provide more detail on our fourth quarter results and key initiatives as we enter 2014. Kathy?Kathy Tesija EVP, MerchandisingThanks, Gregg. In our last conference call, we outlined our plans for the holiday season and mentioned that fourth quarter sales were on track through the first half of November. As we progressed through Black Friday week and the first two weeks of December, guests continue to respond to our promotions and sales ran ahead of our plan. Following the data breach announcement and the riotous change in the pace of our sales, the team reacted promptly making nimble adjustments to minimize our excess inventory. This quick response allowed us to end the year with a clean inventory position. And while our fourth quarter gross delimitation reflected the addition of head activity resulting from the sales slowdown, our team did a great job minimizing the impact. As we built our holiday plans, our goal was to cut through the clutter and reach our guests with compelling offers on exciting merchandize, specifically we aligned our weekly deals and events so guests were receiving a clear message across all channel. And because our guests are budget conscious and love to find deals, we intentionally layered promotions across our circular, cartwheel and our catalogue to provide unbeatable look upon.We used our direct channels to drive urgency at key points of the season and we offered more broad attention-getting promotions like 40% off sweaters. Consistent with past historic p eriod, we featured sweltry deals on key concomitants but attracted more attention by offering deeper discounts on fewer items and we were very pleased with the guest response. For the quarter overall, our non-discretionary categories generally saying the strongest sales performance. However, on our more discretionary categories electronics saw an increase in fourth quarter comparable sales led by mobile phones, tablets and tv set game hardware and software. We also saw relative strength in our sporting goods and housewares categories. Digital channels had a very strong holiday season. Thanksgiving was our biggest digital sales day ever with mobile devices accounting for a full 25% of those sales. We were lately recognized as having the most browsed app by a smartphone and tablet in 2013and Mobile physician Daily just named Target Mobile Retailer and Commerce Website of the Year. This is the second time weve been named Mobile Retailer of the Year and were pleased to be the only retailer to be honored with the award twice. An important factor in our digital success was the fourth quarter rollout of the opportunity to buy online and pick up in-store.In-store pick up requests represented about 10% of fourth quarter digital orders but they peaked at a much higher(prenominal) rate before Christmas as guests relied on the service as a great solution for last-minute gift shopping. About 30% of store visits to pick up an online order resulted in store shopping on that same chemise and the size of that store transaction was much larger than an average store trip. While weve rolled out the capabilities with an external commitment to have orders ready in four hours or less, our team quickly win our internal goal to have most orders ready in one hour or better. Our suss out showed consistently high levels of guest satisfaction with this service and this capability has accelerated our mobile conversion rates. Were also pleased with the continued growth of Cartwheel, our digital savings app, which ended 2013 with over 5 million users who have already saved more than $43 million. Younger guests are particularly engaged by Cartwheel as more than half of its users are Millennials, a much higher piece than they represent in our overall guest base.Redemption rates on Cartwheel are more than 10 time higher than DC and other direct channels like receipt marketing and netmail and our compendium indicate that its driving additive trips and sales. Our pre-Black Friday deals resulted in one of the biggest days ever for Cartwheel as they drove one-third of our active users into Target stores on the Wednesday before Thanksgiving. We continue to work to enhance the Cartwheel experience. We recently added the ability to scan bar codes to find out if theres a Cartwheel deal on an item and added the capability to sign up for Cartwheel directly through a Target account and email while continuing to provide access to the App through Facebook. As Gregg mentio ned, we continue to listen to our guests to understand how we can help them move beyond the data breach and feel confident in shopping at Target. While sales have started to recover in recent weeks and sentiment metrics have begun to improve most notably among our best guests. We continue to invest to ensure this recovery continues. beyond our efforts in datasecurity and chip enabled technology were applying insights from the holiday season to make our merchandise stores and digital channels even more irresistible to our guests.We continue to innovate in ways that differentiate both our product assortments and the guest experience, and were investing in pricing and promotions to make our value proposition even stronger. Were very pleased with the response to Peter Pilotto for Target our most recent designer compact which launched earlier this calendar month. This accrual which features a moderate edition assortment of womens apparel, accessories and swimwear is available at most of our U.S. and Canadian stores and on target.com. We have also partnered with Net-a-Porter.com to offer a curated assortment of the collection to fans across the globe. With lots of social media bombilate we a saw long lines outside many of our urban stores on the morning of the launch, and the collection quickly became Net-a-Porters fastest selling collaboration in history. Based on last historic period results Target and Sports Illustrated are once again partnering in support of the magazines annual swimsuit issue which is celebrating its 50th anniversary this year. Target is the max mass retail advertiser and official marketing partner for the issue.This years partnership includes the new 20 page flip cover that celebrates swimsuit style over the past 50 years and features Targets limited edition swimwear collection. The collection launched at Target stores and on target.com February 17, in advance of the issues on stand date and includes 10 black, gold and ivory swimsuits p riced from $15 to $30. Earlier this month, Target began offering AMBAR a new apparel collection designed with the Latina guest in mind. AMBAR is set in 50 U.S. stores this month and is also available on target.com. The line of apparel and accessories features vibrant prints and flattering cuts and silhouettes. This fashionable and affordable collection has items ranging from $17 to $40. This spring Target will introduce an assortment of premium skin care featuring seven notable brands, four of which will be exclusively exchange at Target. 29 by Lydia Mondavi, Borghese, Laneige and MD Complete by Dr. Zelickson along side industry favorite Vichy, La Roche Posay and Own climb Health. These brands will be merchandised in two distinct sections, dermatological skincare and specialty skincare, and they have already launched on target.com.Well begin rolling out the assortment to 749 U.S. Target stores beginning in March. So whats potential to be the biggest Blu-rayand DVD release of the year Target will offer an exclusive addition of sensing Fire the second film in The Hunger Games trilogy in stores and on target.com next month. The Target exclusive Blu-ray addition includes 45 minutes of exclusive content from never before seen footage and cast interviews to a bum the scenes looks at the making of the film. This spring award winning singer Shakira is teaming up with Target for her 10th studio album and our exclusive deluxe edition featuring three bonus tracks hit stores on March 25. We announce the partnership and kicked off album preordering with a special spot during the 56th Annual Grammy Awards in January. Last month we became the exclusive retailer to feature Beats music playlists. Beats music is curated digital music stream services that allows its users to peep into the personal music libraries of their favorite artists and brands and have them wee playlists just for them.By subscribing to Targets playlist guest can expect a very mix of songs inspired by Targets rich heritage of music and the taste of the millions who shop for albums at Target each year. In December we launched The Awesome Shop, a beta site that features the top target products recently pinned on Pinterest. The site lets guests explore, get inspired and see what other guests love just like they do in stores. Awesome Shop high uncontaminatinged the best of the best by only featuring items at the target.com review of four stars or better. Were also leveraging Pinterest in another unique way to collaborate with three of the sites most influential pinners on a series of party planning collections that will make it easy to chance event a Pinterest worthy event. Joy Cho of Oh Joy, Jan Halvarson of Poppytalk and Kate Arends of Wit Delight will each create limited time only collections launched over the course of 2014 including party decor, paper products and serving pieces designed in their signature esthetic.Beyond differentiated merchandise, we continue to provide enhanced service in key areas of the store. Based on guest response to last years launch we have expanded the Target Beauty Concierges program to more than 300 stores across the country with new markets including New York, New Jersey, San Francisco and Dallas-Fort Worth. These beauty consultants are brand agnostic and provide guests with detailed, unbiased information and a friendly award in what can often be an intermediating category. We also continue to see great results from the pilot of our new baby layout, a completely redesigned shoppingexperience that offers guests inspiring insightful solutions combined with the great value theyve come to expect from Target. This new layout features a dedicated service desk with a knowledgeable baby advisor to help guests navigate the area and provide unbiased product information. Digital screens and iPads feature inspiration and interactive comparison tools and BabyCenter content such(prenominal) as buying guides and product reviews We h ave also incorporated an in department registry carrel for expecting moms or guests looking to give a gift.Merchandised displays have been lowered so guests can more easily interact with large products by travel systems in stores. We have removed barriers to enhance navigation between apparel, gear and baby essentials and we have highlighted the availability of additional online only items in key categories. This summer we plan to grow from 30 stores to more than 200 locations featuring this enhanced baby experience. And based on encouraging initial results in 2014 well expand our test of using mannequins in apparel in our largest format U.S. stores to elevate the store experience, create an enhanced sense of discovery and bring our unique deigns to life. We also continued to augment our digital capabilities driving traffic and sales to all of our channels. Online our top priority in 2014 is continuing to improve the guest experience. All of our efforts will be designed to make thi ngs simple, seamless and enjoyable for our guests.To support this priority we continue to hire external talent with deep functional expertise in online merchandising, site merchandising, mobile and analytics. We have recently made enhancements focused on search, product information and checkout making it easier for guests to browse and purchase. In addition now nearly all store products are viable online making this the only place that guests can use Targets full assortment. Importantly were making enhancements while continuing to focus on stability and