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customer satisfaction and loyalty

Effects of Loyalty Programs on Value Perception, Program Loyalty, and brand Loyalty
by

heidi diffy

on 17 October 2012

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Transcript of customer satisfaction and loyalty

Effects of Loyalty Programs
on Value Perception, Program Loyalty,
and brand Loyalty The Associates Group Members
Elizabeth Gowasack
Heidi Diffenthaller
Melissa Archibald
Navin Lutchman
Patricia Garib
Sarah Arneaud
Tamara Matthews Loyalty Program
Value Perception & Loyalty
Hypotheses
Effects of Rewards & Value Perception
Method and Measures
Analysis and Results
Discussion
Limitations and Directions for future Research Outline Effects of Loyalty Programs
on Value Perception, Program Loyalty,
and brand Loyalty Introduction Loyalty- repeat purchase of a particular product or services during a certain period of time.

Loyalty Program- a marketing program is designed to build customer loyalty by providing incentives to profitable customers.

Value Perception - The worth that a product or service has in the mind of the consumer.

Program Loyalty – The faithfulness towards a incentive programs rather than the brand or product.

Brand Loyalty - The extent of the faithfulness of consumers to a particular brand, expressed through their repeat purchases, irrespective of the marketing pressure generated by the competing brands. Definitions
What is the goal of a loyalty program?
What are companies real motives for creating loyalty programs?
What is the purpose of this study?

Introduction “Loyalty programs are based on the type of reward and the timing of the reward”… Dowling and Uncles (1997)

Direct and Indirect Rewards
Immediate versus Delayed Introduction Theorists:
Dowling and Uncles (1997)
Rothschild and Gaidis (1981)
Behavioral Learning Theory
Two dimension for incentives
Types of reinforcers
Timing of the reinforcement Introduction Do loyalty programs have an effect on program loyalty and brand loyalty? Loyalty Program,
Value Perception
& Loyalty Customers may want more involving relationship with products that the purchase.
A proportion of these customers show a tendency to be loyal.
They are a profitable group (i.e., 20/80 Law)
It is possible to reinforce these customers’ loyalty through the loyalty program (Dowling & Uncles) Loyalty Program- Propositions Partch: loyalty programs increase operating costs
Dowling & Uncles: a loyalty program in unlikely to alter customer behaviour
Other researchers: loyalty programs can increase brand loyalty View on Effectiveness of Loyalty Programs: Cash value
Redemption choice
Aspirational value
Relevance
Convenience Elements of the loyalty program determine the value of a loyalty program The percentage of customers buying a brand
The number of purchases per buyer
The percentage of customers who continue to buy the brand
The percentage of customers who are 100 % loyal
The percentage of customers who also buy other brands- duplicate buyers Five (5) types of behaviour during certain time intervals to operationalize loyalty in a competitive market Four categories of Loyalty Major pros and cons of loyalty programs: Hypotheses Dowling and Uncles (1997) claims (1):

Short term and Immediate rewards e.g. price promotions are appreciated and builds customer loyalty and is considered a loyalty programme…… Hypotheses C laim Refuted (1):
Short term rewards are NOT view as loyalty programs
Loyalty programs takes a long-term perspective in sharping customer behaviour
Immediate rewards must be repeatedly reinforced to build customer loyalty Hypotheses Effects:
Elicit overstock problems
Rewards price sensitive brand switchers
Non loyal customer benefits
Less profits for price promotion oriented firms Price Promotions as Immediate rewards: Indirect Direct Type of Reward Timing of Reward Delayed Repeated & Immediate Modified Framework of Rewards Dowling and Uncles (1997) claims (2):

Value perception of loyalty program does not necessarily transform into brand loyalty, especially under low involvement Hypothesis Proposed Explanation:
Customers derive value from program rather than product
Interested in program/deal loyalty not product/brand loyalty
When rewards are withdrawn loyalty extinguishes Hypothesis Ehrenberg (1988):

