Customer loyalty programs: the role of different value constructs in building customer loyalty

2017-02-07T23:29:51Z (GMT) by So, Jing Theng
In times of severe competition, loyalty programs (LPs) are introduced by firms to provide customers with added value to gain higher levels of loyalty and retention. While LPs are claimed to engender customer loyalty, researchers have not reached a decision about whether these programs are worthwhile for businesses in the long-run. Despite being a popular research area in the marketing literature, previous studies have found inconsistent results regarding the effectiveness of these programs in eliciting customer loyalty. A plausible explanation for the contradictory findings is possibly the poor understanding marketers have about the underlying mechanisms that drive the operation of a successful LP. In particular, empirical research examining (1) whether LPs are perceived as valuable to customers, and (2) how LPs contribute in developing customer loyalty, is limited. To address these issues, the present study develops a theoretical framework that investigates the different LP value constructs that customers derive from being a program member, and how different types of value drive customer loyalty. Building on the theory of reciprocity, this study suggests that the value of a LP, as perceived by customers, would encourage them to have a positive attitude towards the firm or the program. The favourable attitude towards either the program or firm then induces customers to engage in different behavioural outcomes that motivate them to stay in a long-term relationship with the firm. Specifically, this study found that customers derive six value constructs from participating in a LP, namely, reward attractiveness, knowledge benefit, required effort, experiential benefit, group belongingness, and disclosure comfort. These LP value constructs are posited to impact two components of customer loyalty - attitudinal and behavioural loyalty. In accordance with the conceptualization proposed by past scholars, this study denotes customer attitudinal loyalty as program loyalty and brand loyalty, whereas behavioural loyalty is measured through customers’ Share-of-Wallet (SOW), Share-of-Purchase (SOP), Word-of-Mouth (WOM), and Willingness-to-Pay (WTP) more for a firm’s offering. In addition, the proposed framework incorporates two moderating variables (i.e., member duration in LP and customization) to provide an in-depth view on how customer loyalty can be more effectively achieved using a LP. For the purpose of this dissertation, the proposed research framework was tested in the Australian retail setting using two different research methods. An exploratory study was initially carried out to identify the number of constructs that constitute LP value from a customer’s perspective and to provide preliminary support for the proposed framework. Following which, a cross-sectional survey was carried out to validate the developed hypotheses. A web-based survey system was used to collect data from LP members residing in Australia. Structural Equation Modeling (SEM) was utilized in this study to examine the influence of LP value on customer loyalty. The findings of this large-scale empirical study offer a number of theoretical and managerial contributions. First, this study represents one of the first empirical studies in the LP literature to develop and investigate a comprehensive list of value constructs that influence customer loyalty. Second, the study extends existing LP literature by clarifying the relationship between LP value, customers’ attitudinal loyalty, and behavioural loyalty. Third, the findings of this research can assist managers in their allocation of resources to better design and implement their LPs so that customer loyalty can be built in the most cost-efficient manner. Collectively, the present study provides an improved understanding of the underlying process of developing customer loyalty using a LP, both for academics and businesses.