speed, as a result target.com consistently ranks in the top 10 for retailer site availability and performance. Given the profile of our guests, mobile is more important at Target than for many of our peers. For example, Targets guest traffic from tablets and mobile phones is greater than our traffic from traditional computers and the shift towards mobile shows no signs of slowing down. In fact usage of the Target App manifold in the short period between last summer and the end of the year.To maintain our strong pulse in mobile were testing and learning from new features including ListBuilding, Mapping and Cartwheel capabilities launched during the holiday season. Were improving conversion by streamlining checkouts and enhancing product information and dynamic content and we are investing to amplify the in-store mobile experience by rolling out guided maps, in-store search and expanded assortment chain wide later this year. We also continue to invest in our flexible fulfillment capabilities which combine the strengths of our digital, store and distribution aspects to provide speed and convenience for our guests. These capabilities allow our stores to add value in new ways, serve our guests as both showroom and fulfillment centers. Following the holiday seasons success of in-store pick up we are moving quickly to roll out the capabilities to shift online orders from our stores this fall. This new capability wil l create multiple benefits for both Target as our guests, including shorter shipping times, reduced expenses, lower markdown rates and improved in-stocks.And because our investments in flexible fulfillment drive greater utilization of our existing stores and distribution center pluss, we expect to earn an outstanding return on these investments over time. Finally, were pleased with initial performance of Target Ticket, our streaming photograph service and we continue to invest in features to better serve guest changing needs and behaviors both inside and outside their home. In 2014 we will coordinate our promotions across channels to provide irresistible television set offers across our stores, Target.com and Target Ticket. While our fourth quarter results softened following the December 19 announcement of the data breach, we are pleased with the guest response to our holiday season merchandizing and marketing efforts and were confident in our plans for 2014.As always our focus r emains on our guests helping them regain their confidence in their Target while delivering irresistible content and experiences in every channel. We believe that our efforts will drive a continued recovery in the pace of our sales and position Target for utile growth in 2014 and beyond. Now, John will share his insights on our fourth quarter financial performance and our plans for the coming year. John?John Mulligan EVP and CFOThanks, Kathy. Our fourth quarter financial results reflect strong efforts by our team to bring off separate challenges in both our U.S. and Canadian segments. In the U.S. comparable sales declined 2.5% consistent with theupdated guidance we provided in our January press release. This sales performance reflects a 5.5% decline in transactions partially offset by an increase in average ticket. Prior to the announcement of the data breach, fourth quarter comparable sales were running positive reflecting the success of our holiday merchandizing marketing plan. Immediately following news of the breach, sales turn meaningfully negative but began to recover in January. And while its impossible to measure precisely, we believe we would have seen even more improvement had there not been extreme weather across much of the country. Fourth quarter sales penetration on our REDcards was 20.9%, up 5.4 percentage points from a year ago. While the rate of increase slowed down following the breach, year-over-year penetration continued to grow hundreds of tail end points through the end of the quarter.Fourth quarter U.S. EBITDA and EBIT margin rates were down more than a percentage point from last years rates, which we were advised to reflect combined results from our former U.S. retail and credit card segments. These profit margins were below our expectations going into the quarter, driven almost entirely by gross margin rate which declined about 20 fundament points from the year ago. This performance reflects about 20 rear points of benefit from t his years change in marketer payments offset by higher than expected markdowns related to the 10% off we offered prior to Christmas as well as the impact of clearance markdowns at the end of the holiday season. Margin mix was somewhat less favorable than the recent quarters, driven by strong sales in electronics. While below our expectations, fourth quarter U.S. segment gross margin rate was remarkably strong considering the team had to rapidly manage excess inventory in the fondness of the quarter when we experienced a sudden change in the pace of sales following the data breach announcement. Our fourth quarter U.S. segment SGA rate was 18.4%, about 110 basis points above last years revised rate.About 50 basis points of this headwind was related to the credit card portfolio reflecting a smaller asset base, last years defend release and this years profit sharing ar racement with TD Bank. Another 20 basis points of headwind was driven by this years change in member payments. The r emaining unfavorability reflects the deleveraging effort of negative comp sales. The fact that we experienced only 40 basis points of deleverage reflects strong control of variable expenses, given the magnitude of our comparable sales decline. In the Canadian segment, salescame in just below expectations. Importantly, as Gregg mentioned, we took advantage of holiday traffic to clear through a significant amount of excess inventory in the quarter. And while we expect some small dilatory issues with long lean receipts this year, the Canadian segment ended 2013 in a much cleaner inventory position, paving the way for smoother operations in 2014. In all, the segment drove $0.40 of EPS dilution in the fourth quarter better than the expectations we provided in our January press release. Turning now to our consolidated metrics, fourth quarter interest expense was 21% lower than last year reflecting the continued benefit of debt retirement funded by the proceeds from the sale of the credit card portfolio. We paid dividends of $0.43 per share in the quarter, an increase of more than 19% from fourth quarter 2012.This was our 185th consecutive quarter in which our company has paid a dividend and 2013 marked the forty-second year of annual dividend increases, a track record of few companies to match. Consistent with last quarter, we didnt purchase any shares in the fourth quarter reflecting current performance and our desire to maintain our debt rating in the middle A range. This approach aligns with our longstanding point of view on great deployment. First, we invest what we believe is assume in our core business. Second, we support the dividend which weve grown annually for more than four decades. And third, we use share repurchase to return cash within the limits of our middle A debt rating. We believe a middle A rating is strategically important as it supports our ability to reliably deliver on our unbeatable pricing outline over time. In addition, our balance she et provides the flexibility to maintain our long-term focus in the face of unexpected events like the data breach enabling investment and strategic initiatives like flexible fulfillment while we deal with a temporary setback in traffic to sales along with other costs related to the breach. In addition to operating results in the U.S. and Canada, our fourth quarter GAAP earnings reflects several items that reduced EPS by approximately $0.09. These items include charges related to our January restructuring, data breach related costs net of an insurance receivable and continued reduction in a beneficial interest asset partially offset by a small benefit from a resolution of income tax matters.corporate trust fourth quarter results with performance in the first nine months of 2013 yields full year results that reflect the impact of clear successes and certain challenges. In ourU.S. segment, full year comparable sales declined 0.4% well below our expectations going into the year. This re flects the tougher than expected consumer environment including the impact on the payroll tax increase which just annualized last month, the fourth quarter impact of the data breach and recent headwinds from unfavorable weather, as youve heard from many other retailers. On our U.S. sales, we earned a gross margin rate of 29.8% in 2013, up about 10 basis points from 2012. This rate reflects about 20 basis points of benefit from this years change in trafficker payments combined with very strong underlying margin performance in the face of softer than expected sales. Throughout the year, Kathys team did a great job managing inventory resulting in outstanding in-stock levels while avoiding unnecessary clearance markdowns. Our full year SGA expense rate in the U.S. was 20%, up about 90 basis points from last years revised rate.Contrary to what you might initially think, this reflects outstanding performance in light of softer than expected sales and some notable challenges representing more than $600 million of incremental pressure. Including credit card portfolio income, which as you know reduces our SGA rate, about $400 million lower than 2012 reflecting profit sharing with TD, prior year reserve reductions and a smaller asset base this year. And more than $200 million of expense pressure from incremental investments in technology and supply chain to support our multichannel efforts. Without these impacts, our SGA expense rate would have been slightly higher than 2012 but would have been neutral without this years change in vendor payments. This is better expense performance than wed expect on a decline in comparable sales and was driven in general by two factors outstanding performance by our stores organization which continued to provide outstanding guest service while delivering productivity increases and our company-wide expense optimization efforts through which our teams are finding better ways to work while deprioritizing less productive activities.As Gr egg mentioned, the team continues to find new opportunities to optimize expenses and we expect to reach $1 billion in annualized savings by 2015 helping to fund our efforts to drive profitable growth over the next several years. For full year 2013, U.S. REDcard penetration grew nearly 6 percentage points to 19.3% of sales as more and more guests increased their level of engagement and their spending with Target. Penetration in Kansas City where we began offeringREDcard awards a year ahead of the rest of the country continued to run well ahead of the U.S. overall. Importantly, as part of our broader effort to rebuild traffic and sales in 2014 we will work to reaccelerate REDcard growth in light of the recent slowdown in growth weve seen following the data breach. In Canada in 2013 we generated just over $1.3 billion in sales on 124 stores which were opened on average for a little more than half the year. These sales were well below our plan going into the year leading to greater than expected markdowns on a meaningful amount of excess inventory write down rate were unusually high as well as a result of opening early cycle stores with too many payroll hours, incurring incremental expense relating to clearing inventory and experiencing less leverage on fixed expenses.In the face of these challenges, the team worked tirelessly to improve operations and work through excess inventory throughout the year, clearing the way for an acceleration of sales and profitability beginning this year. Our early cycle store continued to outperform later cycle stores giving is confidence that our operations