Customers' Expectations And Loyalty To Their Loyalty Programs
Customers’ expectations and loyalty to their loyalty programs How customers are reacting according to their socio-demographic factors. Author: Loriane GenreGrandpierre Tutor: Mosad Zineldin Examiner: Anders Pehrsson Date: 2015-05-29 Subject: Thesis, Advanced level Level: Master thesis Course code: 5FE00E
ABSTRACT Title: Expectations of customers to their loyalty programs: how customers react according to their socio-demographic factors. Keywords: Loyalty programs, Perceived benefits, Demographic factors, Customer loyalty, Satisfaction Background: Nowadays with the very competitive business environment, it is essential for companies to gain loyal customers. Loyalty programs are one of the tools at the disposition of companies to attract and retain their customers. The relationship between customer loyalty and some socio-demographics factors have been a subject of researches but the specific relationship between socio-demographics factors and customer loyalty programs has not been studied yet. This study is going to try to fulfil this gap. Purpose: To study the influence of socio-demographic factors on customers’ expectations of their loyalty programs and on their loyalty. Research questions: 1. Which socio-demographic factors are influencing customers’ expectations of their loyalty programs? 2. Which socio-demographic factors are influencing program loyalty and company loyalty? Methodology: Quantitative research. Conclusion: It is possible to say that all socio-demographic factors studied have an influence on at least one of the expectations of customers concerning their loyalty programs and on their loyalty too. Those factors are then really important for a company to look at when they start a loyalty program or when they try to improve it.
Table of contents 1 INTRODUCTION . 1 1.1 BACKGROUND . 1 1.2 PROBLEM FORMULATION . 2 1.3 RESEARCH GAP AND PURPOSE . 3 1.4 REPORT STRUCTURE . 4 2 THEORETICAL FRAMEWORK . 5 2.1 CUSTOMER LOYALTY PROGRAMS . 5 2.2 PERCEIVED BENEFITS . 6 2.2.1 UTILITARIAN BENEFITS . 6 2.2.2 HEDONIST BENEFITS . 6 2.2.3 SYMBOLIC BENEFITS . 7 2.3 CUSTOMER LOYALTY . 8 2.3.1 CUSTOMER LOYALTY AND SATISFACTION . 8 2.3.2 LOYALTY TO THE PROGRAM . 9 2.3.3 LOYALTY TO THE COMPANY . 9 2.4 SOCIO- ‐DEMOGRAPHIC FACTORS . 10 2.4.1 GENDER . 10 2.4.2 AGE . 10 2.4.3 EDUCATION . 11 2.4.4 INCOMES . 11 2.4.5 MARITAL AND PROFESSIONAL STATUS . 11 2.5 CONCEPTUAL FRAMEWORK . 12 3 METHODOLOGY . 14 3.1 RESEARCH APPROACH . 14 3.1.1 INDUCTIVE VS. DEDUCTIVE RESEARCH . 14 3.1.2 QUALITATIVE VS. QUANTITATIVE RESEARCH . 15 3.2 RESEARCH DESIGN . 16 3.3 DATA SOURCES . 17 3.4 RESEARCH STRATEGY . 17 3.5 DATA COLLECTION METHOD . 19 3.6 OPERATIONALIZATION . 19 3.6.1 OPERATIONALIZATION TABLE . 20 3.7 SAMPLING . 21 3.8 SAMPLING FRAME . 22 3.9 QESTIONNAIRE DESIGN . 22 3.10 DATA ANALYSIS METHOD . 23 3.10.1 PEARSON’S CORRELATION . 23 3.10.2 ANOVA ANALYSIS . 24 3.11 QUALITY CRITERIA . 24 3.11.1 RELIABILITY . 24 3.11.2 VALIDITY . 25 3.12 SUMMARY . 26 4 EMPIRICAL FINDINGS . 27 4.1 PEARSON’S CORRELATION . 27 4.2 PRESENTATION OF THE RESULTS H1 . 28 4.2.1 GENDER . 28 4.2.2 AGE . 28
4.2.3 EDUCATION . 29 4.2.4 MARITAL STATUS . 30 4.2.5 PROFESSIONAL STATUS . 31 4.2.6 INCOMES . 31 4.3 CUSTOMER LOYALTY . 32 4.3.1 GENDER . 32 4.3.2 AGE . 33 4.3.3 EDUCATION . 33 4.3.4 MARITAL STATUS . 34 4.3.5 PROFESSIONAL STATUS . 35 4.3.6 INCOMES . 36 5 ANALYSIS . 36 5.1 CUSTOMERS’ EXPECTATIONS ABOUT LOYALTY PROGRAMS . 36 5.1.1 GENDER . 37 5.1.2 AGE . 37 5.1.3 EDUCATION . 38 5.1.4 MARITAL STATUS . 38 5.1.5 PROFESSIONAL STATUS . 38 5.1.6 INCOMES . 39 5.1.7 SUMMARY . 39 5.2 CUSTOMER LOYALTY . 40 5.2.1 GENDER . 40 5.2.2 AGE . 40 5.2.3 EDUCATION . 40 5.2.4 MARITAL STATUS . 41 5.2.5 PROFESSIONAL STATUS . 41 5.2.6 INCOMES . 41 5.2.7 SUMMARY . 42 6 CONCLUSION . 43 7 DISCUSSION . 43 7.1 LIMITATION . 43 7.2 MANAGERIAL IMPLICATIONS . 44 7.3 FUTURE RESEARCH . 44 REFERENCES . 46 APPENDIX . 54 APPENDIX A – QUESTIONNAIRE . 54 APPENDIX B - ‐ PRESENTATION OF THE DEMOGRAPHIC FACTORS (SPSS) . 58 APPENDIX C – SATISFACTION (AUTHOR’S ELABORATION) . 59 APPENDIX D – CUSTOMERS’ EXPECTATION ACCORDING TO THEIR LOYALTY PROGRAMS (AUTHOR’S ELABORATION) . 60 APPENDIX E – CUSTOMER LOYALTY ACCORDING TO THEIR LOYALTY PROGRAMS (AUTHOR’S ELABORATION) . 60
