THE IMPACTS OF LOYALTY PROGRAMS ON CUSTOMER SATISFACTION AND LOYALTY IN SUPERCENTER

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1 THE IMPACTS OF LOYALTY PROGRAMS ON CUSTOMER SATISFACTION AND LOYALTY IN SUPERCENTER by Patcharee Yoopetch Doctor of Business Administration Program, School of Business, University of the Thai Chamber of Commerce, Bangkok, 10400, Thailand ABSTRACT The objective of the paper is study to the prevalent use of loyalty programs in superstore and the evidence about the effectiveness of loyalty program has begun to accumulate recently. The study in this field is still underdeveloped and there is a need to understand more where the whole picture has yet to emerge. This current research examines to identify types of activities which are important to customer satisfaction and loyalty in supercenter. The conceptual model was proposed in order to help identify the relationship among factors including promotion s, store s, brand s, category s and everyday low price guarantee and their effects on customer satisfaction and loyalty. KEYWORDS Customer satisfaction, Customer Loyalty, Supercenter INTRODUCTION There is limited number of research in this area of superstores. In competitive retailing industry, retailers have to find methods of retaining customers and loyalty program have become an increasingly popular choice of customer relationship management strategy to maintain their market shares and opportunities in new market segments. Therefore, creating effective loyalty program on customer retention is the key factor in order to achieve customer satisfactions, loyalty and financial goals and becomes one of the most important objectives of the organizations. In retails markets (Chen and Green, 2009), there is an increase in the number of super center and hypermarket and competitive marketing strategy is a key factor in retails and has linked some relationships among many factors, such as gender, retailer s marketing mix (price, store image, distribution intensity, price deals, advertising spending) and customer based brand equity (brand loyalty, brand awareness, brand equity, perceived quality and association). These perceptions are contributing factors of market share As a result, the findings of this study will highlight the important criteria for successful loyalty program. Additionally, factors and the level of influence of factors affecting the satisfaction and loyalty will be clearly identified. Customer satisfaction LITERATURE REVIEW Customer satisfaction is well known to be an antecedent of customer loyalty. Point and Mcquilken (2005) suggested that Customer satisfaction is an important indicator for customer loyalty to identify the benefits that customer loyalty delivers to an organization that no surprise because most marketers and consumer researcher are being considered the factors of success in highly competitive world of business. Siu and Chow (2003) suggested that customer satisfaction and service quality are distinct constructs and the key difference between customer satisfaction and service quality is that the service quality relates to managerial delivery of the service while satisfaction reflect to customer s experience with that service and the purpose to repurchase. Customer loyalty Today the use of loyalty program as a technique for firms to enhance customer loyalty is extremely popular and has grown exponentially across the world, especially in the United States of America and the United Kingdom (Bellizi &

