The Factors Influencing the Loyalty Programs Effect in Taiwan by abstraks

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        The Factors Influencing the Loyalty Programs Effect in

                    Taiwan Department Store

      Chin-Hsiung Lin, Jung-Chuan Lu, and Kuang-Hui Chiu

   Dept. of Business Administration, National Taipei University

Corresponding author: Chin-Hsiung Lin

      Loyalty programs are important tools for driving customer retention in many
industries, including airlines, credit card companies, retail and hotel chains. Generally
the loyalty program can coordinate the company CRM (customer relationship
management; CRM) strategy and improve customer long-term relationship. Hence it is
very important to use the loyalty program to enhance the customer loyalty. Despite the
large number of firms offering loyalty programs and their high levels of consumer
membership, many loyalty programs have not been successful. Customer loyalty is
only to establish the possibility of feedback in the financial aspects and the customers
are unable to be satisfied with psychological and sociological demand. Further loyalty
programs can only serve as a disguised form of price promotion. As a result, when a
retail store develop loyalty program, in addition to consideration of the content of
program, they have to be taken into accounting the customer satisfaction and brand
equity. Thus the three independent variables together to consider the analysis to the
complete understanding of the impact of loyalty program effectiveness. This article
also makes the assumption that customer loyalty for the indicator of loyalty program
effectiveness. On the one hand, based on past behavior to understand the customer
loyalty, on the other hand, it can also predict future customer behavior on the attitude
and intention. Finally, in the empirical research, data from the memberships of the
loyalty program in Taiwan some chain-like Department store (S-department store) as
the questionnaire data source. Due to this department store more than 25% market share,
it has the industry representative, and loyalty programs have been implemented.
Positive results should be available for industry reference.

Key words: loyalty program, customer satisfaction, brand equity, loyalty intention,
customer loyalty

        1. Introduction
    We define a loyalty program as an integrated system of marketing actions that
aims to make member customers more loyalty (Sharp & Sharp, 1997). Customer
loyalty is an important strategic objective of managers around the world. A worldwide
survey of chief executive officers conducted by the Conference Board (Bell, 2003)
found that customer loyalty and retention was the most important challenge that chief
executive officers believed they faced. Loyalty programs are important tools for
driving customer retention in many industries, including airlines, credit card
companies, and retail and hotel chains. Loyalty customers are reported to have higher
customer retention rates, commit a higher share of their category spending to the firm,
and are more likely to recommend others to become customers of the firm (Zeithaml,
2000).There are a number of potential benefits to a well-run loyalty program beyond
increased loyalty, lower price sensitivity, and stronger attitudes towards brand and
retailers. These include access to important information on consumers and consumer
trends, higher average sales (due to cross-selling and up-selling opportunities), greater
ability to target special consumer segments, and increased success in implementing
product recalls.
      Recently, due to information technological development, the customer loyalty
program should contain the following three essential factors: Information technology
and database utilization, customer information/knowledge insight, as well as direct and
personalized customer communication.
     For example, Tesco has used data from its loyalty program database to analyze
the effectiveness of its advertising. According to a dunnhum by executive, ―Not only
can we see the effect of an advertisement on sales. We can also see what type of
customer it won over.‖ Tesco also used its loyalty card data to develop its Finest
private-label line (which includes items such as duck pâté and cashmere sweaters)
when its Club card data showed that its higher-spending customers were not
purchasing wines, cheese, and fruit from Tesco ( Berman, 2006).
        1.1Loyal Program Hope to Maximize Customer Lifetime Value
      The customer lifetime value is by the enterprise viewpoint appraisal the profit sum
total which lifetime can obtain from a customer. The enterprise should focus on the
development of the existing customer long-term relations. The loyal customer’s price
sensitivity is low, easy to produce repurchase and can develop the new customer for the
product with word of mouth. To retain the existing customer's cost usually is lower than
gains the new customer. To increase the existing customer retention rate usually can
bring more profits than to attract the new customer.