1 INTRODUCTION 1.1 BACKGROUND Nowadays, a very competitive business environment is occurring (Bose and Rao, 2011). It can be difficult for a customer to appreciate the distinction between different companies’ products or services (Ibid.). In this context, it is challenging for companies to gain loyal customers, as it is nearly always possible for them to choose an alternative for the same product (Ibid.). According to McIlroy and Barnett (2000, p. 348) loyalty can be described as “customer’s commitment to do business with a particular organization, purchasing their goods and services repeatedly, and recommending the services and products to friends and associates”. Loyal customers are « better » customers for companies as they tend to spend more regularly and more money than the other customers (Selin et al.,1988). Moreover, if customers are satisfied and loyal to a brand they could also generate new customers though a positive word of mouth (O ́Brien and Jones, 1995). The financial cost for a company is also a motive, as « it has been estimated that attracting a new customer is three to five times more costly than retaining an existing customer” (Jang and Mattila, 2005, p. 402). Loyalty programs are significant tool of firms’ Customer Relationship Management (also CRM) strategies to retain customers (Liu, 2007). Their aim is to attract new customers, retain existing ones by rewarding their purchases with the aim of increasing their spending and their loyalty to the brand or to the company (Ibid). Demoulin and Zidda (2009) are showing that firms are using loyalty programs for three reasons: retain their customers, make them more loyal and gather as many information as possible on their customers’ shopping attitude. Dowling and Uncles (1997) are listing more reasons to explain why firms are creating and using loyalty programs: to protect sales, margins and profit; strengthen loyalty and increase the value for the existing customer; stimulate existing customer’s cross-product sale; use them as a tool for differentiate themselves compared to competitors; make the entry of a new brand more difficult; and to finish make the introduction of a comparable loyalty program more difficult. Loyalty programs have extended during the last decades and are really popular especially in the retail industry (Berman, 2006). Around 90% of consumers in UK, United States and Canada are involved at least in one loyalty program (Ibid). Because of the omnipresence of customer loyalty programs, several researches have been done to measure the effectiveness of them or the benefits for companies (Bolton et al., 2000). Those programs had become more and more complex because of CRM systems and they now give access to customers’ private information like purchase tracking or preferences (Injazz and Popovich, 2003). 1
The expansion of loyalty programs has led to changes in the loyalty of customers: according to Yi and Jeon (2003) there are now two different kind of loyalty: program loyalty and brand loyalty. Similarly, others researchers such as Evanschitzky et al. (2011) differentiate loyalty to the program itself and the loyalty to the company. The first kind of loyalty can be defined as “a high relative attitude leaning toward the loyalty program” (Yi and Jeon, 2003, p. 232). On the other hand, Sirdeshmukh, Singh, and Sabol (2002) are giving the following definition for company loyalty: “intention to perform a diverse set of behaviours that signal a motivation to maintain a relationship with the focal firm”. The relationship between customer loyalty and some socio-demographics factors have been a subject of researches. Women tend to regard highly a long-term relationship with a brand and as consequences are expected as more loyal compared to men (Patterson, 2007). Ndubisi (2007) has explored the question of the difference between ages towards customer loyalty and has found that there is one. Complementarily, Patterson (2007) is arguing that loyalty is more common upon senior person than young people. Some researchers have found that both genders are joining loyalty programs but the distinction between them is when it comes to loyalty and their shopping behaviours (Kuruvilla, Joshi and Shah, 2009). Nevertheless, the specific relationship between socio-demographics factors and customer loyalty programs has not been studied yet. For this study, gender, age, education, professional status, marital status and incomes are going to be studied in the specific area of customer loyalty programs. 