2 Bristol, 2004), Despite the popularity of loyalty programs, their effectiveness is not well understood (Bolton, Kannan, and Bramlett 2000). Some researchers question the value of loyalty programs. Dowling (2002) suggests that loyalty programs do not necessarily encourage loyalty and are not cost effective and that extend of loyalty programs is hype. This is also of strategic importance because of programs are costly investments and require a firm s commitment to customer retention. It is vital for managers to know whether and how these programs work before they take the plunge. According to Liv (2007) customer loyalty means a commitment that customers have with the company s products and services and the customer have intention to repurchase those products & services again in the future. For this reason, customer loyalty can affect the company s sales and profits. Therefore, many companies participate in loyalty programs. Molina and Suara (2008) suggested that customer loyalty defined as first, an attitude that involves between relationships with the brand and second, to expose behaviors though repeated purchase in term of a positive attitude. Loyalty is part of service and difficult to measure because intangible and lack of standardization due to the s of services and depend on trust and building and maintain of customers, loyalty towards the store has been defined as the biased behavioral response to period of time by a decision-making unit made in comparison with other stores, as a significant of psychological decision making and evaluative processes that result in the commitment to the stores of a positive relationship between attitude and loyalty in retailing. Empirical studies in this areas mentioned many dimensions for study. Bolton, Kannan, and Bramlett (2000, p. 28) suggest that to determine the long-term efficacy of a loyalty rewards program, a company must quantify the program s influence on future purchase behavior (e.g., usage levels). To succeed in the loyalty program, retailers need to consider several factors including the long-term orientation of loyalty programs and their transformation of single purchases into multi-period decisions (Kopalle and Neslin 2003). Kivetz and Simonson (2002) suggested that the fit of an individual with a loyalty program can influence his or her likelihood of joining the program. SUPERCENTER Superstore is one of the fast growing areas in retailing in Thailand and in many other countries. According to (Vishal, Karster and Robert, 2006) Supercenters, which average 180,000 square feet, are retail stores that combine a discount department store with a full-service supermarket. They offer a wide variety of general merchandise and food items, including meat, produce, deli, and other perishables. In addition, many include ancillary services such as pharmacy, dry cleaning, vision center, Tire and Lube Express, hair salon, income tax preparation (in season), and so forth, providing consumers with a true one-stop shopping experience. The supercenter is an offshoot of the hypermarket concept, which has existed in Europe since the 1960s. Indeed, the second-largest retailer in the world, France's Carrefour, is a large owner of hypermarkets. In 1984, through a partnership of Euromarche and Super Value, hypermarkets first found their way to the United States with the opening of a Biggs in the Cincinnati suburbs. Today's U.S. supercenters have evolved from the European hypermarket model. Both are essentially the combination of a supermarket and a general merchandise store; however, the supercenter has a greater selection of general merchandise products. Schaffner,Bokal,Fink,Rawls, and Schweiger (2005) suggested that Hypermarkets In the mid-to-late 1990s, the development of the superstore or hypermarket changed the industry. A hypermarket is typically 15-20,000 square meters and provides all the basic needs of the consumer under one roof and at very competitive prices. Unlike most supermarkets, which tend to target the middle and upper-middle classes, the hypermarket is aimed at the masses. Until the economic downturn in the late 1990s, hypermarkets were owned either locally or through joint ventures with foreign retailers. (Mertens 2001) Other major players are Big C (French) with 37 stores, Carrefour (French) with 22 stores, and Makro (German, Interspar AG) with 22 stores. Competition from the hypermarkets is resulting in a shrinking independent retailer sector it is estimated that independent shops are shrinkingby 20% a year in total floor space while modern trade space is growing by 10%. (Asia and Australasia, 2005)The Thai retail market has seen prolific expansion in the number of modern retail chains, especially hypermarkets, in recent years. Foreign retailers have made the most of a deregulated market and minimal bureaucracy in Thailand over the past decade, and in recent years the number of foreign-owned large retail outlets has grown rapidly. They initially focused on discount warehouse or hypermarket projects, given the low average purchasing power of consumers after the 1998 economic crisis. Hypermarkets in Thailand typically focus on fresh food, trying to create the feel of the traditional wet market. They also often offer an entertainment facility as shopping is increasingly being seen as a recreational activity. By end-2004 the UK.s Tesco Lotus had 64 stores, and two Frenchowned retailers, Carrefour and Big C, had 18 and 39 stores respectively.

3 OBJECTIVES OF THIS STUDY This research contributes to a better understanding of loyalty programs with three objectives as follows; 1. To understand the change of consumer behavior after they join a loyalty program. 2. To identify types of activities in the loyalty program which are important to customer satisfaction and customer loyalty 3. To test and compare the effect of loyalty program on customer satisfaction and customer loyalty RESEARCH QUESTIONS 1. Which loyalty programs change consumers support levels and exclusive loyalty to the firm? 2. What are general effects of the loyalty program on purchase behavior change? 3. How do consumers with different initial usage levels change their behavior to maximize the benefits they receive from a loyalty program? Conceptual Framework To construct the conceptual model of this study, the author reviewed important factors, including promotion s, store s, brand s, category s and everyday low price guarantee. Kusum,Bari,Jacques and David (2006) suggested that promotion s were associated with net unit of product sold. In addition, the deeper the discount, the more likely that it has the economic savings for the customers and the customers may incur in switching from preferred stores and/or preferred brands and any inventory carrying costs in buying now from the promoting store instead of buying later from another store. For brand s, the consumers appear to be attracted to the high-share and heavily advertised brands. About category s, variety of product categories could lead to store switching for customers. Additionally, the impact of promotions in frequently purchased categories can even affect higher purchase in that category. Another factor is store s, including the size of the store can directly affect the choice of store selection of the customers. The larger stores tend to be able to appeal more customers, comparing to the smaller ones. FIGURE 1 CONCEPTUAL FRAMEWORK Promotion Store Brand Category Characteristic Customer Satisfaction Customer Loyalty Every day low price Guarantee Loyalty program

