Customers’ expectations and loyalty to their loyalty programs: How customers are reacting according to their socio-demographic factors.

(1)

Customers’ expectations and loyalty to their loyalty programs

How customers are reacting according to their socio-demographic factors.

Author: Loriane Genre- Grandpierre

Tutor: Mosad Zineldin Examiner: Anders Pehrsson Date: 2015-05-29

(2)

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.

(3)

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)

4.2.5 PROFESSIONAL STATUS ... 31

4.2.6 INCOMES ... 31

4.3.1 GENDER ... 32

4.3.2 AGE ... 33

4.3.4 MARITAL STATUS ... 34

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

5.1.6 INCOMES ... 39

5.1.7 SUMMARY ... 39

5.2.1 GENDER ... 40

5.2.2 AGE ... 40

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

(5)

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’

(6)

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

(7)

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.

(8)

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 socio- demographic 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.

(9)

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

(10)

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 (exploration and entertainment) and symbolic benefits (recognition and social benefits) (Minouni-Chaabane and Volle, 2010).

2.2.1 UTILITARIAN BENEFITS

Utilitarian benefits can be defined as the functional, instrumental and practical benefits of a loyalty program (Chitturi and al., 2007). Utilitarian benefits report to basic desire like safety needs and generally refer to a product’s tangible attributes (Minouni-Chaabane and Volle, 2010). Customers arbitrate characteristics of a loyalty program by its success to accomplish what it was supposed to, meaning if the utilitarian value have been reach (Ibid.). Utilitarian benefits is basically monetary savings (Ibid.)

2.2.1.1 MONETARY SAVINGS

Monetary savings seem to be the most important motivation for consumers to join a loyalty program (Peterson, 1995). To start a relationship, customers need to perceive that the firm is going to offer them more value with a lower price (Parvatiyar and Sheth, 1995). Monetary saving can be cash-back offer or coupon that customers can accumulate by buying regularly with the same firm (Minouni-Chaabane and Volle, 2010).

2.2.2 HEDONIST BENEFITS

Hedonic benefits refer to the experiential and enjoyment-related benefits of the loyal program (Chitturi and al., 2007). They can be experienced throughout shopping, the use of a media and they

(11)

have a positive impact on customer loyalty (Arnold and Reynolds, 2003, Babin and Attaway, 2000, Babin et al., 1994, Jones et al., 2006 and McQuail et al., 1972). They can be divided into two dimensions: exploration and entertainment (Minouni-Chaabane and Volle, 2010).

2.2.2.1 EXPLORATION

Exploratory behaviours are the fact for consumers to desire to experience new or innovative products or services, to challenge their curiosity by changing their purchase habits, seeking new information about products or promotional offers and so forth (Arnold and Reynolds, 2003 and Baumgartner and Steenkamp, 1996). Consumer magazines or direct mail can be tools for customer’s exploration (Minouni-Chaabane and Volle, 2010).

2.2.2.2 ENTERTAINMENT

Loyalty programs can allow customers to collect and redeeming points, which is entertaining for them (Johnson, 1999). Entertainment can also be because of the possibility of enjoying experiences or activities that would not have been possible if they did not had join the program (Minouni- Chaabane and Volle, 2010). In fact, most of loyalty programs are offering attractive and enjoyable incentives to provide joy and make customer see loyalty program as an end in itself (Ibid.).

2.2.3 SYMBOLIC BENEFITS

Symbolic benefits are linked to personal expression, self-esteem and social approval and are provided by extrinsic advantages of a specific product or services (Keller, 1993). Loyalty programs are offering those symbolic benefits by differentiate customers in members and non-members by having some special treatments for the first category, which can be considered as a sign of respect or distinctiveness (Gordon et al., 1998).

2.2.3.1 RECOGNITION

Csikszentmmihalyi (2000) is pointing out that member of loyalty programs are consequently experiencing recognition benefits. Recognition can be defined as the customer’s feeling about their retailer treating them better than non-members (Beatty et al., 1996 and Gwinner et al., 1998). It can be perceived by special status, feeling distinguished and special treatments (Minouni-Chaabane and Volle, 2010)

(12)

2.2.3.2 SOCIAL BENEFITS

Social benefits can be defined as the feeling of being part of an exclusive group that share common values about the brand (Muniz and O'Guinn, 2001). Customers see themselves as privileged customers and identify themselves with this specific group (Ibid.)

2.3 CUSTOMER LOYALTY

2.3.1 CUSTOMER LOYALTY AND SATISFACTION

The concept of loyalty in marketing has been research a lot by academics. Past studies have shown that customer satisfaction tend to lead to customer loyalty (Bose and Rao, 2011). A customer is going to stay loyal if he or she perceives that the company gives him or her better product or services than competitors (Ibid.). In a business perceptive, loyalty is defined as the commitment of a customer to have a business relationship with a specific organisation, by buying their products or services repeatedly and having the desire of recommending the products or services to friends and associates (McIlroy and Barnett, 2000). Shoemaker and Lewis (1999) are defining loyalty as “. . . loyalty occurs when the customer feels so strongly that you can best meet his or her relevant needs that your competition is virtually excluded from the consideration set and the customer buys almost exclusively from you”. Oliver (1999) contradicts those definitions of loyalty, as he considers that past definitions are unsuccessful to give a unitary definition of it and fail to integrate the attitudinal perspective of it. Attitudinal loyalty involves cognitive, affective and conative aspects (Oliver, 1997) and more recently the author has added a fourth phase, which is action (Oliver, 1999). The first stage is the cognitive one and is constructed thanks to prior knowledge or experience about a specific company (Olivier, 1997). The second stage is the affective phase, which is the fact of liking or have feelings for a brand. After this one comes the conative loyalty when the customer has the intention to keep purchasing a product with this specific firm. The final stage is the action loyalty, which is the transformation of intention of buying into the readiness to act. (Oliver, 1999) Retaining existing customers is crucial in retail markets because of the intense competition that is occurring (Sirohi et al., 1998) and it has become a strategy in itself to conserve a competitive advantage over competitors (Grönroos, 2009). Moreover, Reichheld (2001) has pointed out that a loyal customer is costing less to a company than creating a new one.

Marketing literature is considering that satisfaction is a necessary antecedent to customer loyalty (Sivadas and Baker-Prewitt, 2000; Abdullah and al., 2012). Consumer satisfaction had a lot of definition throughout academic literature. Satisfaction can be defined as an evaluative judgement that is occurring after doing the choice of buying a specific product or service (Day, 1984).

(13)

Generally the evaluation of satisfaction is happening by comparing the expectation of customers before buying the item and the performances of the item perceived after the purchase (Bearden and Teel, 1983; Oliver, 1980; Westbrook, 1980). Satisfaction is as consequence a result of the evaluation of the perceived performance of the item, it could be confirmed or not (Danaher and Haddrell, 1996).

The most accepted view is that satisfaction has a positive impact on loyalty (Sivadas and Baker- Prewitt, 2000; Abdullah and al., 2012). Nevertheless, it is important to see that there is more than just this relation between the two concepts as even satisfied customers could be unfaithful to a brand. Reichheld’s (1996) research has concluded that 65% to 85% of the disloyal customers were actually satisfied or very satisfied. In the same way, Chandrashekaran and al. (2007) are studying the results obtained by the U.S. Office of Consumer Affairs (Technical Assistance Research Program, 1986) and pointed out that only 54% of household who have faced services problems were satisfied by the resolution of those problems but they would not remain. Moreover, another study has shown that only 25% of the variance in repeated purchase is explained by satisfaction (Henard and Szymanski, 2001).

2.3.2 LOYALTY TO THE PROGRAM

Companies are creating loyalty programs in the aim of influencing the way and the frequency of customers’ buying, what they think about the company, their relationship with it and to create more loyalty among those customers (Henderson et al., 2011). Loyalty programs are providing financial benefits (Bolton, Lemon, and Verhoef, 2004) such as discounts, promotional offers and coupons (Mimouni-Chaabane and Volle, 2010). They also give the opportunity for customers to discover new products and try some (Ibid.). Moreover, loyalty programs tend to create a sense of community and personal recognition (Gwinner, Gremler, and Bitner, 1998). They create a feeling of belonging and are making customer feel important (McMillan and Chavis, 1986). The financial features, the fact of discovering new products and the felling of belonging increase the customer loyalty to the program because they perceived a utility of the program (Meyer-Waarden, 2007).

2.3.3 LOYALTY TO THE COMPANY

When customers are joining a loyalty program they become a member of a more or less exclusive group where they can share same values and can identify themselves with this group (Muniz and O'Guinn, 2001). Customers who are loyal to a program tend to develop strongest relationship with the company in question (Ahearne et al., 2005 and Bhattacharya et al., 1995). Moreover, one benefit

(14)

they are going to interact more with it (Bolton et al., 2000) and then customers tend to be less receptive to negative and external information about this company and as a consequence are going to be more loyal to the company (Ibid.)

2.4 SOCIO-DEMOGRAPHIC FACTORS

The moderating effect of socio-demographic factors on customer loyalty and satisfaction has been research by academics. The different factors are going to be presented below. Nevertheless, the effect of them on the expectations and perceived benefits from loyalty programs have not been a subject of research, which is going to be the aim of this study.

2.4.1 GENDER

It has been shown that there is an important difference in how females and males are shopping (Kuruvilla et al., 2009; Helgesen and Nesset, 2010). Previous studies seem to indicate that females tend to be more loyal than males but it not true in every situation because it depends on what they are buying (Melnyk et al., 2009). According to Patterson (2007), females value more long-term relationship where there are personal contacts. Melnyk et al (2009) agreed on that, saying that females are more interested in the personal relationship rather than on the company as an entity.

Schwartz and Rubel (2005) ran a study in 70 different countries and found that men and women’s behaviours are driven by really different values and motives. They pointed out that men are seeking more than women for social status, prestige, dominance and achievement. In the other hand, women are valuing more the individual and personal relationships (Baumeister and Sommer, 1997). As consequences, women are less interested in the elite grade of a loyalty program and the social status that is conveyed by those kind of status. On the contrary, it more important to be recognized as individuals and that companies understand they have a name, a birthday and preferences (Melnyk et al., 2009). It is also less important for them that the personalization of the program is visible to everyone because they are less concerned about showing off to the others compared to men. (Ibid.)

2.4.2 AGE

According to different authors, age has a moderating effect on customer satisfaction and loyalty (Baumann, Burton, and Elliott 2005; Homburg and Giering 2001). Those authors found that older customers are more loyal to a specific brand in the industry of automobile and banking (Ibid.).

However, those results can be tempered by the large-scale study from the American Association of Retired Persons, which have found that older consumers have the same proportion to switch from a

(15)

brand to another compare to young people (Moos 2004). Moreover, older consumers have more free time and so more time to spend on shopping and as consequences are more able to shop at numerous stores (East et al. 1995; East et al. 2000). The middle-age group has been found to be the group the more loyal. Wright and Sparks (1999) has shown that the 35-44 age group are the most loyal which has been supported by McGoldrick and Andre (1997) who are demonstrating that loyal shopper have more chance to be from the middle-age group.

2.4.3 EDUCATION

Research on the subject tends to show that a higher level of education leads to lower level of loyalty among customers (Chance and French 1972; Mittal and Kamakura 2001; Murphy 1978). In fact, people with higher level of education tend to gather more information and usage before making a decision and as a consequence are more aware of the possible alternatives (Capon and Burke 1980).

Moreover, it has been shown that people with higher level of education tend to gain higher income (Farley, 1964) and, as it is going to be exposed below, higher income levels tend to be less loyal customers.

2.4.4 INCOMES

A lot of research have demonstrated that income have a negative impact on customer loyalty (Crask and Reynolds, 1978; Korgaonkar, Lund, and Price, 1985; Zeithaml 1985). The reason is that consumers with higher income have fewer shopping restriction and so are considered to be less loyal to a specific brand compare to those with lower income (Sharir 1974; Zeithaml 1985).