will continue to become more efficient as our business matures. And having dramatically reduced the over-crowding in our Canadian supply chain, we will increase the intensity of our marketing message in 2014 regarding value and assortment in our frequency categories. Over time we expect this will lead our Canadian guests to claim Target more often in these categories, driving meaningful increases in traffic and sales. Turning to capital deployment, our total capital investment was about $3.5 billion in 2013, somewhat lower than expected as U.S CapEx of about $1.9 billion was approximately $300 million lower than anticipated.This outcome doesnt reflect a change in strategy, but is simply the result of a lower than expected cost for certain projects and retiming of suspending into 2014. Having sold our credit card portfolio, for about $5.7 billion in March, we significantly reduced our net debt position in 2013, including the early retirement of Haikupon debt. And importantly even in a year of peak CapEx and dilution relating to the Canadian segment combined with the impact of softer than expected U.S sales, we still have the capacity to return about $2.5 billion to our shareholders in the form of dividends and share repurchase. With that as context, lets turn now to our outlook for 2014. But before we get to the numbers, I want to discuss a change in our reporting and guidance practices in 2014. Given that our Canadian segment isnow fully operating, beginning with the first quarter of 2014 we will no longer withdraw Canadian segment performance from adjusted EPS. To allow for appropriate comparison, last years adjusted EPS will also reflect Canadian segment performance as well. With that, lets turn to our full-year outlook beginning with sales.While trends have improved in recent weeks, severe winter weather has been a headwind and we continue to see the impact of the data breach on guest sentiment and traffic. We believe that we will continue to see muted trends in the next few months, but the breach impact will diminish throughout the year as we engage in a vigorous effort to address our guests concerns and provide irresistible content offers driving business to our stores and digital channels. In addition, while economic trends are improving, we continue to expect our lower and middle income guests to shop very cautiously in 201 4. With that backdrop, our current view is that U.S comparable sales will grow in the range of 0% to 2% in 2014. On those sales we expect a U.S segment EBITDA rate of 10.1% to 10.3%, meaning EBITDA dollar should grow between 5% and 8% this year. Among the drivers of EBITDA margin, we expect gross margin will improve 30 or 40 basis points from our 2013 rate of 29.8%, reflecting improved clearance markdown rates and more significantly the gross margin benefit of our expense optimization efforts.These benefits will be partially offset by the impact of additional promotional activities and continued investment in 5% REDcard rewards. We expect the U.S segment SGA expense rate slightly better than last years 20% rate, reflecting continued discipline expense control and the benefit of our expense optimization efforts offset by our continued investments in distribution and technology in support of our multi-channel efforts. We expect these (indiscernible) investments to be worth $0.05 to $0 .10 of incremental EPS pressure in 2014. In Canada, we expect total sales will be approximately simulacrum our 2013 experience. As we annualize last years124 openings and begin generating comparable sales growth in mature stores. On those sales we expect to earn a much higher gross margin rate in a range approaching 30%. But clearly we continue to see some near-term excitability until the Until the Canadian business matures. While we expect to see better fixed expense leverage in 2014, the SGA rate will likely remain well above our long-term outlook in a range approaching 40%.Altogether, this will lead to a Canadian segment EBITDA margin rate of minus 8% to minus 10%,representing more than $400 million of expected EBITDA improvement from 2013. We expect U.S capital expenditures of $2.1 billion $2.3 billion, up slightly from actual 2013 spending. The mix of U.S CapEx will continue to tilt from investments in new stores towards supply chain and technology as we accelerate our multi- channel efforts and continue to find a limited number of new store sites that meet our strategic and financial criteria. I should also note that U.S CapEx reflects incremental investments related to our recent decision to accelerate deployment of chip enabled card readers to all of our U.S stores before the end of the year. In Canada we expect 2014 capital expenditures in the $300 million to $400 million range, down more than $1 billion from peak spending in 2013. We expect once again to raise our annual dividend in the neighborhood of 20% this year, which will mark our 43rd consecutive annual increase. And even with a restrained outlook for near-term traffic and sales and understanding there will be further costs relating to the data breach, our current outlook envision share repurchase capacity of $1 billion to $2 billion in 2014, beginning later in the year as our business stabilizes and we have more pellucidness on potential breach related costs.Altogether, these expectations would lead to full-year adjusted EPS representing results from operations in the U.S and Canada of $3.85 to $4.15. This estimate excludes approximately $0.07 of dilution related to the continued reduction in the beneficial interest asset. These 2014 expectations represent an improvement of more than 20% from combined U.S and Canadian segment results in 2013. Please note that our full-year outlook does not include potential additional costs relating to the data breach beyond what we already recorded in the fourth quarter, as theyre not estimable at this time. While I realize this may result in a wide range of speculation on the magnitude of these costs, given that our investigation of breach is on-going it would not be appropriate to say anything more about it than we already have this morning. Regardless of the crowning(prenominal) dollar amounts, as Greg mentioned, we have the financial strength to move beyond these near-term impacts while we continue to invest in the future. And as always, we are focused on whats most important, addressing the concerns of our guests and helping them to feel confident shopping with us. Now lets briefly turn to our first quarter outlook.In the U.S we expect first quarter comparable sales in the range of flat to down 2%. So far in Februarycomparable sales have been running within that range, ahead of our forecast and nearly flat to last year. And I should note while growth isnt running where it had been earlier in 2013, REDcard penetration so far in February has been running 100s of basis points ahead of last year. On our first quarter U.S sales, we expect an EBITDA margin rate of 9.7% to 9.9%. In Canada, we expect to generate first quarter sales in a range of $400 million to $450 million with EBITDA of minus $150 million to minus $170 million. In light of this near-term operating outlook, we dont expect to have the capacity to repurchase shares in the first quarter, but we expect to tot up this activity later in the year.Al together, our expectations would lead to first quarter adjusted EPS reflecting operating results in the U.S and Canada in the range of $0.60 to $0.75, excluding $0.02 relating to the reduction in the beneficial interest asset and any potential costs related to the data breach. While this has been a challenging year, we are proud of the work of our team and we believe we have the right plans in place to generate meaningfully improved performance in 2014. As we focus on making Target irresistible for our guests, both today and over time, we believe we will go profitably for many years to come. With that, well conclude todays prepared remarks. Now Greg, Kathy and I will be happy to respond to your questions. uestion-and-Answer Session

Customer Switching Behaviour for Mobile Networks

node Switching Behaviour for quick NetworksEXECUTIVE SUMMARYConsumers custom religious return everyday, these ranges from taking the train or opening a brim account to talk of the town on a nomadic ph mavin. Businesses excessively confide on a vast range of function on a daily home, but on a much bigger scale comp ard to consumers. However, guests atomic number 18 non always satisfied with a peculiar(prenominal) dish proscribed that they whitethornbe victimisation and ofdecade resort to exchange their improvement ex run forr in nightclub to resolve the emerge or pursue better look on from a less expensive gain.The verifiable of this story is to investigate node- reverse doings in the wandering industry, why it throngs place and what f identification numberors influence it. This topic argona has been chosen, as guest conquering and the supple ph sensation industry argon contemporary and relevant to the correspond day and depart conduct to evolve over quantify. look into has been under moven utilise secondary and primary development convergence line of battle modes. Secondary data provided a background to the unstable skirt industry and an overview of guest defeat overing behavior in returns. Primary data consisted of self administered questionnaires to a convenient sample of university students, this enab learn data to be gathitherd which would provide an idea of wandering(a) c wholly told droprs contemplation of geological fault and their extrapolateing of why they believe they would switch from sensation grievous to an another(prenominal)(prenominal)(prenominal).Findings revealed that a studyity of customer fracture is due to high call and periodical charges and consumers trying to obtain much(prenominal) free minutes and texts. This contrasts with the lit and precious studies, which af steady found other reasons to ca design customer shimmy, which illust place how causes of switching re sist in every industry correspond to the nature of the improvement.CHAPTER 1 INTRODUCTION1.1 Project AimsThe conception of this project is to rejectmine the reasons as to why consumers switch from atomic number 53 active telephony interlocking to another?The query objectives that a leap from the purport provide in that respectfore be1 To evaluate whether competitors offerings ar cause consumers to switch from one electronic entanglement to another2 To evaluate whether retail offerings argon ca use consumers to switch to gain a better deal3 What actions of the dish out dissipateds or their employees cause customers to switch from one attend to supplier to anotherThe inquiry will be UK found geographically using a convenient sample of university students and will be comprise using twain(prenominal) primary and secondary look for methods. The investigate may help managers and researchers understand advantage switching from a customers perspective in the nimble strait industry and the switching drivers may provides answers as to what has influenced customer demeanour. The outlets of the research will be analysed to provide recommendations.The reason for choosing this topic atomic number 18a is that there appears to be a insufficiency of research on customer switching behaviour in the fluid phone industry. This study aims to look this topic be just.1.2 context on Mobile thinks improvementMobile phones armed dish refers to a redevelopment whose customer base includes firms using prompt phones for business and customers using it for their personal use. Mobile phones fork over compose substitutes for fixed environ lines and suck up led to the decline in calls made from fixed telephone lines.The take out up rate of diligent phones is constantly increase and over the eld the harvest- prison term in the use of industrious phones has been dramatic. accord to EMC brisk user offsprings r apieceed the 1.5 meg mar k in