4 Last factor is EDLP (Everyday low prices) guarantee, Singh, Hansen, and Blattberg (2006) suggested that lower price is crucial to customers to choose the store. For example, the prices at Wal-Mart supercenter were about 15% lower than traditional supermarkets. EDLP guarantee strategy can provide the image of a low-price store, affecting future decision of customers for revisit the store. RESEARCH HYPOTHESES H1: Promotion s have positive influence on customer satisfaction H2: Store s have positive influence on customer satisfaction H3: Brand s have positive influence on customer satisfaction H4: Categories s have positive influence on customer loyalty H5: Every day low price guarantee has positive influence on satisfaction H6: Customer satisfaction has positive influence on customer loyalty CONCLUSION This article aims to provide the novel conceptual frame work for understanding the customer satisfaction and loyalty of superstore context. The major factors are indentified and the potential hypotheses are also discussed. Further research may involve with empirical research studies in order to test the relationship. In the context of Thailand, superstores are growing and competition becomes more intense than ever before. Understanding more about the relationship of factors affecting satisfaction and loyalty can help store managers to prepare and enhance the capability to later meet their organizational goals. REFERENCES H.C.Chen, R.D. Green (2009), Marketing Mix and Branding: Competitive Hypermarket Strategies International Journal of Management and Marketing Research, vol 2, No.1, p Lisa McQuilken, Marcin Pont (2005), Analysis papers An empirical investigation of customer satisfaction and loyalty across two divergent bank segments Journal of Financial Services Marketing Vol. 9, Noel Y. M. Siu and Donald K. H. Chow (2003) Service Quality in Grocery Retailing:The Study of a Japanese Supermarket in Hong Kong, Journal of International Consumer Marketing, Vol. 16(1),pp Bellizi, JA. & Bristol T. (2004). An assessment of supermarket loyalty cards in one major USmarket. Journal of Consumer Marketing, 21(2), Bolton, Ruth N., P.K. Kannan, and Matthew D. Bramlett (2000), Implications of Loyalty Program Membership and Service Experiences for Customer Retention and Value, Journal of the Academy of Marketing Science, 28 (Winter), Dowling, Grahame R. (2002), Customer Relationship Management: In B2C Markets, Often Less Is More, California Management Review, 44 (Spring), Yuping Lui (2007), The Long-Term Impact of Loyalty Programs on Consumer Purchase Behavior and Loyalty, Journal of Marketing, Vol.71, p Ruiz-Molina, Gil-Saura (2008), Perceived value, Customer attitude and loyalty in retailing Journal of retails &Leisure Property, Vol 7, No.4, p Kopalle, Praveen K. and Scott A. Neslin (2003), The EconomicViability of Frequent Reward Programs in a Strategic Competitive Environment, Review of Marketing Science, 1, Richard Cuthbertson,Arttu Laine (2003), The role of CRM within Retail loyalty marketing, Journal of Targeting, Measurement and Analysis for Marketing, Vol.12,3,p

5 Kivetz, Ran (2005), Promotion Reactance: The Role of Effort-Reward Congruity, Journal of Consumer Research, 31 (March), and Itamar Simonson (2002), Earning the Right to Indulge: Effort as a Determinant of Customer Preferences Toward Frequency Program Rewards, Journal of Marketing Research, 39 (May), Singh, Hansen, and Blattberg: Market Entry and Consumer Behavior: An Investigation of a Wal-Mart Supercenter, Marketing Science 25(5), pp , 2006 Michael H. Strople: From supermarkets to supercenters: employment shifts to the one-stop shop, Monthly Labor Review February 2006, pp KUSUM L. AILAWADI, BARI A. HARLAM, JACQUES CÉSAR, and DAVID TROUNCE Promotion Profitability for a Retailer: The Role of Promotion, Brand, Category, and Store Characteristics, Journal of Marketing Research 518 Vol. XLIII 2006, pp Food Retail-Price Comparison In Thailand David J. Schaffner, Blaire Bokal, Scott Fink, Kimberly Rawls, and Jeremy Schweiger(2005), Journal of Food Distribution Research 36(1),pp Mertens, B.( 2001). Big Players are Squeezing Out Traditional Thai Shop Owners, Asian Business 37(7):57. Market profile Asia and Australasia. Retrieved June, 2005, < Tesco Lotus: Big C: and Carrefour: