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Faculty of Education and Economic Studies Department of Business and Economics
Customer Perceived Value of Credit Card Rewards
- A study on Canadian Consumers
Lisa Smedley
2013
Thesis, C-level, 15 credits Business Administration
Bachelor’s thesis in Business Administration Bachelor of Business Administration
Supervisor: Jonas Kågström Examiner: Lars-Torsten Eriksson
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Abstract
Title: Customer Perceived Value of Credit Card Rewards - A study on Canadian Consumers
Level: Final assignment for Bachelor’s Degree in Business Administration
Author: Lisa Smedley
Supervisor: Jonas Kågström
Date: 2013 - January
Aim: The aim of this study is to investigate what influences Customer Perceived Value; where Canadian consumers’ preferences lie in terms of rewards in the Canadian credit card industry.
Method: After researching previous studies and determining what constructs have been utilized prior on similar research topics, I implement a quantitative, and to some extend iterative, research approach. Through survey research, I investigate Canadian consumer preferences through a survey sample of 124 Canadian consumers in Calgary, Alberta, Canada.
Result & Conclusions: One finding in the study indicates that utilitarian benefits, which provide financial gain for the card holder, are perceived by respondents as the most valuable reward. Another finding is that inexperienced credit card holders see significantly greater value in symbolic benefits than experienced card holders do.
The present study does not support the theory that customer involvement influences the customer’s perception of rewards.
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Suggestions for future research: More extensive research is needed on the subject of whether Canadian consumers’ perceived value of rewards is influenced by their level of involvement in their credit card. Also, studies involving additional factors that could possibly determine a consumer’s perception of rewards, such as income and ethnicity should be investigated for a more well- rounded understanding of customer preferences.
Contribution of the thesis: The present study contributes with new findings that can be of substantial significance for Canadian financial institutions as it provides insight into what credit card rewards Canadian consumers perceive as being valuable to them.
Key words: Rewards programs, credit cards, customer loyalty, perceived customer value, timing of reward, type of reward, dimension of benefit, utilitarian, hedonic, symbolic
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Acknowledgements
First, I would like to thank my Supervisor Jonas Kågström, for his contagious optimism, ambition and passion for research. With
invaluable insight he has guided me through composing this thesis at long-distance from Gävle, Sweden.
I would also like to thank Jenni M. Karl for helping me to gain access to the Brain and Behaviour class at the University of Lethbridge.
Thank you, also, to everyone in Calgary who participated in my survey investigation.
2012-12-31
Lethbridge, Canada Lisa Smedley
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Table of Contents
1 Introduction ... 8
1.1 The effects of credit card rewards on businesses and consumers ... 8
1.2 Customer rewards as firms’ marketing tools and profit boosters ... 10
1.3 Research question ... 12
1.4 Purpose ... 12
2 Theory and Literature overview ... 13
2.1 Literature outline ... 13
2.2 Customer Perceived Value ... 15
2.3 Potential constructs ... 19
2.3.1 Involvement ... 19
2.3.2 Type of reward ... 23
2.3.3 Timing of reward ... 25
2.3.4 Target of attitude ... 28
2.3.5 Dimension of benefit ... 29
2.4 Summary of theory ... 31
2.5 The four constructs selected for use in the current study and my first model of their expected correlation with each other ... 33
2.5.1 A first model of the correlation between the chosen constructs for Customer Perceived Value ... 36
3 Methodology ... 37
3.1 Ontological and epistemological considerations ... 37
3.2 Research methods for the present study ... 38
3.2.1 Approach ... 38
3.2.2 Building the theoretical foundation ... 40
3.2.3 Data collection and respondent selection ... 41
3.3.1 Pearson Correlation ... 44
3.3.2 Factor Analysis ... 44
3.4 Reliability, validity and generalizability ... 46
3.5 Possible methodology errors ... 48
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3.5.1 Errors in quantitative research ... 48
3.5.2 Errors in survey research ... 48
4 Empirical findings ... 50
4.1 Findings from the survey investigation ... 51
4.1.1 Level of Involvement: High versus low ... 52
4.1.2 Timing of rewards: Immediate versus delayed ... 54
4.1.3 Type of rewards: Direct versus indirect ... 58
4.1.4 Dimension of benefit: Hedonic, Utilitarian and symbolic benefits .... 61
4.2 Additional comments about compilation of survey results ... 66
5 Analysis ... 69
5.1 Pearson’s Correlation between constructs ... 69
5.1.1 Level of Involvement ... 69
5.1.2 Type: Direct versus Indirect rewards ... 71
5.1.3 Timing: Immediate versus Delayed rewards ... 71
5.1.4 Dimension of benefits: Utilitarian, Hedonic and Symbolic ... 72
5.1.5 Additional, strong, correlations between constructs ... 74
5.2 Factor Analysis ... 75
5.2.1 Component 1 ... 77
5.2.2 Component 2 ... 77
5.2.3 Component 3 ... 78
5.2.4 Component 4 ... 79
5.2.5 Component 5 ... 79
5.3 A revised model of Customer Perceived Value 80
6 Conclusions ... 81
6.1 Managerial Implications………82
7 References ... 84
8 Appendix ... 87
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Table of figures
Figure 1. Increase in Loyalty Program research……….….…...13
Figure 2. Map of references; Rewards programs………...14
Figure 3. Map of references; Means of payment………....15
Figure 4. Compilation of Zeithaml’s definition of Customer Perceived value………16
Figure 5. Zeithaml’s definition of Customer Perceived Value (as cited in Ravald & Grönroos, 1996, p. 21)………..………16
Figure 6. Ravald & Grönroos’ definition of Customer Perceived Value (1996, p. 23)………16
Figure 7. Potential constructs for the present study. Displays formerly used means of categorization of rewards……….19
Figure 8. Types of Reward schemes (Dowling & Uncles, 1997, p. 12)……….26
Figure 9. Perceived Benefits of Loyalty Programs. (Mimouni-Chaabane & Volle, 2010, p. 33)………29
Figure 10. The four constructs selected for use in the present study………….33
Figure 11. A first model of the correlation between the chosen constructs for Customer Perceived Value……….36
Figure 12. Deductive approach (Bryman & Bell, 2003, p. 12)………..39
Figure 13. Inductive approach (Bryman & Bell, 2003, p. 12)………39
Figure 14. KMO and Bartlett's Test……….………..45
Figure 15. Bryman and Bell’s four sources of error in social survey research (2003, p. 110)………..49
Figure 16. Each respondent’s age in relation to their level of experience of holding at least one credit card………51
Figure 17. Question 1……….52
Figure 18. Responses to level of involvement in relation to each respondent’s age………..53
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Figure 19. Male and female responses to level of involvement……….53
Figure 20. Question 2……….54
Figure 21. Question 4……….55
Figure 22. Question 3……….56
Figure 23. Question 5……….57
Figure 24. Question 6……….58
Figure 25. Question 7……….58
Figure 26. Question 8……….59
Figure 27. Question 9……….60
Figure 28. Question 10………...61
Figure 29. Question 14………...62
Figure 30. Question 17………...62
Figure 31. Question 11………...63
Figure 32. Question 13………...63
Figure 33. Question 16………...64
Figure 34. Question 12………...64
Figure 35. Question 15………...65
Figure 36. Question 18………...65
Figure 37. Differences in answers between men and women………66
Figure 38. Similarities in answers between men and women………67
Figure 39. Answers to question 12 in relation to age……….67
Figure 40. Similarities in responses between ages……….68
Figure 41. Rotated Component Matrix………...76
Figure 42. A revised model of Customer Perceived Value………80
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1 Introduction
In this chapter, the effects that credit card rewards have on the economy, businesses and consumers will be discussed, as well as reasons as to why businesses decide to implement them. Research questions and the purpose of the present study will also be presented here.