June 2004 and is set to pay 2 billion by July 2006 and 2.45 billion by the end of 2009. (http//www.cellular.co.za, 2005)Mobile phones today ar not solely used to sort forth calls, additional value added go much(prenominal) as Short pass on Service (SMS), Mul clippingdia pass along Service (MMS), radio, internet access and so on. This means that the benefits and use of agile phones is in like manner expanding, which is likewise lend to industry growth. This has be accomp all a focus point for the various operators as intense competition has led to increasingly lower voice call prices. SMS was first used in 1992 and is currently the fastest ontogenesis communications technology in history. Worldwide, 135 billion text messages were move person to person in the first quarter in 2004 (http//www.cellular.co.za, 2005). Retail revenues from voice and data runs (including MMS, SMS) account for 79% of the union revenue of the tetrad main UK energetic operators (Vodafon e, O2, Orange and T-Mobile), which accounted for 13.6 billion in revenues in 2003, (see appendix 1).CEPG Research Company conducted a study of the mobile telecommunications industry in 2002, in which findings showed that turnover had reached 32 billion a year, with the sector contribution to GDP cosmos 19.4 billion (2.2%), (ofcom.org.uk/research/telecoms, 2005).The demand for mobile phones has neer been so great as it has turn over a must occupy for people of all ages consumers are constantly exever-changing their outdated phones for the latest colour handsets. The popularity of mobile phones is immense and it is sensed that this interest in mobile phones will continue to grow over the next decade or so, as demand accessions and bran-new models and technology is introduced to mobile phones.1.3 Mobile Phone Service IndustryThe mobile phone industry is one of the fastest ripening sectors of the British economy, with the UK making up the second largest mobile merchandise in Eu rope, with a share of 18% (Datamonitor, Nov 2004). This growth is due to movers such as changes in government policies towards communication (deregulation), economic growth and developments in selective information technology. The more(prenominal)(prenominal) novel growth has come from quick mobile phone users upgrading their handsets, which sustain led to mobile phone companies and interlocking operators targeting first time buyers (Datamonitor, Nov 2004). Mobile phones are not only seen as a vital element for success in business but also as a much wanted item for social use. This is unmistakable in the increasing number of individuals some(prenominal) young and old who instantaneously nourish at least(prenominal) one mobile phone.As indicated by an Oftel report, in Britain over one trillion people possess a mobile phone instead of a fixed telephone line. 2.3 trillion UK residents live without a fixed line telephone at home. The popularity of the fixed line phone drastically declined after the aggregate introduction of mobile phones to the UK. It is expenditure noting however, that fixed phone line companies beat not taken this quietly and throw retaliated by introducing mobile phones pertained to fixed home lines and companies such as BT setting up their own mobile internets i.e. BT until of late possess O2 and also offering special discounted rates to encourage customers to use their fixed lines.There are four main network providers in the UK they are T-mobile, O2, Vodafone and Orange. In 2004 there were 342.43 million mobile subscribers, which is an increase of 8.54 percent from the preliminary year and a penetration rate of 87.63 percent. T-mobile UK accounted for 15.06 million subscribers, Orange UK had 13.75 million, O2 UK had 13.06 million and Vodafone UK had 12.98 million (mobile communications).Recently there hand over been changes in monetary value of ownership of the major mobile phone networks. T-mobile is now one of the three strategic growth line of businesss of Deutsche Telekom, a German network provider and O2 is now owned by Spanish firm Telefonica. Orange was sold to German mobile phone network Mannesman, which was hence taken over by Vodafone, who sold Orange to France Telecom. Orange has a strong network in the UK and overseas but recent management finales by France Telecom have reversed their user growth and subscriber numbers, which has been partly due to customers switching to other networks. Customers atomic number 50 become interested that, if their chosen network provider is owned by a firm overseas, their necessitys will not be met as well as they could by a UK owned provider. Additionally events such as these mountain give way to switching behaviour finished customer disarray, as found by Oftel (2003), where many consumers switched due to astonishment over re- grungeing of the network.1.4 Customer Switching Behaviour in the Mobile Phone IndustryAccording to research by TNS Telecom Trak, consumers tend to use their handsets for about twenty months in the first place upgrading to a new one. Telecommunications regulator OFTEL found that this is also the average amount of time that a bulk of mobile phone users will stay with the very(prenominal) mobile provider for. Oftels research ascertained that 90% of consumers thought about changing their network when changing handsets.Oftel published a report in April 2003, which provided an overview of the call findings of trends in consumer behaviour in the mobile trade base on a residential consumer position conducted in February 2003. Research was carried out by Recom (Research in Communications) amongst a representative sample of 2,289 UK adults, 75% of who claimed to have a mobile. Findings revealed that 26% of mobile customers have switched network/ supplier. There was a strong indication that the origin in switching in the last quarter was a reflection of wonder over re-branding and rise in mob ile penetration. ane in ten (9%) of mobile customers were found to have switched network at least twice since owning a mobile, including customers switching back to a previous operator.Men (37%) and younger mobile users, 15-34 (38%) were found to be closely in all likelihood to switch multiple times, which included returning to a antecedently used network. Although the switching differed concord to type of package, 36% of contract customers had switched multiple times compared to those on prepay (33%).24% of customers had switched once in the last 6 months, compared to three in ten (28%) of those that had switched twice and 43% that had switched more than 3 times.The same survey also revealed that in November 2002, 34% of consumers stated that they had switched mobile network, which was believed to have a moment of customer cloudiness caused by the re-branding of O2 (formally BTCellent) and T-mobile ( bingle2One). until now this rise was temporary and soon returned to the pre vious level of 27%.In February 2003, 7% of T-mobile customers say that they had switched network having previously being with One2One, this was the same for O2 customers who had switched from BTCellnet. This accounted for 3% of all switchers who were confused by the re-branding during February. The current role of mobile consumers that have switched mobile network persist ins at 26%.When looking at at multiple switching, two in ten (18%) of mobile customers had changed their network once, and seven out of ten claimed to have never switched network.CHAPTER 2 LITERATURE REVIEWThis chapter will suss out all existing publications related to the mobile phone industry with a focus on customer switching habits and their contact elements such as consumer lifestyles, servings themselves, competitor offerings and loyalty to help understand the research line of work.This chapter will also review the contributions other researchers have made to the concepts of switching behaviour, and it should be famed that literature on mobile phone preference is sparse and issues relating to why customers truly switch assists expects unexplored in merchandising literature which will be explored through this study.2.1 categorisation of operateThere is no one single comment of utilitys that is universally accepted, although many authors have attempted to define it. Yet very few products are blow% service or 100% tangible, they usually consist of a combination of both.Gronroos (1990) defines go asA service is an activity or series of activities of more or less intangible nature that normally, but not necessarily, takes place in interactions surrounded by the customers and the service employee and/or natural resources or nigh(a)s and/or systems of the service provider, which are provided as solutions to customer problems.This illustrates the fact that services tush take place through physical form, for example this project is refer with customers switching networ k provider service (which is intangible) but to have that service to begin with, customers need to bargain for a mobile phone, which is a tangible product. Therefore switching behaviour in such a situation may differ from switching a service, which is not integrated with hardware this may be due to the fact that when physical products are also involved, the costs and risk of switching is different to when there is provided a service alone. Brassington (2003) acknowledged that most products tend to have a combination of both physical goods and service e.g. get a gas appliance this would require the professional fitting service as well as get of the appliance itself.Kotler (1997) also recognised that nearly services are a combination of both a service and a product and has incorporated this in his commentary of servicesAny act or performance that one party brook offer to another that is essentially intangible and does not response in the ownership of anything. Its production m ay or may not be level(p) to a physical product.This emphasises two key elements1. Intangibility A Service terminatenot be fancy in front it is leveraged,2. Lack of ownership there is no ownership in a pure(a) service as there is no physical product involved.This is further illustrated in the calculate 1 below which illustrates Kotlers (1997) four categories of products, which are1. A pure service2. A major service with accompanying minor goods/services3. A tangible good with accompanying service4. A pure tangible product refreshing services are being introduced on a daily basis to satisfy and meet all customer needs from individual consumers to business consumers. The service industry comprises the bulk of todays economy. In 2001, it represented 80 percent of the GDP of the USA (U.S Bureau of Economic Analysis).Keiningham et al (2003) said there is a growing recognition among managers of the richness of measuring the share of business a customer conducts with a cross servi ce provider (share-of-wallet) as opposed to spredicate re get a product or service at some point in the future or continuing to keep a business birth with a service provider. This indicates the importance of retaining and admiting customers and the importance of the relationship with them.Research carried out by Bitner (1990) Boulding at al, (1993) looked at service part in service organisations, Crosby Evans and Cowles (1990) Crosby and Stephens (1987) researched relationship quality and Cronin and Taylor (1992) looked at overall satisfaction with regards to the issue of customer retention in service organisations. These researchers all agreed that service organisations could improve the likelihood of customers inclination to take a breather with a occurrence service organisation, as it is these features that contribute to customer satisfaction and the growth of the organisation. The supra studies all illustrated strategies relating to customer retention in services. Yet issu es relating to why customers actually switch services remain unexplored in merchandise literature.2.2 Characteristics of ServicesWhen describing the main characteristics of