     According to the 80/20 principle, the followings are confirmed from many
enterprises’ sale data. In an enterprise's total sales volume, probably some 80% comes
from its 20% customers. Therefore the enterprise should focus the limited resources
reasonably to this 20% customer. Certainly, the 80 and 20 principle proportions are
different slightly in the different professions. For example: Tesco’s strongest 5%
purchasing power customers have contributed 20% sales volumes, but the bottom 25%
customer's consumption quantity are only equal to the sales volumes 2%. Therefore the
enterprise may act according to the loyalty program to adjust its marketing resources to
the different customers.

        1.2 Loyalty Programs Are Everywhere
     The most current form of customer loyalty programs started in the 1980s with the
introduction of frequent flier programs by airlines. After the Airline Deregulation Act
of 1978, many airlines struggled to obtain a competitive advantage. In 1981, American
Airlines introduced the first frequent flier airline program—A-Advantage, which
sought to reward loyal customers through utilizing the airline’s excess capacity.
According to Web Flyer, there are 89 million members of airline frequent-flyer
programs in the world, 74 million of them in the USA alone. The Food Marketing
Institute reports that more than 76 percent of all US grocery retailers with 50 or more
stores (Capizzi, & Ferguson, 2005).The U.S. loyalty marketing industry have been
estimated as a $6 billion industry with 2,250 separate loyalty programs. Loyalty
program usage is similar in the United States, UK, and Canada. One source estimates
that 92 percent of UK consumers participate in a loyalty program, with 78 percent
being members of two or more programs. One explanation for the lack of success of
many loyalty programs is the extent to which consumers are members of multiple
loyalty programs. When consumers have the options of collecting points in loyalty
programs where the ease of making qualifying purchases, the rewards, and the
redemption requirements are similar (Berman, 2006).
        1.3 Loyalty Program Trends for the 21st Century
     According to Capizzi and Ferguson (2005) identified five key loyalty-marketing
trends for the twenty-first century that can serve as guideposts as create, expand and
revamp your loyalty and customer relationship management (CRM) strategies in the
new century:
Trend 1: Ubiquity. As we approach the midpoint of the decade, the loyalty marketing
industry has reached a state of what can only be termed ubiquity.
Trend 2: Technology enables, but imagination. As in most mature markets, new
technologies are finding fertile grounds for innovation and productivity gains within

the loyalty marketplace. Smart cards, RFID, real-time point-of-sale (POS), wireless,
the worldwide web and the third generation of loyalty ―rules engines‖ all enter the
twenty-first century with proven cases of success in enabling some form of reward and
recognition, somewhere in the world. Only with innovation it creates the new business
Trend 3: Coalition lite. It means different industry forms an alliance. The coalition
model of loyalty – three or more companies banding together to share the branding,
operational costs, marketing expense and data ownership of a common loyalty
currency – has become the predominant loyalty model outside of the USA.
Trend 4: Customer analytics rule Due to the retails face huge customer trade material.
However, while these technologies offer great hope to enable, it is their creative and
imaginative applications that will win out in the end To use specialty and creativity
method to analyze and dig the insight of the customer behavior, then establish a
competitive marketing strategy.
Trend 5: The Wow! Factor. The retail provides the customers the unique experience.
Regarding the loyal customer, the retail should not only provide the finance back
coupling, but also alliance with different industry cooperation to provide the unique
experience for the customer, this is called ―WOW! Factor‖ (Capizzi & Ferguson,

     1.4 The Type of Loyalty Program
     In addition, according to research Berman (2006) identify four types of loyalty

         Program Type             Characteristics of Program                                   Example
         Type 1:                  • Membership open to all customers                           Supermarket programs
         Member receive
                                  • Clerk will swipe discount card if member forgets or does
         additional discount
                                     not have card
         at register
                                  • Each member receives the same discount regardless of
                                     purchase history
                                  • Firm has no information base on customer name,
                                    demographics, or purchase history
                                  • There is no targeted communications directed at

                                  • Membership open to all customers                           Local car wash, nail salon,
         Type 2:
                                                                                               SuperCuts, Airport FastPark,
         Members receive 1 free   • Firm does not maintain a customer database linking         PETCO
         when they purchase n       purchases to specific customers