1.1 The effects of credit card rewards on businesses and consumers
Loyalty programs have two general aims: to increase sales revenues and to maintain existing customers (Uncles, Dowling, & Hammond, 2003, pp. 294–295). Uncles et al. claim that the foundation for loyalty programs’ popularity lies in the idea that business’ profits can be increased by accomplishing either one of these two aims.
Stereotypically, loyalty programs offer customers financial and social rewards to reinforce purchasing behavior (Uncles et al., 2003, p. 294) and rewards used in the credit card industry are no different: credit card firms adopt rewards programs to promote consumer usage of their credit card.
Ching & Hayashi (2010, p. 1783) found that consumers who’s primary method of payment is credit and debit card would all reduce their usage of the card if their payment card rewards were removed.
They also found that consumers were more enticed to use their rewards payment card for larger transactions. Carbó-Valverde and Liñares-Zegarra's study also suggested that removing rewards from consumers’ payment cards can make consumers reduce their payment card usage (2011, p. 3276), and thus retrogress to start using cash as their primary payment method. Additionally, earlier studies performed individually, by both Feinberg and Soman, have shown that consumers are more prone to use credit cards to pay for more durable products in relation to products with a shorter shelf-life (as cited by Carbó-Valverde & Liñares-Zegarra 2011, p. 3276). Furthermore, studies performed by Bolton, Kannan, & Bramlett (2000, p. 106) have
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shown that consumers who are members of credit card rewards programs tend to overlook negative experiences with their card issuing financial institutions, as well as resulting in them paying less attention to competing firms’ offers (2000, p. 105). Wirtz, Mattila, &
Lwin, (2007, p. 332) suggest that because consumers rarely have a psychological attachment to their credit card issuer, presenting credit card holders with a desirable rewards program is probable to increase customer loyalty.
Maritz Canada’s 2012 report on Customer loyalty programs showed that 92% of Canadians are members of at least one loyalty program of some kind. The same study showed that 31% of all Canadians, 49 % of them being high income Canadians, would switch credit card providers if it wasn’t for the loyalty program their card issuer offers (2012, p. 2-4). In 2006, the annual revenue for MasterCard and Visa credit cards was estimated at $30 billion USD, solely from interchange fees. Of those fees, rewards were estimated to account for 44% of the total amount (Ching & Hayashi, 2010, p. 1775).
However, credit card rewards are not only affecting credit card firms’ economy. Using payment cards as a primary payment method, instead of cash or cheques, can possibly reduce the overall cost of our world economy and at the same time increase overall sales (Ching &
Hayashi, 2010, p. 1773). The transition from cash to card payments has thus become one of the main ambitions of both financial planners and financial institutions’ today (Carbó-Valverde & Liñares-Zegarra, 2011, p. 3286).
Research has shown that one of the positive effects that credit card rewards programs have on consumers’ method of payment is that it encourages, and increases, the total number of transactions made each day in relation to paper based payment (Simon, Smith & West, 2010, p. 1771; Carbó-Valverde & Liñares-Zegarra, 2011, p. 3286). Another positive outcome of credit card rewards is that being rewarded for using payment cards appears to increase consumers’ spending overall (Ching & Hayashi, 2010, p. 1773). Both of these effects can thus be interpreted as important not only in a business economy perspective but for long-term national and international economy planning as well.
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Although the subject of credit card rewards programs can be viewed as an international development issue, the present study will focus on credit card rewards from a general business perspective, in an attempt to investigate consumer’s perceived value of credit card rewards.
1.2 Customer rewards as firms’ marketing tools and profit boosters
Rewards as customer marketing tools have been used in the credit card industry for more than 25 years (Ching & Hayashi, 2010, p.
1774) but loyalty programs in general have been around for much longer. The original loyalty programs in fact started at least as early as the in 1950’s (Davis, 1959, p. 141) and consisted of trading stamps.
The program was referred to as the “gold stamp” program (Shugan, 2005, p. 188), enabling families to receive quantity discounts by collecting stamps at the time of purchase which could later be traded in for goods. In 1958, approximately two thirds of American families belonged to at least one such program (Shugan, 2005, p. 186). With the increasing popularity of rewards programs, it did not take long for curious researchers to take on the task of determining their proclaimed efficiency. According to Davis (1959, p. 141), several articles had already been written on the subject of loyalty programs by the time he published his own in the late 1950’s. The stamps, however, disappeared when new owners took over the stores that had first implemented them. The new stores offered lower prices overall and the trading stamp loyalty programs disappeared.