a service, it cigaret be depicted as being intangible, as a service has no physical ratio but hoboful take place through a tangible product as is the field with mobile phones and network providers, as discussed earlier. A service can also be castd using a tangible noun as Shostack (1987) exemplified that an airline means transportation and a hotel means lodging lease. berry (1980) described a good as an object, a device, a thing in comparison to a service which is a deed, a performance, an effort. This further illustrates the fact that consumers cannot see, touch, hear, taste or smell a service all they can do is baffle the performance of the service as said by Carman and Uhl, (1973) and Sasser et. al, (1978) but, the experience may not be possible in all cases without some form of hardware in addition.B ecause services are delivered by individuals, each service experience will differ from another as a result each leverager will receive a different service experience. Additionally, when a consumer purchases a good, they own it, yet with a service the consumer only has temporary access or use of it, as the service is not owned, only the benefit of it is. Wyckham et al (1975) and Kotler (1986) defined this concept as ownership.2.3 The Services market MixAs previously discussed above, many features separate services from tangible products, yet the merchandise principles remain the same for both. One limited difference is that there is close contact between individual employees from the supplier organisation and the customer themselves. Because of this, the traditional merchandise mix needs to be re-evaluated in terms of the 7ps.Product This refers to the features of the product or surrounding it, which in this case would be a good service or supplementary services surrounding it. T hese features should be benefits, which the customer would desire, and the surrounding features would be competing products performance. (Lovelock and Wirtz, 2004).Place and clipping Delivering a service to customers involves place, time of delivery and distribution channels used. Delivery can be done both physically and through electronic distribution channels according to the nature of the service being provided. Services can be delivered directly to customers or through intermediary firms, e.g. rental outlets. (Lovelock and Wirtz, 2004).Promotion and pedagogics these are three fold, firstly information and advice needs to be provided to customers, target customers need to be persuaded towards a product, and they need to be further to take action. Service promotional communication are usually educational, ratting potential customers of the benefits of the service, where and when to obtain it and how. These communications are delivered through individuals (sales people) or medi a (TV, radio, newspapers etc.). (Lovelock and Wirtz, 2004).Price and Other User Outlays In services monetary value refer to rates, fees, admissions, charges, tuition, contributions, interest etc. (Gabbott and Hogg, 1997).Physical Environment A firms service quality can be perceived through the appearance of buildings, landscaping, vehicles, interior furnishing, equipment, staff members, signs, printed materials and other transparent cues. These are physical test and impact customer impressions. (Lovelock and Wirtz, 2004).Process A service is delivered to a customer through a process, which is the method and actions in the service performance. Poor processes can result in loath and ineffective service and restless customers. Front line staff may also find it problematic to do their jobs well as a result of pitiable process, which can again lead to service failure. (Lovelock and Wirtz, 2004).People Services tend to involve direct interaction between customers and firms employees . The experience of the interaction, for example talking to call centre staff, can influence the customers perceptions of service quality. The implication is that firms need to train and motivate their employees to correspond good service quality. (Lovelock and Wirtz, 2004).2.4 marketing in ServicesImage is often a key factor in differentiating a service from its competitors. Marketing is therefore important in service because it enables the customer to link an image with a brand. Examples of these can be seen on delivery vehicles, which are painted, hotel soap and shampoos etc.When consumers have no experience with a product, they tend to trust a favoured or well-known brand crap therefore service marketers need to build a prospering brand image.Some consumer theorists have joined service quality with consumer behaviour intentions, in that the quality of the service will determine whether the consumer frame with that particular provider or defects to a competitor. When consum ers perceive high service quality, the behavioural intentions will be positive, as they will remain with the service provider. In contrast, poor service quality will lead to the relationship with the customer weakening resulting in defection to a competitor.Financially the firm will benefit more by retaining customers through increasing service quality this is demonstrated in the symbol 2 below.The figure above shows that the more favourable a firms service quality is, the more likely the customer is to remain with the firm, benefiting the firm. But when the service quality is poor, the customer will show unfavourable behavioural intentions, which will result in defecting/ switching. This highlights that in baseball club to prevent customers from switching and to enable the firm to continue making profits, the firm needs to retain customers through good service quality.Service firms and service marketers need to recognise the import of these reasons as they can lead to negative e ffects on share and profitability as noted by Rust and Zahorik (1993). This can arise from negative word of mouth, which will in turn deter potential customers. These reasons can also help markets to plan their promotional campaigns according to the aspects that are causing customers to switch. As maintained by Reichheld and Sasser (1990) companies can boost profits by almost 100% by retaining just 5% more of their customers.2.5 Marketing in the Mobile Phone IndustryAs the market becomes more combative, firms will endeavour to maintain their market share by focusing on retaining their current customers. It can be said that recent competition amongst mobile phone networks has become aggressive, especially with all the competitive price plans and handsets on offer, which are being promoted by the networks. More recently a camera wars are taking place between mobile brands as consumers are considering this an important feature when purchasing mobile phones, Marketing time (2004).When network 3 entered the market, they were able to encourage many consumers to switch mobile networks from their existing providers to 3. this was done using contend and direct advertising comparing brand and product features with those of competing networks. Marketing magazine (2004). As a result of this, 3 were able to reach the one million-customer mark faster than any other network since launching.It is patent that mobile phone networks are being innovative in their marketing tactics in the aim of securing higher customer bases. Much of the marketing the mobile networks today to do this are directed towards consumer muddiness tactics. Consumer confusion tactics are where consumers are provided with large amounts of decision-relevant information, in regards to mobiles, this is seen in the form of deals, discounts, leaflets, newspaper adds and television system advertising line rentals from as little as 99p per month. Confusion marketing and overload aims to confuse consumers in to a state of stress and frustration, resulting in information overload and sub-optimal decisions. Price confusion is the most common confusion marketing tactic used in the mobile telephone market today in social club to assist companies to gain a competitive advantage. It has been found that this tactic of confusion marketing appears to work and confuses customers to such an extent that they end up being persuaded by this marketing literature and the information overload that they are provided with that they purchase the plan that is sold to them without investigating it further as they impression that they have all the information that they need and have made an informed quality.Confusion usually arises from 3 main sourcesi) Over choice of products and stores there are independent mobile phone makes opening up regularly, and new mobile phones are being introduced to the market every month.ii) Similarity of products all the price plans available are very interchangeable in terms of price as well as network call charges.iii) Ambiguous, misleading or inadequate information conveyed through marketing communications For example, many retailers are offering line rental for 99p per month, what consumers are not aware of is that they have to pay the full line rental for the first sise months and then they claim their cash back.But using confusion marketing can have indecorous effects on consumers. The information overload can cause consumers to shop around, which can reduce brand loyalty towards the firm.2.6 Decision Making Process for Mobile PhonesWhen customers purchase a product or service they go through a complex process of three stages the pre purchase stage (decision to buy), the service crash stage and the post purchase stage. This can be applied to the purchasing of mobile phones.The post purchase stage will determine the customers future intentions on whether or not to remain loyal to that service provider or to switch service. During the post purchase stage, customers evaluate service quality and their satisfaction/dissatisfaction with the service experience. This is done by comparing what was initially expected with what they perceived they legitimate from a particular provider. If expectations are met, customers are likely to be satisfied and therefore more likely to make repeat purchases and remain loyal. If customer expectations are not met, customers may complain about poor service quality, suffer in silence or resort to switching service provider. It has become bare in recent years that customers no longer suffer in silence with bad service to the extent that they previously and if they experience service that they are not satisfied with then are more likely to switch in order to receive a better service/better value for their money.When considering the purchase process of mobile phones, again there are complex factors, which influence the decision the decision process which include both macro and microeconomic c onditions, but it generally tends to follow the traditional buying process. When faced with the problem of whether or not to purchase a mobile phone, consumers will initially take part in an information search before choosing which one to buy. The consumers decision-making process is directed by preferences that the consumer has already formed regarding a particular brand. Beatty and Smith (1987) and Moorthy et al (1997) argue that this means the consumer is most likely to make a choice based on a limited information search and without evaluating fully all the alternative brands available. As indicated by Dhar and Wertenbroach (2000), limited information search and evaluation of alternatives can result in a situation where the consumers choice is drive by hedonic considerations. Utilitarian goods are considered to be instrumental and functional whereas hedonic good are seen as being fun and exciting, but some goods can have both features, as stated by Barta and Ahtola (1990). With relation to mobile phones the choice has both utile (e.g. communication, SMS, planning) and hedonic (e.g. games, music, camera) features. Wilska (2003) believes the younger the consumer gets, the more they value the voluptuary features in their mobile phones. The mobile phone market is a technology driven market, therefore products are created based on consumers possible future needs which tend to be hedonistic features.Riquelme (2001) explored the level of knowledge consumers have when choosing between different mobile phone brands. The study focused on main factors, which were telephone features, connection fee, access cost, mobile-to-mobile phone rates, call rates and free calls), which respondents had to rate according to importance. Findings revealed that respondents with previous experience about products predicted their choices well, although they over-estimate the importance of features, cal rates and free calls and under-estimated the importance of the monthly access fee , mobile-to-mobile phone rates and the connection fee.2.7 Customer Switching BehaviourThere is no one clear interpretation of customer switching, due to the wishing of research into this area, although very few authors have attempted to define it. According to Brassington (2003) customer switching refers to consumers who are not loyal to any one brand of a particular product and switch between two or more brands within the category.Switching behaviour has also been referred to as defection or customer exit (Hirschman, 1970 Stewart, 1994) and refers to a customers decision to stop purchasing a particular service or patronising the service firm completely as agued by Bolton and Bronkhurst (1995) and Boote, (1998). Yet it can be argued that this is not a valid definition of customer switching as this definition refers to the consumers behaviour as abandonment of the use of a product/service although, whereas switching is concerned with consumers using one product/service provider an d then decision making to switch to another.Many models have attempted to portray customer switching behaviour in services yet they all imply that switching derives from a gradual dissolution of relationships as a result of multiple problems encountered over time as found by Bejou and Palmer (1998) and Hocutt (1998).2.8 Causes for Dissatisfied Service and SwitchingBitner et al (1994) has looked at the events that lead to fit and dissatisfying service encounters for customers from an employees point of view. Bitner et als (1994) study found that employees were inclined to describe the customers problems with external causes such as delivery system failures as the most prominent followed by problem customers. A small percentage of dissatisfactory incidents were classified as spontaneous negative employee behaviours such as rudeness or lack of attention. It was evident that the employees were biased in terms of not blaming themselves for failures.Past research associating customer an d employee views on hypercritical factors compelling customers to switch offers assorted assumptions. Schneider and Bowen (1985) and Schneider, Parkington, and Buxton (1980) found a strong relationship between employee and customer attitudes regarding service quality on the whole in the banking service. The results from their study contradicted those of a study carried out by cook and Swartz (1989). Data was collected from patients based on experiences with their physicians and were compared to what physicians perceived of the experiences of their patients. Results showed large differences in return associated to patient satisfaction in general. Thus researchers have different views regarding customer and employee attitudes on service quality. When considering switching in the financial service, Mintel multinational Group believes the critical factor causing consumers to switch providers is price. Price is a sensitive issue and one that is close to the heart of customers so it i s perceived that they may consider switching on the basis of this if they are not satisfied with the service they are receiving. But it can be concluded that the customers view holds great value, as it is their opinion that brings in business for a firm.Bolton Brankhurst (1995) and McDougal (1996) have looked at customer switching behaviour in relation to complaints, which they believe leads up to the defection. They suggested, that this field should be further explored, as there is a lack of research that tries to investigate the correlations between the factors that influence service switching and those that influence complaints before switching. Complains are again another major area of concern. The firstCustomer Switching Behaviour for Mobile NetworksCustomer Switching Behaviour for Mobile NetworksEXECUTIVE SUMMARYConsumers use services everyday, these ranges from taking the train or opening a bank account to talking on a mobile phone. Businesses also rely on a wide range of s ervices on a daily basis, but on a much larger scale compared to consumers. However, customers are not always satisfied with a particular service that they maybe using and often resort to switching their service provider in order to resolve the issue or pursue better value from a less expensive service.The objective of this study is to investigate customer-switching behaviour in the mobile industry, why it takes place and what factors influence it. This topic area has been chosen, as customer switching and the mobile phone industry are contemporary and relevant to the present day and will continue to evolve overtime.Research has been undertaken using secondary and primary data collection methods. Secondary data provided a background to the mobile phone industry and an overview of customer switching behaviour in services. Primary data consisted of self administered questionnaires to a convenient sample of university students, this enabled data to be collected which would provide an i dea of mobile phone users contemplation of switching and their understanding of why they believe they would switch from one service to another.Findings revealed that a majority of customer switching is due to high call and monthly charges and consumers trying to obtain more free minutes and texts. This contrasts with the literature and precious studies, which have found other reasons to cause customer switching, which illustrates how causes of switching differ in every industry according to the nature of the service.CHAPTER 1 INTRODUCTION1.1 Project AimsThe aim of this project is to determine the reasons as to why consumers switch from one mobile phone network to another?The research objectives that arise from the aim will therefore be1 To evaluate whether competitors offerings are causing consumers to switch from one network to another2 To evaluate whether retail offerings are causing consumers to switch to gain a better deal3 What actions of the service firms or their employees ca use customers to switch from one service provider to anotherThe research will be UK based geographically using a convenient sample of university students and will be done using both primary and secondary research methods. The research may help managers and researchers understand service switching from a customers perspective in the mobile phone industry and the switching drivers may provides answers as to what has influenced customer behaviour. The results of the research will be analysed to provide recommendations.The reason for choosing this topic area is that there appears to be a lack of research on customer switching behaviour in the mobile phone industry. This study aims to explore this topic are further.1.2 Background on Mobile Phones ServiceMobile phones service refers to a service whose customer base includes firms using mobile phones for business and customers using it for their personal use. Mobile phones have become substitutes for fixed telephone lines and have led to t he decline in calls made from fixed telephone lines.The take up rate of mobile phones is constantly increasing and over the years the growth in the use of mobile phones has been dramatic. According to EMC mobile user numbers reached the 1.5 billion mark in June 2004 and is set to reach 2 billion by July 2006 and 2.45 billion by the end of 2009. (http//www.cellular.co.za, 2005)Mobile phones today are not solely used to make calls, additional value added services such as Short Messaging Service (SMS), Multimedia Messaging Service (MMS), radio, internet access and so on. This means that the benefits and use of mobile phones is also expanding, which is also contributing to industry growth. This has become a focus point for the various operators as intense competition has led to increasingly lower voice call prices. SMS was first used in 1992 and is currently the fastest growing communications technology in history. Worldwide, 135 billion text messages were sent person to person in the f irst quarter in 2004 (http//www.cellular.co.za, 2005). Retail revenues from voice and data services (including MMS, SMS) account for 79% of the total revenue of the four main UK mobile operators (Vodafone, O2, Orange and T-Mobile), which accounted for 13.6 billion in revenues in 2003, (see appendix 1).CEPG Research Company conducted a study of the mobile telecommunications industry in 2002, in which findings showed that turnover had reached 32 billion a year, with the sector contribution to GDP being 19.4 billion (2.2%), (ofcom.org.uk/research/telecoms, 2005).The demand for mobile phones has never been so great as it has become a must have for people of all ages consumers are constantly exchanging their outdated phones for the latest colour handsets. The popularity of mobile phones is immense and it is perceived that this interest in mobile phones will continue to grow over the next decade or so, as demand increases and new models and technology is introduced to mobile phones.1.3 Mo bile Phone Service IndustryThe mobile phone industry is one of the fastest growing sectors of the British economy, with the UK making up the second largest mobile market in Europe, with a share of 18% (Datamonitor, Nov 2004). This growth is due to factors such as changes in government policies towards communication (deregulation), economic growth and developments in information technology. The more recent growth has come from existing mobile phone users upgrading their handsets, which have led to mobile phone companies and network operators targeting first time buyers (Datamonitor, Nov 2004). Mobile phones are not only seen as a vital element for success in business but also as a much wanted item for social use. This is evident in the increasing number of individuals both young and old who now have at least one mobile phone.As indicated by an Oftel report, in Britain over one million people own a mobile phone instead of a fixed telephone line. 2.3 million UK residents live without a fixed line telephone at home. The popularity of the fixed line phone drastically declined after the mass introduction of mobile phones to the UK. It is worth noting however, that fixed phone line companies have not taken this lightly and have retaliated by introducing mobile phones linked to fixed home lines and companies such as BT setting up their own mobile networks i.e. BT until recently owned O2 and also offering special discounted rates to encourage customers to use their fixed lines.There are four main network providers in the UK they are T-mobile, O2, Vodafone and Orange. In 2004 there were 342.43 million mobile subscribers, which is an increase of 8.54 percent from the previous year and a penetration rate of 87.63 percent. T-mobile UK accounted for 15.06 million subscribers, Orange UK had 13.75 million, O2 UK had 13.06 million and Vodafone UK had 12.98 million (mobile communications).Recently there have been changes in terms of ownership of the major mobile phone networks. T-mobile is now one of the three strategic growth areas of Deutsche Telekom, a German network provider and O2 is now owned by Spanish firm Telefonica. Orange was sold to German mobile phone network Mannesman, which was then taken over by Vodafone, who sold Orange to France Telecom. Orange has a strong