Loyalty Programmes In The South African Airline Industry Ayanda . - Core

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LOYALTY PROGRAMMES IN THE SOUTH AFRICAN AIRLINEINDUSTRYAYANDA MANUNGASubmitted in partial fulfilment of the requirements for theMASTER’S DEGREE IN BUSINESS ADMINISTRATIONin theFACULTY OF BUSINESS AND ECONOMIC SCIENCESof theNELSON MANDELA UNIVERSITYSupervisor: Professor Margaret Cullen14 December 2018

I.DECLARATIONI, the undersigned, hereby declare that: The work contained in this treatise is my own original work; This treatise was not submitted in full or partial fulfilment to any other recogniseduniversity for any other degree; This treatise is being submitted in partial fulfilment of the requirements for thedegree of Masters in Business Administration; and All sources used or referred to have been documented and recognised.14 December 2018Ayanda ManungaDatei

II.ACKNOWLEDGEMENTSI am eternally grateful to the people who have been part of my journey in completingthis Treatise and the Master of Business Administration. To my Heavenly Father, The Almighty who has given me strength and the willto go through this wonderful journey. To my supervisor, Professor Margaret Cullen, words cannot describe howgrateful I am to you for being part of this journey. Your advice, guidance andcommitment were invaluable and truly appreciated. Dr Venter, thank you for your assistance with the statistical analysis. To my mother, Xoliswa Roji, thank you for your love, support andencouragement. Thank you for being my strength and my number onesupporter. To my siblings, Felicia Manunga and Tando Manunga, thank you for yourencouragement and support. To my partner, Bafana Malunga, you have been my voice of reason and mysoundboard. Your guidance and unwavering support has kept me going. To my employer, for the financial assistance and other resources. To my MBA syndicate group, Gauteng 17.3 for the teamwork and support.ii

III.ABSTRACTWhile there has been substantial research on Loyalty Programmes in the last twodecades, little has been done in the South African Airline Industry. This study usesthe Social exchange theory, Relationship marketing theory and Commitment-trusttheory to provide an understanding of the factors, which influence loyaltyprogrammes in the South African Airline Industry.The methodology used involved a self-administrated on-line questionnaire from thesample, which comprised of 1090 respondents. From the total respondents, 172belonged to one or more Airline Loyalty Programmes. This study focused on thelatter. An email containing a Universal Resource Link (URL) to the survey was sentto the Nelson Mandela University Business School‟s Marketing Department todistribute to current first-year MBA students, who also had to circulate the survey toat least ten other people.A proposed conceptual model was compiled and tested using exploratory factoranalysis. The result of the study confirmed that the measurement instrument is inorder and that attitude and behaviour are strong determinants of the loyaltyprogramme. Communication, flexibility, general assessment, rewards personal,rewards tangible, rewards monetary and trust are factors that influence the loyaltyprogramme, which are driven by the attitude of the participant in the programme. sessment,rewardspersonalisation, purchase behaviour and trust are factors that influence the loyaltyprogramme, which are driven by the behaviour of the participant in the programme.This study concludes with managerial recommendations that will enable managers toidentify factors which influence loyalty programmes in the South African AirlineIndustry. This will enable managers to make informed decisions when formulatingand implementing successful programmes. Some of the recommendations call for areview and repositioning of the value proposition for the existing loyalty programmes.It is also recommended that loyalty programmes are value-based in order to convertloyalty programme customers to loyal customers. In addition, majority of the loyaltyprogramme customers call for loyalty programmes that offer programmes that noniii

expiry points with personalised service offering. The organisations that offer loyaltyprogrammes in the Airline Industry also need to design clear communicationstrategies that will provide a holistic and targeted approach to customerengagement.Key Words: loyalty programmes, customer commitment, customer asebehaviour,personalisation, flexibility, trust, rewards and method of participation.ivcommunication,