                                                                                               Airlines, hotels, credit card
         Type 3:                    • Seeks to get members to spend enough to receive
                                                                                               programs, Staples, Office Depot
         Members receive rebates or   qualifying discount
         points based on cumulative

                                  • Members are divided into segments based on their           Tesco, Dorothy Lane Markets,
         Type 4:
                                    purchase history                                           Wakefern’s ShopRite, Giant
         Members receive                                                                       Eagle Supermarkets,
         targeted offers and      • Requires a comprehensive customer database of              HarrisTeeter, Winn-Dixie,
         mailings                   customer demographics and purchase history                 Harrah’s, Hallmark

     Today, competition is so intensive among different industries with all kinds of
methods. But to strive for customer's loyalty is at the end the key for an enterprise’s
long-term operation. Only when an enterprise could obtain certain amount of loyal
customers, it creates long-term, stable income and profit. The implementation of
loyalty program is the most concrete method to improve customer loyalty. If this
program cannot enhance the customer consumer loyalty effectively, not only the
enterprise wastes resources but also pushes aside other marketing tool and will lead the
enterprise competitive power to decline. Therefore many scholars then begin
developing theoretical models that can estimate loyalty program implement, whether it
can affect a consumer to become more loyal. This research reorganizes the beforehand
research results. AS a result, it is to develop an adapted model that includes both
endogenous and the exogenous factors influencing effectiveness.

2. Literature Review
2.1 Loyalty Programs
     We define loyalty programs as long-term-oriented programs that allow consumers
to accumulate some form of program currency, which can be redeemed later for free
rewards. An airline’s frequent-flier program represents a typical loyalty program. By
focusing on long-term programs, we exclude promotional programs that offer only
one-shot, immediate benefits, such as instant-win scratch cards and grocery
stores’ discount card programs. Program-related factors include both program design
and management. From the design perspective, a loyalty program needs three key
specifications: (1) participation requirements, (2) point structure, and (3) rewards
(Yuping & Rong, 2009).
    The effectiveness of a loyalty program is likely to depend on its design. Loyalty
programs provide members with benefits such as discounts and saving rewards, which
make these programs popular among consumers. Many retailes have introduced loyalty
programs to enhance customer loyalty (Kumar & Reinartz, 2005). This evidence may
relate at least partly to the fact, expenditure differences between members and
non-members (van Heerde & Bijmolt, 2005) may be partly driven by the most loyal
customers into the loyalty program (Leencher, Harald, Tammo, Bijmolt, & Smidts,
      Further, consumers are often regular buyers at different companies. The relevant
issue is that in a model with customer loyalty as the dependent variable and loyalty
program content as an independent variable .We must identify variables that influence the
customer loyalty factors. Loyalty programs enhance customer loyalty through several
economic, psychological and sociological mechanisms (Leencher et al., 2006).

2.2 Economic Benefit
     From an economic perspective, loyalty programs provide members with rewards
as economic benefit. The key economic design elements of the loyalty program are its
discount and saving features (Yi & Jeon, 2003). The program with a discount feature
gives price discounts on certain items of the assortment for loyalty program members
only. In this way, a discount feature supplies member customers with immediate
rewards for their purchases (Yi & Jeon, 2003). A program with a saving feature gives
loyalty program members saving points, dependent on the monetary amount spent at
the company. A program member can redeem these points for a reward, such as a free
product, after reached a saving threshold. Further, a saving feature creates switching
costs (Zhang, Krishna, & Dhar, 2000): if a consumer stops purchasing s/he loses the
accumulated saving points. A saving feature stimulates purchases of the entire
assortment and not only of specific items (as the discount feature does). Obtaining

saving rewards requires considerable consumer effort, so that we expect stronger
feelings of uniqueness and pride. On the other hand, customers prefer to obtain a
reward immediately instead of getting it sometime in the future (Yi & Jeon, 2003).
Regarding the issuing of reward points, and find that though point threshold stays the
same, the way points are issued over each purchase (ascending points versus same
points per purchase) affects consumers’ choices. This suggests that point issuance is
not a nuisance to consumers and should not be determined arbitrarily. Point threshold is
another important aspect of point structure, and it has been tied in to program relevance.
If the point threshold for a free reward is too high, it will be considered unobtainable for
the average consumers and thus will be dismissed as irrelevant (Yuping, & Rong,