network in the UK and overseas but recent management decisions by France Telecom have reversed their user growth and subscriber numbers, which has been partly due to customers switching to other networks. Customers can become concerned that, if their chosen network provider is owned by a firm overseas, their needs will not be met as well as they could by a UK owned provider. Additionally events such as these can contribute to switching behaviour through customer confusion, as found by Oftel (2003), where many consumers switched due to confusion over re-branding of the network.1.4 Customer Switching Behaviour in the Mobile Phone IndustryAccording to research by TNS Telecom Trak, consum ers tend to use their handsets for about twenty months before upgrading to a new one. Telecommunications regulator OFTEL found that this is also the average amount of time that a majority of mobile phone users will stay with the same mobile provider for. Oftels research ascertained that 90% of consumers thought about changing their network when changing handsets.Oftel published a report in April 2003, which provided an overview of the key findings of trends in consumer behaviour in the mobile market based on a residential consumer survey conducted in February 2003. Research was carried out by Recom (Research in Communications) amongst a representative sample of 2,289 UK adults, 75% of who claimed to have a mobile. Findings revealed that 26% of mobile customers have switched network/ supplier. There was a strong indication that the rise in switching in the last quarter was a reflection of confusion over re-branding and rise in mobile penetration. One in ten (9%) of mobile customers w ere found to have switched network at least twice since owning a mobile, including customers switching back to a previous operator.Men (37%) and younger mobile users, 15-34 (38%) were found to be most likely to switch multiple times, which included returning to a previously used network. Although the switching differed according to type of package, 36% of contract customers had switched multiple times compared to those on prepay (33%).24% of customers had switched once in the last 6 months, compared to three in ten (28%) of those that had switched twice and 43% that had switched more than 3 times.The same survey also revealed that in November 2002, 34% of consumers stated that they had switched mobile network, which was believed to have a result of customer confusion caused by the re-branding of O2 (formally BTCellent) and T-mobile (One2One). Yet this rise was temporary and soon returned to the previous level of 27%.In February 2003, 7% of T-mobile customers said that they had switc hed network having previously being with One2One, this was the same for O2 customers who had switched from BTCellnet. This accounted for 3% of all switchers who were confused by the re-branding during February. The current percentage of mobile consumers that have switched mobile network remains at 26%.When looking at multiple switching, two in ten (18%) of mobile customers had changed their network once, and seven out of ten claimed to have never switched network.CHAPTER 2 LITERATURE REVIEWThis chapter will review all existing literature related to the mobile phone industry with a focus on customer switching habits and their surrounding elements such as consumer lifestyles, services themselves, competitor offerings and loyalty to help understand the research problem.This chapter will also review the contributions other researchers have made to the concepts of switching behaviour, yet it should be noted that literature on mobile phone choice is sparse and issues relating to why custo mers actually switch services remains unexplored in marketing literature which will be explored through this study.2.1 Classification of ServicesThere is no one single definition of services that is universally accepted, although many authors have attempted to define it. Yet very few products are 100% service or 100% tangible, they usually consist of a combination of both.Gronroos (1990) defines services asA service is an activity or series of activities of more or less intangible nature that normally, but not necessarily, takes place in interactions between the customers and the service employee and/or physical resources or goods and/or systems of the service provider, which are provided as solutions to customer problems.This illustrates the fact that services can take place through physical form, for example this project is concerned with customers switching network provider service (which is intangible) but to have that service to begin with, customers need to purchase a mobile p hone, which is a tangible product. Therefore switching behaviour in such a situation may differ from switching a service, which is not integrated with hardware this may be due to the fact that when physical products are also involved, the costs and risk of switching is different to when there is just a service alone. Brassington (2003) acknowledged that most products tend to have a combination of both physical goods and service e.g. purchasing a gas appliance this would require the professional fitting service as well as purchasing of the appliance itself.Kotler (1997) also recognised that some services are a combination of both a service and a product and has incorporated this in his definition of servicesAny act or performance that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product.This emphasises two key elements1. Intangibility A Service cannot be experience before it is purchased,2. Lack of ownership there is no ownership in a pure service as there is no physical product involved.This is further illustrated in the Figure 1 below which illustrates Kotlers (1997) four categories of products, which are1. A pure service2. A major service with accompanying minor goods/services3. A tangible good with accompanying service4. A pure tangible productNew services are being introduced on a daily basis to satisfy and meet all customer needs from individual consumers to business consumers. The service industry comprises the majority of todays economy. In 2001, it represented 80 percent of the GDP of the USA (U.S Bureau of Economic Analysis).Keiningham et al (2003) said there is a growing recognition among managers of the importance of measuring the share of business a customer conducts with a particular service provider (share-of-wallet) as opposed to simply repurchasing a product or service at some point in the future or continuing to keep a busin ess relationship with a service provider. This indicates the importance of retaining and maintaining customers and the importance of the relationship with them.Research carried out by Bitner (1990) Boulding at al, (1993) looked at service quality in service organisations, Crosby Evans and Cowles (1990) Crosby and Stephens (1987) researched relationship quality and Cronin and Taylor (1992) looked at overall satisfaction with regards to the issue of customer retention in service organisations. These researchers all agreed that service organisations could improve the likelihood of customers intention to remain with a particular service organisation, as it is these features that contribute to customer satisfaction and the growth of the organisation. The above studies all illustrated strategies relating to customer retention in services. Yet issues relating to why customers actually switch services remain unexplored in marketing literature.2.2 Characteristics of ServicesWhen describing t he main characteristics of a service, it can be depicted as being intangible, as a service has no physical dimension but can take place through a tangible product as is the case with mobile phones and network providers, as discussed earlier. A service can also be described using a tangible noun as Shostack (1987) exemplified that an airline means transportation and a hotel means lodging rental. Berry (1980) described a good as an object, a device, a thing in comparison to a service which is a deed, a performance, an effort. This further illustrates the fact that consumers cannot see, touch, hear, taste or smell a service all they can do is experience the performance of the service as said by Carman and Uhl, (1973) and Sasser et. al, (1978) but, the experience may not be possible in all cases without some form of hardware in addition.Because services are delivered by individuals, each service experience will differ from another as a result each purchaser will receive a different serv ice experience. Additionally, when a consumer purchases a good, they own it, yet with a service the consumer only has temporary access or use of it, as the service is not owned, only the benefit of it is. Wyckham et al (1975) and Kotler (1986) defined this concept as ownership.2.3 The Services Marketing MixAs previously discussed above, many features separate services from tangible products, yet the marketing principles remain the same for both. One particular difference is that there is close contact between individual employees from the supplier organisation and the customer themselves. Because of this, the traditional marketing mix needs to be re-evaluated in terms of the 7ps.Product This refers to the features of the product or surrounding it, which in this case would be a good service or supplementary services surrounding it. These features should be benefits, which the customer would desire, and the surrounding features would be competing products performance. (Lovelock and Wi rtz, 2004).Place and Time Delivering a service to customers involves place, time of delivery and distribution channels used. Delivery can be done both physically and through electronic distribution channels according to the nature of the service being provided. Services can be delivered directly to customers or through intermediary firms, e.g. rental outlets. (Lovelock and Wirtz, 2004).Promotion and Education these are three fold, firstly information and advice needs to be provided to customers, target customers need to be persuaded towards a product, and they need to be encouraged to take action. Service promotional communication are usually educational, informing potential customers of the benefits of the service, where and when to obtain it and how. These communications are delivered through individuals (sales people) or media (TV, radio, newspapers etc.). (Lovelock and Wirtz, 2004).Price and Other User Outlays In services monetary values refer to rates, fees, admissions, charges , tuition, contributions, interest etc. (Gabbott and Hogg, 1997).Physical Environment A firms service quality can be perceived through the appearance of buildings, landscaping, vehicles, interior furnishing, equipment, staff members, signs, printed materials and other visible cues. These are physical evidence and impact customer impressions. (Lovelock and Wirtz, 2004).Process A service is delivered to a customer through a process, which is the method and actions in the service performance. Poor processes can result in slow and ineffective service and unsatisfied customers. Front line staff may also find it difficult to do their jobs well as a result of poor process, which can again lead to service failure. (Lovelock and Wirtz, 2004).People Services tend to involve direct interaction between customers and firms employees. The experience of the interaction, for example talking to call centre staff, can influence the customers perceptions of service quality. The implication is that fir ms need to train and motivate their employees to ensure good service quality. (Lovelock and Wirtz, 2004).2.4 Marketing in ServicesImage is often a key factor in differentiating a service from its competitors. Marketing is therefore important in service because it enables the customer to link an image with a brand. Examples of these can be seen on delivery vehicles, which are painted, hotel soap and shampoos etc.When consumers have no experience with