TABLE OF CONTENTSI.DECLARATION . iII.ACKNOWLEDGEMENTS .iiIII.ABSTRACT . iiiIV.LIST OF FIGURES .ixV.LIST OF TABLES . x1. CHAPTER 1 - LITERATURE REVIEW . 11.1. Introduction . 11.2. Problem statement . 31.3. Research questions . 41.4. Research objectives . 41.5. Research delimitation. 61.6. Research significance . 61.7. Research methodology . 71.7.1.Research approach . 71.7.2.Literature review . 81.7.3.Data collection . 81.8. Ethical clearance . 81.9. Report structure . 81.9.1.CHAPTER 1: INTRODUCTION AND PROBLEM STATEMENT . 91.9.2.CHAPTER 2: LITERATURE REVIEW . 91.9.3.CHAPTER 3: RESEARCH DESIGN AND METHODOLOGY . 91.9.4.CHAPTER 4: RESULTS AND ANALYSIS . 91.9.5.CHAPTER 5: FINDINGS, CONCLUSION AND RECOMMENDATION . 91.10.Summary . 102. CHAPTER 2 LITERATURE REVIEW . 112.1. Introduction . 112.2. The origin of the loyalty programme concept . 122.2.1.Customer loyalty programmes . 132.2.2.Structure of loyalty programmes . 142.2.3.Benefits of loyalty programmes . 14v

2.2.4.Challenges related to loyalty programmes. 162.3. Theoretical grounding . 172.3.1.Social exchange theory . 172.3.2.Relationship marketing theory . 182.3.3.Commitment-trust theory . 192.4. Definition of terms . 202.4.1.Customer loyalty . 202.5. Loyalty programmes in the Airline Industry . 212.5.1.Global perspective . 222.5.2.South African context . 232.6. Components of loyalty programmes . 252.6.1.Purchase Behaviour . 282.6.2.Trust . 292.6.3.Communication . 302.6.4.Personalisation . 312.6.5.Flexibility . 322.6.6.Rewards . 332.6.7.Methods of participation. 342.7. Conceptual Model . 352.8. Summary . 363. CHAPTER 3: RESEARCH DESIGN AND METHODOLOGY . 383.1. Introduction . 383.2. Research . 403.2.1.Research definition . 403.2.2.Research design . 413.2.3.Research paradigm . 433.2.4.Research paradigm for this study . 453.3. Sampling . 463.3.1.Population. 46vi

3.3.2.Sample and sample . 473.4. Data collection. 473.4.1.Survey Defined . 483.4.2.Questionnaire description . 543.4.3.Questionnaire scale . 543.4.4.Questionnaire distribution . 553.4.5.Number of responses and response rate. 553.5. Data analysis. 563.6. Reliability and validity . 573.6.1.Reliability . 573.6.2.Validity . 583.7. Ethical consideration . 593.8. Summary . 604. CHAPTER 4: RESULTS AND ANALYSIS . 614.1. Introduction . 614.2. Revision of the conceptual model . 634.3. Demographic profile of the respondents . 654.3.1.Geographic information . 654.3.2.Demographic characteristics . 654.4. Measurement items. 694.4.1.Dependent variable: loyalty programmes . 694.4.2.Independent Variable 1 (IV1): Purchase Behaviour . 734.4.3.Independent Variable 2 (IV2): Trust . 754.4.4.Independent Variable 3 (IV3): Communication . 774.4.5.Independent Variable 4 (IV4): Personalisation . 784.4.6.Independent Variable 5 (IV5): Flexibility . 804.4.7.Independent Variable 6 (IV6): Rewards . 814.4.8.Independent Variable 7 (IV7): Method of Participation . 834.5. Item Analysis: Exploratory Factor Analysis (EFA) . 84vii