2.2 Non-economic Benefit
2.2.1 Psychological Benefit
     Several psychological drivers enhance customer loyalty. First of all, consumers
appreciate rewards -- not only in an absolute sense, but also relative to other consumers
(Feinberg, Krishna, & Zhang, 2002). Knowing that you are provided with better value
than others creates feelings of being a preferred or special customer, and thereby further
stimulates loyal behavior. Second, loyalty program incentives can induce smart
shopper feelings (Kivetz & Simonson, 2002), and pride about being economical. The
effort to obtain the reward may even justify luxury consumption. Third, existing
research shows that customers overvalue the rewards they obtain, as they tend to maximize
the value offered by the medium (the loyalty program), rather than the final outcome. This
implies that customers aim to maximize discounts and saving points, whereas it would be
rational to assess the utility of the final products and rewards minus the disutility of their

2.2.2 Sociological Benefit
      Loyalty programs can also have sociological effects. The need to belong to groups
is a fundamental human motivation, and identification with commercial organizations
is intensifying due to the growing centrality of consumption and materialistic desires in
society. Strategies to develop customer identification are especially beneficial in
industries where consumers purchase frequently, and differentiation between suppliers
is low. DeWulf, Odekerken-Schröder, and Iacobucci (2001) show for relational
investments in consumer-firm relationships the existence of a reciprocity norm:
customers evoke obligation towards those who treat them well or provide value. In
addition, customers who become members of the loyalty program are likely to identify
more strongly with the company, because the membership relates them to a group of

privileged customers (Oliver, 1999). Hence, loyalty programs can create affective
commitment, loyalty programs not only buy, but also earn, customer loyalty
(Edvardsson, Johnson, Gustafsson, & Strandvik, 2000).
2.3 Switching Costs
     Another economic driver consists of switching costs, because loyalty program
members lose value if they stop purchasing from the retail store. The value consists of
saving points or a purchasing track record that ensures privileges. Some studies have
used the switching cost argument as a rationale for the existence of loyalty programs.
Because of switching costs, a loyalty program creates a certain degree of calculative
commitment or stickiness in customers’ relation with the company. Calculative
commitment can be defined as to which consumers perceive the need to maintain a
relationship, given the significant termination or switching costs associated with
leaving (Geyskens, Steenkamp, Scheer, & Kumar, 1996). When loyalty programs are
involved, these costs increase switching costs can be defined as time, money, and effort
associated with changing service providers. In contrast to loyalty programs that are
designed to create a future orientation and increase switching costs over the long run,
these short-term promotions are more likely to create sudden changes in sales without
producing sustained customer loyalty or revenue potential for a firm. Research has
shown different mechanisms underlying these one-shot, immediate reward programs
compared with long-term loyalty programs that offer consumers delayed rewards (Yi &
Jeon, 2003; Zhang, Krishna, & Dhar, 2000). Confirming this view, Leenheer and
Bijmolt (2008) find that delayed rewards in a loyalty program have a significant impact
on customer loyalty (Yuping, & Rong, 2009). The goal of such programs is to enhance
customer relationships by offering high value to profitable market segments (Bolton,
Kannan, & Bramlett, 2000; Kumar & Shah 2004).Reward programs are also effective
in increasing customers’perceptions of switching costs, thus further fostering customer
retention (Bendapudi & Berry, 1997;Guiltinan, 1989).

2.4 The other’s Costs
     Further, the Economic costs are program membership fees. Participation modes
can be differentiated by voluntary versus automatic enrollment and free versus
fee-based membership. Programs also differ in terms of how convenient it is for
consumers to participate.
     In addition, customers may face non-economic costs: loss of privacy. A customer
who enters a loyalty program usually has to fill out a subscription form in which s/he must
provide personal data. A company can use this information in combination with purchase
data for direct mailings or to apply marketing. Some customers may not be willing to
provide personal information, especially if this concerns personal identifiers such as