During the 1970’s researchers in Europe found that merchants in B2B-businesses who established close professional bonds with their customers had more loyal customers who gave their supplier a larger share of wallet, i.e. a large portion of their spending (Dowling &
Uncles, 1997, p. 3). This spiked a strong interest in marketers and would increasingly be the target of future customer loyalty research.
More current studies have shown that customers who are satisfied with the reward program they are participating in are willing to give the company a larger share of wallet than those customers who are not
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satisfied with their rewards program (Demoulin & Zidda, 2008, p. 11).
Shugan (2005, p. 191) states that: “True loyalty programs invest now for the future and trust rather than demand trust.” But further claims that instead of creating assets by following these rules, many loyalty programs create long-term liabilities for the company.
Dowling and Uncles note six general reasons as to why businesses adopt loyalty programs: Maintaining sales, profits and margins;
adding value for existing customers; increasing existing customers’
cross-product sales; separating the brand from competitors’; and lastly preventing competitors from presenting the brand’s customers with other comparable service or product loyalty proposals (Dowling &
Uncles, 1997, pp. 4–5). Additionally, they suggest that loyalty programs can help the brand stand out to customers as well as aid them in standing strong in a market place that is nowadays highly influences by loyalty rewards. The author’s refer to this as the ‘Me-too pressure’ (Uncles et al., 2003, p. 310).
Customer loyalty programs discriminate against non-loyal customers and because it is believed that non-loyal customers generally burden the brand with higher average service costs, this can be viewed as a positive side effect. Loyalty programs can funnel out those customers and thus aid the company in being more profitable with existing and loyal customers (Shugan, 2005, p. 191). The idea of targeting loyalty programs to a company’s most valuable customers is supported by Yi & Jeon (2003, p. 231). They suggest that by discouraging customers who do not add as much value to the company, the program turns into a self-improving tool for the brand.
While the reasons as to why credit card companies decide to implement reward programs might to some extent differ between firms it is likely that adoption of rewards programs is, partly, a result of the firms’ battles against competitive parity in a fiercely competitive industry (Dowling & Uncles, 1997, p. 5; Agarwal, Chakravorti, & Lunn, 2010, p. 19).
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1.3 Research question
As mentioned earlier, several studies have shown that a rewards program that is perceived as valuable to the customer will not only increase their loyalty to the firm but will increase their overall spending habits. It is thus clear that credit card rewards affect consumers’ purchasing decisions, but do consumers settle for just any kind of reward or do they have a strong preference for one certain type of reward? And when do they want to receive that reward, immediately at the time of their purchase or later on?
Mimouni-Chaabane & Volle (2010, p. 32) noted that the majority of existing research focuses on how the businesses’ finances benefit from such a program. In other words, a gap had been left for the question of customer perceived benefits. But in order to achieve an increase in profits, credit card firms must offer their customers rewards that those customers perceive as valuable.
This study will thus, from a business economics perspective, concentrate on questions such as how do buyers value rewards in the credit card industry? What types of rewards are most generally preferred among consumers in the credit card industry? What factors affects consumer preferences for credit card rewards? Is there a distinct difference in preferences between male and female cardholders? Is there a difference in preferences in relation to cardholders’ ages?
1.4 Purpose
The purpose of this study is to investigate what credit card rewards Canadian consumers perceive as being valuable to them. By utilizing a business researching method I will be describing, analyzing and comparing today’s consumers’ perceived value of credit card rewards through a survey investigation. I hope to be able to conclude whether credit card firms should incorporate drastic changes into their rewards programs to catch consumers’ interests, increase their loyalty to the firm and thus increase firm profit.
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2 Theory and Literature overview
In this chapter, the theory used for the empirical study will be presented. The chapter begins with a summarizing literature review, followed by the concept of customer perceived value. Constructs used in prior research to determine perceived customer value of loyalty programs will then be presented, as well as the constructs that have been selected for use in the current study.
2.1 Literature outline
The amount of available research on the subject of loyalty programs has increased immensely over the last three decades. A search on ISI Web of Science provides several hundreds of articles on the subject.
Figure 1. Increase in Loyalty Program research (ISI)
The vast majority of prior research on loyalty programs has been written from firms’ financial perspectives and thus entails instructions on how to avoid negative financial implications during and post
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implementation. There is, however, some research encompassing consumer preference and bias towards credit card rewards. In order to determine what components in loyalty programs that are most often preferred by consumers, authors have organized rewards into different categories. The following text entails a short presentation of some of these categories.
Dowling and Uncles (1997) and Yi and Jeon (2003) categorized rewards into type of reward and timing of reward. To these categories, they also added the construct of customer involvement as a determining factor. Other authors, such as Keh and Lee (2006) who performed similar research, chose to exclude the construct of involvement completely. Kristof de Wulf et al. (2003) divided rewards into hard versus soft benefits in their research, taking consumer inputs and outputs into consideration. To provide some insight into how perplexing research on the subject of customer rewards is the first schedule below presents some of the authors referenced in the present study and how they reference each other in their respective research on the subject of investigating the relationship between consumers and rewards programs.
Figure 2. Map of references; Rewards programs
A collection of other articles have been written on the subject of what promotes consumer’s means of payment, and whether receiving
Do customer loyalty programs really work?
Dowling, Uncles Behavioral learning
theory: It's relevance to marketing and promotions.
Rothschild, Gaidis
Measuring consumer involvement profiles.
Kapferer, Laurent
The valkue concept and relationship marketing.
Ravald, Grönroos
Consumer perceptions of price, quality and value.
Zeithaml
Zaichkowsky:
1985, 1986, 1994 Effects of loyalty
programs on value perception, program loyalty and brand loyalty. Yi, Jeon
What drives consumer participation to loyalty programs? De Wulf et al.