4.5.1.Eigenvalues and factor loading . 844.5.2.Cronbach Alpha Analysis. 1014.6. Descriptive statistics for factors . 1024.6.1.Frequency distributions of factors . 1024.6.2.Central tendency and dispersion of factors. 1034.7. Inferential statistics for the factors . 1054.7.1.One sample t-tests . 1054.7.2.Pearson‟s Correlation . 1064.8. Relationships between selected demographic information and loyaltyprogramme variables . 1074.9. Chapter summary. 1085. CHAPTER 5 FINDINGS, CONCLUSIONS AND RECOMMENDATIONS . 1115.1. Summary of Treatise . 1125.1.1.Chapter 1: Introduction and Problem Statement . 1125.1.2.Chapter 2: Literature Review . 1125.1.3.Chapter 3: Research Design and Methodology . 1135.1.4.Chapter 4: Results and Analysis . 1145.1.5.Chapter 5: Findings, Conclusions and Recommendations . 1145.2. Key Findings of the Study . 1155.2.1.Loyalty programmes . 1155.2.2.Communication . 1165.2.3.Purchase Behaviour . 1175.2.4.Trust . 1175.2.5.Personalisation . 1185.2.6.Flexibility . 1195.2.7.Rewards . 1195.2.8.General Assessment . 1205.3. The tested Model for determining factors which influence loyaltyprogrammes in the South African airline industry . 121viii

5.4. Managerial Recommendations. 1215.5. Limitations and call for future research . 1245.5.1.Limitations of the Study . 1245.5.2.Future Research . 1255.6. Chapter summary. 125REFERENCES . 127APPENDICES . 135Appendix A: Questionnaire . 135Appendix B: Copy of the email sent to respondents . 145Appendix C: Turn-it-in Report . 146IV.LIST OF FIGURESFigure 1.1: Overview of Chapter 1 . 2Figure 1.2: Chapter Structure as well as ROs and RQs . 10Figure 2.1: Overview of Chapter 2 . 12Figure 2.2: Dimensions of loyalty and four-dimensional loyalty (TaghiPourian &Bakhsh, 2015) . 26Figure 2.3: Proposed Conceptual model . 36Figure 3.1: Overview of Chapter 3 . 39Figure 3.2: The Research Onion (Saunders et al.,2009:108) . 41Figure 3.3: Research Methodology for this study . 45Figure 4.1: Outline of Chapter 4 . 62Figure 4.2: Frequency distribution – Gender (n 172). 66Figure 4.3: Distribution of Loyalty Programme Card in the Pooled data . 70Figure 4.4: Scree plot for factors of communication . 85Figure 4.5: Scree Plot - A.G (n 740) . 87Figure 4.6: Scree plot for factors of assessment in general . 88Figure 4.7: Scree Plot - A.R (n 740) . 90Figure 4.8: Scree Plot - A.T (n 740) . 92Figure 4.9: Scree Plot - B.C (n 656) . 94Figure 4.10: Scree Plot - B.G (n 656) . 95Figure 4.11: Scree Plot - B.P (n 656) . 97ix