address information (Phelps, Nowak, & Ferrell, 2000; Noble & Philips, 2003).
      Hence, some customers may perceive potential privacy infringements of loyalty
programs in general as a non-economic cost, leading to a decreased likelihood of
loyalty program participation. Finally, most direct benefits accrue from the saving reward
rate (percentage of money amount spent that is reimbursed as a saving program reward)
and the discount rate (percentage immediate discount on all purchases) that the program
     But customer loyalty is not simply the intent of the impact of loyalty programs,
customer loyalty program about the exogenous variables, there are two types: one is the
customers satisfaction for the purchasing experience of the store (Carrillat, Jaramillo,
& Mulki, 2009). The other hand, the brand equity for the retail store, these two factors
are the result of long-term efforts is key success factors for many businesses, (Vogel,
Evanschitzky, & Ramaseshan, 2008; Liu & Yang, 2009).

2.5 Customers Satisfaction
     Customer satisfaction has traditionally been regarded as a fundamental
determinant of long-term consumer behavior (Oliver, 1980; Yi, 1990). Much of the
research on customer satisfaction and customers’ actual behavior has focused on the
relationship between satisfaction and retention. We conceptualize customer satisfaction
as a cumulative, global evaluation based on experience with a firm over time.
According to researcher ―both practitioners and academics have accepted the premise
that customer satisfaction results in customer behavior patterns that positively affect
business results.‖ But another one argues that ―customer satisfaction has come to
represent an important cornerstone for customer-oriented business practices across a
multitude of companies operating in diverse industries.‖ Finally, Mittal and Kamakura
(2001, p.131) added that ―customer satisfaction management has emerged as a strategic
imperative for most firms.‖ Recent empirical research has also shown that satisfied
customers are fewer prices sensitive and willing to pay a higher price premium
(Homburg, Koschate, & Hoye, 2005). By virtue of premium prices and customer
loyalty, we believe that a company with satisfied customers can obtain higher revenues
from its existing customers and reduce its dependence on costly marketing
communications programs.
      By far, the most commonly used customer perceptual metric by managers is
satisfaction (Gupta & Zeithaml, 2007). Zeithaml et al., 2006 (p. 170) observe that
―because it is generic and can be universally gauged for all products and services
(including nonprofit and public services).‖ Even without a precise definition of the
term, customer satisfaction is clearly understood by respondents, and its meaning is
easy to communicate to managers.‖ With regard to satisfaction’s relationship to
customer behavior, research has shown a link been satisfaction and customer retention.

This emphasis is largely the result of early research, which identified customer
retention as a key driver of firm profitability (Reichheld, 1993, 1996; Reichheld &
Kenny, 1991; Reichheld, Markey, & Hopton, 2000; Reichheld & Sasser, 1990).
Capraro, Broniarczyk, and Srivastava (2003, p. 164) observe that ―today, most firm’s
programs to control customer defections center heavily on the management of
customer satisfaction.‖ Research appears to support this approach. Many studies have
linked customer satisfaction to purchase behavior (Anderson & Sullivan, 1993;
Bolton, 1998; Jones & Sasser, 1995; LaBarbera & Mazursky, 1983; Loveman 1998;
Mittal & Kamakura, 2001; Newman & Werbel, 1973; Rust & Zahorik, 1993;
Sambandam & Lord, 1995).
2.6 Brand Equity
     Brand equity is the subjective appraisal of a customer’s brand choice. It is the
value added to a product or service as a result of prior investments in the marketing mix
(Keller, 1993; Rust, Zeithaml, & Lemon, 2000). If customers judge a particular brand
as strong, unique, and desirable, they experience high brand equity (Verhoef, Langerak,
& Donker, 2007). Because a brand attaches additional value to a product or service, it
increases the value compared with a non-branded product or service. If customers
perceive a brand as having a favorable and strong image, it could positively influence
their likelihood of choosing that particular brand rather than competing offerings. In a
similar a favorable perception of a brand could have an impact on affective
commitment. Rust, Zeithaml, and Lemon (2000) state that brand equity is likely to
influence a customer’s willingness to stay, repurchase probability, and likelihood to
recommend the brand. Thus we measured brand equity, which focuses on the overall
perception of brand image, with four items, using the scale that Verhoef, Langerak, and
Donkers (2004) introduced, with an additional item pertaining to the liking of the brand.
We used ―likable‖ because of its demonstrated importance in brand equity measures
and as a result of our qualitative. (Vogel, Evanschitzky, & Ramaseshan, 2008)