Do rewards programs build loyalty for services? Keh, Lee
Perceived benefits of loyalty programs Mimouni-Chabaane, Volle
Self-control for the righteous. Kivetz, Simonson
Implications of loyalty program membership and service experience for customer retention and value. Bolton et al.
Customer satisfaction with services.
McDougal, Levesque
Credit where credit is due. Parahoo
Modelling the relationship between perceived value, satisfactionand repurchasing intentions Patterson, Spreng
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rewards affects that choice. The second schedule below presents some insight into how the authors’, whose research is referenced in the present study, connects and refers to one another.
Figure 3. Map of references; Means of payment
Throughout the process of finding and reading articles on the topic of credit card rewards, all whilst critically examining their research methods and results, a selection of constructs and determining factors have been compiled for use in the present study. A presentation of all these constructs will follow in the coming chapters. However, first, a discussion about what the constructs will be leading up to in the study:
Customer Perceived Value. A selection of researchers’ opinions on, and previously created definitions of, Customer Perceived Value will thus be presented forthwith.
2.2 Customer Perceived Value
Customer perceived value is defined differently by different authors. It is thus difficult to come by a consistent definition of the term but according to Dowling and Uncles it is the customer’s perceived value that creates price insensitivity, not brand loyalty (1997, p. 14).
However, depending on the context in which it is being studied, value can take on different meanings: Patterson and Spreng noted that in an
How effective are rewards programs in promoting payment card usage? Empirical evidence. Carbo - Valverde
Payment card rewards programs and consumer payment choice.
Ching, Hayashi Price incentives
and consumer payment behavior. Simon, Smith, West
Debit or credit?
Zinman
Why use debit instead of credit?
consumer choice in a trillion-dollar market. Zinman The economics of
credit cards, debit cards and ATMs:
A survey and some new evidence.
An empirical analysis of payment card usage. Rysman
How do you pay?
The role of incentives at the point-of-sale.
Arango et al.
Why do banks reward their customers to use their credit cards?
Agarwal et al. The failure of competition in the credit card market.
Ausubel
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economic context, value can be synonymic with function or desirability, whilst in a marketing context it is most often defined from the consumer’s perspective (1997, p. 416).
Zeithaml (1988, p. 14) defined perceived value as: “The consumer’s overall assessment of the utility of a product based on perceptions of what is received and what is given”:
Figure 4. My compilation of Zeithaml’s definition of Customer Perceived value
Zeithaml’s definition is similar to that of Kent B. Monroe, which suggests that customer perceived value is the difference between consumer benefits and consumer sacrifice. Here, benefits represent the physical attributes of the product or service, and sacrifice the financial cost.
Figure 5. Zeithaml’s definition of Customer Perceived Value (as cited in Ravald &
Grönroos, 1996, p. 21)
Ravald and Grönroos suggest that differences in consumers’
perceived value is dependent on the consumer’s personal values, preferences, needs and on their personal financial situation. According to the authors, establishing what value the customer is requesting must be the firm’s first aim in delivering customer satisfactory value (1996, p. 22). Furthermore, the relationship between the firm and customer must be taken into account when calculating perceived value, stating that the components of the episode (the core product and the firm’s surrounding services) alone, is not enough. Grönroos and Ravald thus provide a model that differs from Monroe’s.
Figure 6. Ravald & Grönroos’ definition of Customer Perceived Value (1996, p. 23)
Total Episode Value = Episode Benefits + Relationship Benefits Episode Sacrifice + Relationship Sacrifice Customer-perceived value = Perceived Benefits
Perceived Sacrifice
Customer Perceived Value = Utility of Product (Received – Given)
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Bolton et al. found that members of loyalty programs of financial services were less sensitive than other customers to perception of both lower services and price disadvantages of their company (2000, p.
105). However, the authors also note that for a program to have a long-term positive effect on its customers their experiences with the programs must be mostly pleasant (2000, p. 96).
McDougall and Levesque found that perceived value, together with service quality, was the most important driver in determining customer satisfaction (2000, p. 407). The authors conducted a study in the purpose of investigating the connection between core service quality (consisting of perceived value and relational service quality), customer satisfaction and future intentions. They based their theory on the idea that customer satisfaction is a direct result of customer perceived value, and that level of satisfaction is what determines consumers’ future intentions.
Customer Perceived Value Customer Satisfaction Future Intentions
Figure 6. My compilation of McDougall & Levesque’s definition of Customer Perceive value (2000, p. 395)
Summary
Each customer’s perceived value of a product or service is believed to influence their loyalty to a brand (Dowling & Uncles, 1997, p. 14).
However, the definition of what customer perceived value is differs between researchers. Zeithaml believed perceived value was the consumer’s overall impression of the product based on what had been received and what had been given. Kent B Monroe, similar to Zeithaml, thought of customer perceived value as the difference between the physical attributes of the product or service and the financial cost of the purchase. Ravald and Grönroos created a model that was based on the belief that customer perceived value is dependent on the consumer’s personal values, preferences, needs and on their personal financial situation.
Customer Perceived Value Customer Satisfaction Future Intentions
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The definition of customer perceived value that will be employed in the current study is that of McDougall and Levesque, where customer perceived value is the connection between core service quality, customer satisfaction and future intentions. The theory that a customer’s satisfaction with his or her credit card rewards will predict whether they will be loyal to their credit card firm in the future is thus employed throughout the present study.
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2.3 Potential constructs
Many constructs have been developed to determine wherein the optimal key to customer loyalty lies and according to Della Porta and Keating, the more widespread a concept is, the less informative it turns out (2008, p. 92). Here, five of the constructs used in prior research of customer rewards will be presented in their most concentrated form, four of which will be selected for use in the present study.
Figure 7. Potential constructs for the present study. Displays formerly used means of categorization of rewards.
2.3.1 Involvement
Customer involvement is generally measured through high versus low levels of involvement, reflecting the level of interest that the customer has in selecting and knowing their brand or product (Dowling &
Uncles, 1997, p. 16; Yi & Jeon, 2003, p. 234). A customer with high a Type of
Reward:
*Direct vs.
Indirect
*Advertised vs.
Unexpected
*Hard vs.
Soft
*Primary vs.
Secondary
Timing of Reward:
*Immediate vs. Delayed
Target of Attitude:
*Deal vs.
Brand loyalty Involvement:
*High vs.
Low
Dimension of Benefit:
*Utilitarian, Hedonic or
Symbolic Customer Perceived Value
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level of involvement knows their brand and what it has to offer very well. High involvement customers are well educated about their brand’s loyalty program, observant towards promotions and will thus fully benefit from all that is offered to them by their brand (Parahoo, 2012, p. 5). Parahoo noted that customer involvement plays a highly important role in determining consumer behavior to the credit card industry (2012, p. 5) and suggested that there is a great need for credit card firms to concentrate on increasing levels of involvement in their customers (2012, p. 14).
Customer Involvement Profile
Laurent and Kapferer developed CIP, the Customer Involvement Profile in 1985. It states that the five facets of involvement are (1985, p. 43):
1. The consumer’s perceived significance of the item 2. The perceived risk linked to purchasing the item
3. The sign/symbolic value of the item ascribed by the consumer 4. The Hedonic value of, or the consumers’ emotional appeal for, the item
5. The perceived undesirable outcome of making a poor purchasing decision
According to the authors, not only would the Customer Involvement Profile create a better understanding for involvement dynamics but it could be used to segment the market: instead of just measuring high versus low levels of involvement, customers could show high involvement on some facets and low on others (Laurent &
Kapferer, 1985, p. 52).
Personal Involvement Inventory
Judith Lynne Zaichkowsky disapproved of the CIP model, claiming it suggested that involvement could be measured as a stable state (1994, p. 59). Zaichkowsky also found that the construct of involvement had been measured in several different fields: advertisement, products and purchases, by authors using different measures and thus providing results with major spread (1985, p. 341). Zaichkowsky’s own
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objective was thus to develop a measure that would include all aspects of involvement and allow researchers in all divergent fields to use one reliable method. In 1985, Zaichkowsky introduced a context-free 20 item scale, measuring the motivational state of involvement, calling it the PII: Personal Involvement Inventory (1994, p. 59). It was based on this three factor conceptualization of involvement:
1. Personal: interests, values and needs
2. Physical: differentiating traits in an item that appeals to consumers
3. Situational: factors that momentarily increase consumers’ interest in the item
Each individually, two or all three of these factors together were claimed to show the level of involvement with stimulus for an item.
The author (1985, p. 342) concluded that high involvement is generally a result of a consumer’s personal relevance to an item.
One year after the personal involvement inventory was released there was still no clear definition of involvement (Zaichkowsky, 1986, p. 4). However, Zaichkowsky could confirm that involvement as a construct is a natural motivator and that when humans are involved they comprehend magnitude and listen and behave in a different manner than when uninvolved (1985, p. 12). In 1996, Zaichkowsky published a new article, defending, revising and reducing the PII after it had received criticism saying that it did in fact not provide equal validity for different fields of involvement study (1994, p. 59)
High versus low involvement
Grahame R. Dowling and Mark Uncles studied involvement for product types and involvement for customer types (1997, p. 10). In their study, products and brands could have a high or low involvement status. As examples of low involvement brands the authors mentioned gas stations and every-day-food brands, whilst for high-involvement products they referred to the car manufacturer General Motors.
Typically, low involvement brands, or “me-too” brands as Dowling and Uncles referred to them, should have less extensive rewards programs attached to them because low involvement products are often bought out of consumer habit. High involvement products, on
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the other hand, should offer more extensive incentives (Dowling &
Uncles, 1997, p. 16) as it is expected to take more effort to entice the customer to choose a certain brand over competitors when the customer finds the purchase to be highly important to them.
Furthermore, Dowling & Uncles suggest that there are two decisions for the buyer to make at the time of any purchase. One is the category decision, which the authors exemplify as deciding whether to take the bus or plane to a destination, and the other is brand decision;
what air transport service company should I fly with? For high- involvement purchases the authors believed that consumers are highly involved in both decisions, whilst for low involvement purchases the involvement level for both decisions is low, although slightly higher for the category decision (1997, p. 16).
Youjae Yi and Hoseong Jeon’s study also shows that involvement effects how customers react to rewards programs (2003, p. 229). Their study was drawn on that of Dowling and Uncles’ with the exception of adding the construct of time frame for rewards. As far as the construct of involvement goes, Yi and Jeon’s study suggests that involvement moderates the effect of both type of reward as well as that of timing (2003, p. 237). For high involvement situations direct rewards proved to be more efficient for consumers to build loyalty to a brand than indirect rewards. In the low involvement situation, the type of reward did not impact the relationship between consumer and brand but timing of reward did: immediate rewards proved to be more effective for low involvement customers than delayed rewards (Yi & Jeon, 2003, p. 229). In high involvement situations, direct rewards were a greater success than indirect rewards but timing of rewards made no difference in perceived value of the loyalty program (Yi & Jeon, 2003, p. 236).
Summary
For many years, the construct of involvement was undefined but researchers were still aware that it could act as a determining factor in how consumers perceived loyalty programs. Zaichkowsky (1985) divided consumer involvement up into several possible levels while Laurent and Kapferer (1985) created the five facets to establish
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consumers’ levels of involvement. Other, more recent, studies conducted by authors such as Parahoo (2012), Yi and Jeon (2003) and, although not as recent, Dowling and Uncles (1997) measure consumers’ levels of involvement as either high or low. However, they all agree that the consumer’s level of involvement affects their perceived value of, and satisfaction with, a product or service.
2.3.2 Type of reward
Primary versus secondary reinforces
Michael L. Rothschild and William C. Gaidis divided reward-types into primary (core products) and secondary (coupons and tokens) reinforcers. Rothschild and Gaidis noted that primary reinforcers were initially much more powerful than secondary but that over time consumers noticed that the secondary reinforcers could be converted for primary ones and thus developed a relatively better liking for the secondary reinforcers (1981, p. 73).
Direct versus indirect rewards
Dowling and Uncles’ version of the construct is to some extent comparable to the promotional strategy categorization created by Rothschild and Gaidis. Here, the construct consists of direct rewards, which are directly linked to the brand or product bought; and indirect rewards which are not in any way connected to what the object or service was or where it was purchased (1997, p. 10). Dowling and Uncles suggested that direct rewards should be more efficient in building customer loyalty than indirect rewards are because they encourage the value proposition of the product. However, because the authors do not provide readers with any empirical research information, it is unclear what their conclusions are based on.
Yi and Jeon (2003, p. 234) concur with Dowling & Uncles in that direct rewards are better suited to enhance loyalty marketing. Yi and Jeon furthermore claim that direct rewards are prone to be given more attention by the customer because they are linked to the product or
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service that the customer found important enough to purchase. Their study also showed that consumer value perception of direct rewards programs surpassed that of programs with indirect rewards for consumers who were highly involved in a purchase (2003, p. 239). Yi and Jeon thus claimed that perceived customer value of rewards can be lessened if an indirect reward is given to consumers with high involvement for the product or service. However, for consumers who had low levels of involvement in their purchase there was no difference in perceived value between direct and indirect types of rewards.
Hard versus soft rewards
Kristof De Wulf et al. utilized the categorization of hard benefits: i.e.
pricing or gifts, versus soft benefits: consisting of additionally provided product information, together with the construct of timing of rewards (Wulf, Odekerken-Schroder, Canniere, & Van Oppen, 2003, pp. 75-76). Attempting to prove that consumers prefer to receive both soft and hard benefits immediately, the authors asked 2000 Belgian consumers to answer 16 questions on their preferences for incentive programs (Wulf et al., 2003, p. 77). The results of the study showed that consumers preferred hard, immediate benefits over all other combinations of benefits and soft benefits were only found valuable in combination with hard benefits. Moreover, results showed that consumers found cost of participation and program benefits to be of most significance in determining their participation in a program (Wulf et al., 2003, p. 78).
Advertised versus unexpected rewards
Patrali Chatterjee performed laboratory experiments on 391 students to investigate how consumers interpret advertised rewards versus unexpected rewards (2007, p. 63). Chatterjee found that those who received unexpected coupons were more satisfied with their overall purchasing experience than those who received advertised coupons.
However, those who had received unexpected coupons experienced a higher perception of retailer injustice. The author suggested this was
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because the consumers would perceive handing out unadvertised coupons to be a manipulative move performed by the retailer. Another of Patterjee’s findings was that the perceived value of the coupon was lower when received unexpectedly. The authors explained this to be the result of consumers feeling that they had already missed the opportunity to use their unexpected coupon because their purchase had already been completed. Furthermore, value denomination was considered to be most significant when the coupon did not state a specific future start date (2007, p. 65).
Summary
Several authors have attempted to categorize rewards by separating and dividing them into Types. Rothschild and Gaidis divided them up into primary (core products) and secondary (coupons and tokens) reinforcers. Dowling and Uncles and Yi and Jeon divided rewards up into direct: directly linked to the product or service bought, and indirect: rewards with no link to the product or service bought. Kristof de Wulf et al. separated rewards by categorizing them as either hard:
gifts or pricing, or soft: additional product information, whilst Chatterjee categorized rewards into whether the rewards were expected by the consumer or not, and referring to them as advertised or unadvertised.
2.3.3 Timing of reward
Immediate versus Delayed
Timing of rewards, also referred to as ‘timing of redemption’, is a construct used to separate rewards’ effect on consumers depending on at what point in time the consumer receives the reward (Rothschild &
Gaidis, 1981, p. 73; Wulf et al., 2003, p. 75; Yi & Jeon, 2003, p. 230).
The construct of timing of rewards is divided into immediate rewards, which are rewards received upon every visit or at every purchase, and delayed rewards, which are received upon every other-, third-, tenth visit or with accumulation of points (Dowling & Uncles, 1997, p. 12;
Yi & Jeon, 2003, p. 230).
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Rothschild and Gaidis found that immediate rewards were almost always preferable to delayed rewards. They suggested that delayed rewards would not necessarily reinforce the consumer’s desired behavior but rather their most recent behavior. A delayed reward which the consumer receives through mail will, according to the authors, reinforce the behavior of opening their mail box rather than their previous purchasing behavior (Rothschild and Gaidis, 1981, p.
73).
Dowling and Uncles, too, suggested that immediate rewards be used over delayed rewards, stating that psychology research had shown that delayed rewards had a less motivational effect than immediate rewards (Dowling & Uncles, 1997, p. 11). The authors created a matrix showing the connection between direct, indirect, immediate and delayed rewards. Their conclusion was that delayed, indirect rewards were the least efficient for both consumers and firms in attempting to build customer loyalty but was surprisingly still the most often used form of reward program.
Timing of Rewards
Immediate Delayed
Directly supports The Product’s Value Proposition
Type of Reward
Other, Indirect Types of Reward
Figure 8. Types of Reward schemes (Dowling & Uncles, 1997, p. 12)
Yi and Jeon performed experiments where the immediate reward was a scratch-and-win lottery ticket with a 10% chance of winning, and the delayed reward was given at every 10th visit (2003, p. 235).
Their results showed that under low involvement conditions, 1 Retailer/Brand 2 Airline Frequent
Manufacturer Flyer Clubs,
Promotions Coupons & Tokens (Price Promotions) (The GM Card) 3 Competitions 4 Multi-Product
& Frequent-Buyer Clubs Lotteries (Fly Buys)
(Instant Scratches)
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immediate rewards proved to make a greater impact on customers than delayed rewards (2003, p. 237).
Hean Tat Keh and Yih Hwai Lee conducted experiments of how type of reward, timing of reward and satisfaction from service interacted in a bank and a restaurant setting (Keh & Lee, 2006, p.
130). Their results differed slightly from prior studies in that when a customer was satisfied with the overall service experience, direct delayed rewards were most efficient in enhancing customer loyalty (Keh & Lee, 2006, p. 133). They suggested that only when customers are dissatisfied with the service experience are direct immediate rewards most efficient.
Summary
The construct of timing of rewards is divided into immediate and delayed rewards. Immediate rewards being those that the consumer receives upon their first visit or purchase and delayed are those that the consumer must wait to receive. Rothschild and Gaidis concluded, from their study, that immediate rewards were almost always preferred by consumers over delayed rewards. Dowling and Uncles believed that immediate rewards were of greater worth in creating customer loyalty whilst Yi and Jeon determined that preference to either immediate or delayed rewards depended on the consumers’
levels of involvement. Keh and Lee stated that consumers’ preferences depended on their levels of satisfaction with a service.
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2.3.4 Target of attitude
Deal versus brand loyalty
Target of attitude, or deal versus brand loyalty, determines what area of interest has captured the consumer’s attention (Yi & Jeon, 2003, p.
233). Some consumers will be interested in a brand because they are enticed with the brand and genuinely like it. Other consumers’ main focus will be the loyalty program in and of itself because the consumers enjoy shopping for deals and not for specific brands. The target attitude theory consists of categorizing consumers into brand loyal versus deal, or program, loyal. Brand loyal consumers are more likely than program loyal consumers to stay loyal to the brand even after the loyalty program has ended. High involvement consumers are thus more likely to be brand loyal simply because they have put more effort into knowing their brand and already perceive a greater value from the brand or product itself than from the rewards that come with it. Yi and Jeon’s study suggested that when consumers perceive that a rewards program is valuable to them, what initially started as program loyalty for low-involvement products can result in a long-term brand loyalty (2003, p. 238).
Summary
The construct of Target of attitude deals with where a consumer’s interest lies. If the consumer’s main interest and loyalty is in the actual brand and what it stands for, then that consumer is brand loyal. If the consumer is only willing to buy a product or service because of the rewards that come with the purchase, then that customer is program loyal. According to Yi and Jeon a customer’s Target of attitude is, just like type and timing of rewards, dependent on their level of involvement.
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2.3.5 Dimension of benefit
Utilitarian, hedonic or symbolic
Aida Mimouni-Chaabane and Pierre Volle's study was performed on French members of loyalty programs, investigating preferences for reward benefits (2010, p. 32). Utilitarian, hedonic and symbolic dimensions of perceived benefits were studied. In rewards programs, utilitarian benefits are associated with financial gain and convenience, hedonic benefits are those of entertainment and exploration, whilst symbolic represent a feeling of community and a sense of belonging to an exclusive group (2010, p. 33). The authors found that the perceived benefits and motivations were diverse among consumers (2010, p. 36) and thus consequently suggested that both monetary as well as non-monetary incentives should be integrated into all loyalty programs.
Figure 9. Perceived Benefits of Loyalty Programs (Mimouni-Chaabane & Volle, 2010, p.
33)
Kivetz and Simonson (2002, p. 203) conducted multiple studies on the differences in preferences of rewards among consumers. The participants were a total of 5700 passengers, between the ages of 18 and 80, in an airport. All participants were asked to rate non-cash and Dimensions of Sub dimensions of Definition:
Benefits: Benefits:
Utilitarian Monetary savings: To spend less and save more money
Convenience: To reduce choice and save time and effort Hedonic Exploration: To discover and try new products sold by the company
Entertainment: To enjoy collecting and redeeming points
Symbolic Recognition: To have a special status, to feel distinguished and be treated better
Social: To belong to a group that shares the same values
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cash lottery prices on five-point scales according to sense of utility (practicality and necessity) and hedonic (pleasure and luxury), some of the studies included a difference in timing of rewards as well. Their results showed that hedonic luxury rewards are generally more effective than utilitarian cash-rewards (2002, p. 212). They suggested that the reason for this was that cash-rewards would likely be spent on necessities, making consumers decline utilitarian rewards and instead pre-commit to hedonic luxuries as rewards (2002, p. 209).
Summary
Research on Dimension of benefit aims to investigate what aspects of their lives consumers prefer to be rewarded in. When research is focused on rewards programs, utilitarian benefits are associated with financial gain and convenience, hedonic benefits are those of entertainment and exploration and symbolic benefits represent a feeling of community and a sense of belonging to an exclusive group.
Mimouni-Chabane and Volle found that preferences were diverse among consumers because motivation for rewards differed. Kivetz and Simonson, on the other hand, found that hedonic rewards were preferred by most consumers and believed that was because consumers felt obligated to spend utilitarian benefits (monetary rewards) on necessities before luxury.
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2.4 Summary of theory
Each customer’s perceived value of a product or service is believed to influence their loyalty to a brand (Dowling & Uncles, 1997, p. 14).
Although four different definitions of customer perceived value have been presented (Zeithaml, Monroe, Ravald and Grönroos, and McDougall and Levesque), the definition that will be employed in the current study is that of McDougall and Levesque. They presented the theory that customer perceived value is the connection between core service quality (consisting of perceived value and relational service quality), customer satisfaction and future intentions. The theory that a customer’s satisfaction with his or her credit card rewards will predict whether they will be loyal to their credit card firm in the future is thus employed throughout the present study. The present study is created to determine what rewards are preferred by Canadian consumers and what influences their preferences. A high preference for a specific reward will thus be recognized as one that the customer perceives as being of high value to them. Perceptions of rewards and preferences for rewards will be utilized interchangeably in the present study.
Empirical emphasis will be placed on those rewards which Canadian consumers find are of the highest perceived value to them because they are theoretically expected to result in product loyalty.
In the theory chapter, five constructs that have previously been used in research on customer reward programs in general and on reward programs in the credit card industry, are presented. The first of these five constructs is that of Involvement, measuring the consumer’s level of interest in a product. The second construct presented in the theory chapter is the construct of Type of rewards which, in past research has divided rewards into primary and secondary, direct and indirect and advertised and unadvertised. The construct of Timing of rewards is the third construct presented and divides rewards into immediate and delayed depending on whether the consumer must wait for their reward or not. The fourth construct is that of Target of attitude which deals with where a consumer’s interest lies; in the brand or in the rewards program. All three of the latter mentioned constructs; Type and Timing of rewards and Target of attitude have been argued to be greatly influenced by a customer’s levels of involvement in a product.
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The fifth, and final, construct presented in the theory chapter is that of Dimension of benefits which aims to investigate what aspects of their lives consumers prefer to be rewarded in: the utilitarian, hedonic or symbolic dimension.
In the next chapter, I will explain my reasoning in including only four of these five presented construct in the study. I will also explain how, and in line with which theories, each construct will be utilized.
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2.5 The four constructs selected for use in the current study and my first model of their
expected correlation with each other
Figure 10. The four constructs selected for use in the present study
Construct 1: Involvement. High versus low
Dowling and Uncles, Yi and Jeon and Parahoo believe that a customers’ level of involvement is a determining factor in their perceived value of rewards. The construct of involvement will thus be regarded as an important component in the analysis of the survey sample in the present study. One area of focus in the study will be put on investigating whether involvement is a determining factor in perceived value of credit card rewards too. To be able to measure a possible relationship between involvement and the other constructs, the correlation between respondents’ levels of involvement with each of their answers to the other constructs will be compared.
Construct 2: Timing of reward. Immediate versus Delayed
Timing of rewards will be measured as immediate versus delayed rewards because it is a categorization of rewards that is commonly
Type of Reward:
Direct vs. Indirect Timing of
Reward:
Immediate vs.
Delayed
Involvement:
High vs. Low
Dimension of Benefit: Utilitarian,
Hedonic, Symbolic
Customer Perceived Value
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reoccurring in previous research about rewards programs as well as applicable in investigating credit card rewards. Immediate rewards in the present study are rewards that can be redeemed instantly upon use of the credit card, whilst delayed rewards will be represented by any rewards that cannot be redeemed at the time of credit card use but for which the consumer must wait.
Construct 3: Type of reward. Direct versus Indirect
Type of reward is another construct that is commonly reoccurring in previous research and applicable to research on credit card rewards. In investigating types of rewards, those that will be utilized in the current study are direct versus indirect rewards, in line with Dowling and Uncles’ and Yi and Jeon’s research. Direct rewards will be represented by those that are strongly connected to the credit card in and of itself, i.e. concern credit card fees and/or credit card debt.
Indirect rewards are all kinds of rewards not directly linked to the credit card, for example department store vouchers or movie tickets.
Construct 4: Dimension of benefit. Hedonic, Utilitarian and Symbolic
In order to provide Canadian credit card firms with information about where Canadian consumers’ interests lie, the construct of dimension of benefit will also be included in the study. To investigate in what dimension, or area, of consumers’ lives in which they prefer to be rewarded, the construct investigates consumers preferences for utilitarian (necessity, financial gain), hedonic (pleasure) and symbolic (feeling part of a group) benefits.
Difference between direct rewards and utilitarian benefits in the study
Utilitarian benefits are often symbolized by items of financial gain.
Because the object of this study is credit card rewards, a clear distinction must be made between direct rewards and utilitarian benefits. In order for the two constructs not to overlap, Utilitarian
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benefits (representing necessities) will be associated with items of financial gain such as vouchers and coupons for Groceries and cash.
Direct rewards, however, will be strongly connected solely to rewards of financial gain that are in relation to the actual credit card such as CC fees and CC debt.
Construct not included in the empirical study: Target of attitude
As mentioned earlier, the construct ‘target of attitude’ determines whether the consumer is interested in a product or brand because of the product or brand itself or if their interest has been spiked strictly from the appealing idea of the rewards that come with it. Because credit card rewards are not a temporary or time sensitive factor but are instead a highly permanent part of the card, target of attitude is not regarded significant in the present study. The object of this study is not to recognize what any other factors of credit cards are preferred by consumers but for that of its customer rewards.
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2.5.1 A first model of the correlation between the chosen constructs for Customer Perceived Value
The model presented below represents the relationships that I expect to find in the empirical findings of the present study. The model is based entirely on the previous research mentioned in the theory chapter: Each respondent’s level of involvement is expected to influence their preference for all other constructs. Furthermore, the consumer’s overall opinion of the factors contained in each of the selected constructs is expected to conclude what their perceived value of each reward is and thus, to some extent, predict their future intentions of loyalty to their credit card provider.
Type of Reward:
Direct vs. Indirect Timing of
Reward:
Immediate vs.
Delayed
Involvement:
High vs. Low
Dimension of Benefit: Utilitarian,
Hedonic, Symbolic
Customer Perceived Value of Rewards
Figure 11. A first model of the correlation between the chosen constructs for Customer Perceived Value
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3 Methodology
In this methodology chapter, epistemology and ontology is discussed, and execution of collecting prior research and survey data for the current study is presented. Furthermore, my choice of researching method, the study’s generalizability as well as attempts to increase both validity and reliability in the study are explained.
3.1 Ontological and epistemological considerations
In order for others to accurately interpret my empirical findings, I must give insight into how my research and findings should be interpreted. It is thus necessary that I share what my own interpretations of what reality and knowledge is. Bryman et al. refer to this as double and third level interpretations (2012, p. 10).
Discussions about ontology can concern whether a social reality exists or not: objectivists believe that it does exist whilst constructionists do not (Bryman et al. 2012, p. 11). Instead, constructionists believe that reality consists only of individual interpretations. I do not fully agree with either of these standpoints but rather take a soft constructionist position (Bryman et al. 2012, p. 11), agreeing that the existence of a social reality is possible but that our individual perceptions and opinions are not necessarily completely dependent on it, or at all times connected with it.
Epistemology is concerned with what knowledge is. Those who take a positivistic stance make clear distinctions between theory and research and support the development of new theories from research which has not taken pre-existing ideas into consideration. Their research often includes both deductive and inductive elements but believe that prior to referring to a theory as ‘knowledge’ it must be thoroughly tested. Others take on an interpretivistic stance, which means that they focus on understanding peoples’ individual reasoning behind their actions, interpreting their ever-changing human behaviors. In interpretivism, actions are perceived as being based on