Loyalty could be divided among a number of brands, leading to polygamous loyalty i.e. customer loyalty could be divided into program and brand loyalty Hypothesis
Conceptualized as having a high relative attitude leaning toward the loyalty program it can also be viewed as loyalty towards incentives Program Loyalty
Customers repurchasing tendency is influenced by Product Loyalty OR Program loyalty

Modified framework designed to considered “Target of Attitude” in repurchasing tendencies Repurchasing Tendency
Customers repurchasing tendency is influenced by Product Loyalty OR Program loyalty

Modified framework designed to considered “Target of Attitude” in repurchasing tendencies Repurchasing Tendency Target Attitude Low High Repeated Patronage Modified Loyalty Framework Dowling & Uncles measured involvement in terms of “Type of Rewards” i.e Direct or indirect

New consideration also measures involvement in terms of “Timing of Reward” i.e Immediate or delayed Involvement in loyalty Programs Reflects personal relevance to a product or service
Linkage between motivating influences and benefits offered
Affects the relationship between customer satisfaction and loyalty Effects of Involvement on Loyalty Programs Programme Product Effectts of Rewards Schemes on Value Perception Value Perception of Loyalty Programs are affected by two aspects of rewards :
1)Type of Rewards
Direct
Indirect

2) Timing of Rewards
Immediate
Delayed Effects of Reward Schemes on Value Perception Value perception can vary relative to type of Customer’s Involvement in purchase :-

High Involvement products e.g luxury cars , homes etc

Hypothesis :-

a) Perceived value of the loyalty program is higher for direct rewards than for indirect rewards

b) Perceived value of the loyalty program is not different between immediate rewards and delayed rewards
Low Involvement products e.g fast foods

Hypothesis

a )Perceived value of the loyalty program is not different between direct rewards and indirect rewards .

b) Perceived value of the loyalty program is higher for immediate rewards than for delayed rewards. Effects of Value Perception on Loyalty There are two routes that link Value Perception to Brand Loyalty

Direct Routes – if value perception generated affect brand
loyalty.

Indirect Routes - if brand loyalty is affected by loyalty to
specific loyalty programs. Effects of Value Perception on Loyalty High Involvement Products --- > Direct Route

Hypothesis

a) Perceived value of loyalty program has little effect on program loyalty.

b)Program loyalty has little effect on brand loyalty

c) Perceived value of the loyalty program has a positive effect on brand loyalty The route a customer takes depends on Involvement Low Involvement Products ---> Indirect Route

Hypothesis

a)Perceived value of the loyalty program has a positive effect on the program loyalty

b) Program Loyalty has a positive effect on brand loyalty

c) Perceived value of the loyalty program has little effect on bran loyalty.. Methods and Measures 40 College students were selected
They were access by their involvement with various product categories they frequently used.
Involvement was measured with ten 7 point scale
Important/unimportant
Of no concern/of concern to me
Irrelevant/relevant
Means a lot to me/means nothing to me
Valuable/worthless
Beneficial/not beneficial
Uninterested/interested
Vital/superfluous
Boring/exciting
Unnecessary/needed Method – Participants & Procedure Main experiment was with the service category : fried chicken (low involvement) or beauty salons (high involvement)

Type of reward: direct vs. indirect

Timing of reward: immediate vs. delayed


Participants were selected based on shop frequency, no prior experience regarding shop loyalty program and that they have used the focal shop for themselves and selection of independent shops, due to the need for control over scenarios.