2.7Loyalty Intention
    Loyalty intentions can be viewed as a customer’s psychological disposition
toward an object. In a purchase situation, loyalty intentions reflect favorable attitudes
toward the brand or firm (Dick & Basu, 1994). The drivers of loyalty are complex and
dynamic, and they change and evolve over time. Several specific psychological
antecedents motivate loyalty. Consistent with Taylor, Hunter, and Longfellow (2006)
marketing models trying to explain the evolution of loyalty need to consider not only
cognitive aspects but also affective aspects. We define loyalty intentions as customers’
behavioral intentions to continue buying at a retail store in the future, accompanied by a
deeply held commitment to that store. We adapted the scale from Zeithaml, Berry, and

Parasuraman (1996) behavioral intention battery and included two items. Researchers
have long used repurchase intentions to help predict future purchasing behavior.
2.8Costomer Loyalty
     The main distinction in loyalty measures is between attitudinal loyalty and
behavioral loyalty (Dick & Basu, 1994). But will satisfy will only affect the manner
(Olivor, 1997). Attitudinal loyalty reflects the consumer’s psychological attachment
toward a particular provider or brand .One such question pertains to how loyalty is
conceptualized and measured. Researchers and managers have become increasingly
interested in consumers’ share of spending as a behavioral measure of customer loyalty.
Zeithaml (2000) proposes a model in which customer retention leads to firm profits in
one of four ways: (1) lowering costs to service customers, (2) the ability to charge
premium prices, (3) word of mouth, and (4) increased volume of purchase (i.e.,
increased share of wallet). However, Reinartz and Kumar (2000, 2002) find that
customer retention does not result in loyal customers costing less to serve, paying
higher prices for the same bundle of services, or marketing the company through word
of mouth. Rust, Lemon, and Zeithaml (2000) also note that the way researchers have
treated customer retention does not accurately portray customers’ actual behavior
patterns, observing that researchers frequently treat customers who defect as ―lost for
good.‖ They argue that a ―more realistic scenario‖ is that customers may leave and
return and be either serially monogamous or polygamous in terms of the number of
firms with which they conduct business in the category. The observation that
consumers continuously leave and return to a product, service, or institution over a
period of time is consistent with commonly In addition, which links satisfaction to
retention as (1) satisfaction to (2) share of wallet to (3) revenue to (4) profit. Although
longitudinal examinations of the effect of customer satisfaction on other performance
measures have found a positive relationship to customer retention, firm revenues.

3. Conceptual Framework and Hypotheses
    According to literature discussion loyalty program, customer satisfaction, and
brand equity are influential to the customer loyalty intention. Further the loyal intention
actually is leader factor of the customer loyalty; therefore this research reorganizes the
following research construction and the research hypothesis.

3.1 Conceptual Framework

          Customer Satisfaction (CS)
          Perceived Level (PL)
          Expected Level (EL)

         Loyalty Program (LP)                                        Customer Loyalty (CL)

         Perceived Switching Cost (PSC)                              Repurchasing Willing (REW)
                                                 Loyalty Intention   Repurchasing Behavior (REB)
         Perceived Loss of Privacy (PLP)
                                                 (LI)                Word of Mouth (WOM)

          Brand Equity (BE)

          Brand Awareness (BAS)
          Brand Loyalty (BL)
          Perceived Quality (PQ)
          Brand Association (BAS)
          Other’s Brand Assets (OBA)