Nevertheless, those findings are not unanimous. In the sector of online services Keaveney and Parthasarathy (2001) found that consumers that were switching of brand have a lower average income levels than the one that are loyal.

2.4.5 MARITAL AND PROFESSIONAL STATUS

The relationship between marital status, professional status and loyalty does not appear a lot in the extant literature. In fact, some researchers have explored the impact of marital and professional status on customer loyalty but it was always on a secondary level, in a specific industry or specific cultural context. As consequences, it is hard to draw some tendencies. This study is going to try to fill that gap.

(16)

2.5 CONCEPTUAL FRAMEWORK

The research model, presented in the figure 1, is going to give a full view of the study. Socio- demographic factors are divided into gender, age, education, marital, professional status and incomes. Perceived benefits are divided into monetary saving, exploration, entertainment, recognition and social. The link going from the demographic factors to perceived benefits, and loyalty are illustrating the potential influence of them. The rest of the model is presented to understand what implies loyalty and is going to be used to go further and give some managerial implications for this study but only the part in the square is going to be studied here.

(17)

Socio- demographic

factors Gender Age Education Professional

situation Marital status

Income

Figure 1. Research model (Author’s elaboration)

H1: Socio-demographic factors have an influence on customers’ expectation of a loyalty program H2: Socio-demographic factors have an influence on customers’ loyalty

Customers’ expectation on benefits in a program

Monetary savings Exploration Recognition

Social

Customers’ perceived benefits in a program

Monetary savings Exploration Recognition

Social

Customer loyalty Loyalty to the program Loyalty to the company

Satisfaction H1

H2

(18)

3 METHODOLOGY

This chapter includes an explanation of how the study was conducted in order to solve the research problem.

3.1 RESEARCH APPROACH

Research approach is how the research problem is going to be solved in this particular thesis. A research that is qualified to be high quality needs to include two main concepts: relevance and rigour (Bryman and Bell, 2011). Relevance is composed of different points that need to be reached:

the research need to have managerial and theoretical interesting results, it needs to be achievable in a certain time and be understandable (Ibid.). The research also needs to be rigorous, meaning that other researchers could be able to accomplish the study again (Ibid.). Burns (2003) also emphasis the importance of reliability, valid data, reasonable time and low costs which can be reached thanks to the right choice of research approach. There are different ways of conducting a study; it is possible to conduct an inductive or deductive research and choose between a quantitative or qualitative one (Bryman and Bell, 2011).

3.1.1 INDUCTIVE VS. DEDUCTIVE RESEARCH

The deductive approach occurs when an author is gathering information about existing theories and researches to make own hypothesis. Those hypotheses are going to be accepted or rejected thanks to the empirical data that the authors will gather and its comparison to existing theories (Bryman and Bell, 2011). Beiske (2007) is saying that deductive research approach is the fact of investigating an existing theory or phenomenon and experiment if that theory is still valid in others situations or conditions. According to Robson (2011), deductive studies have five sequential stages of progress to follow. The first stage occurs when the authors are deducting hypothesis from theory. The second stage is about the operationalization of the hypotheses that need to be breaking down into measurable items. The hypotheses need to be tested in the third stage and then they are rejected or accepted in accordance with the results of the study. In the last stage, the theory is modified or not according to the results. (Ibid.)

On the other hand, inductive research is working on the other way around. An inductive research’s aim is to generate new theory as a result of observations (Brewerton and Millward, 2001). In the inductive approach, the research is not based on theory and no hypotheses are formulated at the

(19)

beginning of it but it is based on learning from experience, resemblances or premises (Lancaster, 2005; Lodico and al, 2010).

According to Bryman and Bell (2011), the deductive approach is more logical than the inductive one. Moreover, most of the time deductive researches are connected to quantitative data collection whereas inductive researches are connected to qualitative data collection (Ibid.)

This research is going to be conducted as a deductive approach because the author started to gain information on the specific subjects of customer loyalty, customer loyalty programs and socio- demographic factors in the existing theory; which are concepts that have been already research a lot. The information collected constitutes the literature review of this study. Two hypothesises have been formulated and will be accepted or rejected at the end of the research. The result of this study is going to fulfil the existing gap of the specific relationship between customer loyalty program and the influence of socio-demographic factors on it.

3.1.2 QUALITATIVE VS. QUANTITATIVE RESEARCH

It is common that qualitative and quantitative researches are seen as contrasts to each other (Bryman and Bell, 2011). Qualitative research is preferred when authors want to go deeper into gathering information about a specific subject (Clayton, 2010). It is usually used when there is not a lot of existing knowledge about the specific area or when the problem is complicated and authors want to totally understand it (Bryman and Bell, 2011). Nevertheless, there are drawbacks to those studies: conclusions made thanks to qualitative studies can not be generalized as they are based on beliefs and attitudes, it is hard to replicate those studies and there is a chance that respondents do not answer what they really think but rather what the author wants to hear and so distort the conclusions (Ibid.).

Quantitative researches are mostly studies that answer questions such as “how often” or “how much” (Amaratunga and al., 2002; Hartman, 2004). The results from quantitative data collection are numbers that are going to be presented in graphs or in a mathematical way (Clayton, 2010;

Hartman, 2004; Bryman and Bell, 2011). It is why quantitative researches are more structured and controlled than qualitative one because of its numeric questions (Hartman, 2004). Results of those studies are measurable and presentable (Ibid.) and that is why it is easier for other researchers to replicate the study (Bryman and Bell, 2011). According to Hartman (2004), quantitative studies have three phases: planning, collection and analysis.

The area of customer loyalty and customer loyalty programs has existing theories and studies about it. Nevertheless, the author has found a gap in this existing knowledge about the impact of

(20)

demographic factors on the relationship between customer loyalty programs and customer loyalty.

As consequences, this study is going to have a quantitative approach because the author needs to collect data from a large number of customers from different background to have quantifiable numbers and then be able to base the study on those numbers that are not available yet.

3.2 RESEARCH DESIGN

The research design is vital for the study as it is the plan researchers decide to use to resolve the problematic of their studies (Bryman and Bell, 2011; Saunders and al. 2009). The first step is to formulate the problem and there are three paths to choose from: the exploratory, the descriptive and the explanatory (Bryman and Bell, 2011).

An exploratory study is when authors are searching for new understanding of a specific area to clarify the problem they have raised (Saunders and al., 2009). This kind of research occurs when there are few existing studies on the subject (Krishnaswami and Satyaprasad, 2010) or when a problem has happened and authors want to research the reasons why (Churchill and Iacobucci, 2005).

A descriptive study is about presenting the proper profile of persons, event or specific situations (Robson, 2011). Moreover, it helps answering the questions to who, what, when where and why someone act in a certain way. (Churchill and Iacobucci, 2005). A descriptive research needs to be based on previous researches and be analytic (Grønmo and Winqvist, 2006). Most of the time, surveys are used in descriptive research (Burns, 2003).

The last kind of path is the exploratory research, which is when authors are focused on a unique problem or situation and the aim is to demonstrate a causal relationship between variables (Saunders, Lewis and Thornhill, 2009).

The purpose of this study is to describe in which way the demographic factors are influencing, or not, the expectations of customers on their loyalty programs and their loyalty. Moreover, the purpose of the study is to see if it possible to se if there is some resemblance among category of customers. As consequence, this study is going to have a descriptive research design. To measure impact it is possible to use frequencies in order to see how many time a particular thing occurs (Churchill and Iacobucci, 2005) and that is what the author is going to perform in this study to see if there is an influence of demographic factors on customer loyalty programs and on customer loyalty. Concepts of customer loyalty and customer loyalty programs are already well researched and are going to be the foundation for this research.

(21)

3.3 DATA SOURCES

There are two types of data sources that can be gathered for a research. The differentiation between them is based on who is collecting the data.

Primary data are collected by the researchers themselves in the aim of responding to a specific question. This kind of data is time consuming and expensive. Secondary data are collected by someone else for a purpose but the researcher is going to use them for another purpose or as a starting point of his/her study. Secondary data are classified into internal and external sources.

Internal sources are when the data are gathered inside a company for example whereas external sources are collected from outside sources such as Internet or statistics. It is easier and less expensive to collect secondary data but as they are not collected for the own purpose of the researcher, it might not fit completely the study or been obsolete. (Bryman and Bell, 2011)

Secondary data such as information about customer loyalty and customer loyalty programs have been collected as a starting point to this study. Nevertheless, the main source of data is primary data, gathered by the author, to solve this research problem.

3.4 RESEARCH STRATEGY

No research strategy is better than the other (Bryman and Bell, 2011), but it is important to make the good choice about the strategy used as it is the essence of the research and will answer the problematic of the research (Saunders, Lewis and Thornhill, 2009).

According to Yin (2009), there are five types of strategies that can be seen in the table 1:

Experiment, Survey, Archival analysis, History and Case study. The choice between the different strategies is made according to what the authors are looking for (Ibid.). The second column of the table 1 shows the question possible that could be researched. The third column is about whether or not the strategy request control over behavioural events and to finish the last column presents the strategy focus on contemporary events (Ibid.).

(22)

Table 1. Research strategy adopted from Yin (2009) p. 8

Archival analysis and history are often used to gather secondary data (Saunders, Lewis and Thornhill, 2009). As consequence, they were not interesting for this study as this one involves primary data. Most of the time experiment is linked to qualitative researches and its aim is to explore the link and the potential change between different variables (Bryman and Bell, 2011). This research’s aim is to examine the loyalty programs at the moment present and then not to do a comparison over different situations, as consequence this possibility was excluded.

The two choices left are case study and survey. Yin (2014) is explaining that a case study is preferred when: (1) the main research question is focusing on how and why, (2) the author has few or no control over behavioural events and (3) the focus of the study is contemporary. Case studies are often focusing on just two or three cases for comparatives purposes and it is hard to generalize those studies to an entire sector for example (Bryman and Bell, 2011). Because of the purpose of this study, which is to examine the whole sector of retail industry and their loyalty programs and not just to gather some information about few companies, the case study research has also been excluded.

Surveys are used when the objective is to present the data with numbers and statistics (Bryman and Bell, 2011). Moreover, it does not require control over behavioural events and focus on contemporary events (Yin, 2009). This description match well the intention for this study

(23)

3.5 DATA COLLECTION METHOD

There are five most common methods for collecting data: surveys, in-depth interviews, observations, focus groups and contents analysis (Yin, 2014; Bryman and Bell, 2011).

Questionnaires have been the method chosen for quantitative research. Questionnaires are used to present a population’s attitude and opinion on something thanks to quantitative description of a sample (Creswell, 2009). It is easier to answer closed questions than open one, as consequences Bryman and Bell (2011) are recommending to use those first kinds of questions in the questionnaires as most of the people do not want to answer a question by themselves. Moreover, the authors are giving more advices on how to run the questionnaire. The design of it need to be easy to read and to follow and questions need to be totally clear and understandable. A short explanation of the concepts can be displayed to make it easier for the reader (Ibid.). They also lay emphasis on the importance of the layout of the questionnaire: the more professional the questionnaire looks, the more people are going to be disposed to answer the questions. Another way of encouraging people to respond is to add some rewards or any kind of incitement (Ibid.). Questionnaires allow having reliable and valid data from a sample of the population within a moderate period of time and with low costs (Burns, 2003). This is why questionnaire has been chosen for this study and because it enables to gather a large number of data due to an easy diffusion. The questionnaire in English, shown in the appendix A, was sent by email, through social medias or has been given by hand to respondents.

3.6 OPERATIONALIZATION

Operationalization is the process of transforming theory into reality, meaning that the theory concepts are going to be transformed into measurable concepts (Saunders, Lewis and Thornhill, 2009; Bryman and Bell, 2011). Operationalization is required to be sure that the data collection is done in a rigorous way (Ibid.) and so ensure the credibility in the outcome of the research (Hartman, 2004).

Hartman (2004) thinks that operationalization should focus on: validity, reliability, usability and clarity. There are several steps that need to be followed to conduct the operationalization. First, get the theoretical insights of the concept used in the study (Holme and Krohn, 1997; Hartman, 2004;

Bryman and Bell, 2011) secondly create a conceptual definition of them with the help of previous research (Hartman, 2004; Bryman and Bell, 2011). The third step is to do an operational definition (Ibid.), then do an inventory of the potential variables (Holme and Krohn, 1997; Bryman and Bell, 2011), a pre-test is going to be done then and only the accurate variables are going to persist and the final test is to create the instrument for the collection of data (Bryman and Bell, 2011).

(24)

Concepts used for this study in the literature review are going to be inserted in the operationalization table (Table 2, pp.20). Those concepts have been transformed into measures, which have been explored before by authors in the field of customer loyalty programs and customer loyalty (Liu, 2007; Minouni-Chaabane and Volle, 2010; Day, 1984; McIlroy and Barnett, 2000)

3.6.1 OPERATIONALIZATION TABLE

Table 2. Operationalization table (Author’s elaboration)

Theoretical

concepts Concept definition Operational definition Questions

Customer loyalty programs

“Loyalty program is defined as a program that allows consumers to accumulate free rewards when they make repeated purchases with a firm.” (Liu, 2007)

A measure that indicates if customers are

members of a loyalty program and how often they are using it

Are you a member of a customer loyalty program?

How often do you use your loyalty program?

What kind of customer loyalty program are you in?

Expectation - Perceived benefits – Monetary saving

« Monetary savings develop from cash-back offers and coupons that participants accumulate while regularly buying the same brand or shopping with the same retailer.” (Minouni-Chaabane and Volle, 2010)

A measure that indicates the degree of importance of monetary saving in the perceived benefits from loyalty programs

I shop at a lower financial cost I spend less

I save money

Expectation - Perceived benefits – Exploration

« Trying new or innovative products, satisfying curiosity about events and promotional offers, or seeking

information to keep up with new trends represent examples of exploratory behaviours” (Minouni- Chaabane and Volle, 2010)

A measure that indicates the degree of importance of exploration in the perceived benefits from loyalty programs

I discover new products I discover products I wouldn't have discovered otherwise I try new products

Expectation - Perceived benefits – Entertainment

« Programs also enable customers to enjoy unique experiences that they would not have undertaken

otherwise, because many organizations offer pleasure-

A measure that indicates the degree of importance of entertainment in the perceived benefits from loyalty programs

Collecting points is entertaining

Redeeming points is enjoyable When I redeem my points, I

(25)

getting to drive a Jaguar for a day or attending an opera.”

(Minouni-Chaabane and Volle, 2010)

Expectation - Perceived benefits – Recognition

« Consumers consequently may experience recognition benefits; they may feel like the firm and frontline personnel treat them better than they would treat non- members of the program”

(Minouni-Chaabane and Volle, 2010)

A measure that indicates the degree of importance of recognition in the perceived benefits from loyalty programs

They take better care of me I'm treated better than other customers

I'm treated with more respect I feel I am more distinguished than other customers

Expectation - Perceived benefits – Social

«The program enhance perceptions of social benefits, such that members consider themselves part of an exclusive group of privileged customers, identify with that group, and share values associated with the brand” (Minouni- Chaabane and Volle, 2010)

A measure that indicates the degree of importance of social in the

perceived benefits from loyalty programs

I belong to a community of people who share the same values

I feel close to the brand

I feel I share the same values as the brand

Loyalty to the program

« A company devises loyalty programs to influence customers' perceptions of status, buying habits, and relationship with the

company and thus encourage greater customer loyalty » (Kang and al., 2015).

A measure that show to what extent customers are loyal to their loyalty programs

I like this loyalty program more than other programs.

I have a strong preference for this loyalty program.

I would recommend this loyalty program to others.

Loyalty to the company

“Perceptions of membership encourage customer-

company identification formation. Customers who are loyal to a program tend to develop more embedded relationships with the

sponsoring company.” (Kang and al., 2015).

A measure that show to what extent customers are loyal to their company

I say positive things about this company to my friends.

I would recommend this company from someone seeking my advice.

I encourage friends and family to shop at this company.

3.7 SAMPLING

It is often not realizable to examine a whole population because of time and money; that is why

(26)

1997). To define a sampling there are three steps to follow. The first one is to determine the population that need to be studied, the second one is to define the sampling frame and the last one is to choose the sample size (Bryman and Bell, 2011). The sample size means to determine how much people have to answer the questionnaire to reach reliability for the answers (Churchill and Iacobucci, 2005).

3.8 SAMPLING FRAME

A sampling frame is the entire list of the members of a population that have been selected for the study (Bryman and Bell, 2011). According to Burns (2003), there are two kinds of sampling: the sample survey and the census survey. The first kind is used when not the whole population but only a part is used for the study. The second one is when the entire population is used. (Ibid.)

This study is going to be a sample survey. Empirical data was collected from members of loyalty programs. Data was collected from customers in different ages, genders, from different marital status, education and incomes in order to examine the potential differences in the benefits they expect from loyalty programs and the influence of them on their loyalty to the program and the company. The author decided to not specify any particular sector for this study to be able to have a bigger sampling and to be able to have reliable samples in each socio-demographic category of customers (see Appendix B, p57). Moreover, the focus was into the influence of demographic factors rather than on the kind of loyalty program. The population is customers of BtoC shops and the sampling frame is customers who are members of loyalty programs. The sample size is chosen considering previous researches which had around 150-300 answers when examining loyalty programs, perceived benefits and customer loyalty programs (Bose and Rao, 2011; Kim and al, 2013; Follin and Fransson, 2013). This study has gathered 344 answers in which 271 are valid; as consequences the sample size have been respected.

3.9 QESTIONNAIRE DESIGN

The design of the questionnaire is really important for the success of the study. The look of the survey and its organization, if they are well done, are likely to have a positive impact on the response rate, as said previously (Bryman and Bell, 2011). It is hard to choose the good questions for a questionnaire and that is why it is more convenient to use questions or items from already existing questionnaires or researches. As consequences, items and questions that are relevant for the purpose of the study should be selected (Burns, 2003).

(27)

To be able to create a good questionnaire there are things to remember. First, it is important to not finishing the questionnaire with important questions. Secondly, it is good to numerate the questions to be more easily followed by the reader (Bryman and Bell, 2011; Burns, 2003). The questionnaire also needs to be the clearer possible and be lightened (Burns, 2003). For the formulation of the question, it is important to remember to always keep the question as simple as possible (Ibid.) Moreover, authors need to decide what kind of question they are going to use. Closed questions, open-ended questions or scales questions are the choices authors can have to construct their questionnaires. Closed questions have fixed answer with two or more options, for example yes or no. The advantage of them is that it is easy to code them for statistical analysis but their weakness is the superficiality of the answer. Open-ended questions are questions where interviewees are invited to answer the question with their own words and so give more information than the closed questions. Open-ended questions are not possible to predict and it is difficult to code them. Scales questions are forcing respondents to reply to pick one of the alternatives possible on a fixed-scale.

The most important thing to considerate when creating a scale question is to have alternatives that express the interviewees’ opinion; answers need to be balanced between a mid-point, for example neutral, and then the rest of the alternatives, strongly disagree/disagree/agree/strongly agree for example. (Burns, 2003)

This survey is composed of twelve questions; which are closed questions and scales questions. The questionnaire is starting with a qualification question about their membership to a loyalty program.

This question is asked to only focus on the people who are part of the sample of this study which are members of loyalty programs. The author used an online and a paper version of the questionnaire to be able to reach different group of ages and to send the questionnaire to other countries.

3.10 DATA ANALYSIS METHOD

3.10.1 PEARSON’S CORRELATION

According to Pallant (2001), the correlation analysis is applied to verify if a linear relationship between two variables is strong or not. Correlation and causality are different because correlation is not aimed to show if there is one factor that is causing the other. The results can have a positive or negative correlation; the results are ranging from -1 to 1. If the result is close to 1 then it is possible to say that the correlation is strong. If the result is 0 then it means that there is no correlation between the variables. For the analysis, it is possible to use the guidelines providing by Cohen