Figure 4.12: Scree Plot - B.PB (n 656) . 98Figure 4.13: Scree Plot - B.R (n 656) . 100Figure 4.14: New Conceptual Model . 110Figure 5.1: Overview of Chapter 5 . 112LIST OF TABLESTable 1.1: Research Alignment Plan . 6Table 2.1: Most well-known Frequent Flyer Programmes globally (Ernst and Young,2014) . 23Table 2.2: The history of airlines in South African domestic market on a timeline(Mhlanga & Steyn, 2016). 24Table 3.1: Operationalisation of Questionnaire from Literature . 54Table 3.2: interpretation intervals for Cohen's d (Gravetter & Wallnau, 2009: 264). 56Table 4.1: Frequency distribution - Province . 65Table 4.2: Demographic characteristics of respondents. 67Table 4.3: Demographic Characteristics of Respondents . 69Table 4.4: Frequency Distributions: Loyalty Programmes/Cards (n 172) . 70Table 4.5: Frequency Distributions: LPC Items - Travel and Hospitality (n 172) . 71Table 4.6: Frequency Distributions: Loyalty Cards/Programmes Items (n 172) . 72Table 4.7 - Frequency distributions: purchase behaviour items (n 172) . 75Table 4.8: Frequency Distributions: Trust Items (n 172) . 76Table 4.9: Frequency distributions: communication items (n 172) . 78Table 4.10: Frequency distributions: personalisation items (n 172) . 79Table 4.11: Frequency Distributions: Flexibility Items (n 172) . 80Table 4.12: Frequency Distributions: Rewards Items (n 172). 82Table 4.13: Frequency Distributions: Method of Participation Items (n 172) . 83Table 4.14: Eigenvalues of factors and variances explained for communication . 84Table 4.15: Exploratory Factor Analysis (EFA) Loadings (1 Factor Model) - A.C (n 740) . 85Table 4.16: Exploratory Factor Analysis (EFA) Eigenvalues - A.F (n 740) . 86Table 4.17: Exploratory Factor Analysis (EFA) Loadings (1 Factor Model) - A.F (n 740) . 86Table 4.18: Exploratory Factor Analysis (EFA) Eigenvalues - A.G (n 740) . 86Table 4.19: Factor loading of assessment in general . 88x

Table 4.20: Revised Factor loading of assessment in general with A.G. 02 . 89Table 4.21: Exploratory Factor Analysis (EFA) Eigenvalues - A.R (n 740) . 89Table 4.22: Exploratory Factor Analysis (EFA) Loadings . 91Table 4.23: Exploratory Factor Analysis (EFA) Eigenvalues - A.T (n 740) . 92Table 4.24: Exploratory Factor Analysis (EFA) Loadings (1 Factor Model) - A.T (n 740) . 93Table 4.25: Exploratory Factor Analysis (EFA) Loadings (1 Factor Model) - A.T (n 740) . 93Table 4.26: Exploratory Factor Analysis (EFA) Eigenvalues - B.C (n 656) . 94Table 4.27: Exploratory Factor Analysis (EFA) Eigenvalues - B.F (n 656) . 94Table 4.28: Exploratory Factor Analysis (EFA) Loadings (1 Factor Model) - B.F (n 656) . 95Table 4.29: Exploratory Factor Analysis (EFA) Eigenvalues - B.G (n 656) . 95Table 4.30: Exploratory Factor Analysis (EFA) Eigenvalues - B.G (n 656) . 96Table 4.31: Exploratory Factor Analysis (EFA) Eigenvalues - B.P (n 656) . 96Table 4.32: Exploratory Factor Analysis (EFA) Loadings (1 Factor Model) - B.P (n 656) . 97Table 4.33: Exploratory Factor Analysis (EFA) Eigenvalues - B.PB (n 656) . 98Table 4.34: Exploratory Factor Analysis (EFA) Loadings (1 Factor Model) - B.PB (n 656) . 99Table 4.35: Exploratory Factor Analysis (EFA) Eigenvalues - B.R (n 656) . 99Table 4.36: Exploratory Factor Analysis (EFA) Loadings (1 Factor Model) - B.R (n 656) . 100Table 4.37: Exploratory Factor Analysis (EFA) Eigenvalues - B.T (n 656) . 101Table 4.38: Exploratory Factor Analysis (EFA) Eigenvalues - B.T (n 656) . 101Table 4.39: Cronbach's alpha coefficients for the factors - Airlines (n 172). 102Table 4.40: Central Tendency & Dispersion: Factors (n 172). 103Table 4.41: Frequency Distributions: Factors (n 172) . 104Table 4.42: Frequency Distributions: Factors (n 172) . 105Table 4.43: Pearson Product Moment Correlations - A.C to B.T and B.C to B.T (n 172) . 106Table 4.44: Descriptive Statistics for dependent variable A.C by ANOVA Factors . 108Table 4.45: Univariate ANOVA Results - A.C. 108xi