                                           Framework Structure

3.2 Development of Hypotheses
     We tested the variables referred to in the four hypotheses for the model.

3.2.1Customer Satisfaction and Loyal Intention
     Seiders and colleagues (2005, p.26) state that ―marketing literature consistently
identifies customer satisfaction as a key antecedent to loyalty and repurchase.‖
Repurchase intentions represent the customer’s self-reported likelihood of engaging in
future repurchase behavior, whereas repurchase behavior is the objectively observed
level of repurchase activity. The default expectation is that satisfaction positively
influences both repurchase intentions and behavior. Customer loyalty has been defined
and measured as a behavior operation of customer loyalty included purchase intention
indicators as well as actual purchase measures. However, others have noted that
customer loyalty is an attitude that reflects a long-term commitment of the customer
to the organization. Previous research has found support for the customer satisfaction
to attitudinal loyalty relationship. Furthermore, customer satisfaction is often viewed
as an antecedent of attitudinal loyalty. A well-supported concept in services is that
attitudinal loyalty is formed from the accumulated satisfaction that results from
multiple positive service experiences, which links satisfaction to retention as (1)
satisfaction to (2) share of wallet to (3) revenue to (4) profit. Although longitudinal
examinations of customer satisfaction effect have been found a positive relationship to

customer retention and firm revenues. According to Carillat, Jaramillo, and Mulki
(2009) aims at 276 customer's research to point out that the customer satisfaction has
the positively influence to the purchase intention and the loyal attitude. The effects of
customer satisfaction on customer behavior and business results are widely believed to
be nonlinear and asymmetric. The nonlinearity and asymmetry of the relationship
between customer satisfaction and repurchase intentions has been confirmed in several
studies. Mittal and Kamakura (2001) find that this nonlinear and asymmetric
relationship also holds true for repurchase. Satisfaction is strongly influenced by
customer expectations. Researchers have found multiple expectation thresholds. As
expectations converge with respect to what is expected to happen, what should happen,
and what would happen in the ―ideal‖ situation, firms achieve greater competitive
positioning. This implies that there are expectation thresholds based on the consistency
of delivery that must be met for customers to consider a firm which links satisfaction to
retention as (1) satisfaction to (2) share of wallet to (3) revenue to (4) profit. Although
longitudinal examination of the effect of customer satisfaction on other performance
measures have found a positive relationship to customer retention and firm revenues.
Therefore this research establishes the first hypothesis:
     H1: Customer Satisfaction has a positive impact on Loyalty intention.

3.2.2 Loyalty program and Loyalty Intention
Some studies found the loyalty program positive effects of retail loyalty programs on
purchase behavior (Bell & Lal, 2003; Lewis, 2004; Taylor & Neslin, 2005). Because
the customer participates in the loyalty program obtaining the benefit higher than the
cost, therefore is willing to continue to repurchase. Further the customer continues to
purchase, accumulates the more switching costs. Hence the customer will become the
company long-term partner. The enterprise will also provide more incentives to
improve customer relationship. According to the scholar Leencher, Harald, Tammo,
Bijmolt, and Smidts (2006) use panel data from a representative sample of Dutch
households who report their loyalty program memberships for all seven loyalty
programs in grocery retailing as well as their expenditures at each of the 20 major
supermarket chains. The results show that creating loyalty program membership is a
crucial step to enhance share-of-wallet. They find a small positive yet significant effect
of loyalty program membership on share-of-wallet. Therefore we establish the second
     H2: Loyalty program has a positive impact on Loyalty intention.

3.2.3 Brand Equity and Loyalty Intention
       The variety of definitions is demonstrated by Aaker’s (1996) approach
reflecting brand equity as a business asset; Yoo, Donthu, and Lee’s definition ―as the
difference in consumer choice between the focal branded product and an unbranded
product given the same level of product features. Gil, Andres, and Salinas (2007)
suggested that brand equity is closer to the concept of brand loyalty. Brand loyalty is a
fundamental concept of strategic marketing and is generally recognized as an
intangible asset. Successful brands create wealth by attracting and retaining customers
as certain loyal customers may be willing to pay more for a brand. Brand equity has a
strong impact on loyalty intentions (Vogel, Evanschitzky, & Ramaseshan, 2008).
Depicts brand equity as something that can help a firm achieve financial outcomes by
increasing consumers’ brand purchase behavior. Rust, Zeithmal, and Lemon (2002)
pointed out that the brand equity has the possibility to let the visitor be willing to
pause, buys again. Therefore the brand equity has the positive impact on loyalty
intention. The research for the survey of the European 5694 customers during six
months pointed out that brand equity positively influenced customer loyalty intention
(Vogel, Evanschitzky, & Ramaseshan, 2008). Therefore we propose the following
     H3: Brand equity has a positive impact on loyalty intention.