1.2 PROBLEM FORMULATION The efficiency of loyalty programs is still questionable and some researches are even showing that nowadays, with the multiplying of those programs, the link between them and customer loyalty is not automatic (Uncles and Dowling, 2003). Prior researches have explored the factors of success for loyalty programs. Jang and Mattila (2005) have focused their research on the preferences of customers upon the types rewards; on the other hand Keh and Lee (2006) have explored the question of customers’ preferences about the timing of rewards. The type of rewards is about what kind of rewards the customer is going to receive (e.g. Monetary vs non-monetary rewards); whereas the timing refers to when the customers prefer to receive the reward (Jang and Mattila, 2005; Keh and Lee, 2006). Other researchers have shown that monetary rewards were the main interest in joining a loyalty program (e.g. Berry, 1995; Peterson, 1995). Minouni-Chaabane and Volle (2010) have later developed a scale to measure the impact of perceived benefits of loyalty programs upon customer loyalty. Their research was made to fill the gap on customers’ point of view on loyalty programs (Ibid). It shows that there is five types of perceived benefits which all are important: monetary 2
savings, exploration, entertainment, recognition, and social benefits (Ibid.). Several other researches have followed to enhance or apply this scale to different sector or cultures (Kim and al, 2013; Bose and Rao, 2011; Wel and al., 2011). This scale is going to be used in this study to understand the expectations of customers about their loyalty programs, the benefits they received from them and the loyalty that implies from it. 1.3 RESEARCH GAP AND PURPOSE Customer loyalty and customer loyalty programs have been a large source of interests for researchers. As seen before, some researches about the impact of gender and age on customer loyalty have been done already (Ndubisi, 2006; Kuruvilla, Joshi and Shah, 2009; Patterson, 2007). In his study Ndubisi (2006) is arguing that for futures researches on the subject of customer loyalty it would be good to consider more demographic factors other than gender. McGoldrick and Andre (1997) also have the same opinion on the fact that it is important to look at demographic factors when studying customer loyalty. Moreover, the focus of those studies was on customer loyalty and there are only few researches about the impact of demographic factors in the specific subject of customer loyalty programs. It is important to differ people according to socio-demographic factors when looking at their membership to a loyalty program. In fact, it will not mean the same according to those differences and the expectation they have on it could differ according to the situation they are in (O’Malley, 1998). This research is going to try to intend to fulfil this gap. The following demographic factors are going to be used to evaluate their influence on customers’ expectations and perceptions of loyalty programs’ benefits: gender, age, education, level of income, marital and professional situation. Thus the purpose of the thesis is to investigate how socio-demographic factors can influence the perception of loyalty programs as well as their loyalty. To reach this purpose, the thesis answers the following question: How socio-demographic factors are influencing customer loyalty programs? The research question is separated into this two following sub-questions: 1. Which socio-demographic factors are influencing customers’ expectations of their loyalty programs? 2. Which socio-demographic factors are influencing customers’ loyalty? The objective of the study is to present an empirical knowledge on how customers value their loyalty programs according to their identity and background and consequently display if the loyalty programs are in accordance with those results. 3
1.4 REPORT STRUCTURE This paper is composed with seven chapters. The first chapter is an introduction where the background and the problem formulation of the study are presented. It also includes the research gap, which have been pointed out thought previous researches and thus is the purpose of this study. The second chapter is the literature review and the theoretical framework. It includes theory and concepts about customer loyalty programs, their benefits, customer loyalty and socio-demographic factors. Moreover, the research model is displayed in this chapter. Chapter 3 is the methodology information about the research. The author has chosen to conduct a deductive approach with primary data. It has been chosen to conduct a descriptive and quantitative research with questionnaire as data collection method. The operationalization table is presented with the different measures used. In the chapter 4, the results of the surveys are displayed. To facilitate the understanding of the findings, data is presented thanks to recap charts that are based on the results from SPSS. Correlation and ANOVA analysis have been chosen to analyse the data statistically. The chapter 5 is analysing those results. The aim of this chapter is to discuss the influence of sociodemographic factors on the perceived benefits of loyalty program and on customer loyalty. The chapter 6 is presenting the conclusion of this research. The chapter 7 is the last one and present a discussion of the conclusion of the study with a presentation of its limitation, the managerial implication of this conclusion and some recommendation for future research. 4