V.LIST OF ABBREVIATIONSAbbreviationMeaningA.CAttitude CommunicationA.GAttitude Assessment in GeneralA.FAttitude FlexibilityA.R1Attitude Rewards (Personal)A.R2Attitude Rewards (Tangible)A.R3Attitude Rewards (Monetary)A.TAttitude TrustB.CBehaviour CommunicationB.GBehaviour Assessment in GeneralB.FBehaviour FlexibilityB.PBBehaviour Purchase BehaviourB.RBehaviour RewardsB.TBehaviour TrustBABritish AirwaysCFAConfirmatory Factor AnalysisCFIComparative Fit IndicesEFAExploratory Factor AnalysisFFFrequent FlyerMMean or AveragemNumber of ItemsnSample SizeNFINormed Fit IndexNMUNelson Mandela UniversityRCorrelation CoefficientRcrit or r Correlation Coefficient CriticalSRWStandardised Regression Weightχ²Chi-squarexii

1. CHAPTER 1 - LITERATURE REVIEW1.1. IntroductionLoyalty refers to faithfulness; it is unwavering devotion (Nunes & Dreze, 2016). In thebusiness context, this devotion is directed to the organisation and/or the productoffering. Customer loyalty is gained when a customer recognises personal identity inthe brand of the organisation; it is the customers‟ self-expression (Wolter, Bock,Smith & Cronin Jr, 2017). Customer loyalty emanates from a positive emotionalexperience, product or service satisfaction and the perceived value form acustomer‟s perspective (Magatef & Tomalieh, 2015). Customer loyalty contributeslargely to the organisation‟s profitability. It is therefore imperative for theorganisations in the Airline Industry to retain their existing customers. It isunderstood that retaining old customers is worth more than winning new ones(Nunes & Dreze, 2016). Hence the shift to focus on loyalty programmes.Loyalty programmes are now seen as a critical tool by many organisations (Lara &Ponzoa, 2008). The fact that there has been massive adoption by organisations inmany industries is not accompanied by a good understanding of the core factors thatinfluence the basic structural elements (Lara & Ponzoa, 2008). According to Chaneyand Martin (2017), organisations ought to share the same values as their customerin order to develop lasting relationships, while also enhancing the legitimacy of theorganisation from the customer perspective. The shared values are likely to influencethe repeat customer buying behaviour pattern (Chaney & Martin, 2017). The factorsthat influence the loyalty programme are imperative in the development andimplementation of a successful programme. Loyalty Programmes have beenextensively discussed by scholars (Watson IV, Beck, Henderson & Palmatier, 2015;Chaudhuri & Ligas, 2009). This is largely due to the rising competition and the needto build long lasting relationships with customers (Tripathi, 2017).Customer Loyalty is at the core of any organisation‟s strategy to gain competitiveadvantage. Many organisations have adopted several strategies to gain customerloyalty; these include the adoption of loyalty programmes. These loyalty programmesare delivered to the end user in different ways such as points systems, tier ntoffering,loyaltycardprogrammes, frequent buyer programmes, frequent flyer programmes, gift cards and1

money back programmes (Magatef & Tomalieh, 2015). The loyalty programmes aremeant to enhance the organisation‟s value proposition through offering rewards forcustomers‟ repeat purchase behaviour (Thompson & Chmura, 2015). This is notalways the case, since many organisations adopt the use of loyalty programmeswithout any real differentiation on the offering (Lara & Ponzoa, 2008) from otherorganisations in the same industry. This is mostly due to the inadequateunderstanding of the factors that influence the loyalty

programmes in the Airline Industry also need to design clear communication strategies that will provide a holistic and targeted approach to customer engagement. Key Words: loyalty programmes, customer commitment, customer satisfaction, customer trust, loyalty programmes, purchase behaviour, communication,

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