3.2.4 Loyalty Intention and Customer Loyally
     Although many behavior control research pointed that is not all intentions can
transform the behavior. But also has many research proofs, between the behavior
intention and the behavior exists highly is being related (Vogel, Evanschitzky, &
Ramaseshan, 2008). The considerable effort necessary to do so, between especially the
intention (Self-Reported Behavior) describes (Armstrong, Morwitz, & Kumar, 2000).
Further many research also pointed out that many independent variables influence
customer loyalty (particularly loyalty behavior) is penetrates the loyalty intention the
intermediary effect (Moderating Effect) (Yim, Tse, & Chan, 2008). Studies finding
support for a positive link between intention and action are not without methodological
biases. Most empirical studies consider the influence of loyalty intentions on
self-reported behavior much stronger test of the intention–action link would be to relate
loyalty intentions to actual purchases. To observe customer’s behavior have found a
positive relationship. For example, Bolton, Kannan, and Bramlett (2000) show that
repurchase probability rises by 1.67 times if intention increases by one point.
Researcher emphasize that an increase of one standard deviation in purchase
intentions (from a rank of .5 to a rank of .8), meaning a corresponding increase of .36

standard deviations in sales, translates to a $500 million increase in quarterly sales for
accompany. A much stronger test of the intention–action link would be to relate loyalty
intentions to actual purchases. However, some studies that combine survey data with
observed behavior have found a positive relationship. Therefore we propose the
following hypothesis:
     H4: Loyalty intention has a positive impact on customer loyalty.

4. Research Setting and Data Collection
     In this research, data is gathered via questionnaire in Taiwan some chain-like
Department store customers with the member card. After the customers paying up, ask
them to fill out this questionnaire. The sample will comprise 1100 respondents
randomly .We will use the data to exam the hypotheses, to weigh the customer loyal
validity, and to take narrates the statistics, the related examination, the t-test, the
regression analysis and so on.
4.1 Questionnaires
           All items were measured on 5-point Likert-type scale, ranging from
     1=strongly disagree to 5=strongly agree unless otherwise stated.
Loyalty            1. I fell stronger connected to the S-department store of which I hold
                      a loyalty card.
programs design
                   2. Having a loyalty card makes me fell like a regular customer.
                   3. I prefer loyalty program over lower price.
                   4. I enjoy participation in loyalty or saving programs.
                   5. If S-department store doesn’t have a loyalty programs, I miss
                      important benefits.
                   6. Loyalty and saving programs offer attractive benefits.
                   7. I am paying more attention on special offers because of the
                      loyalty card.
                   8. The registration systems of loyalty programs infringe on my
Customer           9. How well has (S-department store) met my expectations?
                   10. How much I agree with the statement (S-department store) is
                      worth what I pay for?
Brand equity       11. S-department store is a strong brand .
                   12. S-department store is a attractive brand.
                   13. S-department store is a unique brand.
                   14. S-department store is a likable.
Loyalty            15. I will repurchase at this S-department store.
                   16. This is the department store that I prefer over others.
Customer           17. I will recommend S-department store products and services to
                      your associates.
                   18. I will keep on being a member of S-department store.

     Loyalty programs can serve different goals, such as retaining customers,
increasing spending, and gaining customer insights. Therefore, each program should
have its own unique set of success measures depending on its intended goals. In this
paper, we identify factors influencing the effectiveness of loyalty programs in Taiwan
department store. We review the concepts of loyalty program, customer satisfaction
and brand equity, discuss their related importance for customer loyalty. Therefore
when the retail establishes the loyally program, cannot only consider the content of
programs, but must also appraise the present level of customer satisfaction, and audit
brand equity. When appraises together the content of loyalty program, customer
satisfaction and the brand equity, can have the complete explanation to the
effectiveness of the program. It is impossible that only implements loyalty program
without customer satisfaction and brand equity in long-term effort.


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