2 THEORETICAL FRAMEWORK In this chapter the concepts used in this study are going to be presented. First there is an introductory part about loyalty programs, followed by a review of their perceived benefits and to finish, customer loyalty is going to be broached. 2.1 CUSTOMER LOYALTY PROGRAMS The definition of loyalty programs has interested different researchers. Liu (2007) is defining loyalty programs as a program that recompenses customers with free rewards when they are buying repeatedly with a firm. This definition puts emphasis on the importance of purchase’s repetition, as the program will not be advantageous for the customer for only one purchase but from several (Ibid.). One of the tools that enhance customer loyalty programs is the targeted communication and the customization the program according to the customer (Lacey and Sneath, 2006). As consequences, customers’ loyalty programs are different from the firm’s promotional campaign because of their long-term objectives (Sharp and Sharp, 1997). Specific areas of customer loyalty programs have been observed (Bose and Rao, 2011). One of the main areas that have been research about is the impact of customer loyalty programs on customers, on customers or marketers’ point of view (Ibid.). Dowling and Uncles (1997) are showing that the value of the company’s products or services is improved by effective loyalty programs and are provoking a good retention of customers. Several others researchers have proved the effectiveness with loyalty programs on the fact that customers are going to buy again with this specific firm. For example, Knox and Denison (2000) studied loyalty programs in the specific industry of e-grocery store in UK and their effect on customers’ loyalty and retention. The study shows that loyalty programs are increasing the annual amount of purchase by customers (Ibid.). Loyalty programs tend to have a higher impact on moderate and light buyers because they are increasing their purchase frequency, whereas studies have shown that it is not the case for heavy buyers who tend to just collect their rewards without increasing their purchase frequencies (Liu, 2007; O’Brien and Jones, 1995). Moreover, loyalty programs also have an impact on customers’ perception of prices and competition (Bose and Rao, 2011). A large number of researchers have explored the impact of loyalty programs on customers’ price sensitivity, and most of them have concluded that a loyal customer have a lower sensitivity to prices (e.g., Guadagni and Little 2008; Srinivasan and al., 2002), especially when it is associated with easy and quick earned rewards (Nako, 1997). Loyalty programs also have impacts on customers’ perception of competitors’ prices; as they are going to purchase repeatedly from a specific firm, they will loose track of competitors’ prices (Reichheld, 5
1996). Nevertheless, Liu and Yang (2009) are showing with their study of airline industry that successful loyalty programs, in a very competitive market, tend to be those from high market share firms. In fact, they are going to be the only one to be able to increase their sales thanks to loyalty programs because of their strong customer base and products (Bose and Rao, 2011). 2.2 PERCEIVED BENEFITS Academics have research about the link between the benefits of a loyalty program and customer loyalty to those programs. Indeed, Leenheer and al. (2007) found that customers are more likely to join a loyalty program if they see that they will receive economical or non-economical benefits from it. Moreover, if they perceive that this specific program is more interesting for them than those from competitors, they will be more inclined to participate to this program (Wirtz and al. 2007). Perceived benefits of a loyalty program can be divided into three categories: utilitarian benefits (monetary savings), hedonic benefits (explo
The expansion of loyalty programs has led to changes in the loyalty of customers: according to Yi and Jeon (2003) there are now two different kind of loyalty: program loyalty and brand loyalty. Similarly, others researchers such as Evanschitzky et al. (2011) differentiate loyalty to the program itself and the loyalty to the company.
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