Participants were given booklets and asked to state the name of the beauty shop or fried chicken shop, answer questions on the shops, read scenario on a loyalty program that were being considered to be introduce and evaluate the loyalty program. Method – Participants & Procedure Cash value, relevance and aspirational value were used to measure the value perception of the loyalty
program along with a 7 point scale as not at all/quiet a lot:
“The proposed rewards have high cash value”
“It is highly likely to get the proposed rewards”
“The proposed rewards are what I have wanted”

Program loyalty was measured by the following along with a 7 point scale as not at all/quiet a lot:
“I like the proposed loyalty program more so than other programs”
“I have a strong preference for the proposed loyalty program”
“I would recommend the proposed loyalty program to others “

Brand loyalty was measured by the following along with a 7 point scale as not at all/quiet a lot:
“I like X shop more so than other shops”
“I have a strong preference for X shop”
“I give prior consideration to X shop when I have a need for a product (service) of this type”
“ I would recommend X shop to others” Measures
Analysis and Results Involvement Measures
Involvement level for beauty shops higher than for chicken stores…DUH!!!!! Manipulation Check Average cut off for and incentive was ever 4th visit
Rewards for every visit was seen as immediate
Rewards for every 10th visit was seen as delayed rewards. ‘Timing of rewards’ Measures achieved convergent validity
Each of the factor was a one-dimensional construct
Chi-Square difference tests done were significant…..I know, what is Chi-Square right????
Suggest that Value perception, program loyalty and brand loyalty were mutually distinct constructs – Discriminatory validity achieved Validity- CFA Cronbach’s Alpha
Satisfactory level of reliability
High involvement results for value perception, program loyalty and brand loyalty were .80, .86 and .89 respectfully

Low involvement results for value perception, program loyalty and brand loyalty were .79, .88 and .93 respectfully Reliability Hypotheses 1a- 1b and 1c – 1d
Under high involvement, direct rewards are more effective than indirect rewards in building value regardless of timing.

Under low involvement, immediate rewards are more effective than delayed rewards regardless of type in creating value.
Results show that both hypotheses are supported Test of Hypotheses The effects of reward type and reward timing on value perception were moderate by involvement
Under high involvement – type of reward had a significant effect
Direct rewards were perceived more valuable than indirect rewards Summary – Hypotheses 1a-1b/1c-1d Under low involvement – timing of reward had a significant effect
Immediate rewards were perceived more valuable than delayed rewards Summary – Hypotheses 1a-1b/1c-1d 2a – 2c: Predict that a direct route will be significant under high involvement whereas…..

2d – 2f: Indirect route will be significant under low involvement
Results for these varied significantly Hypotheses 2a-2c & 2d-2f Under high involvement – value perception affected brand loyalty via a direct route. (Indirect was found as well)

Under low involvement – value perception did not affect brand loyalty directly, but indirectly through program loyalty.
Results were not consistent with Dowling and Uncle’s (1997) prediction Summary – Hypotheses 2a-2c & 2d-2f Discussion, Limitations and Directions for future Research Result of study: Effects of loyalty programs on customer loyalty are different depending on levels of involvement Conclusions – Involvement and Loyalty Directions for future research:
Categorize loyalty programs based on target customers
Relate loyalty scheme with brand loyalty instead of value perception

Limitations:
Gender differences
Attitudinal vs Behavioral conditions
Sample selection process
Need to replicate study in longitudinal research design Limitations Directions for future research CONCLUSION Give two (2) propositions that loyalty programs are based on. Prize Time >High involvement products - products for which the buyer is prepared to spend considerable time and effort in searching.


> Low involvement products - Products which are bought frequently and with a minimum of thought and effort because they are not of vital concern nor have any great impact on the consumer's lifestyle. Use a simple point system
Use a tier system to reward initial loyalty and encourage more purchases
Structure Non-Monetary Programs around your customer’s values
Partner with another company to Provide All inclusive offers
Make a game out of it Customer Loyalty Program Ideas $48 Billion Worth of Consumer Loyalty Reward Points Dispensed Each Year, Yet One-Third Are Never Cashed In
The Financial Services sector is the biggest provider of rewards at $18 billion per year
The travel and hospitality sector is the second largest industry in terms of rewards at $17 billion per year.
The retail industry, although it makes up 40% of all loyalty program memberships issue the smallest value in terms of rewards at $12 billion per year Interesting Facts – US Statistics
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