a product, they tend to trust a favoured or well-known brand name therefore service marketers need to build a favourable brand image.Some consumer theorists have linked service quality with consumer behaviour intentions, in that the quality of the service will determine whether the consumer remains with that particular provider or defects to a competitor. When consumers perceive high service quality, the behavioural intentions will be positive, as they will remain with the service provider. In contrast, poor service quality will lead to the relationship with the customer weakening resulting in defection to a competitor.Financially the firm will benefit more by retaining customers through increasing service quality this is demonstrated in the figure 2 below.The figure above shows that the more favourable a firms service quality is, the more likely the customer is to remain with the firm, benefiting the firm. But when the service quality is poor, the customer will show unfavourable behavioural intentions, which will result in defecting/ switching. This highlights that in order to prevent customers from switching and to enable the firm to continue making profits, the firm needs to retain customers through good service quality.Service firms and service marketers need to recognise the significance of these reasons as they can lead to negative effects on share and profitability as noted by Rust and Zahorik (1993). This can arise from negative word of mouth, which will in turn deter potential customers. These reasons can also help markets to plan their promotional campaigns according to the aspects that are causing customers to switch. As maintained by Reichheld and Sasser (1990) companies can boost profits by almost 100% by retaining just 5% more of their customers.2.5 Marketing in the Mobile Phone IndustryAs the market becomes more competitive, firms will endeavour to maintain their market share by focusing on retaining their current customers. It can be said that recent competition amongst mobile phone networks has become aggressive, especially with all the competitive price plans and handsets on offer, which are being promoted by the networks. More recently a camera wars are taking place between mobile brands as consumers are considering this an important feature when purchasing mobile phones, Marketing magazine (2004).When network 3 entered the market, they were able to encourage many consumers to switch mobile networks from their existing providers to 3. this was done using challenging and dir ect advertising comparing brand and product features with those of competing networks. Marketing magazine (2004). As a result of this, 3 were able to reach the one million-customer mark faster than any other network since launching.It is evident that mobile phone networks are being innovative in their marketing tactics in the aim of securing higher customer bases. Much of the marketing the mobile networks today to do this are directed towards consumer confusion tactics. Consumer confusion tactics are where consumers are provided with large amounts of decision-relevant information, in regards to mobiles, this is seen in the form of deals, discounts, leaflets, newspaper adds and television advertising line rentals from as little as 99p per month. Confusion marketing and overload aims to confuse consumers into a state of stress and frustration, resulting in information overload and sub-optimal decisions. Price confusion is the most common confusion marketing tactic used in the mobile t elephone market today in order to assist companies to gain a competitive advantage. It has been found that this tactic of confusion marketing appears to work and confuses customers to such an extent that they end up being persuaded by this marketing literature and the information overload that they are provided with that they purchase the plan that is sold to them without investigating it further as they feel that they have all the information that they need and have made an informed choice.Confusion usually arises from 3 main sourcesi) Over choice of products and stores there are independent mobile phone shops opening up regularly, and new mobile phones are being introduced to the market every month.ii) Similarity of products all the price plans available are very similar in terms of price as well as network call charges.iii) Ambiguous, misleading or inadequate information conveyed through marketing communications For example, many retailers are offering line rental for 99p per month, what consumers are not aware of is that they have to pay the full line rental for the first six months and then they claim their cash back.But using confusion marketing can have adverse effects on consumers. The information overload can cause consumers to shop around, which can reduce brand loyalty towards the firm.2.6 Decision Making Process for Mobile PhonesWhen customers purchase a product or service they go through a complex process of three stages the pre purchase stage (decision to buy), the service encounter stage and the post purchase stage. This can be applied to the purchasing of mobile phones.The post purchase stage will determine the customers future intentions on whether or not to remain loyal to that service provider or to switch service. During the post purchase stage, customers evaluate service quality and their satisfaction/dissatisfaction with the service experience. This is done by comparing what was initially expected with what they perceived they received from a particular provider. If expectations are met, customers are likely to be satisfied and therefore more likely to make repeat purchases and remain loyal. If customer expectations are not met, customers may complain about poor service quality, suffer in silence or resort to switching service provider. It has become evident in recent years that customers no longer suffer in silence with bad service to the extent that they previously and if they experience service that they are not satisfied with then are more likely to switch in order to receive a better service/better value for their money.When considering the purchase process of mobile phones, again there are complex factors, which influence the decision the decision process which include both macro and microeconomic conditions, but it generally tends to follow the traditional buying process. When faced with the problem of whether or not to purchase a mobile phone, consumers will initially take part in an information search be fore choosing which one to buy. The consumers decision-making process is directed by preferences that the consumer has already formed regarding a particular brand. Beatty and Smith (1987) and Moorthy et al (1997) argue that this means the consumer is most likely to make a choice based on a limited information search and without evaluating fully all the alternative brands available. As indicated by Dhar and Wertenbroach (2000), limited information search and evaluation of alternatives can result in a situation where the consumers choice is driven by hedonic considerations. Utilitarian goods are considered to be instrumental and functional whereas hedonic good are seen as being fun and exciting, but some goods can have both features, as stated by Barta and Ahtola (1990). With relation to mobile phones the choice has both utilitarian (e.g. communication, SMS, planning) and hedonic (e.g. games, music, camera) features. Wilska (2003) believes the younger the consumer gets, the more they value the hedonistic features in their mobile phones. The mobile phone market is a technology driven market, therefore products are created based on consumers possible future needs which tend to be hedonistic features.Riquelme (2001) explored the level of knowledge consumers have when choosing between different mobile phone brands. The study focused on main factors, which were telephone features, connection fee, access cost, mobile-to-mobile phone rates, call rates and free calls), which respondents had to rate according to importance. Findings revealed that respondents with previous experience about products predicted their choices well, although they over-estimate the importance of features, cal rates and free calls and under-estimated the importance of the monthly access fee, mobile-to-mobile phone rates and the connection fee.2.7 Customer Switching BehaviourThere is no one clear definition of customer switching, due to the lack of research into this area, although very few autho rs have attempted to define it. According to Brassington (2003) customer switching refers to consumers who are not loyal to any one brand of a particular product and switch between two or more brands within the category.Switching behaviour has also been referred to as defection or customer exit (Hirschman, 1970 Stewart, 1994) and refers to a customers decision to stop purchasing a particular service or patronising the service firm completely as agued by Bolton and Bronkhurst (1995) and Boote, (1998). Yet it can be argued that this is not a valid definition of customer switching as this definition refers to the consumers behaviour as abandonment of the use of a product/service although, whereas switching is concerned with consumers using one product/service provider and then deciding to switch to another.Many models have attempted to portray customer switching behaviour in services yet they all imply that switching derives from a gradual dissolution of relationships as a result of mu ltiple problems encountered over time as found by Bejou and Palmer (1998) and Hocutt (1998).2.8 Causes for Dissatisfied Service and SwitchingBitner et al (1994) has looked at the events that lead to satisfying and dissatisfying service encounters for customers from an employees point of view. Bitner et als (1994) study found that employees were inclined to describe the customers problems with external causes such as delivery system failures as the most prominent followed by problem customers. A small percentage of dissatisfactory incidents were classified as spontaneous negative employee behaviours such as rudeness or lack of attention. It was evident that the employees were biased in terms of not blaming themselves for failures.Past research associating customer and employee views on critical factors compelling customers to switch offers assorted assumptions. Schneider and Bowen (1985) and Schneider, Parkington, and Buxton (1980) found a strong relationship between employee and cus tomer attitudes regarding service quality on the whole in the banking service. The results from their study contradicted those of a study carried out by Brown and Swartz (1989). Data was collected from patients based on experiences with their physicians and were compared to what physicians perceived of the experiences of their patients. Results showed large differences inversely associated to patient satisfaction in general. Thus researchers have different views regarding customer and employee attitudes on service quality. When considering switching in the financial service, Mintel International Group believes the critical factor causing consumers to switch providers is price. Price is a sensitive issue and one that is close to the heart of customers so it is perceived that they may consider switching on the basis of this if they are not satisfied with the service they are receiving. But it can be concluded that the customers view holds greater value, as it is their opinion that bri ngs in business for a firm.Bolton Brankhurst (1995) and McDougal (1996) have looked at customer switching behaviour in relation to complaints, which they believe leads up to the defection. They suggested, that this field should be further explored, as there is a lack of research that tries to investigate the correlations between the factors that influence service switching and those that influence complaints before switching. Complains are again another major area of concern. The first